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

All right. Good morning, everyone. My name is Cory Kasimov. I'm the senior large cap biotech analyst at JPMorgan. And it's my pleasure to introduce our next company, Gilead Sciences, and making his first presentation at the JPMorgan Healthcare Conference is new Chairman and CEO, Dan O'Day. Please note that following Dan's presentation there will be a breakout just down the hall in the Borgia Room. So good luck getting back there. With that, I'll turn it over to Dan.

Thank you very much, Cory. Good morning, everybody. It's terrific to be here first time with Gilead. I've been here before, obviously. I'd like to just say, I'm really excited to walk through the next chapter with you. As we turn this decade, the reasons that I came to Gilead have only been amplified over the past 10 months. And that is, when you think back to the medical breakthroughs that occurred over the past decade, and most of the published reports that come out at the end of the year, it's astonishing, in fact, quite extraordinary to see that 2 of the top 10 came from this company, Gilead: the ability to cure hepatitis C; and the ability to turn HIV from a death sentence to a chronic preventable illness. And it's that type of -- a lot of people talk about keeping the bar high, but it's -- that's what we mean at Gilead when we say keeping the bar high for next generations of innovation. I'm conscious of the fact that this has been built a bit as the coming-out party for Gilead's strategy, and I'd like to not disappoint in that regard. We intend to give you quite a bit of information here today on Gilead and some new disclosures, some new disclosures on our pipeline, on some of the upcoming -- what you can anticipate relative to the pipeline. The entirety of the pipeline will be available in this presentation. And we'll also give you some updates on some of our commercial progress for this past year and some of the ambitions that we have on the commercial side because I think that's very important to telling the story. So stay tuned. So we've tried to put ourselves in your shoes in say, what is it that you would be interested in as you come in and sit in these seats as investors? And I thought about that, and I'm still fresh on the 10-month part -- sorry, the slides are kind of running themselves right now, see if we can go back. It's these 3 things that if I were in your chair, I'd want to know about, and the questions that we get from Cory and from others. The first one is, how durable is our core business? The turnover from the antiviral business, how durable is that for the next decade? Secondly, what is it that we have in our hands today? And I have to say, I'm not sure we've done a great job in the past at articulating all that we have in our hands, the partnerships that we have, the things we have from our science inside Gilead. And I'd like to paint a story that we have a very solid portfolio in our hands today. And then thirdly, and what's on everybody's mind is, what's Gilead going to buy? What's the next-generation of M&A for Gilead? And I think that has to be informed by strategy. I'm not going to tell you today what we're going to buy, but I think that has to be informed by strategy. It has to be informed by what our strengths is and how we're going to apply those strengths, both internally and externally. So let me take you -- before I get to that, it hasn't been a quiet 10 months in Gilead, terrific group of individuals, and we've done quite a bit over the past 10 months to set the scene and lay the foundation for our strategy. Right when I came in, I'm very impressed at this pioneering technology of cell therapy and the curative responses we're getting in late-stage blood cancers. But I also saw the need to make sure that that had a focus. So we created an independent group at Gilead and brought a new leader in Christi Shaw to run that. I'm also pleased that one of the first transactions that I did at Gilead has the type of innovation that we're trying to drive. And that is the collaboration, the large partnership we did with Galapagos, which is the largest independent biotech company in Europe today, tremendously innovative, about first-in-class. And as you know, we now have a relationship with them where we have access to everything in the Galapagos' portfolio for the next 10 years. And they stay independent and they stay focused on continuing to drive that innovation. So more on the portfolio in a bit. We've established an internal research group to make sure we have a disciplined and systematic way of looking at external innovation. And as I've said, we've really put a sharpened pencil on our strategy and how that's going to help us make decisions moving forward on choices. Perhaps what I'm most impressed at in the first 10 months is the fact that we've been able to recruit a world-class leadership team. At the end of the day, we are human capital business. We live and die by the quality of the scientists we have, the leadership we have and this team is representative of that. I'm really pleased to say we have some terrific Gilead legacy individuals that are going to help us drive the next chapter. We have individuals within Gilead that we elevated to new roles, and we brought some very experienced individuals from the outside that are going to help us turn that next chapter from antivirals to other therapeutic areas and to expand in geographies. So this is why I'm excited to come to work every day. This is a terrific group of individuals that I'm pleased to work with. So let's look -- let's dig into this durable core business first. Now the lens that we're going to look at, at Gilead is the traditional strength of antivirals and the emerging strength that everybody -- I'd say we have scientifically with immunomodulation. And in fact, these things overlap. And in fact, most of our hepatitis B cure programs today are, in fact, immunomodulatory and not antiviral, just to give you 1 example. The first chapter is going to focus on the antivirals and predominantly our HIV business, but a bit broader. Now this is the story of Gilead. You've seen this. And when you cure a disease, you get some revenue pictures that look like this. What I want to draw your attention to, in addition to the extraordinary HCV revenues that came over the past decade, is the durability of the underlying core business facing lots of headwinds, lots of competition over that past decade and continuing to grow at a CAGR of 14% with 15 launches in the past 10 years. Now something we want to provide you with is our ambitions down at the bottom because we do have a Truvada patent expiry at the end of next year. I would say, we don't have any game-changing patent expiries over the next decade. But we have some that we have to navigate. And the Truvada is the first one that we have. And in order for us to navigate that successfully, we need to make sure that we've converted people living with HIV to the newest best standard of care. And so our expectation at the time of the expiry of Truvada is that we would have 90% to 95% of patients -- Gilead patients on, if you like, our modern backbone, our TAF-based backbone. And that's on the treatment side in the United States. And then on prevention, from today to the time of the Truvada LOE, we expect to have 40% to 45% of individuals on PrEP for Descovy. Remember, 8 out of 10 patients of people living with HIV today are on a Gilead product, just to put that into context. So why are we so confident in these figures as we head into the second half of the year? It's because this past decade has led to really best-in-class products in HIV now. First of all, Biktarvy treatment, our largest business at Gilead. It's a highly differentiated medicine that has a long patent life ahead of it, and it's the result of innovation that has been going on at the scientists at Gilead for more than a decade. 0 cases of treatment-emergent resistant. One of the only products with a rapid-start treatment recommendations, what it means physicians can put them immediately on Biktarvy without any further testing. It's the #1 prescribed HIV regimen. And it's been growing 80% quarter-on-quarter since launch and passed the $1 billion market a quarter ago. This is a strong, durable product, 1 pill once a day with low resistance, high efficacy, is a game-changer in HIV for treatment and will be for years to come. Secondly, Descovy has off to a very good start. Only launched a couple of months ago, and already, we're getting 25% PrEP scripts with Descovy today. The market is underpenetrated, as you know, and we've got lots of programs to improve that. But we expect Biktarvy to remain the preferred treatment really throughout this next decade. Having said that, we understand there'll be a subset of patients that we will be looking for different types of dosing opportunities at the same efficacy and safety. And as you know, this past year, we presented data on our capsid inhibitor. It's the next anchor molecule for what we consider to be less frequent dosing for HIV patients. We have shown that we may be able to get up to twice a year infused doses and less frequent oral doses with this. Now this medicine is already in a label-enabling trial and we'll be continuing to push that into different subsets of the HIV patient population in the months and years to come. And you see where it is today on this slide. Now what's really important is when we go out and talk to those 8 out of 10 patients on a Gilead medicine, we asked them what really would make a difference to you versus the high bar of 1 pill once a day? And what they tell us is, "Look, we don't want a once-monthly intramuscular injection. We'll go with once a week oral dose or preferably an injectable that is less frequent, perhaps once a quarter or twice a year." So we want to keep the bar high. We don't want to create innovation that's going to be incremental here. We want to create innovation that will provide the right opportunity for patients to move in the future. And we have a variety of programs now as partners for capsid inhibitor that are shown in this slide for treatment and prevention. So we're well on our way to offering patients an alternative, if you like, to the best-in-class Biktarvy treatment. And then to round out the antiviral picture, and if you like, the pieces of the strong base are HCV business, where we're at now a 60% share with the authorized generic and also our branded product at the end of this year. That's up almost 18 points from the beginning of this year. HBV and Vemlidy will continue to have potential behind it. And we see that being $1 billion product in the next couple of years. And very important from a geographic expansion perspective, we just recently received approval for 8 of our medicines in China and 4 on the national reimbursement list. So it's these dynamics that as we approach some of the patent expiries that we have on our core business, that we'll be able to navigate that and create a strong foundation for the future. So with that strong foundation and the stability there, the question is what belies our confidence in our mid- to long-term growth confidence that we have at Gilead. And I think that's 2 different things. It's the existing pipeline and it's our ability to continue to supplement that with external innovation. But let me talk about the existing pipeline, again through the lens of our expertise in immunomodulation as we approach different disease states. So this is our pipeline today. And in the appendix of this presentation that would be published right after this talk, you can see all the details here. I'm going to walk through a few highlights of it. About 41 clinical stage programs, 14 of which are either registered -- being registered right now or are label-enabling trials and 4 with breakthrough therapy designations. And you can see beyond viral diseases that we're focusing on the manipulation of the immune system to improve diseases, either inflammatory diseases, fibrotic diseases or as I'll get to, our oncology strategy. So clearly, one of the near term growth drivers for us is filgotinib, a highly selective JAK inhibitor. Coming to patients where only 1 out of 5 today receive remission, yes, it's a crowded market. And yes, there's also significant room for an improved therapy in rheumatoid arthritis in my experience over many decades in this area. This is a best-in-class profile that has a discriminated clinical readout that shows high safety and efficacy at 2 different doses. We've submitted this now throughout all the major regions in the world, including the United States at the end of last year, and we look forward to bringing this to patients in 2020. We're prepared for this. We brought in talent from outside the organization as well as complementing that with our Gilead talent in rheumatoid arthritis to be successful for this launch. Now this is not just a one indication product, of course, this is a life cycle within a product. And you can see we have the potential to have 5 launches in the next 4 years. And I'll draw your attention to a shorter-term growth driver, which is the readout on Phase III ulcerative colitis in the first half of this year. But it's not only filgotinib. We have a broad inflammation portfolio that has been significantly enhanced with the partnership with Galapagos. Galapagos has 8 clinical programs today, 20 preclinical programs, all of which we have access to. And then you can see within the Gilead Labs, we've also had quite a bit of work underway there as well, and some of these are new disclosures for you here as well today. Fibrosis is a difficult scientific problem, as we all know, but there's a huge unmet medical need there. And we'll continue to put an appropriate effort behind that to try to crack the fibrotic nut. We just received results from the NASH trial, the combination trial that we're digesting right now. And we're going to come back to you after we digest those and talk with regulatory authorities about our path forward in NASH. But you can see here as well, we have a variety of programs in IPF, Galapagos' lead program, Galapagos has a follow-up program, first-in-class, different mechanisms, and you can see some of the other fibrotic conditions we're looking at as well. But in inflammation, we have a variety of programs looking at RA, at IBD, at some of the other inflammatory mechanisms, including TPL2 inhibitor within our Gilead launch. So we've got a broad portfolio that allows us to continue to look at different ways of approaching the immune system. Now we'll take that same immunomodulation lens into oncology. I've had a lot of questions about this. Dan, where are you going to focus in oncology? Having come with a broad oncology background and leadership team members that have a broad oncology background, I'm conscious of the fact that we can't be all things to all people on oncology, nor should we be. But we have a world-leading position in cellular therapy with Kite. We're really looking forward to bringing that therapy up in lines of therapy in hematologic malignancies, looking at its potential in solid tumors and allogeneic. So we've got a really strong foundation, both scientifically and pragmatically with what I would call the highest of personalized medicine in immuno-oncology with cell therapy. It's a pioneering technology. There's going to be stumbles along the way, but it's transformative for the patients that are responding to it. We want to complement that equally with a non-cell therapy approach that allows us to look at altering the immune system in cancer in a meaningful novel way. And you can see we're going to do that not alone. We're going to do that with collaborators and partnerships throughout the industry, several of which are mentioned here today. So here is a snapshot of the portfolio that we have. We've got 15 clinical programs in oncology today, and it's growing, and it's going to grow with this focus, which is important. So the cell therapy, I think you can see on the left-hand side and on the right-hand side, you see some novel mechanisms in oncology that spans small molecules but also span antibodies and bispecific antibodies. And we'll continue to progress these and make sure the bar is high as we approach these both alone and potentially in combination between cell therapy and non-cell therapy. So lots more to do in oncology, but I'm excited about the base that we have and the focus that we have. And then finally, I think it's important that with this pipeline and portfolio, as we think about near-term growth off of that strong base, that we think about what are some of the upcoming milestones that we have that we'd like you to pay attention to. We're certainly paying attention to that can be inflection points for Gilead. There are several here. There's certainly not all of them, but there are some of the highlights that we have for the next 6 months to the next 18 months or so. And you can see we've also highlighted some of those. With filgotinib, you see data in the first half of this year, this second half of 2020, the second line DLBCL data and we expect a strong filgotinib launch in the second half of next year. And then as we go into 2021, additional data on our cell therapy, on our capsid inhibitor, and on Galapagos medicine in IPF. So more to come, but we understand we want to be transparent with you on when these readouts are occurring and when you might expect more from us. And then finally, although we believe we have a solid pipeline that perhaps has been underestimated and hopefully, now with this transparency, you can realize the opportunities we have on our hands, we do recognize that we want to supplement that and need to supplement that continuously with external opportunities. And so we've spent some time, the colleagues and I, at Gilead, really thinking about what we want to do in the next decade and what strengths we have to drive that. So we're firmly focused on transformational medicines. And again, I refer you to the definition that I used at the beginning of this talk. A lot of people use that term. I think it's very important that we think about really, really changing the patient experience and having an impact on their health care system. So we have an ambition to bring 10-plus transformational medicines in the next decade. In order to do that, we have to attract the very best talent in the industry. We're on a sweet spot here in the Bay Area. We're a large company with a lot of resources, but we're a biotech company that moves fast and thinks outside the box and works with partners on a daily basis. These are our strategic priorities. The one I really want to focus on with all of you here today, although all of them are important, is how are we going to continue to expand the internal -- the external innovation and supplement that portfolio. And this is what I've been speaking about. Again, I think companies really need to introspectively look at what they're good at and stay in their lanes, of course, be opportunistic but stay in their lanes accordingly. So I'm really impressed with the science that's going on at Gilead and now with some of our expanded partnerships in the areas of antivirals and immunomodulation. Today, that will play out into 4 disease areas. And these are the disease areas that as we look outside and we look to partner and enhance our portfolio, this is where our focus is going to be. And we want to find complementary arrangements like we had with Galapagos, where they're a strong first-in-class company that takes a lot of risks on new targets. We've got a tremendous organization that can modify and adapt molecules to be best-in-class. So those type of complementary mechanisms is what we're going to look for in these 4 disease areas. Now our BV strategy. We're going to approach this from a position of strength and a sense of urgency. We know we want to supplement and drive our portfolio as we move into the future. And I thought I would just lay it out in plain English relative to what our M&A and our BV strategy is. Of course, we have an obligation to look at every size acquisition. But it's our feeling that, first of all, we will be focused by our core scientific areas. We will prioritize clinical and commercial opportunities. And we believe where we can provide the best value to patients and to shareholders is in partnerships, partnerships that can be small to transformational and in small- to medium-sized bolt-on acquisitions, in our sweet spots. And so that's where we're going to focus on. We're going to allow ourselves to make sure that we continue to stay clear on what the opportunities are and to continue to use our significant resources on our balance sheet to be able to drive the future portfolio. Our capital allocation strategy will remain the same. First and foremost, drive the business with innovative medicines and portfolios. Secondly, an attractive dividend policy. And third, when we feel our shares are undervalued, we'll pursue share buybacks. So with that, I just want to say that I think with this team we have in place that we're very well positioned, off a strong durable base, the pipeline we have in our hands with 15 medicines in clinical stage today and a clear focused M&A and BV strategy that we're in a very good position and that belies our confidence in the next decade in the next chapter of Gilead. And we look forward to keeping you all in touch throughout the year. Thank you very much for your attention.