Gilead Sciences, Inc. (GILD) Earnings Call Transcript & Summary

Great. Good afternoon, everybody. I'm Terence Flynn, the U.S. biopharma analyst at Goldman Sachs. And thank you for joining us at our virtual conference. I'm very pleased to be hosting Gilead Sciences. Today from the company, we have Andy Dickinson, who is the company's Chief Financial Officer. Andy, thanks so much for taking the time today to join us out of your busy day. Really appreciate it.

No, I'm happy to do it. Thanks for having us.

So I think maybe just at a high level, I think one of the key questions that people are focused on here for Gilead is just the longer-term outlook on the growth side. And so as you think about the outlook there, what gives you the confidence that the company is positioned here to grow on a forward and a sustainable basis, Andy?

Yes. I think everything that we've done, Jeff -- it is, by the way, the key question, there's no doubt. I think it's everything that we've done over the last couple of years to rebuild and reposition the company. And if you look at just the last 12 to 15 months alone, the progress that we've made in terms of supplementing our pipeline with external innovation starting with the 47 deal, the Arcus deal, the MYR deal, obviously the Immunomedics deal and the Merck deal, partnership in HIV, all of those pieces together with the pieces that we already had in-house give us a lot of comfort that we have in place the assets that we need to really drive long-term growth. So -- and it's all moving in the right direction. And the other backdrop, Terence, as you know, is the cell therapy business that's starting to grow and perform. We think of that as a longer-term opportunity that we've talked about. The hepatitis B business is growing. And Biktarvy as a flagship HIV asset continues to grow and performs really well. We have the market exclusivity through the mid-2030s. So all of that give -- taken together is what gives us confidence that we have what we need to really build and grow the business over time.

Yes. Okay. Great. And how do you think about the forward year? It sounds like you've got a lot on your plate. You obviously have been very active over the last 12, 18 months. But as you think about the need to kind of supplement further, obviously you still have some capacity on the balance sheet, but in terms of, I guess, the bandwidth at the organization, it seems like you're maybe at a pretty full level right now. Would you agree with that? Or do you think you can kind of still be opportunistic as you think about incremental opportunities here?

I would agree with it at a macro level. I think we -- there was a sense of urgency to rebuild the pipeline, diversify the pipeline and find the right balance in the pipeline across therapeutic areas, stages of development in first-in-class versus best-in-class assets. And we think we're there. So we are absolutely, to your point, in execution mode and very focused on maximizing the value of those opportunities and getting those product candidates to patients as quickly as possible. That said, we do have the bandwidth to take on more. And inflammation is one obvious area with filgotinib, the outlook changing in the United States. We have a great team led by Mark Genovese, the clinical group that we built around. And we will look for opportunities to supplement that pipeline. We have a couple of really interesting early-stage assets in inflammation, but nothing in kind of the mid to late stages of development. But there's no sense of urgency to do that, and we have time. So the overall focus of the organization is clearly on execution. We will continue to do partnerships in the ordinary course. So I think like any good company that wants to build a sustainable pipeline that will grow -- allow the company to grow over time, you have to continue to supplement what you're doing externally -- I'm sorry, internally with external business development. So we're not going to stop, but we won't do deals nearly at the same pace that we have over the last couple of years. And I think it's unlikely that we would do anything that is midsize or large for the foreseeable future.

Yes. Okay. That makes sense. And I guess one of the other things I know that Dan and you have been focused on is just kind of -- on internal R&D side is just maybe define more focal areas here. Obviously, core antiviral skill has always been extremely strong there in terms of research and development through HIV, hepatitis C. But as you think about kind of putting those internal pieces in place on the R&D side and maybe measuring efficiency, how far along that process do you think you are now? And are you in a pretty good place? Or do you think there's some more wood to chop maybe on the forward?

Yes. I think it's certainly moving in the right direction, right? We still have the expertise and the experience in virology that we think will give us a differentiated advantage for years and decades to come. So that's a great team despite Bill Lee's retirement. On the other side in oncology and immunology, we've added some key senior team members. They've been building out the junior team, and I think it's fair to say that we're in a stronger position today than we were historically to carry forward thoughtful and innovative programs in immunology and oncology, immuno-oncology, in particular. And again, we have a number of really interesting programs that Bill Lee and the team had been pushing forward for the past couple of years that Flavius Martin, our new Head of Research, and people like Mike Quigley, who runs our oncology research, will help carry forward. So we're excited. But to your question specifically, I think we're still in the early innings of that push to increase the throughput of our internal research outside of virology, but we're making really good progress.

Okay. Okay, great. Obviously, the other big focal topic right now is just the recovery here from COVID-19. And thanks again to Gilead and all the team members for the work on remdesivir. I know that was a huge lift for you guys, and you're still supplying that on a global basis. But maybe you could just give us a kind of mark-to-market in terms of the recovery you're seeing first on your business on the HIV side and then maybe in cancer and how you're thinking about that heading into the back half of the year, recognizing it probably differs by geographies. So maybe you can drill down into U.S. versus what you're seeing across the globe.

Sure. And I'll try to do it by therapeutic area as well. So there were maybe 3 primary impacts of the pandemic on our business. It impacted the entire business in a real way, but the base business has continued to do very well despite the pandemic, as you know. But in particular, in HIV, there was -- the overall HIV market was impacted. We saw actually surprisingly a contraction of the HIV market as part of the pandemics patients either stopped getting care or patients weren't going in to be screened. And we think we'll see that correct over the coming year. And then recovery overall across all of our therapeutic areas has been a little bit slower than we expected as the pandemic surge began in the first quarter, as you know. So we now expect a more gradual recovery throughout the year. And we're starting to see that, I think, in all of our therapeutic areas. The U.S. is doing a little bit better than some of the areas outside of the U.S. in terms of the speed of the recovery. So things are moving in the right direction in HIV. Switch was the big impact as well in HIV. There were far less switching from one HIV therapy to another as patients didn't come in to see their physician, which is what is required in order for them to kind of switch to a new therapy. And again, we're starting to see that move in the right direction. In hepatitis C, there were fewer treatment initiations. Again, a number of patients -- there was a bolus of patients that were treated over the last 6 to 7 years. There's still a significant unmet need, but a lot of patients either deferred therapy or were not coming in for screening. Again, we think you'll see that come back. We saw a little bit of an improvement in the first quarter, but we're still nowhere near where we were prepandemic levels, and it'll take time for that market to recover. And then finally, the CAR T business. With the hospitals being overrun with COVID patients and ICUs full of COVID patients, there was less CAR T treatment initiation than we would have expected, and you're starting to see that recover in the last couple of quarters. So overall -- and again, that was more in the U.S. than outside of the U.S., but we saw it in both. I think we're seeing good progress across the business in terms of the recovery. But as I said earlier, it's going to be a little bit slower than we would have expected towards the end of last year or even at the beginning of this year.

Understood. And then on the PrEP side, I know that was the other area that was somewhat impacted. I mean what are you guys seeing there more recently in terms of the recovery?

Yes. It's a good question. I mean with the reduced social dynamic as a result of the pandemic, there was a decrease in the PrEP market. Of course, on top of that, we had the Truvada patent cliff in the United States, which makes it hard to gauge specifically the impact of the patent cliff versus the pandemic overall. We do look closely at the total PrEP market. We're starting to see the PrEP market come back as well. It may be a little bit slower. And again, I think that overall, we think of the PrEP market as a market that will continue to recover slowly over time. We do expect a step function change in the PrEP market in the middle of the decade with the true long-acting single agents, including lenacapavir, coming into the market. So between now and then, it'll be interesting to see how that market develops, but it's moving in the right direction.

Okay. Okay, great. Maybe just one other follow-up. Obviously, remdesivir is your COVID treatment here. You guys have talked about how this tracks with hospitalizations. Fortunately, we've seen hospitalizations come down in the U.S., the U.K., but there are still some areas of the globe where hospitalizations are still elevated. So as we think about that $2 billion to $3 billion guidance that you guys gave, maybe just help frame for us kind of the puts and takes there. And then also, maybe the -- as you think about the shift, is this more going to be an ex U.S. revenue now -- opportunity now given kind of where we're at in the pandemic?

Yes. We are starting to see a shift. So the hospitalization rule of thumb still holds true in the United States even as hospitalizations are declining, thankfully. So you will see -- as long as that trend continues, you'll see declining sales in the U.S., which is what we all hoped for and expected. Outside of the U.S., hospitalizations are also declining but slower. We have seen increased uptake outside of the U.S., although that was a smaller piece of the puzzle with remdesivir than the United States market. But we do think you'll see continued use in the U.S. and outside of U.S. over the long run. So at a high level, everything is moving in the right direction with the pandemic. Sales should continue to come down, which is a good thing. It's also good that the product is available if the pandemic starts to surge again either as a result of lower vaccination rates in certain countries or if there is a variant that breaks through the vaccine barrier. So more to come. I think that we'll provide -- and I would expect that we'll provide an update on our second quarter call in terms of, obviously, second quarter sales but also what we expect for the rest of the year with remdesivir. It continues to be a dynamic situation. The other thing that I would highlight, Terence, as you know, is we expect this to be a product that does generate revenue over time. Even though it's hard for you and I and others to forecast, we think the product has longer legs than many in the market appreciate, depending on what happens with the evolution of the pandemic/endemic.

Okay. Understood. I guess one corollary to that -- and you and I have talked about this before, Andy. But again, as we think about the success of the vaccines, one thing that struck me is like you guys have such a core expertise in virology, antivirals, and now we've seen, again, just the tremendous impact that vaccines can have. Is that an area that you guys have looked at maybe even internally developing? And have you reconsidered that now given kind of what we've seen from the pandemic? Because it just seems kind of maybe more closer to like what Gilead's core is than maybe some -- an area like inflammation, which we talked about at the beginning, where, again, it sounds like you guys are still focused on building that out. But how do you think about vaccines in general here post the pandemic?

Yes. It's an interesting question. I mean, of course, we, together with our strategy team, are always looking at different areas that we're not in. I mean there's a logical adjacency to our core antiviral franchise with both anti-infective antibiotics as well as the vaccine business. So we -- the company before my time and Dan's time has looked at these areas very carefully and, for a number of reasons, has not decided to go into either of those areas. I don't expect that to change as a result of the pandemic. But any good company that's doing this right will constantly look at those areas and reevaluate whether there's opportunities or whether our unique skill sets that we have in the company would benefit us. And so we'll continue to do that. But I don't expect any change in the short run in terms of our areas of focus beyond virology, immuno-oncology and inflammation immunology.

Yes. Okay. Okay, great. Maybe we'll just move on to cancer. Obviously, this has been one of the big pushes at Gilead, is to become a bigger player here. You did the signature Immunomedics deal to bring in Trodelvy, which is kind of your cornerstone asset. Maybe just remind us of the opportunities here that gave you confidence or give you confidence on the forward here in generating a return on that acquisition. Because again, I think we see triple negative, but, again, there's a lot of other opportunities here. So how did you get comfortable with that price? And how do you think about the return profile?

Sure. Yes, no. And clearly, you have to expect more than triple negative to justify the price that we paid, and that's exactly what we see. So to be clear, we see Trodelvy as a pipeline and a product. And since the deal, all the data and the regulatory progress has supported our view. So to give you a sense, there were 4 key areas that were kind of the base case assumptions that underpinned our valuation, recognizing that there are lots of other scenarios that are likely that could also generate a significant return for our investors on the investment that we made in the acquisition. So the 4 key tumor types that were part of our base case were triple-negative breast cancer, bladder cancer, hormone receptor breast cancer and lung cancer, non-cell lung cancer (sic) [ non-small cell lung cancer ], as you know. In the first 2, if you look at just triple-negative breast cancer, again we're already exceeding our base case. The label in the United States is broader than we expected. So you have second-line plus metastatic breast cancer versus third-line plus. And in bladder cancer, even though we were cautiously optimistic that given the strength of the data we could get an accelerated approval in the United States, that wasn't part of our base case. So with the recent accelerated approval, that's also something that has exceeded kind of our base case expectation. So those are the 4 areas where we expect to see approvals over time that support the investment that we've made, recognizing, Terence, that there's lots of other ways for us to get there, so -- both in terms of moving up in lines of therapy, showing efficacy with combinations that people aren't expecting. Obviously, we talked about PARP inhibitors and PD-1s as being some of the obvious potential combination partners of TIGIT, anti-TIGIT is another one, and then moving into other solid tumor types. So there are a number of basket -- there's a basket study underway not only in lung cancer but looking at other solid tumors that will give us some sense of where we want to go next with this. But we think that over time, we have a long product life with Trodelvy. We expect to expand into multiple tumor types, multiple lines of therapy and likely multiple combinations, all of which will drive a significant return and drive a lot of growth for us as a company.

Okay. Okay, great. I guess that the nearest-term focus is on the HR+ study, TROPiCS-02 that's reading out second half of this year. Again, I think there's been some discussion -- and then again, I know Merdad's not here, so this is maybe somewhat of an unfair question. But as you think about what you guys -- gives you the confidence in the outcome for this study given some of the prior questions around pretreatment with the CDK4/6, how do you think about the return profile here just given the prior Phase I/II data and some of the differences in this Phase III study?

Yes. No, I think this is relatively straightforward, and I'm happy to take the question. I think it's an important one. So this is -- we look at a lot of datasets, including the dataset that was publicly disclosed, whatever, a month or 2 ago now that looked at, amongst other things in the small basket study, prior CDK4/6. So just to be clear, at the time that, that study was done, CDK4/6, as you know, were becoming the standard of care and were not used in all first-line patients. They are now. And our Phase III study has prior CDK4/6 use as a condition to entry into the study for both the active treatment arm and the comparator arm, as you know, which we think is really important. So just step back with that background. First point is there's no biological rationale that any of our senior science team or the advisers that we work with see where prior CDK4/6, you should have an impact on the efficacy of a chemotherapeutic agent like Trodelvy in a disproportionate way. So there's no biological rationale that we can come up with or that we see that we think is credible. It doesn't mean that it couldn't be at the end of the day. We just think it's unlikely. So nothing's changed there. Putting the small dataset in context, as you know, I don't have the exact data in front of me, Terence. If I remember correctly, I think it was 52 patients. 30-some were treated with a CDK4/6. And with any small study, it's the law of small numbers. 1 or 2 patients or 3 patients can make a huge difference in terms of response rates. And you have to be very careful about reading too much in the data that's not adequately controlled in a large data set. And then the third thing is when you look at the ASCENT data, and we -- again, this is part of the due diligence that we did -- there were a number of patients in the Phase III ASCENT study that had hormone receptor-positive breast cancer before the tumor mutated, and they became triple-negative breast cancer patients. Many of those received prior CDK4/6 therapy. And when we look at them -- granted this is also small numbers, so you can't make too much of it. But when we look at them as a whole, we see a robust response in those patients on Trodelvy just like you see across the entire dataset. So -- and the final piece of the puzzle is we think we have the right study design here. So we increased the power of the study for the overall survival arm, but it's very well powered for progression-free survival, which is the data you'll see later this year, in the second half. And we have the active comparator arm where everyone in both arms of the study will have had prior CDK4/6 therapy. So as Merdad and I and the rest of the team talk about this, there's a lot of confidence on our side that we have the right study, the right size, the right patient population. And we expect to see a profound response in the same way that we do in triple negative, recognizing that, like any Phase III study, it's not a 100% probability of success. There's always some risk. But we like our odds going into this dataset. And nothing has changed from when we did the deal.

Okay. That's great context. Appreciate all the color, Andy. And then maybe one disclosure question. So have you guys thought yet about what -- how much data would be in the PR versus a conference? So would you just tell us the trial is statistically significant? Or would you also give us some details around kind of hazard ratio, those kind of things or TBD?

I think it's to be determined. I think we always want to make sure that we're providing enough information so shareholders have a sense of what the data really looks like. And again, without getting too far ahead of ourselves, I think if you go back and look at our Phase III data releases historically, even outside of oncology, you get a sense of the type of data that we like to make sure that our shareholders have, with the majority of data, the vast majority of data coming at a scientific conference. So as you know, we're not going to do anything that would put us in a position where we're not going to get a premier conference presentation slide if the data is as strong as we expect it to be. And we recognize the need that a lot of our shareholders are waiting for the state of the need to make sure that we're providing an adequate update. So more to come.

Okay. Great. Great. And I guess the other indication, you mentioned this a little bit, is the basket study in non-small cell lung cancer. I think there's some data from Daiichi here in that setting. So maybe that gives you guys a little bit of confidence in terms of probability of success. But maybe just help us think about time lines there. And again, how big is this study? And anything else you want to add on that front?

Yes. I don't think we provided any guidance on how big this study is. I think what we have said is we did get to see some small sets of data before we did the deal that were encouraging sets of data in terms of responses in non-small cell and some small cell lung patients. I don't think, if I remember correctly, Terence, that we provided any of the specific details on that. But I know there were -- I think there was a little bit of data that was published, if I remember correctly. The -- and the Daiichi data is encouraging to us in terms of the importance of Trop-2 and Trop-2 targeting in non-small cell lung cancer as well as, again, in other solid tumor types that we're both exploring. So it gives us a lot of confidence. I mean we are -- like any typical Phase I basket study, Merdad and the team are -- can enrich different patient populations to look at richer sets of data. We are preparing to launch the Phase III study at risk. So we're preparing for success. I don't think you should expect that we'll provide a lot of the data later this year. I think what you should expect is that we'll provide updates on what we're doing with our Phase II and our Phase III clinical trials. That's the level of update. And then of course, some of the Phase I data may be published in the future at different scientific congresses. So that's the expectation. But again, there's a lot of signal-seeking data that we'll see later this year not -- primarily in lung cancer but on other solid tumors. And as Merdad and the team are looking at it on an open-label basis, they can always enrich patient populations either in non-small cell or other areas to really test their hypothesis and inform where we want to go with Phase II and Phase III development. So it's an exciting time, and we're preparing for success across the board.

Okay. Okay, great. Maybe just one last one on Immunomedics before we move on to some other questions. Is there anything else in the pipeline there? Like were there any other ADCs or something that you could kind of broaden the development efforts there further, recognizing that this is one of the more interesting and exciting platform technologies in cancer right now?

Yes, there were a couple of other programs that our team is looking at and assessing and that we may carry forward. It's early days with those programs. So the primary focus and kind of -- again, going back to one of your earlier questions, I mean, we really are focused on execution on the key initiatives that are going to drive medium-term and long-term growth for the company. So whether it's the Merck collaboration or on oncology, magrolimab and Trodelvy, as well as the continued growth of our cell therapy business. Those are the primary areas of focus. And then we have a number of programs across earlier stages, including in oncology and including some of these programs that we're looking at carefully. So the deal wasn't -- or the premise of the deal was not -- as some companies are exploring, moving aggressively into ADCs more broadly, it doesn't mean that we won't do that and we can't do that. The deal was based on Trodelvy being a pipeline and a product that fundamentally gives us scale and a very important pipeline -- or commercial and pipeline program around which to build the other pieces of the oncology puzzle. And it may include some of these other ADC programs either from Immunomedics or otherwise. But that's not the -- that wasn't part of the underpinning or rationale for doing the deal from day 1.

Okay. Okay, understood.

More to come.

Okay. I guess that the other area within oncology is immuno-oncology. And so you have this Arcus collaboration that gives you access to a PD-1, a TIGIT. And so Is this kind of your beachhead into immuno-oncology now? Is that the right way to think about this, again, as you think about the forward strategy here? And then recognizing that this is an area of highly competitive, entrenched, larger companies here already, how do you guys navigate that space? You've obviously been highly successful at kind of maintaining your dominant position in antivirals, but here's an area where, again, you guys are coming in as kind of a third, fourth mover or something. And so how do you really navigate that later-to-market position?

Yes. Great question. I think it really is a result of focus, right, and picking the right opportunities. Other companies have done it. Whether you look at J&J or Astellas, they're examples that come off the top of my head, or even outside of oncology, companies like AbbVie and what they've been able to do in the autoimmune inflammation space, there's no doubt if you pick the right assets and have the right amount of focus and smart clinical development and commercialization strategies you can become a significant player in these areas. So it really started for us with focus and stopped -- so we stopped trying to do everything in oncology and really focused in immuno-oncology. To your question on Arcus, we love the Arcus partnership. It's a great scientific collaboration. We really like the approach. We like their programs, including the TIGIT program but as well as the adenosine program. Their PD-1 is interesting, and it's an important piece of the toolbox for us as we move into this area. But it's not just about Arcus. I mean we also have signed deals with Jounce on a CCR8 antibody. Tizona and Pionyr are 2 important partners for us. Agenus has been a partner -- an important partner as well. So there's lots of different pieces of the puzzle. We also have some internal I/O programs that our research team has been working on that we expect to pull into the clinic. So it's all of it together that gives us a lot of comfort that we have the breadth of the pipeline and diversity in the pipeline that will allow us to compete over time. But it's going to take focus and creative clinical development, not trying to do everything. The last thing I'd say, Terence, is we have a lot of experience from our -- the senior leadership team, from Dan, Johanna, Merdad, Flavius in particular, as well as their team members in terms of how to work across the industry and collaborations as well. So a good example is the partnership that Arcus did with AstraZeneca, and I believe it's third-line non-small cell lung cancer, to potentially combine TIGIT with AstraZeneca's PD-L1. That's the tip of the iceberg in terms of the types of industry collaborations that you can do to study molecules together that could benefit patients and then ultimately benefit companies. So there's a lot of that in the plans for us as well if some of these molecules pan out the way that we hope and expect they will.

Okay. And on -- back to Arcus, the, I guess, disclosure plans. Like similar to my question before on Trodelvy, like what's the latest in terms of the Phase II lung cancer study and how you guys are thinking about disclosing the data and then the opt-in decision, et cetera, on that TIGIT asset?

On ARC-7? Yes. So what we said is that -- and what -- more importantly, what Arcus has said because they control the program and the study is that they will provide a directional update to the market as we look at the data here in the -- I think they've said it's first half, so in the coming weeks. The -- and that really means that you're seeing data that's suggesting you should move forward with the Phase II study or not. If the data is clear and convincing, then we want to opt in as soon as we can. Both parties want to move this -- the program forward aggressively and quickly. It's a competitive landscape, to your point. We already have a very clear view on where we want to go, the collaborations that we want to move forward with. So we want to move forward as quickly as we can. I think we will have the full dataset needed to assess this by the end of the year. Whether this interim data is mature enough in order to make that decision to go broad and fast remains an open question. But certainly, in the months after that, we will have the data that's required. Hopefully, we'll have it here in the coming weeks. So more to come. But I think Arcus is going to provide a directional update on are we moving forward and does the data support moving forward. And then if so, at some point over the rest of the year we'll provide an update on the opt-in. And we want to opt in as soon as we can. Again, as soon as we see a clear signal here that this is competitive and potentially differentiated, we want to opt in and start working hand in hand with the Arcus team to expand this as fast as possible.

Yes. Understood. Do you have a time limit by which you have to opt in? I know most of these, it's like the company gives you the kind of proof-of-concept dataset, and then you have x amount of time before you'd have to make that decision. Is that pretty standard?

Yes. No, it's a pretty standard setup. And I think what we said -- I don't think we've given the exact time frame, but what I would say is it's consistent with what you'd see across the industry in terms of the time line once we get the data package delivered to us. It -- we have a very good kind of collaboration with them where our team members are talking on a daily basis, so I expect this will be less formal than some. And once we start to look at the data, we can look at it together on kind of an ongoing basis. What we've also said publicly is that we would expect the opt-in to occur at some point this year if we're going to opt in. So we're kind of entering that 6-month window. The time line is not 6 months, the required time line, to be clear. But there's a 6-month window where we should have enough data one way or another to make a decision. So that's the -- we're entering the right window now from both parties' perspective.

Okay. Okay, great. Maybe before we move on to HIV and the Merck collaboration, which, again, was another kind of cornerstone deal for you guys, just as we walk through some of the cancer opportunities, I think the other question is just the impact this could have on the R&D line. Obviously, Gilead, I think, has been fairly efficient here in terms of some -- the types of studies you guys run, probably more of a reflection of the therapeutic areas that you're operating in. But as you think about moving into an area like cancer, where you're oftentimes combining large molecule and large molecule, naturally I'd expect that would put upward pressure on the R&D line. And so as you think about kind of managing that margin structure and maintaining kind of a better-than- peer-group average margin, how do you navigate that on a forward from the -- particularly as the R&D maybe builds here?

Yes, I think that's a great question. I mean, again, we have a really unique business structure model that'll -- that we believe will allow us to maintain industry-leading margins while we lead into some of this clinical development. So the other thing that people have to remember is that we're -- our investments in immunology with filgotinib and in remdesivir, and it increased our R&D expense over the last couple of years, are rolling off while we're rolling into these oncology investments. So you see all of that reflected in our guidance for R&D spend this year to either be flat or down low single digits. A lot of where we go from here, Terence, depends on what happens with the Arcus programs, the Tizona, Pionyr programs, et cetera. And of course, we're going to lean into it. If the data suggests that these could be differentiated and important molecules, we'll lean into it. The other thing I've said is that we are focused on having R&D spend and SG&A spend consistent with the general pharmaceutical market over the cycle and over the period. It doesn't mean there won't be periods where we are increasing a little bit because we have the opportunities that suggest we should invest to drive long-term growth and there may be periods where we're spending less. What you won't see, I think, is what we did historically, which is dramatically underinvest in R&D relative to revenues or to peers and try to sustain the business. The company did an incredible job of that historically. But when we move into these other areas outside of antiviral, I don't think that's a sustainable business model. So what you've seen over the last -- this year and over the last couple of years is more of what you'd see going forward, where increased our R&D investment. But it's not going to continue to grow at high single digits or low double digits in perpetuity. There are limits to where we want to go with the R&D spend for sure.

Okay. Okay, understood. Great. Well, maybe moving on to the Merck collaboration here. I think this was the deal that everyone had been speculating should happen at some point. And I know everyone's been focused on these 2 assets just given the long-acting nature, the long half-lives, the differentiated mechanisms. And so what was the kind of trigger to finally get this over the finish line here and, again, maybe to arrive at kind of the deal structure that you guys did here in terms of the terms that we saw?

Yes. I think it's something that both companies have considered for a long time, and it just became increasingly obvious to all of us, including everyone on the outside and in both companies that just this is the perfect combination for patients and for our companies and shareholders over time. So I think it just took -- and it's always hard to pull these things together. It's 2 large companies that are proud. We both have broad research efforts, long history in HIV. And we also had to find a creative deal structure that allowed us to continue to do everything that we would do otherwise and bring these together, which is exactly what the companies did. So these deals are not easy. I'm really pleased with where we ended up and how quickly we got there once the companies, from the CEOs on down, decided that this was going to happen. And I think the deal structure reflects a couple of things. One, that both companies have leadership here that need to be a significant part of both the formulation and development as well as the commercialization effort. So we divided that up in an interesting way. And it also recognizes that lenacapavir had longer patent protection potentially. Of course, islatravir may have longer patent protection at the end of the day as the patent estate continues to be prosecuted, which will benefit both companies. And we also have a very sizable HIV franchise globally, where there will be a little more of an impact on our business as the market moves to long-acting therapies over time. So all of that was reflected in the deal terms. And I think we came to a place that's great. I mean at the end of the day, Terence, this deal, in any way we look at it, there's a lot of different outcomes. And as we've said before, every way that we look at it, and I think the same thing is true for Merck, this will drive significant top line growth for our franchise as well as EPS growth for the company. And it sustains our HIV franchise with market leadership well into the late 2030s, if not the 2040s, from our perspective. And then the final piece is, as I said earlier, neither company is -- has any limitations on what we can do to develop on our own proprietary regimens. And I don't say that, though, with the mindset that we necessarily think that's where the market is going to go. I think that lenacapavir and islatravir is a great combination that should develop -- allow us to develop really important products for patients that have long and important commercial life. So more to come. But we're really excited about it and think it's a big piece of the puzzle and should help people understand the sustainability of the HIV business in a different light.

Yes. Okay, great. And I guess as you think about that, so like sustainability versus growth, so is this more likely going to kind of keep the franchise at steady state here longer term? Or is there an opportunity to actually expand? Again, I guess PrEP is kind of outside of that, right, because you guys have your own PrEP program. But as you think about the collaboration itself, is this more kind of driving steady state here? Or is there actually an opportunity to kind of continue to take share maybe from other regimens and beyond where you're already operating?

I think that it's not inconceivable that the HIV treatment business can grow over the long run, right? I mean, unfortunately, the HIV incidence continues to increase year-over-year. And if these combination of these long-acting therapies turn out the way that we expect, especially if we're able, Terence, to get to the every 6-month subcu combination for treatment, that should dramatically change at least a big part of kind of the treatment paradigm for patients. We'd expect that -- that's kind of the -- if you have a every-6-month subcu that's as safe and efficacious as Biktarvy, that is a very, very significant opportunity that, even when split between 2 companies, is more than enough to sustain our HIV franchise and potentially growing. The PrEP market will be a big source of growth in HIV. It was over the last 5 years for us. And starting in 2025, maybe 2024 and beyond with lenacapavir, that will also be the other big piece of the puzzle. So when we think about sustainability of the HIV franchise, we're not suggesting that it just means you pulled it. And of course, there's a range of outcomes. I mean it's -- we don't have a crystal ball. We recognize that there are a number of patent cliffs that will be coming over the next 10 years. But with all of that said, it's not inconceivable that we can not only maintain the size of our business but also grow it over the long run. So more to come. As you see the clinical development and the clinical data, that will give us a better sense of where we see the market going. But there's no doubt the HIV business is going to have substantially longer legs than I think many people in the market appreciate.

Okay. Okay, great. I guess just one follow-up on the PrEP side because the one thing, I guess, there's still some debate is just how the evolution of these oral generics plays out here in the market, obviously, ideally, if you're shifting to long-actings. Do you expect that the payers would still kind of push to once-a-day oral regimens over these long-actings? I mean how do you kind of navigate that dynamic on the longer term for the PrEP side?

Yes. I think it's all based on the strength of the clinical data. And even if you look at the ViiV data with the ViiV Cabenuva , I believe it's Cabenuva that they've studied for PrEP, the data in hard-to-treat patients that are noncompliant is good data, and it shows the benefit of having a long-acting regimen. We don't think over time that will be the right long-acting regimen or -- and really kind of as a result of the convenience and timing of the required injections. But it demonstrates proof of concept that if you can get to an every -- in particular every-6-month subcu with a single agent, it can fundamentally reshape the PrEP market, as you and I have discussed. And so -- and we think that, that's real and something that we have a high degree of confidence in lenacapavir and where we see it going. We've already proved that we can formulate it in a once every-6-month subcu injection. So I think payers will recognize that. Again, just going back to when you look at patients and the impact of every-6-month injection and the ability to prevent HIV infection, especially in patients that are hard to treat, and the fact that it should open, Terence, many parts of the world to PrEP that aren't currently PrEP-ed, so a lot of the PrEP business growth over the last 5 years was in the United States and, to a lesser extent, in Europe. I think this opens up a global opportunity for PrEP in a completely different way if we're able to get to where we think we're going to in the middle part of this decade.

Great. Well, I think we're up on time, Andy, but thank you so much for joining us today. Really appreciate the time and insights. And best of luck for the rest of the year and stay safe.

Thank you. No, thanks. Thanks for having us. I appreciate it. Good to see you. Take care.

Take care.