Conference Transcript - GILD 2026-05-28

Courtney, Analyst — Bank of America

Thank you so much for all being here today. I am thrilled to be on the stage here with Dan O'Day, the Chairman and Chief Executive Officer of Gilead Sciences. This is a company we follow a lot, we spend a lot of time thinking about, and we're very excited to give you an opportunity to tell the Gilead story to a broad set of investors. Perhaps I'll start with letting you just give some opening remarks to contextualize kind of Gilead, the story, where we're at today and what's on the horizon. And then I've got some Q&A that I would love to go through. For all of those in the room as well, please do see there's a QR code dotted around in multiple places, I think on your lanyards as well. Please feel free to use this to add questions to the pigeonhole, and I can then integrate them into the conversation. I really want to make sure it's as relevant as possible for everyone in the room, and we get through the questions that are most important to you all. So with that, Dan, we'd love to get some opening remarks and hear a little bit about the Gilead story.

Daniel O'Day, CEO

Great. Well, Courtney, thank you for having me. I'm delighted to have this chance to chat with you as well and to be with all of you. I think the key message for Gilead right now is that we're really in a position of strength. After seven years of concentrating on our strategy, diversifying the business we really are in a position where we have the strongest portfolio that we've actually ever had in our history and I say that with humility based upon what Gilead achieved before I came but you know our ability to kind of produce you know robust and sustainable growth has never been stronger we have you know up to 10 ongoing or to be expected launches between now and the end of 2027 and that's across all three of our therapeutic areas so it's kind of one of the proof points in fact this year alone we've got four potential approvals new new new medicine approvals one we just actually had with hip cludex the other day but three more to come this year and five phase three readouts and that you know that that will continue of course into 2027 that combined you know with a keen focus on operating expenditure discipline we are comfortably in the top quartile, the margins of the industry. We expect to continue to stay that way with a focus on operating expenses and disciplines. We've got a strong balance sheet, good cash flows. So I think we're really poised right now to be able to make an even bigger impact on patients and a compelling story for investors.

Courtney, Analyst — Bank of America

Fantastic. Now it is certainly an exciting time of expansion and diversification at Gilead. We were chatting about this before we dived into the conversation and kind of opened this up for everyone, but 2025 was a year of significant pressures from the policy side of the equation, kind of MFN tariffs, kind of on-shoring manufacturing, all these different topics.

Daniel O'Day, CEO

As we move through 2026, does it feel like much of that overhang is now behind us um and how is this year different from last year what is it what has shifted and where you're able to spend your time and energy yeah thanks for the question i mean first what i would say is just to just to contextualize uh you know 2025 it was actually an incredibly strong year for gilead we grew our base business at around four percent that despite the fact that you know it was a it was a year where we had to offset a medicare part d reform of about 1.2 billion across our business, so the underlying business growth was was even stronger than that and perhaps the probably the biggest highlight Although there are many highlights in 2025 was the launch of yes to go Which is you know, well, I'm sure we'll talk about but it's just in the very early stages of really making a big difference for for prevention So, you know relative to the kind of you know, the policy environment in In 2026, I think there is, I think, greater certainty in 2026 than there was in 2025. We're one of the companies that did enter into an agreement with the U.S. government that I think allowed us to preserve, you know, our growth business, but also, you know, contribute to affordability of medicines in the United States, but without damaging our innovation cycle overall. But what I would say is, you know, because you're never quite sure of what the next policy is going to be in this country, in any country. And what I've learned after lots of decades in this business is that you have to have an underlying business that can weather those headwinds. And I think we really do right now. I mean, back to what our business is today, we've got a really robust pipeline. I've already mentioned the four launches and the five phase three readouts. You need really strong innovation to weather any headwind. And I think the type of innovation we have, Lenacapavir, Aneetocel coming up, BicLen, others, I mean, it's really kind of transformational medicines. And those medicines, you know, that's the starting and perhaps the ending point for all of this. If you have truly transformational medicines, they make their way through policy headwinds. But in addition to that, of course, we're highly focused on the execution of our launches, continue to drive our portfolio, keen attention to operating expenditures, and the fact that we've been able to navigate you know headwinds in the past like I just mentioned in 2025 gives us a lot of confidence in even the unknowns that may come in the future for this in terms of our focus as a company you know strategy is a long term you know long term game in our industry and I'm what I'm really impressed by what the team is able to do is just we've stuck with our strategy of diversifying within virology, and we have many, many launches in HIV that I know that we'll talk about that will help us diversify our business within HIV. We don't have any major patent loss of exclusivity until 2036, and lots of time to kind of allow us to diversify that overall HIV business in both treatment and a growing prevention market. But then also, you know, the strength of our oncology business today, and the expected launches, including first-line triple negative breast cancer for Tredelby, which we're expecting in the second half of this year as well, as well as an EtoCell launch, gives us a really, those are near-term activities. I'm sure we'll also talk about Tubulus and some of the other aspects of the oncology portfolio, but gives us a lot of confidence in that growing oncology-differentiated business to differentiate outside of virology, so to speak. And then a really exciting inflammation portfolio that we'll be reporting more data on this year around some novel small molecules that we think really have the chance to make a difference in that large inflammation autoimmune space as well. So that's kind of how we think we're going to stick with that focus. It's important to have a focus. It's important to execute every quarter, but I think that strategy has served us well to date, and we're still very much in the middle of rolling that strategy out. So we want to stay focused on that regardless of things that may be happening outside the company.

Courtney, Analyst — Bank of America

Absolutely. And one of the things that I think Gilead was perhaps in a better position to weather last year than some of the other pharma companies was around manufacturing geolocation and kind of where you were based. and you've got a very strong local manufacturing footprint in Gilead. Did that mean that you kind of did you need to make any more additional manufacturing commitments for onshoring with this administration? And how were the policy pressures or the policy changes or the Tax Cuts and Jobs Act influencing how you then think about manufacturing locations as you expand that portfolio that you just touched on, the inflammation, the oncology, et cetera?

Daniel O'Day, CEO

Yeah, I mean, maybe to start with, Gilead is, you know, going to be celebrating its 40th birthday next year. It's young. It's young. It's a U.S.-based company. The last, the largest, you know, the large majority of our footprint is in the United States. That includes probably greater than 90% of our R&D is in the United States, but certainly the vast majority of our manufacturing base is here, too. Now, having said that, and we've said in the past, as a result of that, but because the vast majority of our IP is also domiciled in the United States, our exposure to any potential future tariffs was always on the low-end side, and certainly non-sector tariffs that we're managing today are very manageable within our guide and within our business. But what I would say is because of the growth that I just spoke about, we do need to continue to invest, and we announced last year around $32 additional billion of investment over the next several years in both manufacturing and research facilities in the U.S. We've got buildings going up right now at our headquarter campus in Foster City and both the research side and the manufacturing side just to kind of, you know, manage our growing portfolio. We've got facilities in Maryland and elsewhere for our cell therapy business. So I think we've got a really robust, well, first of all, we have a global supply chain that has multiple redundancies into it to handle, you know, issues associated with geopolitical concerns. Number one. Number two, we are we are we are continuing to invest around the globe, but disproportionately in the United States to make sure that we have products here for our most important and largest market in the world. So I think those are that's kind of the way we think about it. Again, these are long-term decisions. They can't be overly influenced by short-term policy. But I think we're in a very good position vis-a-vis U.S. policy.

Courtney, Analyst — Bank of America

That's super helpful, super helpful context setting. And particularly, as you touched on those focus areas of the business, I do want to dive into Yes2Go. This is an incredibly important product. For those in the audience that don't know the name Yes2Go, This is an HIV prevention product, twice yearly injection in contrast to what has largely been a once daily market up until this point. You've also got a once daily that's been in the market for a long time as well. How should we think about the kind of progression of patients coming into this market, particularly into years to go? What are new patient starts going to look like as we think about the evolution of the PrEP market? but it's obviously relatively nascent compared to the HIV treatment market, much newer. But how should we think about the progression? Where will we see that growth come from? Is it going to be at a cannibalization impact to other parts of your business? How do we think about kind of years to go as a net add to Gilead's growth in the future?

Daniel O'Day, CEO

You've framed it really well, just to make sure everybody understands what we're talking about. So, I mean, the treatment business is a large business today. It grows at about 2% to 3% a year. And I think there's opportunity with long-acting treatment to get to portions of the population that have HIV in this country and around the world that aren't well served by a daily oral today, which is part of, and we may speak about that, part of our long-acting program and treatment. In fact, you'd be surprised to probably know that 30% or so of people that have HIV in this country are not virologically suppressed, either because of their living circumstance or because they just may not have access to health care. But taking a daily pill can be difficult. But we're going to see continued evolution in the treatment market over time that will be important. But to your point, the prevention market is really quite new in the grand scheme of things. And just to put that into context, CDC had identified about 1.2 million people in this country that could benefit from PrEP. That's been the number they've used for the past five or six years. Recently, they updated that to around 2.2 million people. So they more than doubled it. And part of that is, of course, the evolution of technology. Because again, just as I mentioned with treatment, it can sometimes be difficult for people to take a daily pill. Can you imagine if you don't have a disease, how difficult it is to be compliant on a daily pill regimen? It's not good. It's less than 50% compliance for people that are on PrEP today. So it's an evolving market. And very importantly, our objective is to end HIV globally over the coming decades. But the only bill you have to do that is to, number one, make sure that everybody has HIV as well treated. because if they're well-treated, they can't pass the disease on. So that's one way you stop the infection rate. And the second piece, which is why prevention is so important, is you've got to get at people that have the potential to be exposed to the virus and put them on PrEP. Both of those combined over decades, I think, eventually stops it. But the reason that long-acting prevention in Lennon-Capavir is so important is because so few people that can benefit from PrEP are either on it today or compliant with it today. So just to put that 1.2 million figure, or the 2.2 million figure into context, in 2022, there were only about 200, 250,000 people on PrEP in this country today. It's actually grown significantly. So now we're at about half a million people that are on PrEP today, as we expect to hear today. We expect that market to grow to more than a million, or at least a million people by the mid-2030s. So there's tremendous expansion of people on PrEP, which is the first thing. But secondly, the ability for people to be more compliant, you know, is vastly improved with the long acting. So if you think about it, with a once every six month injection, you essentially assure compliance for six months. And then, of course, when people come back, you assure compliance for another six months and another six months. So it's really, it's been touted as one of the most important advances in HIV, and for good reason, because if you can really assure that compliance when people are potentially exposed to the virus, then you can really reduce it. So it's good for people, most importantly, it's good for payers, because if they're going to be reimbursing something, they want to make sure it has the impact. So all this comes together to suggest that we've got tremendous growth potential with long-acting PrEP and Lenin-Capavir in particular. Just to put that into context, while I said the treatment market grows about 2% to 3%, the prep market today is growing around 14%. Our business, our prep business in the first quarter of this year grew 87%, just to put that into context with Len and Cafavir entering the market. And what I'm trying to give you an impression of is we're still at the very early stages of kind of penetrating that market over time. So long-acting, just out the door is very good. VDS2 goes off to a very good launch, only about less than a year since we received the approval. And we're already working on other opportunities to extend that. We actually have a once-a-year program that has been fully enrolled now, and we expect to potentially be launching a once-a-year version of this as early as 2028. So these are really important dynamics, of course, for our business, but also for the societal impacts that it can have.

Courtney, Analyst — Bank of America

Absolutely. Absolutely. And as you think about that once-year opportunity, does this translate to a pure increase in adherence, or do we think that this perhaps entices different patients to come in? Do you think about these as different categories, or just a better version of what we have today?

Daniel O'Day, CEO

Well, I think both. I think for some people, they'll still want an oral alternative, but for many people, the longer-acting every six months will fit into their lifestyle. It'll connect with when they see their physician for regular STD testing. So I think clearly the twice a year is very important. But to your point, I think the once a year extends it to potentially even more people. Of course, some people will prefer the once a year versus the twice a year. It's an intramuscular injection likely than a subcutaneous, so there's those pieces of it too. But very importantly in what you said, back to kind of the underpenetration of the market here today, there are 700 new cases of HIV in this country every week which usually astonishes people and it's in very concentrated areas like we have down to the zip code level where HIV is spreading a lot of it happens to be in the rural south these days but populations that you have stigma and discrimination associated with HIV where a daily pill is just not going to fit into their lives. So I do think that we bring more people into care with longer acting. It's more discreet. We have different physicians that will be more comfortable with prescribing that. Black women in this country are more exposed to HIV, Hispanic men. And so when you get to different physicians that are not common prescribers for PrEP today, but you give them options that allow them to assure compliance for their patient population. I think our objective is to really get everybody that can benefit from PrEP into care. And the longer actings, the once a year in particular, but also the every six months, are going to be the type of product that will fit into those people's lives, into those people's circumstances. It can also be people that are unhoused that just don't have access to daily medications. So yes, very clearly it expands it. But most importantly, we want to have options, as many options as possible, in both treatment and prevention that meets people where they are. So whether that's a once-every-day oral, a once-in-treatment, for instance, a once-a-week or a once-a-month oral, or a once-every-six-month injection, different people will need different things for their life. We want to have every solution for people in both prevention and treatment that allows us to meet people where they are.

Courtney, Analyst — Bank of America

And to that point, I think the HIV treatment strategy that you have kind of developed has been that menu of options kind of offering. And you're already the leader in HIV treatment with Biktavi. This is a pretty incredible product. I think it's north of 50% market share these days and has continued to pick up even recently. You've also got a daily doublet launching this year, which is Lenacapavir from Years2Go plus Bictegravir from Bictalvi. You've also got a once-weekly oral launch. This one is shared with Merck. It also has Lenacapavir in it, but one of Merck's products. Plus a lot of other longer-acting agents kind of earlier in development. How do these future innovations fit together, particularly given you already have dominance in this market. How do you think about kind of what does this do to your portfolio over the long run by continuing to introduce these new innovations?

Daniel O'Day, CEO

Yeah, thankfully I get to work with scientists every day that kind of never settle for great. Like they're constantly innovating. You know, we got to a stage with treatment and prevention where it's hard to beat the efficacy results. So we've been moving, and safety results, and very low resistance results. So we've been moving from efficacy and safety to longer-acting options, back to what we just discussed. So, look, these things all fit in. I'll just talk about some of the near-term things that you mentioned. So, importantly, BIC-LEN, which is kind of our next expected launch in HIV, is an alternative daily pill. But it's a daily pill based upon decades of research that kind of has the both, it's a doublet, so it's two medicine combined together, but it's kind of the most advanced areas in each of those single medicines. One aspect of that medicine is lenocapivir, so it's a capsid inhibitor for those of you. Lenocapivir is the first capsid inhibitor in HIV, so it's a brand-new mechanism that's shown to be very robust and very effective against resistance. The other one, the Bictagravir piece of that is from Bictagravir. Putting those two together allows us to, first of all, meet people that may have resistance issues with other medicines on the market, but it also provides us within Gilead with the opportunity to provide people that want to switch, and sometimes people do want to switch their therapies. In fact, about 20% of people on treatment regimens today, daily oral regimens, switch in a calendar year. Today, we don't have another daily oral option for them to switch to, so if they're going to switch, they may go to a competitive product. With BicLen, we'll have another daily oral option that is really on cutting-edge science that they'll be able to switch to as well. So I think that's one aspect of our strategy. But then back to the long-acting piece of it. But yes, you mentioned we're expecting clinical trial readouts in the second half of this year on Islatravir, which will be the first, in collaboration with Merck, the first weekly oral medicine. Again, that provides people with options that struggle to take daily, to take weekly. But we're not stopping there. We have additional weekly regimens that we're working on. We have additional monthly oral regimens. and then we have two kind of once-every-six-month regimens that we're working on right now that would be injectables. The reason those are important is, again, to get to those 30% or 40% of people that aren't virally suppressed today, but also to meet people where they are. Maybe they were able to take a daily pill at a certain stage of their life, but now they desire or want a less frequent dosing interval. So what you want to do in the innovation piece and never settling for great is just continually innovate to allow us to have the right option for that particular patient. And as I said before, the only LOE we really have in our portfolio is BICTARV, which is in 2036. By the time we get to 2036, we will have launched multiple different long-acting treatment regimens that will meet people where they are. And as great a product as BICTARV is and will continue to be a very important product until 2036, we will be less concentrated on our Bactarvi revenue by 2036 because of all these new entrants and new launches. So that's part of our strategy as well. Of course, meet people where they are with products that are even more advantageous to them than Bactarvi before the loss of exclusivity.

Courtney, Analyst — Bank of America

Fantastic. It's really exciting to see kind of that continued focus on innovation, even though the efficacy bar is already so high for this patient, which is really wonderful to see.

Daniel O'Day, CEO

I would say one other thing, if you'll allow me. It's not commercially relevant to us, but it's very important to us at Gilead. Two-thirds of the HIV cases in the world are in sub-Saharan Africa. And we have programs. I'm really proud of what the team has done to get our medicines at no profit to Gilead or through voluntary generic licenses royalty-free to the developing world. And we do this with treatment and prevention. But what I'm most proud of the team is it normally took at least several years between a product being introduced in the United States and being available in sub-Saharan Africa. With Lenacapavir, because of all the planning that went into really starting with the clinical trials, because we knew this would be groundbreaking, we had it launched or available in the first sub-Saharan African country in five months after the launch of the United States. And we've worked with Global Fund, we've worked with PEPFAR, the State Department, and then generic manufacturers, which should be entering next year to really scale this in sub-Saharan Africa in a way that reduces the incidence of this disease. It's important to me, but it's important to everybody that works at Gilead that we are doing our part with infectious diseases and particularly that know no boundaries to suppress them globally and around the world.

Courtney, Analyst — Bank of America

Absolutely. It's incredible to see the impact that can potentially be had with these longer-acting agents in those environments where that compliance is even more challenging often. I do want to pivot away from HIV, even though it is the core of Gilead kind of today, and you are on this diversification journey, and you spoke about oncology. You've obviously got kind of different types of assets in that space, including kind of the kite business. You've also spoken about inflammation. Recently, you announced three acquisitions, in very quick succession um there seems to be a thing with with pharma companies this year kind of lots of deals all at once um you announced a an acquisition of tubulus which is an oncology and this is an antibody drug conjugate company an acquisition of oro which is an immune immunology kind of t-cell engager company and you announced an acquisition of our cellix which is a CAR T focused company with the lead asset there being a needle cell how and why was Gilead able to do three transactions in such quick succession and as you think about the work still to be done kind of where are the portfolio gaps what are the things you're looking for why are you looking externally rather than internally and building kind of this best diversified portfolio.

Daniel O'Day, CEO

Yeah, terrific Boy, there's a lot in there, but I'll try to cover it, and you'll keep me honest. What I would say is just because we're switching from virology to our other therapeutic areas, I think the team is very excited about what we're building in oncology. Today, it's basically two different kind of core anchors. One is Tredelvi, and the other one is our cell therapy business, where we're the world leaders in cell therapy. In both of those areas, we have new launches coming up. I mean, in Tredelvi, we've got, pending with the FDA right now, a first-line triple-negative breast cancer indication, which would more than double the market for Tredelvi, where we're already leaders in second line and beyond in triple-negative breast cancer. It's very important. And we have other Tredelvi readouts later this year in lung cancer and gynecologic cancers. And then with our cell therapy business, we are very excited about Aneetocel. It's one of the acquisitions, so we'll talk about that. But in EtoCell, we see it as a highly differentiated cell therapy product in multiple myeloma, which we can come back to. But very exciting in terms of curative, you know, potential, as we've seen with lymphoma. We're also pursuing now in multiple myeloma disease that really needs options for patients as well. So that's just to kind of set the scene for oncology. Now, let's talk a little bit about the acquisitions. The vast majority of what we're doing within the company comes from our internal research portfolio. In virology, now because of our established oncology portfolio, and inflammation, which we'll talk about. But inflammation, the vast majority of the medicines that are in phase two right now that you'll hear some more data on came from our Gilead scientists. So, I mean, that's the core of what we do. Of course, we have to supplement that with external innovation. Number one, it keeps us honest. to make sure that the things we're doing internally compete well with what's going on outside of our company. I always say you always want competitive pressure on your R&D portfolio. Every internal program should have to compete with the best science externally and vice versa. And we draw the bar high on that, so that's good. The fact that we just did three acquisitions in a short period of time is not a reflection at all on the strength of our portfolio. It's the fact that there were three opportunities that just happened to come up at the same time. We've said our M&A strategy is the following. We do about a billion dollars of M&A every year on early-stage assets. That's really important to feed our early-stage pipeline. And then we said, you know, every couple of years we'll do something, you know, of a larger size, kind of mid-single-digit accordingly. Now, the last time we've done something of a larger size is actually two years ago. That was SEMA Bay. That's Liddell Z, which is a product that is now really in a very exciting launch phase right now and doing very, very well. But we've gone two years. Now, the reason we went two years is not because we weren't looking at things constantly through those two years. In fact, we scrubbed everything that came available in all three of our therapeutic areas. But we were also, we said we're going to be proactive and disciplined. Because we have, you know, a long time before our LOE and because we have a robust internal portfolio, We have our own metrics in terms of what discipline means, but it is a high bar. So first of all, it has to fit in our strategy. Secondly, it has to be really transformational medicine. But B, we have to be confident that we're spending our shareholders' money in a way that makes sense. We're not going to pursue something beyond a reasonable intrinsic value analysis. And so that's really important to us. And that's why we haven't done things for three years, not because we haven't seen interesting things, but in some cases, and we've been involved in many transactions, we've stepped away because of the discipline piece of it. But the three of these, we were able to find the sweet spot all at the same time. It was opportunistic. We have a tremendous cash flow in our business, so we have lots of firepower to put to work. We don't feel like we have to put it to work, but we were capable of doing three in a row like this. And each of them is very different. and happy that we can talk as much or as little about them as you want. Arcelex is that cell therapy multiple myeloma product that we had a partnership with, but we felt like owning it outright, this was the right time to do it, both from a valuation perspective but also a strategic perspective. We may come back and talk to that. Tubulus, a very important platform play. We acquired Trodelvi, gosh, about six years ago now, five, six years ago. It's this antibody drug conjugate. It's similar to cell therapy. It's a novel kind of approach to cancers. You're killing only cancer cells and saving normal cells in your body. But we have been looking for kind of the next generation ADC platform for about five or six years after Tredelvi and haven't found it until we found Tubulus. We think Tubulus is really unique. It's a private company in Germany. We had a research collaboration with them. But we think, and ADCs are made up of a protein, a linker, and then a payload. The payload is the killing function. The protein attaches to cancer cells. And the linker is really important because the linker makes sure that you don't discharge your chemotherapy before it attaches to the cancer cell. I won't get into more detail than that. Other than we think that the tubulus platform is met our bar of truly differentiated and unique. In other words, it has a really good therapeutic index. It allows us to get to cancer cells in a way that has low or minimal side effects, which is particularly important when you talk about combination therapy. So if you use an ADC in combination with another agent, whether it's a biologic or chemotherapy, you want this ADC to have a really good therapeutic index. So we're very excited about that. The LEAD program is an ovarian cancer program where we think we believe we can be best in class. And we're progressing that very, very quickly. But it's important to know that with Tubulus, that is a very broad platform that we can take into other types of cancers with other payloads and other linkers and other proteins. So it's much more than a single product acquisition. It's really a platform acquisition that fits really nicely into our portfolio. And then finally, the Oro transaction is exciting. It's earlier stage. It's more of a single asset. but it allows us to think about B-cell depletion in autoimmune disease inflammation largely. And what that means, B-cell depletion, for those of you that aren't deep in the space, is it's kind of the next stage of advancement in autoimmune diseases by allowing you to kind of reset the immune system in an immune system that's gone haywire for whatever reason in a person's body. So I think that's kind of how we think about those three. and we're very busy now integrating those companies in and delivering on those.

Courtney, Analyst — Bank of America

Absolutely. I'm sure there's a lot of work to do for that integration. I do want to spend a moment on an ESL, particularly given that you've got a launch, ideally, that's upcoming with a Piduva date with the FDA in December. Can you touch a little bit? You mentioned it briefly, but can you touch a little bit on the efficiency that you believe is gained by wholly owning this asset. You mentioned valuation, but also other benefits. And can you think about a framing for us kind of where you think the street is underappreciating kind of the potential of this asset, even in those first early years, kind of we look at some of the metrics around the CVR deal terms, especially the goal and the milestone there is quite distinct compared to, It's almost double what the street is expecting over the same period. And so understanding what do you think the street's getting wrong about that launch would be really fascinating.

Daniel O'Day, CEO

Yeah, absolutely. Maybe just to frame what this is. So AnitaCell is a one-time cell therapy that is used in multiple myeloma that has the potential to really transform the course of the disease. It's a BCMA-directed therapy. There are both strategic and financial reasons for why we decided to own all of our cell Let me concentrate on the strategic areas. The reason we think this is a unique asset, there is another cell therapy asset available out there, and it has a profile in such that it has neurotox side effects, some severe neurotox side effects. The reason that's important is that as you go into earlier lines of therapy, multiple Myeloma can be a disease that people live with for 10 years. Eventually, there is no cure for multiple myeloma. But as you go up into earlier lines of therapy, the benefit-risk profile becomes even more important, right? We haven't seen any neurotox side effects in an EDO cell. So while cell therapy can have a significant impact on multiple myeloma, you don't want to, in turn, give somebody another disease that they live with for the rest of their life. And even though that chance is smaller from a percentage standpoint, you still don't want to enter that into the equation. So the strategic reason to fully own AnitaCell in this very competitive but also large market, it's around a $20 billion market, all therapies within multiple myeloma, is that we need to move fast at this stage. We had de-risked AnitaCell in our collaboration with our cell X to a degree where we felt comfortable owning the whole thing for us and our shareholders. That allows us to excel. It's going to start in fourth line plus multiple myeloma. Owning it alone, you know, anytime you have a collaboration with another company, things slow down. And we have a huge sense of urgency around this. So the ability to get into second line, first line, potentially even the smoldering myeloma drastically improves, and therefore the area under the curve of your revenue improves if you own it outright. So that's also the financial aspect. The other thing is this product is so unique that to have the rights to be able to use it in kind of next generation cell therapy, which is the in vivo cell therapy, was something we didn't have in our current collaboration. So this gives us full rights to use this construct in kind of future areas, which, again, I think is very important as you think about the overall strategy. And then finally, you know, any time you have one product, one company over two companies at a launch period of time, we think there's efficiencies to be gained by having a single company launching. You only get one chance to launch a product correctly. And I think it just gives us a chance to make sure we get the best launch accordingly. And then finally, from a valuation perspective, I mean, clearly we know this asset better than anybody. We were the natural owner of this asset in its totality. I think we see the potential of this stronger than the street. Our intrinsic valuation was clearly stronger than the street. Plus, we had economics associated with our partnership, including royalties and milestone payments, that we now take off the table and are incorporated. So we feel very good about the financial aspects. I think it was a unique window of opportunity to think about acquiring it outright in terms of where our selling was trading and how the street felt it was and how we felt it was. So there was a real opportunity to kind of, I think, a one-time opportunity to own that outright. And, you know, we intend to be very focused now on executing on this and delivering on that.

Courtney, Analyst — Bank of America

Absolutely. And you mentioned that obviously you've got kind of four and more launches in flight or on the way. You've got kind of the internalization of these recent acquisitions. does that take kind of M&A off the table for a while in terms of you've just got your hands full? How are you thinking about kind of continuing to add to the business over the next few years?

Daniel O'Day, CEO

As I spoke about, you know, about a billion of our M&A every year is on the early stage stuff that will continue. Clearly, we have, you know, we want to concentrate on integrating these assets well. So I think by very definition, you know, in the very near term, you know, I wouldn't expect that we're going to enter into many more transactions. Having said that, you always keep the opportunity open. I mean, just to put it into context, we are a very strong cash-generating business, and even with all three of those acquisitions, 11-some billion combined, we'll be at the same net debt level at the end of this year as we were before these acquisitions. So just to put that into context, my point is we'll have firepower again should we need to use it. Having said that, just pragmatically, we've got these to integrate, and we're going to continue to stay proactive and disciplined in our approach in M&A. So I'm comfortable that we always have that opportunity. Again, because of the robustness of our portfolio, there's no urgency. There's no fire drill going on around that. Every external asset has to compete with our internal portfolio that's getting stronger and stronger every day. So I think that'll be our approach. But as we've always said, We always want to make sure we are complementing our internal portfolio with attractive and interesting late-stage opportunities with some regularity every couple of years on average.

Courtney, Analyst — Bank of America

And as we think about this portfolio continuing to diversify, you'll have kind of an increasing portfolio of phase three studies that are ongoing. It appears, at least, kind of looking at all the different things that are perhaps getting ready to move into that pivotal stage. Should we be thinking about R&D spend in absolute form increasing at Gilead as we think about kind of fully realizing all of these opportunities you're bringing into the pipeline? Or are you getting more disciplined at prioritizing which phase threes and so the envelope will stay roughly the same? How are you thinking about kind of that investment in future innovation kind of getting to translating to revenue through pivotal studies?

Daniel O'Day, CEO

Yeah, look, I'm very comfortable with the percentage of R&D spend we have right now at Gilead in relation to our revenue. It's roughly 20%, and I think that equates to good quartile spend across the industry. I think we should be disciplined about that. We had to increase it over the past seven years. We were kind of at the low teens level when I came in. hard to drive a business in the medium and long term at that kind of investment level in R&D, so we have purposely and with shareholder support been able to increase that number to a percentage that I think is competitive and important. And there's a couple of dynamics on that. Even with all three of these acquisitions, we will still have, as we talked about in our first quarter call, we have a slight increase in R&D expenditure this year, but it's all in our guide and manageable or in a revised guide, and it's still in that 20% range. As you know, with a portfolio in biopharma, you constantly have clinical trials rolling off and new trials starting, and that's how you kind of keep that 20% R&D investment, keeping the bar high while still maintaining your focus on discipline and approach there. So I would say, because that's an important line item in our P&L, of course, and an important part of our margin story. It's why I continue to remain confident that we will continue to have top quartile operating margins in the future. We'll be disciplined in our operating expenditures. We have lots of opportunities to continue to improve our productivity in the organization while we're growing and while we're investing appropriately in R&D and SG&A. But we really want to scrutinize everything we're spending and stay a high-margin company and a good return for shareholders.

Courtney, Analyst — Bank of America

Absolutely. You've led me to where I wanted to go next, which was kind of AI and the potential for AI in the industry at large, but specifically at Gilead. I think we're hearing from lots of companies that they're looking for productivity or efficiency gains in lots of different parts of their business, be it the SG&A, be it some of the back office operations, be it even some of the operations in R&D. We're also hearing from some at the beginning to kind of see opportunities in the innovation lever also being bent, that curve also being improved by the application of AI and investments there. Can you just give us some context as to how Gilead is and how you are thinking about the potential for AI and in your business, where could it add value? When might we see the impact of this? And what are some of the practical things that you're seeing improvement on today?

Daniel O'Day, CEO

Yeah, terrific. I mean, it's something I spend a lot of time on because, you know, if I'm up in the middle of the night, I'm thinking about the opportunity, I think, that AI presents to accelerate what is already a fast-growing additional understanding in biological sciences combined with kind of AI and all the things that you spoke about. So I think broadly speaking, there are two very large kind of buckets that we think about in AI in the company at Gilead, and it's not that unique per se, but one is making sure we enable every employee to be more effective at their job. And so we've rolled out, you know, co-pilot to every single one of our employees, and we're really, you know, training and encouraging people to do individual experimentation to make themselves more productive and you know well you know it's too early to kind of tell exactly how that's playing out but I anecdotal feedback is very strong the other one then is to your point just fundamentally you know looking at use cases in our business that allow us to reduce timelines increase success rates and reduce overall costs and expenditures. So I think the lower-hanging fruit there is kind of what you articulated, the productivity gain, whether that's in particularly the development part of our organization, manufacturing and sales, but also G&A. And I can say we already are benefiting from those, right? It's still early days, but I think we're definitely benefiting from that. I'll give you a couple of examples. I mean, our clinical trials, we're able to shorten clinical trials by being more effective at using AI with identifying clinical trial sites. We're able to reduce the period of time it takes from last patient kinetrial and data closed to regulatory filing. Even if you're saving weeks or a couple of months, that makes a big difference. And that's why I'm also confident in the margin side of our business that we're just at the early stages of trying to pull all that productivity gain through. I think the more challenging thing is something that is, I think, sometimes oversimplified is its application to early-stage research. And if you like, new target discovery and new target development. While I'm very excited about that, and it is starting to, you know, the classic example everybody uses here is protein folding, of course. And if protein folding took 18 months in the past and you bring it down to six months, that's a significant advance. But when you think about AI application to early stage research and discovery, there's a couple things that I'm reminded by my scientists of all the time. Number one is, unlike maybe other industries, what we know about biological sciences is actually very small. Probably less than 10% of biological knowledge we actually know today and the trillions of cells in our bodies. So that means that 90% is unknown. And, of course, AI works really well when you apply it to well-constructed models. So, sure, it will help us accelerate our knowledge of the other 90%, without a doubt. I'm convinced that will occur. But it's also not going to happen overnight. It will take human beings and human ingenuity to grow that. So I think that's the first thing. The second thing I would say is if you think about research discoveries, so identification of a molecule up until maybe entry into humans, let's just say that's a 100-step process. There are probably five steps of this problem, I'm just using an example, that are being accelerated. But there's like another 80 that still need, you know, I mean, you need wet labs. You need to test that AI-generated molecule in animals and then in humans. And those things aren't necessarily going any faster today. So I'm very confident. Let's just take lenocapivir. Lenocapivir took 17 years to get from concept to an approval. I'm very confident in the next five to ten years, we'll see that time period go down drastically. It's not going to go down to two years, but let's say it went down to ten years or 11 or 12 years. The massive R&D productivity improvements in our industry that we'll be working with. So I'm sobered by what my scientists tell me, but I'm also very clear-eyed that we have to keep up with this and make sure that we're on the cutting edge of this.

Courtney, Analyst — Bank of America

Absolutely. Absolutely. You know, it's an incredibly exciting time, but there are long cycle times in this industry. And it takes a long time to see that pay off. And certainly for us observers on the outside, we're kind of trying to pair through kind of all the blindfolds you guys have around, all the great innovation you're doing to try and figure out when might we see kind of the real impact on that innovation question.

Daniel O'Day, CEO

Absolutely. Absolutely. Absolutely.

Courtney, Analyst — Bank of America

Just in the last couple of seconds that we have, you mentioned margin and kind of Gilead has obviously continued to hold a very high margin and perhaps even expanded it even more recently. In some ways, when you look at companies that have done that, it's where they have real concentrations of their business. And we know HIV kind of scale really affords kind of some of that efficiency in your organization. Is this something that can still hold as you diversify your business? How do you think about that evolution?

Daniel O'Day, CEO

I mean, obviously, margin is a function of where your opportunities are and where you're heading. I'm very confident that for a variety of reasons, it will continue to be a high-margin business. Number one, you know, I think the therapeutic areas that we are concentrated on are generally, you know, higher-margin businesses overall. Number two, back to the conversation we just finished, we're continuing to have a real focus on our operational expenditures. And we've come a long way in the past seven years. But I'm also convinced we still have a long way to go at Gilead. So continuing to focus on the cost base as well as the gross margin base on a particular therapeutic area are both dynamics that I think we're going to continue to manage accordingly here. So I'm confident that if you keep the bar high enough for transformational innovation, that society will reward that accordingly. So when I think about the difference that lenocapivir could make, for every HIV person that's infected, that's a lifetime cost of about $1.1, $1.2 million. So when you think about the economic benefits of society of transformational innovation, that's also something that we keep the bar high on at Gilead and allows us to be confident about our margin story.

Courtney, Analyst — Bank of America

Fantastic. What a wonderful place to end. And I think we kind of looped back to where we began on innovation being so central to Gilead, but also to the industry at large. Thank you so much, Dan. Thank you for having me.

Daniel O'Day, CEO

Appreciate it.