Gilead Sciences Inc

NASDAQ:GILD

Earnings Call Analysis

Gilead Sciences' Strong Q3 2024 Results and Growth Expectations

Gilead Sciences reported a robust third quarter in 2024, achieving total product sales of $7.5 billion, a 7% year-over-year increase, driven by growth in HIV, oncology, and liver disease. The company raised its revenue guidance for 2024, predicting total product sales between $27.8 billion and $28.1 billion. HIV sales grew 9% to $5.1 billion, surpassing previous growth expectations. Notably, lenacapavir for HIV prevention has been awarded breakthrough therapy designation and is set for regulatory filing by year-end. Livdelzi's launch exceeded expectations, and Gilead anticipates substantial momentum into 2025. Earnings per share guidance has been increased to $4.25-$4.45.

Navigating a Strong Quarter

Gilead Sciences, in their third-quarter earnings call, reported a solid performance that marked a 7% year-over-year increase in total product sales to $7.5 billion. This growth was primarily driven by robust performances in their core franchises, specifically in HIV, oncology, and liver disease. Notably, both HIV treatments and the COVID-19 antiviral, Veklury, demonstrated strong revenues, contributing significantly to the overall figures.

Impressive Sales Growth in HIV Treatments

HIV product sales surged to $5.1 billion, representing a notable 9% year-over-year growth. This increase can be attributed to higher average realized prices and increased demand across treatment channels. Gilead has revised its full-year growth expectation for its HIV business from 4% to approximately 5%. The company anticipates that sales in Q4 may remain flat compared to Q3 levels, influenced by earlier pricing dynamics that are not expected to continue.

Raising Guidance: A Look Ahead

In light of favorable performance metrics, Gilead has updated its full-year guidance to forecast total product sales between $27.8 billion and $28.1 billion, an increase of about $650 million from previous estimates. Additionally, Veklury's expected revenue was raised to approximately $1.8 billion, up from an initial projection of $1.3 billion, reflecting the ongoing demand driven by COVID-19 hospitalizations.

Strategic Investments and Cost Management

Gilead showcased strong expense management strategies, achieving an operating margin of 43%. Excluding specific one-time charges, the adjusted operating margin would have reached 47%. The non-GAAP diluted EPS was reported at $2.02, a decrease from $2.29 in the previous year, primarily attributed to higher research and development costs related to acquired intellectual properties. Nevertheless, Gilead's disciplined approach has led to an optimistic outlook on further profitability.

Innovative Treatments on the Horizon

Gilead's pipeline remains robust, particularly with lenacapavir, a potential game-changer in HIV prevention, receiving breakthrough therapy designation from the FDA. Anticipated to file for regulatory approval by the end of the year, lenacapavir's twice-yearly administration can significantly improve patient adherence and outcomes. Further, the launch of Livdelzi for primary biliary cholangitis is expected to ramp up in 2025, following its recent FDA approval.

Oncology Divisions and Future Prospects

In oncology, Gilead continues to invest in their therapies despite facing competitive pressures. Trodelvy generated $332 million in revenue, a 17% increase year-over-year, while overall oncology sales reached $816 million. Gilead plans to focus on advancing key oncology programs, including partnerships targeting multiple myeloma and breast cancers, which could broaden their market reach significantly.

Shareholder Returns and Financial Stability

During the quarter, Gilead returned $1.3 billion to shareholders, maintaining a substantial commitment to shareholder value amidst growth investments. With a strong balance sheet and a focus on capital allocation, Gilead appears resilient and well-prepared to face future challenges in a competitive environment.

Looking Forward: Analysts Event on HIV Treatments

As Gilead prepares for its upcoming analyst event focused on HIV, expectations are high. Investors await detailed plans regarding the commercialization of lenacapavir and insights into potential market share expansion as Gilead continues to innovate. Key takeaways and potential sales estimates are expected to be shared, possibly shaping future investor expectations.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, everyone, and welcome to Gilead's Third Quarter 2024 Earnings Conference Call. My name is Rebecca, and I'll be your host for today. [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 third 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.

The team and I are pleased to share Gilead's third quarter results, highlighting another very strong quarter of commercial and operational execution with robust year-over-year revenue performance across HIV, oncology and liver disease, including 9% growth in HIV. We also delivered strong bottom line results that highlight the leverage in our business model and reflect our ongoing commitment to disciplined expense management. Based on our financial results year-to-date, we are increasing our 2024 guidance across almost every metric, including revenue and non-GAAP gross margin, operating income and EPS. We continue to make excellent progress in our virology and inflammation programs in the third quarter. The results from the PURPOSE 2 study, which build on the 100% efficacy shown in PURPOSE 1, demonstrate lenacapavir unmatched clinical profile observed for HIV prevention. If approved, lenacapavir has the first twice yearly subcutaneous injection for HIV prevention, could make a major impact on global public health and significantly catalyze the prevention market. I'm pleased to share that the FDA recently granted breakthrough therapy designation to lenacapavir, and we are on track to file before the end of this year. We look forward to sharing information on our plans for lenacapavir and rest of our leading HIV portfolio at our HIV analyst event on December 10th.

We are very encouraged by the initial launch of Livdelzi for primary biliary cholangitis, or PBC, which was granted accelerated approval by the FDA in August. Livdelzi is a highly differentiated option for people with PBC, who do not respond well to first-line therapy. Demand in the third quarter was ahead of our internal expectations, and we expect to see growing momentum into 2025 and beyond. Livdelzi brings the number of innovative therapies launched by Gilead since 2019 to [ fix, ] representing another step towards our goal of delivering at least 10 transformative therapies by 2030.

Moving to oncology. We are excited to share preliminary data from the registrational Phase II IMAGINE-1 study of anito-cel for the treatment of relapsed or refractory multiple myeloma at ASH next month, in addition to updated data from the Phase I study together with our partner, Arcellx. We're also pleased to have begun the Phase III IMAGINE-3 study in earlier line patients. The combination of anito-cel's potential best-in-class clinical profile with Kite's leading cell therapy manufacturing has the ability to transform care for a large number of multiple myeloma patients. We continue to evolve our oncology program in response to clinical data, regulatory feedback and the competitive environment. We are carefully prioritizing our resources for the most promising programs. For example, we are advancing Trodelvy in first-line PD-L1-high metastatic non-small cell lung cancer, where we have seen supportive data in combination with pembro, while discontinuing development in second line plus. We are also starting a new program for small cell lung cancer based on promising efficacy data from the Phase II TROPiCS-03 basket trial.

Touching briefly on Slide 6. We have completed all of the clinical milestones and updates we targeted for 2024 and look forward to a strong end to the year with key presentations coming up at ASH and our HIV analyst event in December. Those are the main points I wanted to share for now in what has been a very strong third quarter, thanks to the tremendous efforts of the Gilead teams.

I look forward to our Q&A session at the end. And now I will pass it on to Johanna.

[Johanna Mercier, executive]

Thanks, Dan, and good afternoon, everyone.

It was another strong quarter of commercial execution across the business, and I'm proud of the work the teams continue to do to expand the reach of our medicines to many more people and patients around the world.

As shown on Slide 8, total product sales, excluding Veklury, were $6.8 billion in the third quarter, up 7% year-over-year, reflecting strong growth across HIV, oncology, and liver disease. Including Veklury, total product sales were $7.5 billion, up 7% year-over-year.

Starting with HIV on Slide 9. Sales of $5.1 billion were up 9% year-over-year and 7% sequentially, primarily driven by higher average realized price due to shifts in channel mix and higher demand across treatment and prep. The third quarter once again demonstrated the quarterly pricing variability we see in HIV. Specifically, we saw adjustments to government channels where there is a multi-quarter lag for certain claims data. As a result, the quarter reflected more favorable average realized pricing. Year-to-date, HIV sales have grown 5%, well above our prior full year growth target of 4%. With that outperformance in mind, we're increasing our full year HIV growth expectation to 5%, and we remind you to focus on full year versus quarterly trends. To that end, for the fourth quarter, in particular, we expect HIV sales to be roughly flat quarter-over-quarter with continued demand growth and modest seasonal inventory build, offset by the third quarter pricing dynamics discussed earlier that are not expected to repeat.

Turning to Slide 10. Biktarvy third quarter sales of $3.5 billion, increased 13% year-over-year, driven by higher demand as well as higher average realized price due to shifts in channel mix, partially offset by inventory dynamics. Sequentially, sales were up 7%, primarily driven by channel mix and higher demand. In the U.S. and across major markets. Biktarvy continues to be the regimen of choice for those starting treatment and switching therapies and has grown for 25 consecutive quarters.

In the U.S., Biktarvy share grew to over 49%, up more than 2% year-over-year and remains the leading regimen for HIV treatment. Gilead is well positioned to maintain its leadership in the HIV treatment market with 4 new regimens by the end of 2030. Overall, the HIV treatment market continues to grow in line with our expectations of 2% to 3% annually.

Moving to Descovy. Third quarter sales were $586 million, up 15% year-over-year, reflecting higher demand and average realized price due to channel mix, partially offset by inventory dynamics. Sequentially, sales were up 21%, primarily driven by channel mix and higher demand. The U.S. pet market continues to demonstrate robust growth, up 13% year-over-year and Descovy for PrEP remains the leading branded option, capturing over 40% market share despite the availability of generics and other regimens. Overall, Descovy for PrEP sales make up an increasing portion of total Descovy sales, representing roughly 80% in the third quarter. This is a strong foundation as we prepare for the first anticipated commercial launch of lenacapavir for PrEP next year. Lenacapavir's remarkable clinical profile and unmatched twice-yearly administration offer the potential to redefine the HIV prevention market, and we look forward to sharing more details on our commercialization plans and treatment programs at our HIV analyst event in December.

In the meantime, we look to file for approval in the U.S. before the end of the year and are well underway with our preparations for the first commercial launch in 2025. In addition to our commercial plan, we're particularly proud of our commitment to make lenacapavir available in 120 high-incidence resource-limited countries as quickly as possible, ensuring access for lenacapavir for PrEP is made as broadly available upon approval.

Moving to the liver disease portfolio on Slide 11. Sales of $733 million in the third quarter were up 4% year-over-year, driven by increased demand across our viral hepatitis portfolio, partially offset by pricing dynamics, including shifts in channel mix in the U.S. Sequentially, after an incredibly strong second quarter, sales declined 12% and primarily driven by inventory dynamics and fewer patient starts in HCV.

Turning to Slide 12. In mid-August, we launched Livdelzi in the U.S. for PBC with the first prescription written within a few hours of the accelerated approval. Furthermore, with 100% of our U.S. commercial organization trained by the time of launch, we quickly reached more than 1,000 of our target prescribers within the first several weeks. Overall, we're very encouraged with the patient demand we're seeing so far, which is ahead of our internal expectations. We believe this reflects the differentiated profile of Livdelzi as the only approved therapy with statistically significant improvements in both ALP and pruritus as well as an established safety profile.

Sales in the third quarter were modest as we expected in the low single-digit million and reflective of the ramp-up time required to onboard patients and providers and to work through step edits and prior authorizations that are normal for a rare disease launch. We expect to start building momentum as we enter 2025 when we look to a more meaningful sales contribution. Outside the U.S., launch preparations are ongoing, and we look forward to the European regulatory decision in early 2025.

Moving to Slide 13. Veklury has continued to remain the antiviral standard of care for hospitalized patients treated for COVID-19, including in the U.S. with more than 60% share in this setting. Altogether, with higher-than-expected hospitalizations in the summer months, sales in the third quarter were up 9% year-over-year to $692 million. Year-to-date sales of $1.5 billion are now well ahead of our initial full year guidance of $1.3 billion. As a result, we're raising our full year guidance for Veklury to approximately $1.8 billion.

Now turning to oncology on Slide 14. Gilead and Kite Therapies have treated more than 65,000 patients globally, highlighting our continued growing reach. Sales for the quarter were $816 million, up 6% year-over-year, primarily driven by Trodelvy growth. Sequentially, oncology sales were down 3% with growth in Trodelvy, offset by a decline in cell therapy.

Beginning with Trodelvy on Slide 15. Sales of $332 million were up 17% year-over-year and 4% quarter-over-quarter, reflecting higher and in all regions. In breast cancer, Trodelvy remains well positioned as the only approved and commercially available Trop 2-directed ADC, to demonstrate clinically meaningful survival benefit across 2 types of metastatic breast centers. Notably, Trodelvy is a standard of care for second line metastatic trial negative breast cancer with ongoing adoption in the pretreated HR-positive HER2-negative metastatic breast cancer setting. We're pleased to see both indications contribute to Trodelvy's growth year-over-year despite an evolving competitive landscape.

Turning to Slide 16 and on behalf of Cindy and the Kite team, cell therapy sales of $485 million in the third quarter were flat year-over-year with strong 23% growth outside the U.S., offset by the U.S. Sequentially, total cell therapy sales were down 7% due to competitive headwinds, both in and out of cost in the U.S., which we expect to continue into 2025. As a pioneer in cell therapy, Kite's focus is to expand overall utilization and increase cost share. As part of this work, we're partnering with government agencies and health care associations to amplify education of the benefits of CAR T and remove barriers to access. To date, only 2 of every 10 eligible patients receive CAR-T in second line plus large B-cell lymphoma in the U.S., and we are committed to removing these barriers so we can deliver potentially curative therapies like Yescarta to more patients.

In the community setting, Kite is leading the way in identifying and lowering barriers and building the right ecosystem to enable more people to receive CAR-T beyond the reach of an academic medical institution. Today, CAR T sites often need to be accredited typically by the foundation for the accreditation of cellular therapy or fact, and this requirement has been highlighted as a hurdle for our community partners to achieve national payer reimbursement. In the meantime, we're pleased to share that we have treated our first few patients as part of our community strategy, demonstrating that we can deliver Yescarta in this setting. Outside the U.S., we saw year-over-year demand growth as we continue to expand into the second-line relapsed or refractory large B-cell lymphoma setting in Europe and launched in new markets. In particular, we're encouraged by our progress in Japan, where we have onboarded more than 50 authorized treatment centers in little over a year with more to come in the near future.

Overall, I would like to thank the commercialization team for their hard work to deliver another strong quarter and first 9 months of the year, with launch activities underway in PBC and for HIV prevention launch next year. Our teams are excited to bring our transformative medicines to many more people and patients globally.

And with that, I'll hand the call over to Merdad.

[Merdad Parsey, executive]

Thank you, Johanna.

We're very pleased to wrap up the third quarter with another exciting update from our purpose program evaluating lenacapavir for HIV prevention. As shown on Slide 18, we shared 2 oral presentations on our purpose 2 HIV prevention trial at the HIV Research for Prevention Conference in October. Following the remarkable 100% efficacy reported from an interim analysis of the PURPOSE 1 trial in Cisgender women in June, PURPOSE 2 was also stopped at the interim in September. Notably, twice yearly subcutaneous lenacapavir significantly reduced incidence of HIV infections compared to both background HIV incidents and Truvada in the exceptionally diverse population of cisgender men and gender diverse people in a Phase III prevention trial. These PURPOSE 1 and 2 results demonstrated lenacapavir's unprecedented results for HIV prevention. We look forward to sharing additional insights at the HIV Glasgow meeting next week, including persistence data from PURPOSE 1 and a deeper look into the efficacy data from PURPOSE 2. Based on these data, FDA has now granted breakthrough therapy designation for lenacapavir for HIV prevention. We continue to target regulatory submission before the end of the year in the U.S., while at the same time, preparing for filings with other global regulatory authorities. Beyond our registrational PURPOSE 1 and 2 programs, we continue to generate additional data from the Phase II PURPOSE 3, 4 and 5 trials in key populations across the U.S., U.K. and France. These studies are intended to contribute additional data in communities where the [indiscernible] or Access 2 prevention options have historically been challenging.

Turning to our HIV treatment pipeline on Slide 19. We continue to make strong progress in developing novel regimens, including a once-daily oral regimen with 2 backbone therapies, lenacapavir and bictegravir. This novel combination has the potential to provide another effective daily oral option for people living with HIV, including the 6% to 8% of people currently on complex regimens. Recently, we completed enrollment of the Phase III ARTISTRY-1 trial within 9 months of FPI and are on track to complete enrollment in our ARTISTRY-2 by early 2025. Further, we've made strong progress for our 2 once-weekly oral programs. The Phase II study of our wholly owned combination of GS-4182, a prodrug of lenacapavir with enhanced oral bioavailability and GS 1720, a long-acting integrated inhibitor has now completed enrollment within 2 months of FPI. And we've enrolled our first participants into the Phase III ISLEND-1 and ISLEND-2 trial, evaluating the oral combination of lenacapavir with Merck, NRTTI islatravir for biologically suppressed people with HIV. We presented week 48 data from the Phase II trial evaluating this once-weekly combination in a similar population at IDWeek. Participants in both the lenacapavir plus islatravir and bictegravir

Treatment arms maintain high rates of biologic suppression and no participants discontinued due to lymphocyte count decreases.

Moving to our liver disease portfolio on Slide 20. FDA granted Livdelzi an accelerated approval for the treatment of PBC in combination with UDCA in certain adults who have an inadequate response to UDCA or as monotherapy in certain patients unable to tolerate UDCA. We have already filed with EMA and expected decision early next year. As part of the accelerated approval process, we continue to recruit for our confirmatory Phase III AFFIRM trial, evaluating seladelpar for improvement in event-free survival. Further, our Phase III IDEAL trial is ongoing and offers us an opportunity to understand the effect of seladelpar in normalizing alkaline phosphatase in a broader set of PBC patients who had an incomplete response to UDCA.

Switching now to oncology on Slide 21. We continue to evolve our late-stage clinical programs in lung cancer in response to clinical data and the changing landscape, reflective of our commitment to prioritizing the most significant opportunities across all our therapeutic areas. We have decided to discontinue further evaluation of Trodelvy in second-line plus metastatic non-small cell lung cancer. Based on discussions with regulators following the EVOKE-01 readout earlier this year.

In the front line, based on the totality of the data from the Phase II EVOKE-02 trial, we believe Trodelvy in combination with the PD-1 inhibitor without the addition of chemotherapy may have the greatest potential in this setting. To that end, our Phase III EVOKE-03 study of Trodelvy plus pembro is ongoing in first-line patients with PD-L1 high metastatic non-small cell lung cancer. Separately, we shared promising data for Trodelvy extensive stage small cell lung cancer from our Phase II TROPiCS-03 basket trial and plan to advance development of Trodelvy in this population to a Phase III trial. We also look forward to sharing the results from Part 1 of the Phase II ARC-10 trial at the SITC meeting later this week, further adding to the body of data on domvanalimab, our Fc silent anti-TIGIT. As a reminder, we discontinued enrollment of R10 earlier this year to prioritize the ongoing first-line Phase III DOM studies, STAR-121 in metastatic non-small cell lung cancer and STAR-221 in upper GI cancers.

Moving to Slide 22. And on behalf of Cindy and the Kite team, we are excited to share updates at the upcoming ASH Congress, including our Phase II IMAGIN-1 results for anito-cel in fourth line or later relapsed or refractory multiple myeloma. The ASH abstract shared yesterday reflects 58 patients who received anito-cel with a median follow-up of 10.3 months as of the June 2024 cutoff. Treatment with anito-cel demonstrated deep and durable efficacy with an objective response rate of 95% and a complete response of those evaluable for MRD testing, 92% achieved MRD negativity. The median progression-free survival and overall survival had not yet been reached. Additionally, Arcellx announced yesterday that updated data from the Phase I study will be presented at ASH. In the meantime, Arcellx has already shared that an even later data cut from Phase I has shown that anito-cel achieved a 30.2 month median progression-free survival and median overall survival was not yet reached.

In summary, we are encouraged by the compelling results so far, and with over 140 patients dosed across both the Phase I and Phase II IMAGINE-1 studies, we have not yet seen any cases of delayed neurotoxicities. This includes no parkinsonism, no cranial nerve palsies and no Guillain Barre syndrome. We'll be sharing updated data at the ASH conference and look forward to potentially offering anito-cel's best-in-class profile to these late-stage multiple myeloma patients.

Separately, we're pleased FDA has granted Kite, the Regenerative Medicine Advanced Therapy Designation, or RMAT, for the evaluation of Yescarta for newly diagnosed high-risk large B-cell lymphoma, who have a positive PET scan after 2 cycles of first-line chemotherapy. Under the RMAT designation, the Yescarta development program for first-line treatment of high-risk large B-cell lymphoma will be able to access the benefits of the FDA's accelerated pathways, including fast track and breakthrough designations. Our Phase III ZUMA-23 study in this setting is ongoing, and we look forward to sharing updates in due course.

Moving to our milestones on Slide 23, a brief update on ASCENT-03. As a reminder, this is an event-driven trial, and I can share that we are continuing to accrue events at this time. With that in mind, it is possible we will not reach data cutoff this year, and we look forward to updating you in due course. Other updates this quarter included the readout of PURPOSE 2 data ahead of schedule, the review of our Phase II data for lenacapavir plus our broadly neutralizing antibodies with plans to share the data at an upcoming scientific conference in 2025. And the initiation of several key HIV Trodelvy and cell therapy trials, including enrollment for ISLEND-1, ISLEND-2, ASCENT GYN-01 and IMAGINE-III.

In closing, I'd like to thank the Kite and Gilead research and development team for a stellar quarter of execution.

And with that, I'll hand the call over to Andy.

[Andrew Dickinson, executive]

Thank you, Merdad, and good afternoon, everyone.

Our third quarter results represent a strong quarter for Gilead, as shown on Slide 25, with our base business up 7% year-over-year to $6.8 billion, driven by growth in each of our core businesses. Veklury also delivered substantial growth, resulting in total product sales up 7% year-over-year to $7.5 billion.

Before moving to non-GAAP I'll highlight the impairment charge that impacted our third quarter financial results on a GAAP basis as noted on Slide 26. As a reminder, this relates to the carrying value of the IPR&D indefinite live intangible assets acquired from Immunomedics in 2020. During the third quarter, we decreased the fair value by $1.8 billion or $1.04 per share net of tax impact, reflecting the removal of the second-line non-small cell lung cancer indication. The remaining $1.8 billion carrying value reflects Trodelvy's opportunity in the first-line setting. Note that the potential indications that we've begun to explore since the acquisition are not reflected in the carrying value such as endometrial or small cell lung cancer.

Moving to our non-GAAP results for the third quarter on Slide 27. Product gross margin was 87%, up 84 basis points from last year, primarily due to product mix. R&D expenses were down 5% year-over-year, primarily driven by timing of clinical activities such as the wind down of the magrolimab program and the obeldesivir oral COVID studies and supported by our broader expense management initiatives. Acquired IP R&D was $505 million, which reflects the $320 million buyout of global Livdelzi royalties from Janssen announced in August, and the $35 million upfront expense to initiate a new AI partnership with Genesis in addition to ongoing collaboration expenses.

SG&A was up 8% year-over-year primarily due to timing of commercial and corporate activities, including the launch of Livdelzi in the United States and other initiatives, including prelaunch preparations for lenacapavir for PrEP. Operating margin for the third quarter was 43%. Excluding the impact of the royalty buyout charge from Janssen, operating margin would have been 47%. While there will always be some quarterly variability recent results demonstrate a consistent trend of our operating margin firmly in the 40% plus range, and we remain focused on being an industry leader in terms of operating margin. Our effective tax rate was approximately 18% as compared to 7% in the same period last year. As a reminder, the tax rate in the third quarter of 2023 benefited from decreased tax reserves as a result of reaching an agreement with a tax authority on certain tax positions.

In total, non-GAAP diluted EPS was $2.02 per share as compared to $2.29 per share in the same period last year, primarily reflecting higher acquired IP R&D and tax expense, partially offset by higher product sales. As mentioned earlier, the $320 million expense related to buyout of global Livdelzi royalties from Janssen, impacted our EPS by $0.20 per share.

As highlighted on Slide 28, we had a strong first 9 months of the year with solid performance in each of our core franchises across HIV, oncology and liver disease driving base business growth of 7% year-over-year, with Veklury already exceeding our initial full year guidance of $1.3 billion. Altogether, total product sales for the first 9 months of 2024 were up 6% year-over-year.

Moving to guidance on Slide 29. We are updating much of our guidance to reflect the very strong performance in our business so far this year. We are increasing our guidance for product sales, excluding Veklury, by $150 million at the midpoint from the prior range to a new range of $26 billion to $26.3 billion. In addition to our strong year-to-date performance, this guidance accounts for evolving competition in our cell therapy business. The increased revenue guidance also reflects higher full year expectations for HIV, now expected to grow approximately 5% from 2023 compared to our prior expectations of 4%. This guidance implies that fourth quarter HIV could be roughly flat, which we believe has been given the strength in the third quarter and the normal variability we can see with HIV pricing. We expect full year Veklury revenue to be approximately $1.8 billion. We, therefore, expect full year 2024 total product sales in the range of $27.8 billion to $28.1 billion, an increase of $650 million at the midpoint compared to the prior range.

Turning to the rest of the P&L. On a non-GAAP basis, we expect product gross margin to be approximately 86% narrowed from our prior 85% to 86% range and reflecting year-to-date results as well as our expectations for a more favorable product mix in the fourth quarter. We now expect R&D expense to decline a low single-digit percentage as compared to our prior outlook of low to mid-single-digit growth, reflecting the discontinuation of certain programs and careful expense management. And there is no change to our prior expectations for both acquired IP R&D and SG&A. Reflecting these updates, we now expect operating income in the range of $8 billion to $8.3 billion, up from $7.2 billion to $7.6 billion previously. Full year tax is expected to be approximately 27%, slightly lower than our prior 30% guidance and reflecting the higher operating income for the full year as well as the negative impact from the onetime charge for the acquisition of CymaBay in the first quarter. As a reminder, this compares to our initial guidance in February of approximately 19% prior to the CymaBay impact. Altogether, we've raised our earnings per share guidance to a range of $4.25 and $4.45. This compares to our prior guidance of $3.60 to $3.90 and and reflects both revenue outperformance and continued operating expense discipline. At the midpoint, our updated guidance represents an increase of $750 million in non-GAAP operating income an increase of $0.60 in non-GAAP earnings per share. On a GAAP basis, EPS is expected to be $0.05 to $0.25.

Moving to Slide 30. We returned $1.3 billion to shareholders in the third quarter and a total of $3.7 billion in the first 9 months of the year. Our capital allocation priorities remain unchanged with significant balance sheet flexibility. Overall, Gilead is on track to deliver an extremely strong 2024, and we're particularly pleased with our progress on operating expense management, which we believe sets us up well as we enter 2025.

And now I'll invite Rebecca to begin the Q&A.

[Operator]

[Operator Instructions] Our first question comes from Courtney [Indiscernible] from Bernstein.

[Unknown Analyst]

I'm interested in talking a little bit about the CAR T space. Specifically, can you help to dimensionalize the in-class versus out-of-class impacts on Yescarta this quarter, particularly as we think about [indiscernible] and whether these results establish any need to kind of pivot the focus of the commercial strategy that you outlined in the presentation today.

[Daniel O'Day, executive]

Thanks, Courtney. So we have Cindy Perettie here. I'll turn it over to her to respond.

[Cindy Perettie, executive]

Thanks, Courtney, for your question. So if I look at the in-class competition that we faced this quarter, it is down to 2 things. One is 2 new indications, both in follicular lymphoma and mantle cell lymphoma. And the second is an increase in capacity within manufacturing. So that's the in-class space that we're facing out of class. We continue to face competition through bispecifics, and I would put them probably at about 50-50 on what we're seeing today. from our strategy standpoint, we do not believe we have to visit it. I think in the oncology space, when new therapies get approved in new indications, it's very common for physicians to try out the new therapies, and we expect to see that. And we've seen that both within cost and out of cost competitors. We're continuing to focus on driving both our class share and our brand share and feel very confident in the plans that we have to date to continue our expansion into the community and elsewhere and feel confident that we're going to build on our leadership both for Yescarta and [indiscernible] but also recognizing as we look ahead anito-cel will be coming 2026.

[Operator]

Our next question comes from Mike Yee at Jefferies.

[Michael Yee, analyst]

Congrats on a great quarter. Thinking about lenacapavir for PrEP, based on feedback from docs, we're hearing that there could be a good market and good adoption for swapping from a current Descovy. Can you just talk a little bit about how you're thinking about the launch of lenacapavir for PrEP next year? Could that be a fast launch and think about the dynamics there in the buy and bill. So can you talk a little bit about how well you think that could launch and where the opportunity is.

[Daniel O'Day, executive]

We got Johanna here. So let us take that question.

[Johanna Mercier, executive]

Thanks for the question. Yes, I think we're very excited about the potential launch for lenacapavir for PrEP. The growth opportunities are clear for us, right? It's in market size growth, when you think about more consumers using PrEP, more prescribers prescribing it, so more physician-based, and then, of course, our countries because thus far, it's really been very U.S. focused. We do think there's a real expansion just in the consumers when you think about -- right now, the market is primarily white MSMs. We think there's a real opportunity to expand that to include black Latino individuals, young adults, cisgender women, transgender. So there's a lot there, let alone prescribers right now, the prescribers we have are currently the ones that prescribed, generally speaking, for HI treatment. And we think the market can be expanded much broadly than that. And then, of course, countries. And as I was mentioning, I do think there's real opportunities when you think about lenacapavir for PrEP and the profile that it offers quite differentiated. From a market share growth, I think it will be mixed. I think you're right. I think lenacapavir twice daily subcu profile offers a lot for people looking for HIV prevention who may want or need it. And I do think it will have some impact on both Descovy from a daily oral standpoint, but also 55% of the market is actually generic oral. And I do think it's going to have a big impact across the whole daily oral market to see lenacapavir come in. As to your question about how quickly we can do that. I mean, the plans for commercialization are well underway. We are thinking through how do we make sure we make this a seamless experience for all of our customers. So that includes providers when they prescribe lenacapavir, but also for consumers to make sure they have access to lenacapavir. And that's looking at our distribution system, our reimbursement and making sure that we just provide that seamless experience for all. So more to come on that. We have the HIV analyst event coming up in December, and we'll be able to share a little bit more data there, but definitely an opportunity for us to grow overall the ad share in the prevention market, both with Descovy for those who prefer daily oral, but obviously, the growth is really going to come lenacapavir for prevention.

[Operator]

Our next question comes from Umer Rafat at Evercore.

[Umer Raffat, analyst]

I wanted to focus on anito-cel and delayed neurotox for a quick second. And it's a 2-part question. First, I'm just curious, do you think is it the construct or the trial design or any other reason which explains the lack of delayed neurotox, GBS, et cetera? And secondly, do you think we now have sufficient data from the existing data sets in Phase I to rule out any delayed neurotox the sample size expands to 500 to 1,000 patients in Phase III trials.

[Unknown Executive]

Sure. Thank you, Umer. So your question about our perspective on whether it's the construct or the trial design that relates to the delayed neurotoxicity that we haven't observed. We believe it's the construct. As a reminder, we have very compact DD domain, and we think that, that is a big piece of why we aren't seeing the delayed neurotox are continuing to look with our translational medicine group to uncover sort of pieces of that, but we're having increasing confidence that it's the construct. I think the second piece that you asked is do we have sufficient data. Look, we are at 100 patients worth of data between the Phase I of 38 patients and what we just shared in the ASH abstract. Coming forward to ASH, we're going to have a larger data set. We've done another data cut that we're cleaning now that we'll be presenting at ASH. So having that confidence of over 100 patients to date and not observing the neurotoxicity makes us recognize that we have a best-in-class construct, and we're really looking forward to sharing that data at ASH.

[Operator]

Our next question comes from Tyler Van Buren at TD Cowen.

[Tyler Van Buren, analyst]

Congratulations on the result. Just had another 1 on anito-cel since the data reported yesterday were very exciting. So with the expectation to be in market in 2026, can you talk about the ability to scale the product upon launch? And to be more specific, is the manufacturing process similar enough to Yescarta and Tecartus where the FDA will allow you to scale manufacturing at a faster pace, or will anito-cel have to scale at the same initial pace that Yescarta and Tecartus did.

[Unknown Executive]

Yes. So we have taken all of our learnings from Yescarta and Tecartus and applied that to the anito-cel production. And as we shared last quarter, we have done the full tech transfer into our Maryland facility. And we're producing anito-cel sell for IMAGINE-3 study, where we have successfully do to patients now. And our turnaround times are looking very similar to our commercial products that we have today, again, having applied all those learnings. We don't have any concerns about our ability to scale. We've also not had feedback from the FDA that we would have to use the same approach as other competitors in this space.

[Operator]

Our next question comes from Mohit at Wells Fargo.

[Unknown Analyst]

This is Sadia on for Mohit. Maybe 1 on seladelpar. Could you share any early insights, especially regarding payer coverage into this launch given that the other PPAR agonist is priced at a slight discount to seladelpar, do you see this impacting care preferences between these 2 options?

[Johanna Mercier, executive]

Sure. I'll take that one. It's Joanna. So we're really quite pleased with our initial launch. So it's only been a few months, we launched mid-August. But so far, we've exceeded our internal expectations for patient demand. And I just want to take a moment, and then I'll address your payer coverage question specifically. I'm just really pleased and proud of the cross-functional team that's come together so quickly. They were fully trained and mobilized within 24 hours of our approval, and we had our first script within hours of it approved from the FDA. We've reached over 1,000 of our key targets in the first 2.5 weeks post launch. And obviously, you can appreciate that our history in liver disease and our credibility here really opens the doors for the access to these key stakeholders for PBC, which really obviously is critical as you think about early launch dynamics. And so we're very excited about that. We also took a very clear strategy when it came to what we were looking for, for reimbursement, but both also distribution. And so from day 1, we enabled direct purchasing with a specialty distributor, which was actually quite pivotal when you think about key academic centers. And if you think about the business, it's probably a mix about 50-50 or so between the academic centers and in the community. The coverage so far with payers is very much in line with our expectations for rare disease. And we're really quite encouraged to see that no major barriers are happening actually get access to Livdelzi outside of the typical ones that happen, but really for appropriate patients, it takes a little bit more time because we have to get through the step edits and the prior off, but we are getting through and patients are having access to seladelpar and Livdelzi. So we're excited, and more to come as we as we think about 2024, but more importantly, as we ramp up into 2025, right? We've always said it was a bit modest contribution in '24 with more meaningful contribution to sales in 2025. So stay tuned.

[Operator]

Next, we have Daina Graybosch from Leerink Partners.

[Daina Graybosch, analyst]

Another 1 on anito-cel for me. I wonder what's gating the regulatory filing, and also what will be required to build the market for anito-cel in myeloma beyond the stubborn sort of 20% penetration, you're hitting your heads against an MHL second-line setting.

[Unknown Executive]

Thanks a lot, Daina, for the question. So I think the components around the regulatory filing as you're aware, what we've seen with others in the space is that the FDA would be looking at 12 months' worth of data -- this will be a filing discussion that we have with FDA. We do believe we have a very differentiated safety profile, and we'll be talking to the agency about that review cycle based on that. The second question that you asked was around the today, only 2 out of 10 patients receiving CAR-T, we know in multi myeloma is 1 out of 10. We have our work to do. The work that we're putting towards the community practices and ungating some of the reimbursement access challenges are the same challenges we will face, whether it's lymphoma or multiple myeloma. So all the applications we're putting forward in our plan today will apply to anito-cel that's why it's really critical as we execute over the next 12 to 18 months because we're really excited to bring anito-cel to more patients.

[Operator]

Our next question comes from Carter Gould at Barclays.

[Carter L. Gould, analyst]

Love all the anito-cel questions, but I'm going to bring it back to HIV. I'm not sure who wants to take the question, but how should investors maybe gauge expectations of what we're going to hear at the analyst event? Should we expect an explicit peak sales target for lenacapavir in PrEP? Or how you think about the long -- maybe a long-term treatment market objective? Or should we expect more of the qualitative market color that maybe Johanna referenced earlier.

[Daniel O'Day, executive]

Thanks, Carter. This is Dan. So first of all, we really look forward to hosting as many of you as possible at our HIV analyst event in December. And our intention is to start sharing some more of our plans on the commercialization for lenacapavir with prep. Johanna has started to outline that on our quarterly calls. But we really need some more time to dimensionalize that market, just begin to discuss how we will approach different aspects of lenacapavir for PrEP market. I think you can expect them to be qualitative but also quantitative from the opportunity, I think, to your point about peak sales and things, that was come more into our guidance that would be -- that would come more at the beginning of next year in terms of how we might see 2025 and beyond. But in addition to the commercialization, we're going to spend a lot of time on highlighting the progress of our long-acting treatment combinations. Merdad covered this in some of the prepared remarks, but we intend to bring you into even more detail about the progress of our long-acting treatment combinations in addition to what we've already disclosed. So we will have some new disclosures there. We'll also be able to share our perspective on how we see the treatment market evolving in the coming years. And I think that's an area of tremendous strength in terms of our overall program. As you know, we're we're processing a variety of long-acting treatment programs in parallel to make sure that we have multiple options for patients from longer-acting orals to longer-acting injectables. And you can expect to get an update on the R&D progress of those and some further update on time lines as we move forward. Again, just to remind you, of course, the totality of our HIV business is such that we really don't have any significant patent expiries until Biktarvy in 2033, and really by that time, we will not only have the land for PrEP unfolding over that period of time, but significant progress but potentially 4 new modalities for long-aging treatment even before 2033. So the intention is to really pull through and to show you the durability of our HIV business well into the late 2030s.

[Operator]

Our next question comes from Terence Flynn at Morgan Stanley.

[Unknown Analyst]

This is Chris on for Terence. Just 1 question for Andy. Are you confident that you can drive operating margin expansion in 2025 on an ex IP IND basis?

[Andrew Dickinson, executive]

Chris, it's Andy. Thanks for the question. We'll provide more specific guidance on 2025, of course, on our year-end call. What we said though consistently, and you see in the last 2 quarters is real progress in terms of letting the operating margin expand again as we now kind of enter a new phase of having now built the portfolio, executing both clinically and commercially and really focusing on expense management, you see the strong operating margin, both in the second quarter and the third quarter. Again, you heard in my prepared remarks that the operating margin would have been 47% this quarter, if you back out the impact of the royalty purchase from Janssen on seladelpar. So we're off to a great start. We -- our ambition and expectation is that we will have an industry-leading operating margin over time. So again, it's too early to give any specific guidance on more to come, but we're really pleased with where we are and the progress that you've seen in the last couple of quarters, and we're already in a very strong spot and we'll continue to work to improve it over time.

[Operator]

Our next question comes from Chris Schott at JPMorgan.

[Christopher Schott, analyst]

Just another HIV question on combos. I think companies had a number of lenacapavir combos in development. I guess I'm just trying to get my hands around, but when you think about the portfolio, where do you see subcu injectables playing in the treatment market relative to some of your weekly oral options? [Indiscernible] that chart, it seems like a lot of the programs by 2030 and the BNPs were on the oral side. So I'm just trying to get a sense of like how important is subcu injectable there? Or do you see this mostly a longer-acting oral opportunity for the company?

[Daniel O'Day, executive]

Merdad is here, Chris, we'll let him answer that.

[Merdad Parsey, executive]

Chris, the way we're approaching this is really to take a very broad approach with the success with lenacapavir so far and what we've seen, we think that really forms a great foundation for us. And we believe that there is enough demand in both the oral and the injectable areas for us to be developing in both. So to your point, we really do see an opportunity for PrEP on the oral side for us to provide either weekly or monthly options, potentially also then going into the treatment market further down the road. And in subcutaneous, the key differentiator being the durability of the treatment. So on the oral side, weekly to monthly, on the injectable side, we think we can get to every 3 months and hopefully even up to every 6 months and beyond. So I think that's the key differentiator for us in terms of how we think about the opportunity. And of course, different people will be looking for different approaches and our goal, our aim is to provide those options for them.

[Johanna Mercier, executive]

Yes. Maybe just to add to Merdad's comments, our approach is truly patient-centric. The opportunity is just to make sure that we answer and address the needs. And the needs have been mixed I think there are some that really do prefer to be reminded and can take an oral pill only and don't want an injectable. And others don't really want to think about HIV if they don't have to. And if they can take for injections a year that could do it as well or 2 even as [indiscernible] comments as well. So more to come on that as to what we're doing, but the intent is truly, as we are leaders today in HIV, both across treatment and prevention, the intent is to continue to remain leaders for the future. And that's really with the pipeline that we have in our portfolio and the combinations that we have. So we're excited about the future and what it holds.

[Andrew Dickinson, executive]

And Chris, it's Andy. Maybe I'll just add 1 thing. The slide references the products that we expect to have approved by 2030. You should not read into that, that we don't expect these long-acting subcutaneous products to come to market even shortly after that. So we'll provide more guidance over time. Again, we'll talk more about the portfolio at our HIV day, as Dan mentioned. But we were just focusing purely on that slide to the end of the decade. It doesn't mean that we don't see a series of potential product launches beyond that as well. So more to come.

[Operator]

Next, Salveen Richter from Goldman Sachs.

[Salveen Richter, analyst]

Sorry about that. So you've noted prior with regard to your long-acting HIV PrEP market, that about 40,000 people are on PrEP today, and that could increase to 600,000 by 2030. Is that still a fair assumption? And if so, where does this growth likely come from, and what do you view as a fair estimate that the portion of that 600,000 that will prefer an oral option.

[Johanna Mercier, executive]

Yes. So Salveen, I'll try to address that one. And you'll hear more about that actually as we go into the HIV Analyst event as well in early December. But -- so we do believe that it's at least 600,000 by 2030. Now this is a market in the past that we've really worked out through social media, direct-to-consumer, et cetera, to really make sure we activated and that's how it's grown thus far to the about 350,000 to 400,000 consumers today. We think there's a real opportunity. And most of the growth is going to come from different consumers, to be honest. So thus far, the vast majority of consumers of HIV PrEP are white NSM. And so we think with PURPOSE 1, PURPOSE 2 and actually other PURPOSE studies to follow, this is the broadest clinical trial program that we've ever done in prevention or that's ever been done in prevention. And it includes many other consumers that I think really may need or even want prevention, and that includes Latino black individuals women, cisgender women, transgender and then even young adults, right? And so a lot of that growth is going to come from there. So could it be beyond the 600,000? Absolutely, 600,000. And we do think that most of that is going to be driven by a new option on the market, and that is lenacapavir for prevention to have something that you don't need to think about when you're not ale to take every single day versus twice a year is a big differentiation let alone with the data and efficacy that we've shown in both PURPOSE 1 and PURPOSE 2. So more to come on that. I do think we have a lot of opportunities here. And the intent is to truly work on expanding this market for the future. I think it's not about thinking about what's currently in play today, but actually what it could be by 2030 with a little bit of investment in education and awareness.

[Operator]

Our next question comes from Matt Biegler at Oppenheimer.

[Matthew Biegler, analyst]

I had a question on ASCENT-03 with that coming up. Can you just comment on how much larger you think that frontline opportunity is in triple-negative breast cancer?

[Johanna Mercier, executive]

Yes. So as you move up earlier lines of therapy, obviously, it's -- as TNBC progresses, unfortunately, quite rapidly, the market is actually quite large. It's probably about just about double more. And then, of course, the split between PD-L1 negative and PL-1 positive and ASCENT-03, ASCENT-04, that's a bit of a split as well, a little bit more on the negative than the positive in TNBC. And so we do think with the ASCENT-03 and then the future with ASCENT-04 moving up in earlier lines of therapy can really make a difference for these women. If we can show overall survival in this setting as well, I think that can be incredibly powerful for us as we've really established our place in second line plus as the standard of care, really the opportunity would be to move up with those women to really make a difference earlier on in their metastatic disease.

[Operator]

Next, we have Asthika Goonewardene from Truist.

[Nicole Germino, analyst]

This is Germino for Asthika. I had a couple of questions. You mentioned that you had 3 patients, those on IMAGINE-3 study. Just wondering how many of the [ 130 ] clinical trial sites are cloning patients? And another one is also you expect the anito-cel to be used in outpatient setting since the time to onset of CRS was only 2 days. And what you have previously mentioned that 45% patients are being used in outpatient setting. So your thoughts on that as well.

[Unknown Executive]

Yes. We don't usually share the number of clinical sites that we have recruiting, but trust that the team is working hard to get all 130 up and going. You were asking a little bit about the outpatient profile. We believe that this therapy has an outpatient profile. And you can tell just looking at the ICANS and CRS rates that we're seeing. And we've actually designed that into our Phase IMAGINE 3 Phase III programs that we'll have data generated in that outpatient setting. As you talked about the onset, I think that's the component that we've designed into the trial.

[Operator]

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

[Brian Abrahams, analyst]

Given the potential for Medicaid cutbacks under a new administration, can you remind us around the degree of Medicaid exposure across your HIV franchise and the mechanics of how access and reimbursement work for these patients [indiscernible] federal budget? And also how cuts such cuts might impact your outlook, if at all?

[Johanna Mercier, executive]

Sure. So let me try to address that one, although I think there's still more to come, right? So we need a little bit more to see how this plays out for Medicaid specifically. At this point in time, patients that are HIV are -- always have a fallback position. Both Medicaid is where we go. That's probably about mid- to high 20% of our total HIV business, and that is a percentage of our business that we watch very closely. There's also ADAP that supports through the same system. So there are different ways to get access for patients in this setting. And honestly, what we're tracking more closely in the overall channel mix that we think about HIV is more of the growth that we've seen in 340B settings, which also can impact the Medicaid patient population. So from an access standpoint, it's never an issue to get HIV. There's different parachutes that are available for all of these patients. And we're going to watch very closely any Medicaid cutback at this point in time, but nothing has yet been announced.

[Operator]

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

[Daniel O'Day, executive]

First of all, thank you all for joining. This has really been the strongest quarter for us of the year. The key highlights you've heard over the course of the discussion, both commercially, but also clinically, the promise of our portfolio, the remarkable Phase II PURPOSE -- sorry, excuse me, the PURPOSE 2 date on lenacapavir, the very encouraging initial launch of, seladelpar and the data on anito-cel. I just want you to know, we're firmly focused as a team on strong commercial and clinical execution. We'll continue to prioritize resources, and we have a commitment to ongoing OpEx management. I just flagged 2 things between now and the end of the year. That's obviously what we've spoken about, the HIV analyst event in December. And also the upcoming presentation of anito-cel at ASH. And with that, I thank you for joining. I'll turn it over to Jacquie to close the call.

[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 fourth quarter and full year 2024 earnings results on February 11, 2025. 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 quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the quarter.