Gilead Sciences, Inc. (GILD) CEO Daniel O'Day on Q2 2022 Results - Earnings Call Transcript
Gilead Sciences, Inc. (NASDAQ:GILD) Q2 2022 Earnings Conference Call August 2, 2022 4:30 PM ET
Company Participants
Jacquie Ross - VP, IR
Daniel O'Day - Chairman & CEO
Johanna Mercier - Chief Commercial Officer
Merdad Parsey - Chief Medical Officer
Andrew Dickinson - EVP & CFO
Christi Shaw - CEO, Kite
Conference Call Participants
Brian Abrahams - RBC Capital Markets
Geoffrey Meacham - Bank of America
Tyler Van Buren - Cowen and Company
Olivia Brayer - Cantor Fitzgerald
Umer Raffat - Evercore ISI
Matthew Harrison - Morgan Stanley
David Risinger - SVB Securities
Salveen Richter - Goldman Sachs
Michael Yee - Jefferies
Steven Seedhouse - Raymond James
Carter Gould - Barclays
Mohit Bansal - Wells Fargo
Operator
Good day and thank you for standing by. Welcome to Gilead Sciences Second Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent background noises. After today’s remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded.
I would now like to hand the conference over to Jacquie Ross, Vice President of Investor Relations. Please go ahead.
Jacquie Ross
Thank you, operator, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the second quarter of 2022. The press release, slides and supplemental 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 up the call to Q&A where the team will be joined by Christi Shaw, the Chief Executive Officer of Kite.
Before we get started, let me remind you that we will be making forward-looking statements, including those related to the impact of the COVID-19 pandemic on Gilead's business; financial condition and results of operations; plans and expectations with respect to products, product candidates, corporate strategy, business and operations; financial projections and use of capital; and 2022 financial guidance, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements.
A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statements.
Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release, in our supplementary data sheet as well as on the Gilead website.
Now I'll turn the call over to Dan.
Daniel O'Day
Thanks, Jacquie, and good afternoon, everybody. We really appreciate you joining today. We look forward to sharing our second quarter results, which highlighted a quarter of strong commercial and clinical execution. This was a very strong quarter for our business, delivering revenue of US$6.1 billion. Excluding Veklury, total product sales grew 7% year-over-year.
If we look at the underlying business and also exclude the impact of the HIV LOEs and the currency headwinds in the second quarter, growth was actually 11%. Our HIV portfolio continues to deliver, and this quarter was no exception with higher demand for both treatment and PrEP. Biktarvy sales grew by 28% year-over-year, and we expect to see continued market growth for treatment and prevention with the ongoing market recovery.
This was a record quarter for our oncology business. Revenues topped $0.5 billion for the first time with a strong contribution from Trodelvy and a standout performance by our cell therapies. Yescarta was approved by the FDA for second-line relapsed/refractory large B-cell lymphoma in April. This increased awareness and go demand not only for Yescarta's second-line patients but also for those in later lines of treatment. Yescarta is a potentially curative therapy, and Kite has uniquely and effectively scaled manufacturing to meet the needs of patients through the benefit.
Turning to our clinical progress. Our NDA submission has been accepted by the FDA for lenacapavir for heavily treatment-experienced people living with HIV, and we are now expecting the decision in late December. If approved, lenacapavir will be the first approved cased inhibitor and the first therapy with a 6-month dosing schedule for HIV treatment.
Moving to Trodelvy. We are in discussions with the FDA regarding a potential regulatory pathway for late-stage hormone-receptor-positive/HER2-negative patients, and we will update you as things progress. We have also begun screening patients in ASCENT-3 and ASCENT-4 evaluating Trodelvy in the first-line metastatic triple-negative breast cancer patients. We dosed the first patient in our new Phase 2 study evaluating Trodelvy in non-small cell lung cancer, EVOKE‐02. And earlier this month, we dosed the first patient in a new Trodelvy combination arm in our ongoing magrolimab triple-negative breast cancer study.
Also from magrolimab, we are targeting an interim analysis no later than early 2023 for ENHANCE, our Phase 3 study in first-line, high-risk MDS. Additionally, we dosed the first patient for ENHANCE-3, a Phase 3 magrolimab study for first-line unfit AML.
Moving to Slide 5. Later this year, we expect to initiate an additional 5 studies for Trodelvy in a mix of monotherapy and combination studies. We also plan to start enrolling patients in three cell therapy trials and two domvanalimab combination trials. The extent of existing and planned studies really highlights the scale of our ambitious oncology program.
I want to take this opportunity to thank the teams across Gilead and Kite for a terrific quarter of commercial execution and for the continued momentum in our clinical programs to continue to lay the critical groundwork for Gilead's future success.
With that, I'll invite Johanna to share an update on our second quarter commercial performance.
Johanna Mercier
Thanks, Dan, and good afternoon, everyone. Turning to Slide 7. We had a very strong second quarter with total product sales excluding Veklury of $5.7 billion, up 7% year-over-year, driven by HIV, cell therapy and Trodelvy and offset in part by HCV. Sequentially, total product sales excluding Veklury were up 14%, driven by the seasonal pricing and inventory dynamics we see coming out of the first quarter of every year, primarily in our HIV business, as well as higher demand across our total portfolio.
On Slide 8, HIV sales were up 7% year-over-year to $4.2 billion, primarily driven by channel mix associated with lower government utilization, leading to a higher average realized price as well as higher demand for both treatment and PrEP. Excluding the impact of the loss of exclusivity of Truvada and Atripla, HIV sales increased 11%.
Quarter‐over‐quarter, HIV sales were up 14%, due to demand and channel mix leading to higher average realized price as well as the favorable seasonal inventory dynamics that we typically see in the second quarter relative to the first. Year‐over‐year, the HIV treatment market grew over 4% in the U.S., and was largely flat in Europe but, sequentially grew over 2% in the U.S. and 1% in Europe. We’re encouraged to see the market recovering and, on a year‐over‐year basis, continue to expect annual treatment market growth in the 2% to 3% range.
Descovy sales in the second quarter were $460 million, up 6% year‐over‐year and 23% sequentially. We are pleased to see continued PrEP market growth with broader awareness and market volumes that are well above pre‐pandemic levels. For the quarter, the overall market growth was up 25% year‐over‐year, and 5% sequentially, highlighting both robust recovery and growing adoption of PrEP.
Despite generic and other market participants, Descovy share in PrEP is holding in the mid‐40 percent range. As awareness continues to grow and the overall market expands, we expect Descovy to continue to play an important role in PrEP, and really look forward to adding lenacapavir as a potential long‐ acting alternative for those seeking preventative care, as early as 2025.
Onto Slide 9, Biktarvy grew 28% year‐over‐year to $2.6 billion, primarily driven by strong demand and channel mix. Biktarvy’s market share in the U.S. grew from 40% in Q2 of last year to 44% in the second quarter of 2022, and continues -- by a wide margin -- to be the leading treatment for HIV, as well as the fastest growing. In fact, Biktarvy’s differentiated clinical profile was once again reinforced this past weekend at the International AIDS Conference in Montreal. At five years, Biktarvy had zero cases of treatment failure due to resistance, as well as sustained efficacy and a demonstrated safety profile in people living with HIV. Notably, this 5‐year trial duration demonstrating zero cases of resistance is unprecedented for an HIV regimen.
Share also increased sequentially, up 1% from the first quarter of 2022, contributing to 19% growth in Biktarvy revenue quarter-over-quarter in addition to the channel mix and the seasonal inventory dynamics we referenced earlier.
Moving to Slide 10. HCV sales in the quarter were down 18% year-over-year due to the channel mix leading to lower average realized price and fewer patient starts, partially offset by higher volume in Eastern Europe. Sequentially, HCV was up 12%, driven by the timing of a large order in addition to higher patient start. Overall in HCV, we maintained steady market share of 50% to 60% both in the U.S. as well as Europe.
For HBV and HDV on Slide 11, sales were roughly flat quarter-over-quarter and year-over-year, driven by unfavorable adjustments associated with the recent volume-based procurement updates in China and offset by higher year-over-year demand and volume growth in all other regions.
Veklury revenues in the second quarter were $445 million, as shown on Slide 12. As expected, sales declined both year-over-year and quarter-over-quarter as hospitalization rates declined in most geographies. Additionally, U.S. revenue reflected inventory drawdown in the second quarter.
While COVID-19 is still prevalent, the most recent subvariants have been less severe and contributed to pure hospitalized patients, although roughly 60% of hospitalized COVID-19 patients that are being treated in the U.S. are receiving Veklury.
We continue to be committed to supporting patients with COVID‐19 globally. Last month, we signed our second Joint Procurement Agreement with the European Commission that enables participating countries to purchase Veklury for a period of up to 18 months. Additionally, the European Medicines Agency’s Committee for Medicinal Products for Human Use, or CHMP, adopted a positive opinion recommending Veklury receive full marketing authorization for the treatment of appropriate patients with COVID‐19. This builds on our prior, conditional authorization, and we look forward to the final decision by the European Commission later this year.
We're proud of our track record of meeting global demand for Veklury since the fall of 2020, and will maintain a readiness to supply the clear where it's needed and have increased our full year guidance to reflect anticipated patient need in the second half.
Turning to Oncology, and beginning with Trodelvy on Slide 13, sales of $159 million grew 79% year‐ over‐year and 9% quarter‐over‐quarter. Sequentially, Trodelvy grew 41% outside the U.S., with particularly strong growth in Germany and France due to increased awareness and adoption. Sequential 7% volume growth in the U.S. was offset by unfavorable pricing dynamics. We expect to see continued growth in the second half, driven by the impact of our expanded sales force in the U.S. as well as reimbursement approvals in the EU.
We are committed to broadening access for Trodelvy and continue to work with regulators and payers around the world. We’re pleased with the recent decisions by both NCCN in the U.S. and NICE in the UK, recognizing the significant clinical benefit of Trodelvy in patients with metastatic triple‐negative breast cancer based on the Phase 3 ASCENT trial. These decisions add to the building support for Trodelvy’s use following positive Health Technology Assessments in a number of other countries.
Trodelvy is the first ADC to demonstrate statistically significant and clinically meaningful overall survival benefit in this mTNBC patient population. In fact, the NCCN guidelines elevated Trodelvy to a Category 1 recommendation for second‐line and later mTNBC, its highest recommendation available. Additionally, while Trodelvy is not approved by FDA for use in the HR-positive/HER2‐negative setting, we are pleased that the NCCN has issued a Category 2A recommendation for Trodelvy’s use for these patients with advanced disease.
Turning to Slide 14. I'm pleased to share some incredibly strong results on behalf of Christi and the Kite team. Cell therapy sales for the second quarter were $368 million, up 68% year-over-year and 34% sequentially, driven by a very strong U.S. second-line launch for Yescarta in relapsed or refractory LBCL, which exceeded our expectations and continued strong growth in third-line plus Yescarta. As a reminder, strong data and an NCCN recommendation, which predated the second-line approval, helped drive our impressive early uptake, especially in large volume authorized treatment centers with a high familiarity with CAR T therapies.
Additionally, Yescarta second-line LBCL is already available in two other large markets: in France through the early access program and in Germany through reimbursement decisions ahead of approval. The decision on Yescarta second-line LBCL approval in Europe is expected later this fall.
Third-line plus LBCL deliveries also increased sequentially and year-over-year, reflecting growing overall awareness and confidence in the use of Yescarta. This follows the presentation of 5-year ZUMA-1 data at last year's American Society of Hematology meeting and more recently, our second-line approval in the U.S.
For the quarter overall, Yescarta sales of $295 million were up 66% year-over-year and 40% sequentially. Of note, Yescarta deliveries increased 67% year-over-year and 39% sequentially, demonstrating the effectiveness of Kite's manufacturing expansion strategy and our ability to meet demand for our cell therapies. We're proud of our reputation for consistent and reliable deliveries that further differentiates Kite's cell therapies and was a continued source of strength in Q2. While we saw very strong demand in the first half of 2022, we expect this growth to normalize in Q3 as second-line usage expand beyond the early adopters and more towards community referrals.
Turning to Tecartus. Sales for the quarter were $73 million, up 78% year-over-year and 16% sequentially, driven by continued demand and expansion into new geographies for relapsed/refractory mental cell lymphoma as well as uptake in adult acute lymphoblastic leukemia in the U.S. Christi is available for Q&A later on the call. In summary, this was a really strong quarter for the entire Gilead and Kite commercial organization.
And so with that, I'll hand the call over to Merdad for an update on our pipeline.
Merdad Parsey
Thank you, Johanna. From a clinical perspective, we made solid progress in the second quarter, including a wealth of data updates spanning our oncology and virology portfolios.
Starting with HIV on Slide 16, we are very pleased to share that our NDA submission for lenacapavir for heavily treatment experienced people living with HIV was accepted last week, and we now have a PDUFA date set for the end of December. Outside the U.S., we received a positive CHMP opinion for this indication, based on data from the Phase 2/3 CAPELLA trial. Week 26 data from this trial were published in the New England Journal of Medicine in May with updated, 1‐year data presented at the Conference on Retroviruses and Opportunistic Infections earlier this year. In this very difficult to treat population, 83‐86% of those treated with lenacapavir achieved virologic suppression at 1‐year, sustaining the rates achieved at Week 26. We continue to expect a decision from the European Commission later this year.
Looking to Trodelvy on Slide 17. We shared new data at ASCO that increases our confidence in Trodelvy's potential applicability across a broad range of tumor types. These positive data from the Phase 3 ASCENT study reinforced Trodelvy's survival and health-related quality-of-life benefit over treatment of physician's choice in patients with metastatic triple-negative breast cancer. We also highlighted positive PFS and quality-of-life data from our Phase 3 TROPiCS-02 study, demonstrating a statistically significant and clinically meaningful 34% reduction in the risk of disease progression or death in light-line, endocrine-resistant patients with HR-positive/HER2-negative metastatic breast cancer, who had received a median of three prior lines of treatment in the metastatic setting after having failed hormone therapy. This study also demonstrated a positive trend in overall survival at the first interim analysis.
The TROPiCS-02 data, coupled with the NCCN recommendation, support Trodelvy's potential as a treatment option for late-line HR-positive/HER2-negative patients. As Dan mentioned, our discussions with the FDA are ongoing on the potential regulatory path, and we'll update you when we can. In the meantime, TROPiCS-02 continues with patients being followed for subsequent planned OS analyses.
Separately, we continue to expand our Trodelvy clinical program. We began screening for patients in ASCENT-03, valuing Trodelvy in first-line metastatic TNBC patients who have PD-L1 negative tumors as well as in the ASCENT-04 study evaluating first-line patients with PD-L1 positive metastatic TNBC.
Moving to Trodelvy in bladder cancer, the ongoing Phase 3 TROPiCS‐04 study is our confirmatory trial designed to enable global registration for Trodelvy in patients with locally advanced or metastatic urothelial cancer. This study follows the encouraging data from TROPHY‐U01 supporting accelerated approval of Trodelvy in the U.S. for patients with mUC. Pending results from our first line expansion cohorts in the Phase 2 TROPHY‐U01 study, we plan to open two Phase 3 studies in front line mUC.
In our Trodelvy lung program, we initiated the Phase 2 EVOKE‐02 non‐small cell lung cancer study in the second quarter evaluating the combination of Trodelvy with Merck‘s Keytruda in patients without actionable genomic mutations. Looking forward to the second half of this year, we expect to begin enrolling patients for the Phase 3 EVOKE‐03 or KEYNOTE‐D46 study in first‐line non‐small cell lung cancer with PD‐L1 expression level of greater than equal to 50%, in collaboration with our partners at Merck. Additionally, later this year we expect to initiate several other Trodelvy combinations, including evaluating Trodelvy in castrate‐resistant prostate cancer.
Moving to magrolimab on Slide 18. We're pleased that both divisions of the FDA have now lifted the partial clinical hold on magrolimab. All magrolimab programs have resumed enrolling patients without FDA requiring any additional protocol changes. Our confidence in magrolimab's potential efficacy and safety profile is unchanged.
At ASCO, we shared MDS and AML data from our Phase 1b study when magrolimab continues to demonstrate high and durable response rates in high-risk MDS with encouraging complete response rate of 33% compared with the historical rates of azacitadine alone. We also observed promising efficacy in patients with TP53 mutant AML with an ORR of 49% and a CR of 33%. Notably, our Phase 3 study in front line HR MDS, ENHANCE, is enrolling nicely and we expect the interim analysis no later than early 2023.
Moving to cell therapy on Slide 19, and on behalf of Christi and the Kite team, it is gratifying to see that more patients are benefiting from our cell therapies given the growing body of clinical evidence. Building on ZUMA‐7 data, we presented real‐world data at ASCO that demonstrated consistent outcomes for survival and safety, regardless of race and ethnicity. And in a sub‐analysis of ZUMA‐7 patients over 65, Yescarta demonstrated more than 8 times greater median Event Free Survival and a clinically meaningful improvement in quality of life.
These data further establish the efficacy and safety profile of Yescarta for patients with relapsed or refractory LBCL, and support ongoing exploration of Yescarta in more settings. We expect to enroll our first patient for ZUMA‐24, a Phase 2 study to evaluate Yescarta in second line LBCL in an outpatient setting, as well as ZUMA‐23, a Phase 3 study to evaluate Yescarta in first line, high‐risk LBCL patients in the second half of this year. Additionally, we expect first-patient-in in a new Phase 3 trial evaluating the use of Yescarta in second line HR follicular lymphoma patients, ZUMA‐22, later this year.
Now to Slide 20. As Dan mentioned, we made steady progress in the first half of the year and continue to focus on clinical execution. The key clinical milestones in the second half include: an update on our regulatory discussions for Trodelvy for late line HR-positive/HER2‐negative patients in the US; a number of potential regulatory decisions, including for lenacapavir, Yescarta, and Tecartus; at least six more trial initiations spanning Trodelvy, cell therapy and domvanalimab; as well as several data updates with our partner Arcus, including Phase 2 data from ARC‐7.
Later this year, we also expect to have interim Phase 2 data for etruma from the ARC‐6 study as well as ARC‐8’s Phase 2 data for quemli. We are encouraged with early Phase 1 data for GS‐5245, our investigational novel oral nucleoside in development for the treatment of COVID‐19. We are discussing these early data with regulatory agencies and are planning to move into the clinic.
We are also pleased to see our earlier stage pipeline with our partners, such as Tizona and Pionyr, continue to advance nicely. For example, Tizona’s HLA‐G program is currently enrolling its dose expansion cohorts and Tizona expects to share interim data mid‐2023. With our robust internal pipeline and external partners, we are confident our portfolio across virology, oncology, and inflammation will deliver many life‐changing treatments to help those patients in need.
With that, I’ll hand the call over to Andy.
Andrew Dickinson
Thank you, Merdad, and good afternoon, everyone. Before I discuss our second quarter results and starting on Slide 22, I would like to remind everyone that following the SEC guidance earlier this year, similar to our peers, acquired in-process R&D expenses or IP R&D, including upfront payments for business development transactions, are now included in our non-GAAP financial measures and reported under acquired IP R&D. As a reminder, the $300 million payment associated with the Dragonfly collaboration announced in May is included in our Q2 results but was not reflected in our prior 2022 full year guidance.
Additionally, we have shifted prior period milestone and opt-in payments from R&D to acquired IP R&D. We believe this presentation better reflects the total costs incurred to acquire IP R&D projects. The most notable example is the $625 million opt-in payment we made to Arcus that we reported in the fourth quarter of last year. There are a few other smaller payments that have been moved, and this slide highlights the changes that you'll now see reflected in our 2021 P&L. I'll further note that this change impacts our 2022 R&D guidance because our R&D guidance is given relative to our 2021 results. I'll touch on that again later in this call.
Moving to our second quarter results, starting on Slide 23. This was a very strong quarter with a notable contribution from both our HIV and our oncology businesses. As expected, Veklury sales were substantially lower sequentially and year-over-year, reflecting the lower COVID hospitalization rates in the quarter. Total product sales, excluding Veklury, were up 7% year-over-year. Foreign currency impacted second quarter sales, excluding Veklury, by approximately $65 million net of hedges. If we exclude this impact as well as the impact of the HIV LOEs, total underlying sales growth year-over-year was 11% in the quarter. For the first half, total product sales growth excluding Veklury was 5%. Also excluding FX and the impact of the HIV LOEs, underlying growth for the first half was 8%.
Back to our reported results on Slide 24. Johanna took you through our revenue results and the drivers there. Non-GAAP product gross margin was 85.6% for the second quarter, down 80 basis points year-over-year, primarily due to the Biktarvy-related royalty following the settlement in the first quarter of this year. Non-GAAP R&D excluding acquired IP R&D expenses, such as milestones and upfront payments, was $1.1 billion, up 6% year-over-year, primarily due to increased investment in development and timing of clinical trial activities, primarily for our oncology business. Acquired IP R&D for the quarter was $330 million, including $300 million related to the Dragonfly collaboration.
Non-GAAP SG&A was $1.3 billion, up 13% year-over-year, primarily due to increased promotional and marketing activities, including for Trodelvy as well as higher corporate expenses, including IT investments and grants. Non-GAAP operating margin was 43%, reflecting higher operating expenses and the upfront Dragonfly payment. Excluding the Dragonfly payment, non-GAAP operating margin was 47.5% for the quarter.
Moving to tax, our non‐GAAP effective tax rate in the second quarter was 19.3%. Our non‐GAAP diluted earnings per share was $1.58 in the second quarter of 2022, compared to $1.81 for the same period last year, reflecting the Dragonfly payment, which represented $0.18 on a post‐tax per share basis, as well as the Biktarvy‐related royalty.
Overall, we had a strong first half of the year, as shown on Slide 25, with growth across HIV, cell therapy, and Trodelvy, offset in part by HCV. Of note, currency headwinds impacted first half total product sales by approximately $180 million, net of hedges, compared with the first half of 2021.
Moving to Slide 26, we are increasing our full year sales guidance to reflect our year‐to‐date results and our expectations for the second half, including our expectations for FX. In addition to the impact in the first half, we expect continued FX headwinds in the second half, impacting total product sales by approximately $200 million in the rest of the year, compared to our initial February guidance
For revenues, we now expect total product sales of $24.5 billion to $25 billion compared to our previous range of $23.8 billion to $24.3 billion. This reflects the strong performance year-to-date, notably very strong growth in cell therapy and HIV, and it also incorporates our expectations for the broader macro environment.
In HIV, we expect modest sequential growth in the third quarter, keeping in mind the strength we experienced in the second quarter. And in cell therapy, we expect flat to modestly higher revenue in the third quarter compared to Q2. Following the launch bolus of orders we experienced in the second quarter, we expect demand to stabilize.
Moving to Veklury. And with the first half revenue of almost $2 billion, we're increasing our expectations to approximately $2.5 billion for the year. Following inventory drawdown in the second quarter, we expect sales to increase sequentially in the United States and to continue to track hospitalization rates. Note that our Veklury guidance assumes no significant increase in hospitalization rates from Q2 levels. Excluding Veklury, we expect our total product sales to be $22 billion to $22.5 billion, representing growth of 3% to 5% year-over-year and compared to our prior range of $21.8 billion to $22.3 billion.
As for the rest of the non-GAAP P&L, there is no change to our product gross margin guidance range of 85% to 86%. R&D, as described earlier, will no longer include BD-related payments such as milestones and opt-in fees. These will be reported as acquired IP R&D along with upfront payments. With this change, we have moved $762 million of full year 2021 expense from R&D to acquired IP R&D. As a result of this change, we now expect full year R&D expense to increase by a mid-single-digit percentage compared to the new 2021 baseline of $4.5 billion. Our expectations for full year R&D expense remained largely unchanged from the start of the year, and this guidance revision reflects only the recasting of acquired IP R&D items, including Arcus, previously reported in R&D in 2021.
Moving to acquired IP R&D. We are not issuing guidance for the full year and similar to what we did with the Dragonfly deal this quarter, we'll update our EPS guidance quarterly as needed to reflect any relevant activity during the quarter. What we have included here is the year-to-date acquired IP R&D amounts.
For SG&A, with our continued investment across our commercial organization and expectations for higher costs as a result of inflation, we now expect SG&A expenses to grow by a low single-digit percentage compared to 2021. Altogether, we expect operating income to be $11 billion to $11.6 billion for the full year compared to $10.7 billion to $11.5 billion previously. Similarly, we now expect our non-GAAP diluted earnings per share to range between $6.35 to $6.75, up from $6.20 to $6.70 previously.
On a GAAP basis, we expect our diluted earnings per share to range between $2.90 and $3.30 compared to $3 and $3.50 previously, primarily reflecting net unrealized losses from strategic equity investments. As a reminder, this revised EPS guidance reflects the $300 million upfront payment associated with the Dragonfly collaboration we announced in May, which was not included in our previous guidance as well as our FX expectations and operating expenses for the second half. The guidance share today does not include additional upfront payments related to normal course of business partnerships or licensing deals that we might announce in the third or fourth quarters. As discussed previously, we will continue to update our guidance as needed to reflect the impact of any new business development transactions closed in the prior quarter.
Finally, on Slide 27, you can see there is no change to our capital allocation priorities. In the quarter, we returned almost $1 billion to shareholders, including $920 million in dividend payments. And just after the close of the quarter, we repaid $1 billion of debt, fulfilling our commitment to repay $1.5 billion of debt this year. I'm pleased to share that as of July 1, we have returned to the same debt level we were at prior to the Immunomedics acquisition.
With that, I'll invite the operator to open the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Brian Abrahams with RBC Capital.
Brian Abrahams
Congratulations on the quarter. I recognize that the discussions around Trodelvy in HR-positive/HER2-negative population are ongoing. But I'm just wondering, broadly speaking, if you can talk about the key things that you'll be focusing on with regards to the data and if there are certain subpopulations you might expect to gear towards from either a labeling or commercial perspective.
Merdad Parsey
Brian, this is Merdad. I guess I'll start with that. For us right now, as we go forward with the study, I think we'll continue our focus on, of course, the OS evolution of the trial. And I think as we see how those data evolve over time, we will use that in our discussions with regulators as we go forward.
In terms of additional subpopulations, of course, we'll keep an eye on a number of things in terms of whether it's line of therapy or those sorts of subpopulations or duration of prior therapy, which were all part of the original analysis. But those were -- it's consistent with what we've already shown at ASCO and the data that we've presented and shared with you. So it will be consistent with what we've already shown.
Operator
Our next question comes from Geoff Meacham with Bank of America.
Geoffrey Meacham
Johanna or Christi, the cell therapy segment which you guys called out had a huge quarter, I'm just curious how much of the demand do you think is sustainable? I mean, was it mostly driven by the new second-line label? Or did the total end market expand meaningfully? I guess I'm trying to figure out whether we reached a tipping point overall for reimbursement access in cell therapy.
Daniel O'Day
Thanks, Geoff. Christi, over to you, please.
Christi Shaw
Yes. Thanks, Geoff, for the question. I'll start with the second piece, reimbursement. Our reimbursement is really good. We have 98% access, and that's Medicaid, Medicare and commercial. Even with the second-line launch, in less than one quarter, we already have -- we already had 94% paid for across the three group. So reimburse in terms of the uptake, your first point of your question, the uptake that we've seen since launch is first primarily due to second line. We've seen the patients that are going for stem cell transplants are the ones that are getting referred instead of that transplant to second-line Yescarta. So that is our initial both.
So what we expect is we've had this 68% year-over-year growth, 34% quarter-over-quarter. But we do believe that this is a bolus, and we expect the second half of the year going forward that -- we expect that growth to normalize to historical rates as that growth becomes more dependent on the referrals from the community. So we expect it to be still a really good growth, but we do believe that this is a bolus in the second line of the patients that exist in the ADCs and for the rest of the year. Just to reiterate that, that growth will return to more historic growth rates.
Operator
Our next question comes from Tyler Van Buren with Cowen.
Tyler Van Buren
Can you guys please provide your latest thoughts regarding the potential impact that drug pricing reform could have on Gilead's business and perhaps Biktarvy in particular given the significant concentration of HIV sales to the product and its longer patent life?
Daniel O'Day
Yes. Thanks, Tyler. I mean I'll start. This is Dan. I mean, I think it's important for everybody on the call to note that we, as a company, and I think as an industry, are very focused on the fundamental issue in the U.S., which is reducing patient out-of-pocket costs. And there are lots of different ways to do that. Unfortunately, the current legislation falls very short of making an impact upon patients. And in particular, the negotiation part of the proposal is really a -- I think a real dangerous precedent in terms of potentially reducing forward innovation.
I think in terms of how -- as you know, Tyler, the bill is still very much in discussion right now, and it's very difficult to determine the full impact. What I would say is, it's several years away, first of all, from the first impact. And of course, in the Part D area of the reform, that could have some impact on our business but also help patient out-of-pocket costs.
I think when one starts to think about the negotiation aspect of the bill, it's still, I think, too premature to think about exactly how that could affect, and it is later in the decade in terms of its impact. So let's take it one step at a time, I think, to first see what happens with the current legislation, the discussions going on in Washington. Rest assured that we are actively involved in supporting what we think are patient-oriented benefits here and adjustments to the program. And then once -- and we'll see where that goes over the coming weeks and months, we'll be able to give you even more clarity on how things might impact our business.
But overall, I would just emphasize the strength of our portfolio is strong. I mean we have tremendous new innovations coming out of the pipeline. We have continued growth in our HIV business and beyond. And I think the innovation cycle at Gilead is very sound.
Operator
Our next question comes from Olivia Brayer with Cantor Fitzgerald.
Olivia Brayer
Are you guys seeing any impact from monkeypox on the HIV business? Is that a headwind you're factoring into guidance at this point for second half of the year?
Johanna Mercier
Sure, Olivia. It's Johanna. Let me take that one on. Speaking with a lot of our specialists across the U.S. but also in Europe, they have seen obviously the rising number of monkeypox. And there is a correlation with both our HIV treatment business but also with prevention because the general percentage, the higher percentage of folks that are experiencing monkeypox are actually men having sex with men. And so obviously, that's the overlap.
So on the contrary, we're not seeing an impact to our HIV business. We're actually seeing more screening and diagnosis that are coming in, in light of that and because of that close association. So I do think -- and the same people are treating. The prevention piece is actually a really important piece of the puzzle to try to prevent moving forward with monkeypox and getting the vaccines in. So definitely more on the positive front of our HIV business and how ever we can support that, that's what we're trying to do right now.
Operator
Our next question comes from Umer Raffat with Evercore.
Umer Raffat
I had a question on a clarification. First, maybe the question. I think, Merdad, you hinted, you are or you will be discussing early oral Remdesivir data with FDA. I'm curious if you saw any viral load benefit as well as whether the EC90 -- how much EC90 tracks above the C trough. And then clarification was on TIGIT ARC-7 because the slides on last quarter implied we're expecting PFS data -- Phase 2 PFS data in the second half, but today's slides only say Phase 2 data. So maybe if you could clarify if there's still a chance PFS could be part of the data update.
Merdad Parsey
Yes. Thanks for the questions. So as far as the oral new program for COVID-19 goes, the Phase 1 study is in healthy volunteers. So we don't expect to see anything other than safety and PK in that study. And all I can say is I think things have gone very well with that trial so far both from a tolerability and an exposure standpoint. So we're very happy with where we are. And now we'll move into the proof-of-concept and clinical development stage. So no viral load data to share.
And then in terms of the ARC-7 data, I don't think -- I guess I would suggest not overreading. We are working with Arcus, and we will -- as the data roll out, we will be sharing data Arcus, and we will be sharing data from the ARC-7 study later on this year and the data that we will have. We're not really detailing what those data are going to look like right now. But be assured that we'll work with them to show data later this year.
Operator
Our next question comes from Matthew Harrison with Morgan Stanley.
Matthew Harrison
I was just hoping you could talk a little bit about Trodelvy demand in the U.S. Sort of sequentially, growth has slowed pretty significantly over the last couple of quarters here. Is that mostly a reflection that you've penetrated most of the triple-negative market and you need label expansion in that growth? Or are there other factors there from a sequential growth standpoint?
Johanna Mercier
Thanks, Matthew. It's Johanna. Let me try to give you a little bit more context. So as you saw from a global standpoint, we had really strong growth across the board. A lot of that growth, as you're referring to, comes from some of the market launches in Europe, namely France and Germany, where there's been a bit of a bolus but also real learnings as to making sure that we increase awareness for Trodelvy early on. And so from a U.S. standpoint, we actually did see strong demand growth quarter-over-quarter. We saw it at about 7%. Unfortunately, it got impacted by unfavorable onetime pricing dynamics. And so that's where you see the net revenues are only up 1%.
No concerns on our end because we do see the momentum actually continuing from a share standpoint, and we definitely haven't maximized our opportunity in Trodelvy. Let me tell you, I think that with the incredible overall survival data and the only overall survival data that's shown in this patient population, there's a real opportunity for us to educate and increase the awareness. That's something that we've been tracking really closely is that awareness piece. We got a little slowed down through the COVID era just because offices and cancer centers were quite shut down. But having said that, that picked up really quite nicely over the last three to four months and we've expanded our footprint. As you may recall, we close to tripled our footprint as of April-May time frame.
Now obviously, as you know, when you do that, you're not -- you shouldn't expect results, I would love it, but you shouldn't expect results within the first month. It usually takes about six months or so to start seeing those through, and we should see those come through in the fall as well as additional countries getting reimbursement as you've seen from some of the HTA decisions that have come through and launching in Europe as well. So looking forward to that, but definitely more opportunity ahead and definitely on track to make sure we capture that opportunity.
Operator
Our next question comes from David Risinger of SVB Securities.
David Risinger
Congrats on the results. So we are obviously in the unfortunate situation in which the government may be working against small molecule innovation in particular, but innovation more broadly. And in light of the possibility that legislation could be signed into law, could you comment on the percentage of Biktarvy net revenue that currently comes from Medicare Part D, just so we have a sense for the potential exposure to Biktarvy drug price controls in 2027?
Daniel O'Day
Thanks, Dave. Do you want to start with that, Johanna?
Johanna Mercier
Yes. Let me start with that. So thanks, David, for your question. I think we touched on a little bit about some of the potential impact. Having said that, from a split government to, I guess, commercial business, it's around -- depending on the different pieces, you're looking at around 40%, 50% versus about a 30% commercial. So that -- what I'm including in that is more your Medicaid/Medicare kind of business, and that's what's kind of playing out to your -- as well as your 340B.
So I think it's really -- I don't think you should look at it more -- just looking at the percentage of the business. I think it's going to be really interesting to see how all this plays out and when it plays out because it's nothing is really going to impact us for quite some time. I would also suggest that we look at the incredible diversity of our portfolio that we're growing year-on-year and also the geographical diversity as well, which I think will really help mitigate some of these pressures as we go forward. But just from a government business, you are looking probably close to 50% of our total business is in the government setting.
Operator
Our next question comes from Salveen Richter with Goldman Sachs.
Salveen Richter
On HIV, could you just comment on what's keeping the screening and diagnosis below pre-pandemic levels and whether you'd expect a full recovery by year-end? And separately, could you give us a quick update on where you stand with [long-acting] programs?
Johanna Mercier
What's the last part? Can you repeat the last part of that question?
Salveen Richter
Where you stand with the long-acting programs when we might see positive data?
Johanna Mercier
Yes. Thanks. You cut out a little bit. Apologies. So let me get the first part of that question, and then I'll throw it over to Merdad for the long-acting. So from an HIV screening standpoint, we're about 8% below pre-pandemic levels, so very much in line with kind of where we were pre-2019. From a diagnosis standpoint, what you're seeing is that 30% or so below pre-pandemic, but that's kind of normal. What we've seen in the past, even prior to COVID-19, we're seeing a decline of the diagnosis rate about 10% year-over-year. And so if you think about three years, that's about your 30%. So not a huge surprise there and good news, right, as you're thinking about how this HIV market is -- its evolution.
What I would like to focus you on, though, is the fact that from a treatment and PrEP standpoint, we are above pre-pandemic levels from a market growth standpoint. And so we feel very confident that the market has recovered. And actually, in PrEP, it's more than recovered. It's actually higher than it's ever been before. So it's actually an expansion of the market. So I think we're in much better shape, and it's taken a little bit more time for treatment. But I think as of Q2, I can honestly say that it is really in a very good place, which is great news for patients.
Merdad Parsey
And from a long-acting standpoint, I'd just reiterate with the PDUFA date at the end of the year for lenacapavir in highly treatment experience, I think that will be the first approval, knock wood, for lenacapavir, and I think that gets us started. After that, remember then we have multiple efforts ongoing. On the PrEP side, we have the purpose studies that are underway. Those are longer-term studies because they're prevention studies, so they'll take a little bit longer to read out. We're looking at few years there, a couple of years, at least for those studies.
And then on the treatment side, we are -- we have a number of shots on goal there, both oral long-acting as well as subcutaneous long-acting. And there, we are -- we have our own efforts. And you may have noticed we have a number of partner molecules that are coming through our pipeline that could be partnered with lenacapavir for a full treatment regimen that would include lenacapavir. And we continue to work with Merck on the potential for lenacapavir combinations with islatravir. So a lot of different options and a lot of work that's ongoing. And as those progress further along, we'll keep you updated.
Operator
Our next question comes from Michael Yee with Jefferies.
Michael Yee
One question but two parts. On Trodelvy, maybe Andy or Merdad, you could remind us, have you actually met with FDA on the potential filing? Or what's the holdup there? And how soon is soon to hear back at this? And I think you've already taken a write-down if it was not to be filed, so that would be a different scenario there. But I don't think there'll be any further write-downs if that was the case. And then maybe just comment on lung cancer opportunity. I think in your slide, you say there would be Phase 3 data in lung cancer next year, and I know that EGS read out next year as well. So just wanted to understand that and your confidence level in lung cancer.
Merdad Parsey
Thanks, Michael. Thanks for the questions. So on Trodelvy, yes, I think nothing has changed from what we said earlier in that we are excited about the data that we generate in TROPiCS-02 and are having ongoing discussions with the agency. And I think if things continue to go well, we will discuss with them the potential for filing. We're cautiously optimistic that, that should be able to continue to go forward, and we'll be able to update you in due course.
In terms of lung, the primary focus for us in lung is actually the initiation of our Phase 3 trials in lung. Whether it's the combination trials I referenced earlier with Merck or some of the other combinations that we're doing, we will have some additional data in line that will be coming -- that will be generated over time. But I think the focus should be on those Phase 3 studies that we'll be reading out. And then maybe, Andy, do you want to address the write-downs?
Andrew Dickinson
Sure. Yes, I'd be happy. Michael, thanks for the question. As you recall, we took a conservative approach to the write-down that we took earlier this year as we looked at the potential path forward. We will continue to monitor on a quarterly basis as we have historically and as we should the progress on the program both in lung cancer and in hormone-receptor-positive/HER2-negative breast cancer, both of which we had caring value on the balance sheet and IP R&D, as you know. So we'll continue to monitor it over time. And each major event, whether it's regulatory discussions or filings or potential approvals, we'll look at that value. Again, we remain confident in the program overall, like where the program is going, and we'll update you as soon as we can on our discussions with the FDA and other regulatory agencies. Thank you.
Operator
Our next question comes from Steve Seedhouse with Raymond James.
Steven Seedhouse
I had another one on Yescarta just given the strong second line launch. I was wondering how you view the market size or opportunity in second line versus some of the potential upcoming opportunities, ZUMA-23 or -24 populations and outpatients high-risk, first-line and if those could be similar legs up and just how you're thinking about the sort of peak overall opportunity here for Yescarta?
Daniel O'Day
Great. Thanks. Christi, over to you.
Christi Shaw
Thank you for the question, Steve. It's really great news for patients right now. Not only is Yescarta being used, but more importantly, we're seeing the class grow. So the use of cell therapy overall is growing, which means instead of the two out of 10 patients receiving cell therapy, more are. And that was really -- the impetus for that was really the second-line approval in April. Also all of the data that you saw at ASH with our ZUMA 5-year data -- ZUMA-1 5-year data of overall survival, ZUMA-7 second-line NCCN guidelines, Yescarta being the only Category 1 NCCN product approved for second line. So we do see that this momentum is starting to happen, where it is the only curative potential that physicians have in this grave disease safer patients.
So as we look to the future, we're very optimistic that we're trying to get this closer to patients in the outpatient setting, which we are doing through clinical trials. And also some of our authorized treatment centers have already published their data on utilization of Yescarta in the outpatient setting, i.e. Vanderbilt. And as we look at the frontline setting, we're in negotiations right now with the regulatory authorities on exactly how do we define high risk for that trial. So I do think we're finally starting to realize the potential of this curative therapy for patients. And I think that this will continue.
I will say, though, that this bolus is -- I'll reiterate what I said before. This is a bolus, we believe, with the second-line launch of this pent-up demand in the [HCC] treating patients who are immune to authorized treatment centers, stem cell transplant. So the heavy lifting is over. We have a lot of work to do to educate physicians in the community to ensure that they're referring patients to treatment centers at a timely fashion. So we do have work to do in education, and that's included in the community and also the -- as we launch in multiple countries across the globe. So we do see a steady growth continuing for the next quarters and years to come.
Operator
Our next question comes from Carter Gould with Barclays.
Carter Gould
I guess one question, one clarification. First on sort of the CAR T business, can you just talk about the phasing of the supply ramp on the manufacturing side to the extent that might help out this year? Should we think about that really just sort of weighted to year-end? And I guess in answering that, if you could also address sort of the EU manufacturing side, we don't hear much on that. And then on the clarification piece, Johanna, I appreciate the comments on sort of the 50% government for Biktarvy. But could you spell out, I guess, Medicare versus Medicaid there? It's been getting a lot of incoming on that.
Daniel O'Day
Great. Christi, do you want to start and then we'll move to the….
Christi Shaw
Happy to. So one of the things we're probably particularly proud of is our ability to supply patients both consistently, reliably into the high-quality standards. And that started with El Segundo, California. But to your point, in the EU, Amsterdam is now supplying all of Europe for Yescarta, and they're starting to do Tecartus as well. And so we expect all of the manufacturing for European patients to move to the Amsterdam site by the end of this year.
In addition, we just opened the Maryland site, which is the first time we'll actually have automation. One of our -- one of two modules of automation is up and running in Maryland. And that had -- that Maryland site has allowed us to actually increase our number of slots for patients by 50%. So we feel very confident that we not only can provide patients for what we have today, but what we have in the future and for the future ramp-up that we have plenty of capacity to supply and continue to ensure that we have the high-quality standards.
The last piece I'll say on supply is we made a decision about 2.5, three years ago to bring in viral vector at Oceanside, California. So we're not at the whim of ups and downs, if you will, of viral vector supply. So we have both internal and external ability to ensure that we can keep that continuity for patients and not be disrupted.
Daniel O'Day
Thanks, Christi. Over to you, Johanna.
Johanna Mercier
Yes. Thanks. So just to clarify, and thanks for allowing me the opportunity, Carter, and maybe give a little bit more insight to the question. I gave you full numbers on government, but obviously, not all of those numbers get impacted by this reform or what we think might be the reform that we're talking about. And so from a Medicaid standpoint, it's less than 20% of our total business. And so that's really what we should focus on as we think about potential for impact. And again, that impact doesn't happen anytime soon. It's really later in this decade. Dan, did you want to add?
Daniel O'Day
I'll just add. Thanks, Carter. I know there's a lot of moving parts here, so I just want to kind of reinforce a couple of things. As you know, there are three different aspects of the bill. I mean one is, of course, the Part D reform. And here, a major difference from what occurs today, instead of 10% in the catastrophic phase, it goes to 20% in catastrophic phase. It is potentially in the second half of the [decade]. I think something -- from our perspective, that as we look at our business is quite manageable.
The second thing is inflation rebate, which I think we would have a low to 0 exposure to. And then the third one is negotiation. I just want to be clear on negotiations. There's a lot of moving parts here. And to Johanna's point, it does not affect the entirety of the government business. Much of the government business is already contracted and under negotiation. And so I really think -- and I'm sure you'll find this with most companies that it's extraordinarily difficult to measure that impact. It also compressed later in the decade. And there's quite a bit of ambiguity about what's products and how and when. And there'll be a lot of discussions should this legislation be passed about the details associated with that.
So again, as much as I believe this is not the right thing to do for the industry, I also believe that we've got a very robust underlying business here and that these impacts are not short term at this stage. So, yes. And just to be clear, on that 20% figure that's...
Johanna Mercier
Medicare, Medicaid.
Daniel O'Day
Sorry?
Johanna Mercier
Medicaid, Medicare.
Daniel O'Day
Right.
Jacquie Ross
Andrea, we still have a couple of minutes. So we will take one last question Andrea please.
Operator
Our last question comes from Mohit Bansal with Wells Fargo.
Mohit Bansal
So maybe, Johanna, if you can talk a little bit about the COVID trends in PrEP market. So I know last couple of years, you took a little bit of price decline just to maintain market share. So where do you stand on the pricing? Has it stabilized at this point? And where does the market share of Descovy versus Truvada in this market stand at this point?
Johanna Mercier
Sure. So let me take that one, Mohit. The -- so basically from a market share standpoint, we basically -- we lost maybe a point or so over the last year, but we're at about 44% market share for Descovy in PrEP, which I think is pretty incredible if you think about the generic competition that we've been facing. The balance of that market share right now is pretty much all Truvada, Truvada generics. There's about less than 1% if you think of aptitude as you think about new entrants in the marketplace. So it's really a mix of Descovy for PrEP as well as Truvada genericization.
The -- from a pricing standpoint, what you were referring to, the -- it has stabilized, although the rebates are definitely higher than what we were doing in the past just because there's choice now. And we are really trying to ensure that Descovy is a choice for physicians when people at risk need something. And so we want to make sure that that's an option for them and making sure that we have the best on the marketplace with -- if you think about the bone and renal safety profile that Descovy can offer.
So that's really why we've been playing in that field, and that's why it's come -- it's put a little bit of more pressure on the commercial fund, specifically on the rebate front. And so I think that's stabilizing, but every year is a new year as we enter negotiations, so more to come as we go into 2023. But for 2022, we're in good shape. And we're also leveraging the incredible market growth for prevention that's been playing out. So all the things are very positive things for Descovy in prevention as well as for people at risk.
Daniel O'Day
Great. So thanks so much for joining today. I just want to thank you again. I just want to reinforce what a strong quarter this was and thank the team for really significant momentum, I would say, in our business. You saw our first quarter or second quarter. We're committed to delivering quarter after quarter on this on both the commercial execution of the pipeline side and really excited about where we stand right now and where we're heading.
With that, I'll turn it over to Jacquie for some closing comments.
Jacquie Ross
Thanks, Dan, and thank you all for joining us today. Please do feel free to reach out to Investor Relations if you have any follow-up questions on the quarter. We appreciate your continued interest in Gilead and look forward to updating you on our progress throughout the year. Thank you.
Operator
That concludes today's conference call. You may now disconnect. Good bye.
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