Gilead Sciences Inc

NASDAQ:GILD

Earnings Call Analysis

Gilead's Q2 2024: Strong Growth and Promising Trial Results

Gilead reported a robust Q2 2024 with 6% base business growth, driven by notable performance in HIV, liver disease, and oncology sales. Key products, Biktarvy, Trodelvy, and cell therapy showed respective growths of 8%, 23%, and 11%. This was bolstered by disciplined expense management, leading to a 21% year-over-year EPS increase, excluding last year’s legal settlement. Crucially, Gilead raised its full-year non-GAAP operating income guidance to $7.2-$7.6 billion and EPS to $3.60-$3.90. Highlight moments included the 100% efficacy in the Phase III PURPOSE 1 trial for lenacapavir in HIV prevention and the anticipated launch of seladelpar for liver disease.

Introduction

Gilead Sciences has reported a strong second quarter in 2024, showcasing impressive growth across several key therapeutic areas including HIV treatment and prevention, liver disease, and oncology. This analysis provides an overview of the company’s performance, key financial metrics, and future outlook based on the recent earnings call.

HIV Treatment and Prevention

Gilead's HIV product portfolio remains robust, with Biktarvy sales up 8% year-over-year to $3.2 billion. This success is driven by higher demand and favorable pricing. The overall HIV market continues to grow annually by 2% to 3%, aligning with Gilead’s projections of a 4% increase in HIV product sales for the full year. A notable highlight was the Phase III PURPOSE 1 trial, where lenacapavir, an HIV prevention drug, showed 100% efficacy with zero infections, indicating significant potential for broader population coverage.

Oncology Progress

In oncology, Trodelvy's sales surged by 23% year-over-year, reaching $320 million. Trodelvy is currently the leading treatment in the U.S. and Europe for second-line metastatic triple-negative breast cancer. The oncology pipeline also includes promising data from the Phase III ASCENT-03 trial, assessing Trodelvy in first-line PD-L1 negative metastatic triple-negative breast cancer, which is expected to support global filings. The company’s cell therapy sales also grew by 11%, reflecting strong market adoption and educational efforts towards healthcare providers about CAR-T therapies.

Liver Disease Portfolio

Gilead's liver disease segment experienced a 17% year-over-year sales increase, driven by products for hepatitis C and B. Seladelpar, a new treatment for primary biliary cholangitis (PBC), awaits an imminent FDA decision with commercial preparations underway. The liver disease portfolio is bolstered by the anticipation of regulatory decisions in Europe by early 2025.

Financial Performance

The company posted a 50% year-over-year increase in non-GAAP diluted EPS, from $1.34 to $2.01. This impressive performance reflects higher product sales and disciplined expense management. Operating margin stood at 47%, the highest since Q3 2022. Total product sales grew by 5% year-over-year to $6.7 billion, excluding Veklury (a COVID-19 treatment). Gilead is maintaining its guidance for total product sales in the range of $27.1 billion to $27.5 billion for 2024.

Guidance and Outlook

Moving forward, Gilead expects to achieve total product sales between $27.1 billion and $27.5 billion, excluding Veklury. The company has raised its non-GAAP operating income guidance to $7.2 billion to $7.6 billion and its non-GAAP diluted EPS guidance to $3.60 to $3.90, even after accounting for a $320 million royalty buyout expense for seladelpar. Gilead remains focused on strong clinical, commercial, and financial execution for the remainder of the year.

Conclusion

Gilead’s strong quarterly earnings and raised full-year guidance reflect its solid execution and strategic initiatives across its core therapeutic areas. With significant advancements in HIV treatment and prevention, promising oncology results, and a growing liver disease portfolio, Gilead is well-positioned for sustained growth and innovation.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, everyone, and welcome to Gilead's Second Quarter 2024 Earnings Conference Call. My name is Rebecca, and I'll be your host for today. In a moment, we'll begin with our PrEPared remarks followed by our Q&A session. [Operator Instructions]

I'll now hand the call over to Jacquie Ross, Vice President of Investor Relations and Corporate Strategic Finance.

[Jacquie Ross, executive]

Thank you, Rebecca. Just after market closed today, we issued a press release with earnings results for the second quarter of 2024. The press release, slides and supplementary data are available on the Investors section of our website at gilead.com. The speakers on today's call will be our Chairman and Chief Executive Officer, Daniel O'Day, our Chief Commercial Officer, Johanna Mercier; our Chief Medical Officer, Merdad Parsey, and our Chief Financial Officer, Andrew Dickinson. After that, we'll open the call to Q&A where the team will be joined by Cindy Perettie, the Executive Vice President of Kite.

Before we get started, let me remind you that we will be making forward-looking statements. Please refer to Slide 2 regarding the risks and uncertainties relating to forward-looking statements that could cause actual results to differ materially.

With that, I'll turn the call over to Dan.

[Daniel O'Day, executive]

Thank you, Jacquie, and good afternoon, everyone. I'm pleased to share that this was another strong quarter of commercial execution with growth across HIV, liver disease and oncology. Biktarvy for HIV treatment was up 8% year-over-year. Trodelvy was up 23% and cell therapy was up 11%. In addition, we continue to demonstrate disciplined operating expense management and delivered exceptional bottom line growth, highlighting the leverage in our business model. Given the results for the first half of the year, we are raising our non-GAAP operating income and EPS guidance for the full year.

Moving to clinical updates. This is an important time for our virology -- being inflammation therapeutic areas. A key highlight of the quarter was the readout of our Phase III PURPOSE 1 trial, evaluating lenacapavir for HIV prevention. The results showed 100% efficacy with zero HIV infections in cisgender women. The presentation of these results at AIDS 2024 in Munich generated considerable excitement and we're delighted to have reached this milestone with such a positive outcome.

Lenacapavir, with its twice-yearly dosing could set a new bar for HIV prevention and allow PrEP to reach a much broader population of people who could benefit from a prevention regimen. The purpose program, which is expected to include more than 9,000 participants in over 10 countries is designed to highlight the efficacy of HIV prevention in a wide range of groups, including cisgender women, transgender men and women, Black and Latino individuals and young adults. We expect an update for PURPOSE 2 late this year or early next year with a commercial launch as early as late 2025.

The PURPOSE data were part of several updates at ADE 2024 that highlight the strength of Gilead's innovation in HIV for both prevention and treatment. Our pipeline has the promise to extend our HIV leadership well into the late 2030s and beyond. Updates at AIDS 2024 included data from our daily oral combination of bictegravir and lenacapavir, which is now in pivotal Phase III trials for people with HIV, including those on complex regimens.

We also shared data from our broad long-acting program, including our once-weekly orals GS-4182 and GS-1720.

We plan to start the Phase II study evaluating these in combination before the end of the year. This, in addition to the body of clinical evidence behind seladelpar for the treatment of primary biliary cholangitis, or PBC continues to grow, most recently with the Phase III Assured data shared at EASL. The Gilead team is excited about the opportunity to seladelpar and bring a promising new treatment to the patients who could benefit. Moving to oncology -- we are ready to manufacture expected to reach a broader set of second to fourth line multiple myeloma patients with our potentially best-in-class BCMA CAR T. At ASCO, we shared new data from our Phase II EVOKE-02 program, evaluating Trodelvy in combination with pembro in first-line metastatic non-small cell lung cancer. The results showed meaningful efficacy compared to the historical standard of care, supporting the Phase III of EVOQO3 trial currently underway. We continue to assess the path for Trodelvy in second-line matastatic non-small cell lung cancer and metastatic bladder cancer following the EVOKE-O1 and Topix4 readout earlier this year.

In the meantime, I'd highlight the strong commercial results this quarter in breast cancer where Trodelvy remains the first and only approved TROPiCS-02-directed ADC on the market and is the standard of care for second-line metastatic triple-negative breast cancer. To date, we have served over 40,000 cancer patients and remain confident that Trodelvy will continue to be an important treatment option. We also shared Phase II edge gastric data at ASCO for domfanilumab plus zimbrlumab and chemotherapy in first-line upper GI cancers. These results showed compelling efficacy that supports the Phase III STAR 221 program, which has completed enrollment. Moving to our 2024 key milestones on Slide 6. We look forward to the upcoming updates from the Phase III ASCENT-03 trial and Phase III iMMagine-1 trial ASCENT-O3 is an event-driven trial evaluating TRODELVY in first-line PD-L1 negative metastatic triple-negative breast cancer patients.

A positive progression-free survival outcome -- would support global filings, potentially moving Trodelvy into -- some remarkable clinical results in HIV, solid revenue growth across therapeutic areas, tangible impact from our disciplined cost management initiatives and planning for the imminent launch of seladelpar. With that, I'll hand it over to Johanna.

[Johanna Mercier, executive]

Thanks, Dan, and good afternoon, everyone. I'm very pleased to report the continued momentum we saw in the second quarter and would like to thank the Gilead team who contributed to another strong quarter of execution. As shown on Slide 8, total product sales, excluding Veklury, were $6.7 billion in the second quarter, up 6% year-over-year with growth across HIV, liver disease and oncology. Including Veklury, total product sales were $6.9 billion, up 5% year-over-year. Starting with HIV on Slide 9. Sales of $4.7 billion were up 3% year-over-year driven by strong demand across treatment and prevention, partially offset by lower average realized price due to mix.

Quarter-over-quarter, sales were up 9%, reflecting favorable pricing and inventory build following the typical first quarter dynamics as well as higher demand. Looking to the full year, we remain on track to deliver HIV sales growth of approximately 4%. Turning to Slide 10. Total second quarter Biktarvy sales of $3.2 billion were up 8% year-over-year, primarily due to higher demand. Sequentially, sales were up 10%, largely reflecting favorable pricing and inventory following the typical first quarter dynamics. Highlighting our leadership position, Biktarvy represents more than 49% share of the treatment market in the U.S. This was up almost 3% year-over-year, our 24th consecutive quarter of year-over-year market share gain with a meaningful share lead over all other branded regimens for HIV treatment, Biktarvy firmly remains the HIV treatment of choice, particularly for those starting or switching regimens in the U.S. as well as across other major markets.

Overall, the HIV treatment market continues to grow in line with our expectations of 2% to 3% annually. Turning to Descovy, we continue to see higher demand with sales of $485 million in the second quarter. Year-over-year, sales were down 6% as demand growth was more than offset by lower average realized price due to channel mix. As a reminder, in channel mix will continue to impact average realized price -- in addition to our ongoing efforts to ensure people who want or need PrEP have access to the prevention regimen of their choice.

Sequentially, with total volumes up more than 12% in the second quarter of 2024 compared to the same period last year. With that in mind, we're thrilled with the unprecedented results seen in our pivotal -- women, including those who are pregnant or lactating. This is just the beginning of our larger landmark purpose program, which includes multiple populations and communities where PrEP is underutilized or more difficult to access today such as cisgender women, transgender men and women, Black and Latino individuals and young adults.

Overall, we expect lenacapavir will emerge as the regimen of choice for those who want or need prevention as the first and only long-acting option with twice yearly subcutaneous dosing. We are PrEParing for potential launch as early as late 2025. Moving to the liver disease portfolio on Slide 11. Sales were up 17% year-over-year and 13% sequentially, driven by higher demand and higher average realized price due to channel mix in the U.S. Our liver disease -- continues to differentiate itself with leading share in HCV despite fewer HCV starts year-over-year, together with growing demand in HBV and HDV. As you know, our PDUFA date for seladelpar is next week, and we stand ready to laterally in the U.S.

We were able to leverage our existing commercial footprint in liver diseases and continue building upon these relationships to quickly bring seladelpar to many of the 130,000 people impacted by PBC in the U.S. who progressed after initial treatment. Outside the U.S., commercial PrEParations are well underway, and we look forward to the European regulatory decisions in early 2025. turning to Slide 12. While severity of COVID infections appertization rates remain variable, Veklury continues to be recognized as an important part of the standard of care for hospitalized patients treated for COVID-19. This includes the U.S. where Veklury has maintained well over 60% share in this setting. For the second quarter, Veklury sales were down 16% year-over-year and down 61% sequentially as expected. Moving to oncology on Slide 13. Sales were up 15% year-over-year and up 7% quarter-over-quarter to $841 million. With over 60,000 patients treated with the Gilead or Kite therapy to date, we're proud of the positive impact our oncology medicines have made across multiple cancer types.

Looking in more detail at Trodelvy on Slide 14. Sales for the second quarter were $320 million, up 23% year-over-year and up 4% sequentially, primarily driven by higher demand in the U.S. and Europe across its metastatic breast cancer indication. Trodelvy is the only approved and available CO2 directed ADC to demonstrate clinically meaningful survival benefits across 2 types of metastatic breast cancers. And with increasing awareness amongst physicians, Trodelvy has remained the leading regimen in the U.S. and Europe for second-line metastatic triple-negative breast cancer with growing adoption in the pretreated HR-positive, HER2-negative metastatic breast cancer setting.

We are working to expand Trodelvy's reach beyond the 40,000-plus patients treated to date across multiple tumor types as we look to new and existing markets as well as new indications. In bladder cancer, we are planning to further discuss the results of -- for and next steps with the FDA. At this time, Trodelvy continues to be available under an accelerated approval in the U.S. for second-line plus metastatic or advanced bladder cancer. Turning to Slide 15. And on behalf of Cindy and the Kite team, cell therapy sales in the second quarter were $521 million, up 11% year-over-year and up 9% quarter-over-quarter with solid growth in all regions.

In the U.S., sales were up 11% sequentially as we've begun to see momentum from our focused efforts at the authorized treatment centers including further educating providers and patients on the curative potential of our cell therapies. Despite these efforts, in comp and out-of-cost competition remain a near-term headwind in the U.S. As we extend the reach of cell therapy, we're making important inroads with key community practices, including working with national payers to unlock broader commercial reimbursement. And as a reminder, expect impact from these initiatives towards the end of 2024.

We'll continue to refine this blueprint as we work to onboard new centers and patients over time. Outside the U.S., demand for -- across Europe and other international geographies remain strong. and we're encouraged by the solid progress in our newly launched markets such as Japan and Saudi Arabia. Overall, it was a strong second quarter for our commercial portfolio and the teams are energized by the potential to bring 2 more transformational therapies to market. First, with seladelpar for PBC next week and then lenacapavir for HIV prevention as early as late next year. And with that, I'll hand the call over to Merdad.

[Merdad Parsey, executive]

Thank you, Joanna. We are very pleased to wrap up the second quarter with 2 New England Journal of Medicine publications and a number of important recross our portfolio. Most exciting was the readout of our Phase III Purpose I trial, evaluating twice yearly subcutaneous lenacapavir for the prevention of HIV infection in cisgender women. As you can see on Slide 17, this was the first Phase III HIV prevention trial to ever achieve 100% efficacy. We have since shared data at the International AIDS society -- meeting in July where our presentation was a highlight of the plenary session.

The data were simultaneously published in the New England Journal of Medicine. Our second registrational trial for lenacapavir -- or early 2025. Assuming positive data from purpose 2, we plan to file based on data from both trials with the goal of bringing transformative HIV prevention to people at risk of HIV as early as late 2025. Beyond our registrational trials, we are generating Phase II data from the purpose 3, 4 and 5 trials in key populations across the U.S., U.K. and France, including people who inject drugs. These trials reflect our commitment to evaluate lenacapavir across diverse populations that could benefit.

These studies are also intended to drive greater awareness amongst physicians and patients, including geographies where prevention options have not been affected historically. In addition to HIV prevention, we are, of course, intensely focused on next-generation HIV treatment options. And Slide 18 highlights our comprehensive HIV treatment pipeline. Our recent updates at the AID Society meeting included longer-term Phase II data from our once-daily oral combination of bictegravir and lenacapavir that showed the regimen was highly effective in maintaining viral suppression.

These results further support our ongoing Phase III studies in people with HIV, including those on complex regimens. We also reported safety and PK data for both GS-4182 and oral prodrug lenacapavir designed to provide 2 to 3x greater oral bioavailability and GS 1720, our long-acting oral integrase inhibitor. Initiation of the Phase II trial evaluating the combination of these agents as a once-weekly oral regimen is expected later this year. Additionally, we are on track to initiate our Phase III ISLEND-1 and ISLEND-2 trials evaluating once-weekly lenacapavir in combination with Merck's islatravir. This regimen is expected to be the first once-weekly oral treatment option.

Looking at our longer duration treatments. We expect to provide Phase I updates from our every 3-month injectable programs and to initiate the Phase I studies for our potentially every 6-month integrase inhibitors across both viral and inflammatory liver diseases at the EASL conference in June highlighting our continued leadership. Importantly, as shown on the right of the slide, new interim results from the open-label Phase III ASURE study of seladelpar for PBC, were consistent with the pivotal response study that form the basis of our global regulatory filings.

As you know, we expect an FDA regulatory decision shortly with a decision from European regulators to follow in early 2025. In viral hepatitis, Gilead shared final week 144 results of the Phase III MIRR-301 trial at EASL. These data continue to support monotherapy volebretide 2 milligrams as a chronic treatment for HDV. Additionally, we presented promising Phase IIB data evaluating Volebretide 10 milligrams with interferon alpha 2A as a finite regimen. The post treatment response rates were the highest ever posted in HDV and were simultaneously published in the New England Journal of Medicine.

We are encouraged by the data and continue to be engaged with KOLs and health authorities, including the FDA, and as we work to bring belevertide to patients as quickly as possible. Switching to oncology on Slide 20. We're pleased with the progress across our mid- to late-stage programs. In the frontline setting, we shared mature cohort A data at ASCO from our Phase II EVOKE-O2 trial with Trodelvy plus pembro, demonstrating a median progression-free survival of 13.1 months.

These data exceeded the historical performance of PD-1 monotherapy in first-line PD-L1 high non-small cell lung cancer and support our ongoing Phase III EVOKE-O3 trial, where enrollment is going well. In an all-comer non-small cell lung cancer population, our Phase III STAR 121 study evaluating DOMs ZIM is ongoing. Our Phase III STAR 221 study in upper GI cancers evaluating Dom with Zim and chemo has completed enrollment. The updated Phase II edge gastric data presented at ASCO supported the use of this combination. If successful, Dom plus ZIM and chemo would be the first TIGIT-based regimen for upper GI cancer patients.

In addition, we have several Phase III programs underway in earlier settings of breast cancer, including ASCENT-03 evaluating Trodelvy in PD-L1-negative metastatic triple-negative breast cancer. Turning to our second line programs. We have discussed the results of EVOKE-01 in metastatic non-small cell lung cancer with regulators, and as expected, have confirmed there is no immediate regulatory path based on EVOKE-O1 alone. We're currently assessing next steps for Trodelvy in this setting.

We will also provide updates on our bladder cancer program, including the full trial results at a future scientific conference after discussions with FDA and KOLs. Moving to Slide 21. And on behalf of Cindy and the Kite team, we shared updates for Yescarta and Tecartus at both ASCO and the European Hematology Association Meeting. At ASCO, we shared encouraging new efficacy data from a pilot study of Yescarta in 18 patients with relapsed or refractory primary or secondary central nervous system lymphoma in collaboration with the Dana Farber Cancer Institute. Yescarta demonstrated greater than 26 months median overall survival with no reported treatment-limiting toxicities and no apparent additional risk of adverse events in these patients with high unmet need. Based on these results, we are engaging with regulators to expand the use of Yescarta to include these patients.

Additionally, we reported that treatment with Tecartus resulted in a 40% 4-year overall survival rate. and median overall survival of almost 26 months in the pivotal ZUMA-3 trial in relapsed or refractory adult B-cell acute lymphoblastic leukemia. At EHA, we shared preliminary analysis from the Phase II ZUMA 24 trial, further supporting outpatient use of Yescarta in relapsed or refractory large B-cell lymphoma with the use of prophylactic steroids and other early intervention strategies. Real-world manufacturing experience of Yescarta for second and third-line large B-cell lymphoma reinforces our strong manufacturing success rate of 96%.

Further, on Slide 22, I will highlight our promising clinical development program for Aneto cell, a potential best-in-class BCMA CAR-T that we are developing in partnership with Arcellx. Notably, we shared our study design for our Phase III iMMagine-III trial that will include a broader set of earlier line relapsed or refractory multiple myeloma patients. We expect to have first patient in for this trial in the second half of this year. We're pleased to note that the -- we completed all of our first half milestones and are pleased with our program execution overall. We're off to a good start for the second half with the readout of purpose one occurring ahead of our committed time line.

We look forward to the FDA decision next week for seladelpar in PBC as well as an update from the pivotal Phase II iMMagine-1 trial in later-line relapsed or refractory multiple myeloma and -- in addition to an update on the pivotal Phase III ASCEN-03 study in first-line PD-L1 negative metastatic triple-negative breast cancer. Along with these updates, we have a maturing inflammation pipeline that includes several Phase II programs such as a once-daily oral alpha-4-beta-7 integrin inhibitor and an oral TPL2 inhibitor for inflammatory bowel disease. And now I'll hand the call over to Andy.

[Andrew Dickinson, executive]

Thank you, Merdad, and good afternoon, everyone. Starting on Slide 25. The team delivered an excellent quarter with our base business up 6% year-over-year to $6.7 billion. Product sales growth across HIV, liver disease and oncology more than offset the expected decline in Veklury with total product sales up 5% year-over-year. Moving to our non-GAAP results on Slide 26. Product gross margin was 8%, down 84 basis points from last year. R&D expenses were down 3% year-over-year, primarily due to the wind down of certain magrolimab -- severe and trade studies following recent data and regulatory updates.

Sequentially, R&D was down 5%, primarily due to the timing of clinical and manufacturing activities, partially offset by the initiation of new studies. These savings reflect disciplined management of R&D resources towards the most meaningful opportunities. Acquired IP R&D was $38 million, reflecting new and ongoing collaboration payments in the second quarter. SG&A was down 27% year-over-year, primarily due to the $525 million legal settlement in 2023 that did not repeat in 2024. Excluding this payment, SG&A was up 2% year-over-year and includes commercial investments ahead of the launch of seladelpar. Operating margin for the second quarter was 47% our strongest operating margin since the third quarter of 2022, highlighting the leverage we have in our business model.

Turning to tax. Our effective tax rate approximately 18%, reflecting settlement with a tax authority in the second quarter. On a reported basis, our non-GAAP diluted EPS grew 50% year-over-year from $1.34 to $2.01 per share. As mentioned earlier, we had a $525 million legal settlement, representing $0.32 per share in the second quarter of 2023 that did not repeat in the second quarter of 2024. Excluding this settlement, EPS grew 21% year-over-year, reflecting higher product sales and lower expenses, including acquired IP R&D expenses.

As highlighted on Slide 7, we had a strong first half of the year with solid performance in each of our core franchises across virology and oncology, driving base business growth of 6% year-over-year, which is at the upper end of our full year guidance of 4% to 6%. Switching to our expectations for 2024 on Slide 28. We continue to expect total product sales in the range of $27.1 million to $27.5 billion and total product sales, excluding Veklury, in the range of $25.8 million to $26.2 billion. Given the inherent variability experienced historically and as stated previously, we are not updating our Veklury guidance at this time. As we think about the second half of the year, here are some of the factors that we are continuing to monitor. First, we continue to expect the normal quarter-to-quarter variability in our HIV business that we have always experienced relative to average realized price associated with channel mix.

Second, we expect quarterly variability in cell therapy due to continued in-class and out-of-class competition. Third, there is some uncertainty associated with Trodelvy bladder revenue following Tropics-04 -- as a reminder, bladder represents less than 10% of total Trodelvy sales today. And finally, there is a possibility of incremental FX headwinds in the second half of the year. For the rest of 2024, we continue to expect to deliver strong volume growth across all therapeutic areas and assuming approval, seladelpar as an incremental contributor to revenue growth. Continued HIV volume and revenue growth, consistent with our full year expectation to grow HIV product sales by approximately 4% and continued focus on disciplined operating expense management.

Moving to the non-GAAP guidance. There is no change to our non-GAAP gross margin range of 85% to 86%. for R&D, we now expect total R&D expense to increase by a low to mid-single-digit percentage compared to 2023, reflecting lower than previously expected R&D expenses in 2024 and despite absorbing the late-stage seladelpar program. For SG&A, there is no change to our prior guidance pointing to a mid-single-digit decline compared to 2023. Consistent with our expectations last quarter, we have been able to absorb the incremental expenses associated with the CymaBay transaction. For acquired IP R&D, we now expect full year expenses of $4.7 billion, up from $4.4 billion last quarter to reflect a $320 million transaction with Janssen to buy out the global seladelpar royalty.

This expense will be included in our third quarter results. Finally, with the strong operational expense control demonstrated in both the first and second quarters and despite this new $320 million acquired IP R&D expense, we are increasing our operating income guidance to $7.2 billion to $7.6 billion and increasing our non-GAAP diluted EPS guidance to $3.60 to $3.90. Slide 29 highlights that the increase to our EPS guidance fully absorbs the $320 million or approximately $0.20 per share expense associated with the buyout of the seladelpar royalty from Janssen. This transaction removes Gilead's royalty obligation to pay 8% of seladelpar sales.

Excluding this transaction -- to execute on our capital allocation priorities. In the second quarter, we returned $1.1 billion to shareholders, repaid $1.75 billion of senior notes and paid $1.2 billion as part of the federal transition tax associated with the Tax Cuts and Jobs Act of 2017. The remaining transition tax payment of $1.3 billion is scheduled for April of 2025. Overall, we believe that Gilead is well positioned for near and long-term growth and we continue to be focused on commercial execution, expense management discipline and to delivering on our strategic commitments. And now I'll invite Rebecca to begin the Q&A.

[Operator]

[Operator Instructions] Go ahead. Your line is open.

[Evan Seigerman, analyst]

This is Evan Seigerman from BMO Capital Markets. I wanted to touch on TIGIT. There's been a lot of updates in the TIGIT space. I know ASA had the Roche update, and most recently, Merck discontinued their kebab study in small cell lung cancer. So, maybe you could just walk us through how you think about the opportunity for TIGIT? And what good would look like for you in terms of both safety and efficacy with the STAR 121 program? Thank you so much.

[Merdad Parsey, executive]

Thanks, Evan, for the question. Yes. I think as you noted, there have been a lot of updates on TIGIT over the past 6 months or so. And I think that gets to our approach, which I think is somewhat differentiated from our competition in that, as we've said along, we have a differentiated molecule first off, and that is that we have an Fc silent molecule relative to an Fc active molecule that the competition has. And we've known -- I would note that, that is demonstrating a difference in terms of the adverse event profile, including the data that were highlighted today.

Additionally, I think we've try to stay focused in areas where we believe that there is the best chance of activity. And so for example, we have not initiated any trials with small cell. We look forward to capitalizing on the data we have seen so far, both in non-small cell lung cancer and gastric cancer. As you know, we provided an update on the edge gastric study at ASCO and as I noted in the call, we have completed enrollment of that of the Phase III trial of that. So we continue to be cautiously optimistic about TIGIT and are doing it in a data-driven way based on the data we have generated in our trials so far.

[Operator]

Our next question comes from Terence Flynn at Morgan Stanley.

[Terence Flynn, analyst]

Great. Two parts for me. Just Merdad, wondering if you can help frame expectations for the Purpose II trial, just given this is a slightly different population relative to Purpose I. So just as we think about level setting there ahead of that data, and then the second part is for Johanna. So obviously, you guys noted that you've seen growth the PrEP market recently, which is encouraging. But what other steps can you as a company take to maybe help alleviate some of the payer roadblocks that are really still in the way of branded PrEP use given the still high level of generic Truvada use.

[Merdad Parsey, executive]

Thanks, Terence. I'll start and then I'll hand it off with Joanna, as you said. It's a great question and a good thing for us to make sure that everyone remembers. Our Purpose I was the trial that was in cisgender women, and as I noted, Purpose 2 is our ongoing study in the assist gender game and transgender women and men and gender non-binary people. Now that study is ongoing. It is the second trial that's necessary for filing. And like Purpose I, Purpose II is designed to evaluate the superiority of lenacapavir against background HIV rates. That's the primary endpoint. And the secondary endpoint would be similar to Purpose. One will be superior to Truvada as a secondary endpoint. So once we -- if hopefully, we demonstrate a positive result in Purpose II. We will combine those data with Purpose I and move as quickly as possible to filing those data to lenacapavir for PrEP.

[Johanna Mercier, executive]

Great. So maybe just to complete the second part of that question around the growth in PrEP and what the opportunity lies ahead despite some of the payroll blocks that you were referring to. Just a couple of points on that. One is today, the market for PrEP is growing at about 12% or so year-on-year. So nice consistent growth that we've seen over the last couple of years. Descovy coverage is over 90% of all lives are covered from an access standpoint. So today, the daily orals do not have any concerns from an access standpoint. I think maybe what you're referring to is potentially as we think about medical benefits versus the pharmacy benefit, that might create a little bit more access headwinds from a payer standpoint, and we've seen that already with some of our competitors.

As we think about lenacapavir in light of not only the data just most recently with purpose One, but also just the profile that it offers with a twice yearly sub I think it really allows us to redefine the PrEP market as a whole. And as much as we're seeing today, maybe over 400,000 users in the U.S., we really see 3 major growth opportunities. One is around market size growth, the other 1 is around market share growth and the third one is on adherence. So if I just break those down a little bit, the market size growth is around reaching more users so well beyond just white MSN thinking about cisgender women, transgender men and women, Latino Black individuals as well as young adults, reaching more prescribers in different settings than we are today, and over time, reaching more countries, right, because right now, PrEP revenues are really coming primarily out of the United States.

From a market share growth standpoint, Descovy is the #1 brand of daily oral today with over 40% share, and we believe lenacapavir will be none from a long-acting standpoint. And between the 2 together, we believe the Gilead presence in HIV prevention will also be leading and greater than where we are today. And last but not least is higher -- and that just has to do with divested the frequency of administration. When you think about it twice yearly subcu has much higher adherence than a daily oral and obviously, better outcomes. So all those pieces together is what we are focused on as an opportunity for the future of prevention with not only Descovy, but obviously with lenacapavir around the corner potentially.

And from an access standpoint, we are thinking ahead as we think about even the work that CMS is doing when they think about making it a Part B drug, for a medical benefit in PrEP to ensure greater access but we're also thinking through how is this going to impact from both from a prescriber standpoint, and how do we support that reimbursement challenges that I think others have been facing and how we basically do a very high-touch approach here. to make sure everyone who needs or wants PrEP gets access to their drug of choice.

[Operator]

[Operator Instructions] Our next question comes from Dave Leerink Partners.

[Daina Graybosch, analyst]

I want to ask on a net cell, a 2-part One is just a process back. I wonder if you can confirm whether you have completed enrollment and imagine 1 and thus, what kind of follow-up time we can expect in the data should it be accepted at ASH and then a deeper question on iMMagine-3. I wonder what your approach is in iMMagine-3 to bridging therapy so as to avoid the higher risk of debt that was observed in the competitor trials soon after enrollment?

[Geoffrey Meacham, analyst]

Thanks, Daina

So we've got Cindy Pretty here. We'll turn it over to her to answer that.

[Cindy Perettie, executive]

Thank you for the question. We continue to be really excited about the potential with the net sell with its best-in-class profile. And our enrollment target for IMAGINE 1 has been met. I think the second question you asked is what type of follow-up would we expect to see at ASH? And I think we're in the process of -- we did an initial cut, obviously, for the abstracts, we'll do a second cut the final sharing of the data. So I don't have the exact follow-up time, but we can certainly look to follow up with you once we have that -- your second question was around iMMagine-3 and bridging therapy.

Right now, we will be moving -- so we weren't able to complete the tech transfer, as you heard from Dan into our Maryland production facility. So we will be supplying therapy out of our Maryland facility, and we expect to apply a lot of the learnings that we have with our existing products on the market today. and be able to get a nets back to those patients in iMMagine-3 as it relates to having time upfront to do bridging therapy. However, with the protocol design today, we do have the option to do bridging therapy if necessary for patients.

[Operator]

Our next question comes from Umer Raffat at of Evercore ISI.

[Umer Raffat, analyst]

I'm very intrigued about your lenacapavir plus bictegravir trial heading into Phase III. And I'm just trying to understand -- could this regimen possibly replace Biktarvy to a meaningful extent? Or would you rather have some sort of a low-dose nuke in that combination as well as a second alternate I'm just thinking back to some of the Dovato experiences as well.

[Johanna Mercier, executive]

So maybe I'll take that one, Umer. So the -- combination is a single treatment regimen that really combines a best-in-class integrase inhibitor with a first-in-class capsid. The studies that we are doing both Phase 2 and 3 are really first that we looked at the complex regimen, which that was kind of the first step. And as we go into Phase III, we believe we can get a broader label indication to also include all virologically suppressed. So as we think about that opportunity, we think it's an opportunity for an FTR that's optimized, simplified for complex regimen, but also provides optionality in the viral decrease suppress the switch segment of the marketplace.

So as we think about it as a portfolio perspective, we still believe that today, Biktarvy is the standard of care and will remain as the standard of tariff from a daily oral standpoint, but we also think that's an opportunity in the switch segment. So naive is a big piece, probably the biggest piece for Biktarvy's growth. and the switch because we have such a large share, obviously, right? So from a switch segment, that offers us another opportunity for us to play in a bigger market space in HIV.

[Operator]

Our next question is from Carter Gould at Barclays.

[Carter L. Gould, analyst]

Great. Maybe another 1 on purpose one. So again, the efficacy was very impressive. However, we did see that north of 20% of patients did have nodules out to week 52. And I guess for Johanna, as you think about that profile in this setting, recognizing they were only grade 1, but sort of the long-term nature of those modules, how do you see that influencing or impacting the profile, its demand and the potential for those patients then go back and get retreated after 6 months?

[Johanna Mercier, executive]

Sure. And Carter, just to explain a little bit, the nodules are because it's a drug depot, right? So the nodule actually gets smaller over time. What we've seen is actually very little discontinuation in purpose 1 due to that. That's number one. Two, if the nodules are sometimes palpable, not all, but sometimes palpable, but not visible and generally speaking. And so we believe that actually we will have some flexibility as well as to where those injections play out and when -- because I think they've been studied in different places, not just in the stomach inside. And so I think that will be an opportunity as well for people to be a little bit more flexible as to where they get their injections.

So we're not overly concerned there at all, actually. And really, we're taking it on the data that we're getting from Purpose I and hopefully, we'll have similar data as you learn from Purpose II.

[Operator]

Our next question comes from Mike Yee at Jefferies.

[Michael Yee, analyst]

We have 1 question on long-acting HIV specifically the potential for a Q6 month, which I think could be a game changer. I think you have 1 or 2 of them on your slide and they are advancing. Can you tell me your confidence level on what you have there? Because if you follow HIV development, you know that if it's generally safe and -- significant barrel load reduction you're in a pretty good spot in Phase I/II.

[Merdad Parsey, executive]

Michael, it's Merdad. Thanks. Yes, I think you raised the right question, which is that whenever we're looking at the long-acting -- new long-acting agents, we have to be cautious about the transition from preclinical to clinical. We don't -- we're not always able to predict the injection site reactions that you might get from the long-actings in particular. We were just talking about the nodules for lenacapavir, but other more severe injection site reactions and then the human pharmacokinetics.

So I think we need those to play out to allow us to move forward. And that's why you see multiple agents going into Phase I. We have generated a number of molecules. We move them forward. We've been pretty aggressive in moving them forward in order to maintain our leadership in long-acting HIV treatment and prophylaxis. And so once we start to see those data in Phase I, I think that will help us decide both choosing between those molecules and where we want to go forward.

Remember, we're also moving our BNAP program forward, which will be our -- which is our most advanced long-acting program with lenacapavir Plus bNAbs, and we should -- we expect to get Phase II data from that study as well. So for those early programs, it's the usual risks and which is why we take multiple shots. And hopefully, we'll be able to advance one of them quickly.

[Operator]

Our next question comes from Brian Abrahams at RBC Capital Markets.

[Brian Abrahams, analyst]

You guys have an oral GLP-1 GS-4751 in your preclinical pipeline. Are you planning to move it forward? And as you continue to diversify the portfolio, how are you guys thinking about the obesity landscape and potentially participating? Or are there other metabolic areas and adjacencies that you may be more interested in pursuing?

[Merdad Parsey, executive]

Thanks, Brian. Yes, we have shared some preclinical data on 4571, as you note, it is an internally developed oral GLP-1 agonists, which came out of our initial interest in our NASH program. And based on the data so far, both preclinical and the we are planning a Phase I study for that molecule, and that will help us evaluate 4571 for weight management, obesity and other metabolic diseases. Once we generate those data, we will decide in a data-driven way how best to proceed from there. And we'll just have to see how that plays out. We want to make sure if we dealt something it's best-in-class and allows for a best-in-class profile. So we'll update more as the data are generated. .

[Operator]

Our next question comes from Chris Schott at JPMorgan.

[Christopher Schott, analyst]

My questions were just -- a question was just on the U.S. CAR-T franchise. Just wanted to get your latest view on how we should be thinking about sequential growth from here? And maybe as part of that, can we just get an update on kind of your community physician engagement with the CAR-Ts and any leading indicators that you're seeing there that help could maybe guide some of the efforts or the -- when we can start seeing the impact from some of these efforts in the U.S.

[Unknown Executive]

Thanks, Chris. We are really pleased with our strong cell therapy growth this quarter. And this is really part and parcel to our U.S. refresh strategy. So as a reminder, we restructured our sales team at the end of last year. We've got our new sales team in place and trained and ready to go. And as part of that strategy, we also focused for the next couple of quarters on really within the authorized treatment centers, making sure those referrals occur between the lymphoma specialists to the CAR-T specialists. And that's what you're seeing as part of the excellent performance that we had this quarter.

And we'll continue to deliver and really focus on the referrals within the HEC. We're also in parallel building up that -- those community practices and spending time educating both the community practices, I'd say, regional hospitals and those institutions about the curative potential of CAR-T and why it's important to bring this into the therapy that they're offering to their patients. And we're making really good progress there, including a lot of work with national payers.

But despite all this, as you heard earlier from both Dan and Johanna, we are facing -- it's a dynamic market. We are remaining cautious for the second half of this year. as we continue to see some competitive headwinds, both in-class competition. So we have new indications that came out in the late May, early June time frame, which are capturing physician mind share initially. And we're also seeing out-of-class competition with the bispecific. But with all of that said, we are focused on execution and working with our physicians and institutions to raise awareness of the curative potential for CAR-T and we'll continue to do so in the second half of this year.

As it relates to community practices, I shared last quarter that it's taking us a little bit longer than we had expected to get them up and fully operating, but we're making great progress as it relates to that and learning a lot along the way. So we're continuing to refine our blueprint as we onboard new centers.

[Operator]

Our next question comes from Steven Seedhouse at Raymond James.

[Steven Seedhouse, analyst]

Just given some of the newer tailwinds outside of oncology so lenacapavir, obviously, which you indicated could redefine the PrEP market and then seladelpar, of course, as well. When you just combine that with the updated view of oncology pipeline. Are you still expecting the 2030 revenue mix to be about 1/3 of oncology? Or is that more of a moving target? Just hoping you could comment on the long-term outlook.

[Daniel O'Day, executive]

Yes. Thanks, Stephen, for the question. So 1/3 of sales remains our target with the portfolio that we have today and which we believe is achievable without additional BD. I'll just remind you, keep in mind that the indications in that target are probability adjusted and many of them are around 50%. So you'd expect to see puts and takes in that pipeline evolution. We certainly expected that when we set that target. So it allows for some programs to pay all or fall short of initial expectations and others obviously succeed to support achieving that goal.

I would just note that oncology sales today are already more than 1/3 of the way there. In quarter 2 2024, they're about 12% of the total product sales growing nicely. So it's highlighting the progress we're making on this overall goal. I think you're right to point out also the progress in -- and as you put it, the tailwinds with our virology business and metocapavir data as well as seladelpar. Obviously, as that grows, that puts even more stretch to our ambition. It's a good problem to have. But I think the ambition we have is very much along the lines of diversifying our business as well as solidifying our base in virology, and we're firmly committed to that strategy.

[Operator]

Our next question comes from Tim Anderson at Wolfe Research. .

[Timothy Anderson, analyst]

I have a question on the Trop-2 space. So sometime before or around year-end, we'll get your Phase III first-line triple-negative readout with TRODELVY from the ASCENT-03 trial and we'll also be getting Astra's Tropics Breast O2. And the design of those trials are quite similar, which will allow probably for the best side-by-side comparison thus far of your drug versus Astra's. And I'm sure you've thought about this a lot. What's your prediction for how those results will likely stack up against each other? I'm guessing you'll show less ILD is 1 benefit. But how do you think efficacy and other safety metrics will compare?

[Merdad Parsey, executive]

Sure. This is Merdad. Maybe -- look, I think you hit the highlights. We are -- Trodelvy has demonstrated great efficacy in the triple-negative breast cancer space. And we remain, I think, only approved Trip to ADC and that space in triple negative is definitely where -- Trodelvy is doing very well, and this becomes standard of care. Where our programs aren't differentiated. And for Trodelvy, as you mentioned, our adverse event profile has remained largely predictable and very manageable.

On the part of physicians. we certainly -- both the ILD you mentioned as well as stomatitis have been very different in their manifestations and mostly for Trodelvy, it's been neutropenia and diarrhea, which I think clinicians have gotten very comfortable with managing certainly when we speak to our KOL. So we'll be looking for those data. We'll look for our data and in particular, and I think it's a continuation of where we think Trodelvy can go and really solidify our position in triple-negative breast.

[Johanna Mercier, executive]

Yes, I would just emphasize what Merdad said I think just the fact that we are the ones on the market today and so well established as the #1 standard of care in triple-negative breast cancer second line, I do think that, that is a big differentiator as we think about some of these data points. .

[Operator]

Our next question comes from Salveen Richter at Goldman Sachs.

[Salveen Richter, analyst]

With regard to the long-acting program, could you speak more about potential read-through from Purpose 1 to Purpose 2? And whether there are typically any differences in responses to HIV drugs in these different patient populations? And regarding the strategy to expand the pet market, could you speak to specific strategies here and why you haven't been able to reach these patients already?

[Daniel O'Day, executive]

Thanks, Salveen. It's kind of a 2-part so I'll have Merdad start and maybe have Johanna add as well.

[Merdad Parsey, executive]

Yes, Salveen, you're absolutely right that the patient populations are different, is why we did the broad purpose program to really get a diversity of patients early in our program to ensure that we can bring PrEP to a variety of populations early on in our development. The patient populations are different. We're talking cisgender women relative to the purpose 2 population, which is a different population. And our expectation is that those populations have different levels of awareness, different levels of compliance and their use of PrEP otherwise, for example, with the oral PrEP agents.

And despite that, I think the strength of the purpose on data and the fact that you have people who are essentially protected for 6 months with no infections occurring in the cisgender women, so far, I think, give us a lot of confidence that with -- I would expect some variability in the background infection rate in the population, if we are able to maintain that degree of protection in Purpose 2, we remain really confident that the outcome will be very powerful.

[Johanna Mercier, executive]

Maybe to pick up on the second part of that, Salveen. So just to take a step back, I think it's important to understand how much we have moved the needle actually when you think about the penetration in the prevention market. Just a couple of years ago, you were about 25% penetration when you -- if you consider it from a CDC standpoint estimate, we're now over 1/3 of that. So we have really grown this market and expanded it. I think one of the challenges has definitely been -- this is not a typical market that you -- it's not HIV treatment. It is a market where these are individuals that are not sick.

They have no -- asymptomatic. Obviously, they have nothing. And so therefore, it's very challenging when you think about a daily oral pill, which is today, over 95% of the total market, whether you think about current generics or Descovy share and taking a pill every single day is incredibly challenging. So many use PrEP on demand and I do think there's -- and in that, the biggest population that we see are actually white MSM. So very much a high commercial market here, and we believe that there's a real opportunity to -- something that has the profile of lenacapavir with a twice yearly subcu that we can truly expand the reach of the people individuals that could truly benefit from prevention for the future.

And so that's kind of the steps. So I think it's an ongoing growth that we've been seeing. I think we have to do a step change here as we think about the future of prevention. I think we have to think completely differently about what lenacapavir could offer all of these people and really make a dent in this HIV epidemic.

[Operator]

Our last question comes from Olivier Brayer at Cantor Fitzgerald. Our next question comes from James Shin at Deutsche Bank.

[James Shin, analyst]

Guys, thanks for the question. For PrEP, is the move to Part B a net positive to access? And when -- is eventually approved for PrEP, do you expect the market to remain mostly by a...

[Johanna Mercier, executive]

Sure. I'll take that one. So the move, the NCD or perhaps that CMS is working on, I do think it's positive. I think it's really around providing greater access and potentially providing also the services that go with it. So B2B could actually be a nice move despite the fact that today, Medicare is a very small piece of the total prevention market. As we think about lenacapavir, I think it will be both. I think there's probably opportunities for it to be both a pharmacy benefit as well as the medical benefit and be a buy and bill.

And I think we just need to think very differently because buy and bill in the current users of prevention, this is not something that they're familiar with. And so this is something we're really thinking about today for tomorrow is setting up that system to make sure they understand how to do this if they want to do it, but that they have an option if they don't want to do it. And I think that's what we're kind of planning for as we think about the future of lenacapavir.

[Operator]

That completes the time that we have for questions. I'll invite Dan to share any closing remarks?

[Daniel O'Day, executive]

Thank you, everybody. In closing, we the team here would like to summarize the quarter as follows. We had a very strong quarter of revenue growth and impressive bottom line growth that highlights the leverage in our model. Secondly, we made progress that should enable us to build on that growth in the future, including really remarkable data from the purpose 1 trial and from across the HIV portfolio with the promise to extend our HIV leadership well into the late 2030s and beyond. The imminent launch of seladelpar in the U.S. and continued progress in oncology. And all of this leaves us well positioned for the second half of 2024 when we will continue to focus on quarter after quarter of strong clinical, commercial and financial execution. My thanks to the Gilead teams and to all of you for joining today. I want to hand it over to Jacquie Ross for some final comments.

[Jacquie Ross, executive]

Thank you, Dan, and thank you all for joining us today. One final housekeeping item. I can share that we are tentatively planning to release our third quarter 2024 earnings results on Thursday, November 7. Please note that this date is provisional and could be changed to accommodate scheduling conflicts that arise between now and then. As always, we will announce our confirmed date following the close of the third quarter. We appreciate your continued -- Gilead and look forward on updating you on our progress throughout the quarter.