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

Hey, everybody. Good afternoon. And welcome to a very exciting session here at the 2020 Jefferies Global Healthcare Conference. I know that you're really anticipating all of the great commentary out of Dan and Andy with us. I'm really happy to introduce the Chairman and CEO of Gilead, Dan O'Day, there on the right side; and then the Chief Financial Officer, Andy Dickinson, with the wonderful Golden Gate Bridge in the background.

Hi, Mike.

Let me just start off by saying, Dan, it's great to see you guys, and Andy, everyone. Obviously, super proud and happy to see all of the developments, particularly with remdesivir this year. But I just wanted to take a step back for Dan and ask him sort of, we are in some crazy times. You obviously are still trying to manage a business this year outside of remdesivir. As people step back and the stock moves all around remdesivir, maybe talk a little bit about why, hopefully, you're excited about the actual complete business, both from current products-based business and pipeline, and tell us about what you think investors should be most focused on over the next 6 to 12 months and long term?

That's terrific. Yes. Thank you so much, Mike, for having us. And we're delighted to be here. So I think your question is really important to say. As much as I'm thrilled to be with a company that has scientists that are making a difference with COVID and all the responsibility that goes along with that, I mean, Andy and I and the team are firmly focused on building out the entirety of the business. And that is directly connected to the strategy that we rolled out earlier this year, which has 3 different components. One is the strength of the underlying core business, which I think you saw again at the first quarter results, I mean, just really the strong core viral business, and particularly HIV. Second one is advancing the pipeline, both the Gilead-originated pipeline but all the pipeline that we've put together as a result of collaborations with partners and different acquisitions. And then the third one is continuing to focus in a very strategic way and a focused way about continuing to build that. We are firmly committed to getting Gilead back to sustainable strong growth in the midterm and beyond. And in order to do that, we have to keep building our pipeline, but in a way, that's true to our strategy, which honors our scientific expertise, and I think that's really, really important. That's a lens we look at everything through. And then keeping the bar very high, understanding, for instance, as we go into immuno-oncology that we want to be best-in-class, first-in-class. We want to be at the front-end of new immunomodulating agents. And I think that Forty Seven is a great example of that. When you look at first-in-class and the data you just saw at ASCO on CD47, I think that's a great example. And then using a fit-for-purpose partnering strategy, which Andy has been leading with me, my experience before coming to Gilead, Andy's experience before coming to Gilead, and putting partnerships and acquisitions together that are fit-for-purpose. So now -- so Forty Seven had a particular framework that made sense for us. Arcus, Galapagos have different type of framework. And we're a big believer in -- that the path to that sustainable midterm growth is a network of innovation with high bars that allows you to deliver on your scientific expertise.

Actually, I mean it's been more...

Actually, you call that actions, right, Michael? So...

It's been about 1.5 years, right? I think it started in March, right? So 1.5 years, the Galapagos deal, Forty Seven, Arcus. So it's definitely not -- been not happening, right? So how should investors think about sort of the next 6 to 12 months with BD? Valuations on a lot of the biotechs' gone up a lot. But boom, boom, boom, you did Forty Seven and ran that setting. Soon as it closed, you did the Arcus partnership. How are you -- how do you judge or decide between partnership and acquisition? Where are the areas you're most focused on? It seems like oncology. But maybe just talk about the lens of BD and M&A as we go forward here.

Yes. I'm going to have Andy answer this question. I think it's really -- I applaud the team because we do have a lot going on right now at the company around remdesivir, including Andy and I's involvement in that. And because of the strength of the bench, we've been able to not miss a beat in terms of BD. Andy, over to you. I think you can fill that picture out. By the way, I think the development still reports to Andy as it did before. So he's got the entirety of CFO and business development, with some new talent coming in. Over to you, Andy.

Yes, Michael, I think a couple of points that I'd make. One, you're going to continue to see us do deals over the course of the year. It's going to fit what we said we would do at JPMorgan that we're more clear -- focused on ordinary-course licensing transactions, small acquisitions and medium acquisitions like the Forty Seven deal, and the Arcus deal, I think, fits in that -- the framework perfectly as well. The asset or series of assets that we're looking at will determine whether we focus on a licensing transaction or an acquisition transaction. Forty Seven was more advanced. There was more robust clinical data. It was closer to commercialization. It just made a lot of sense for us to do that as an acquisition. And those are always challenging, as you know, because they're competitive. There aren't a lot of those opportunities out there, but we are thrilled to see that one is an outstanding fit for us. Arcus is also an outstanding fit, but it was a different type of transaction. That's one that, like Galapagos, Dan and I feel strongly as do our colleagues that we can create more value for patients in our respective companies over time by partnering and giving them the capital and the freedom to move really interesting, innovative assets forward. And it's not only what they have in the clinic today. It's everything else that they can do over the next 10 years that we think presents an opportunity for us to help enable them and then to share in the opportunities with them over the long run. COVID-19 has not slowed us down in terms of BD. So you -- I think you'll continue to see a number of deals in all 3 of the areas that we're focused on. Primarily, we're building up the immuno-oncology business at Gilead as you know. We're still looking at cell therapy opportunities with Christi and her team at Kite. And then in autoimmune and inflammation, we're working with Merdad and Mark to look at additional opportunities, even though we really like what we have internally and with Galapagos. It's a pretty robust portfolio. And then finally, in virology, even though most of what's going to happen in virology is coming from our internal research, there are a couple of interesting opportunities externally that we think could be important for us and that we're looking at closely.

What it -- is that HIV? Is that hep B? And then when I say this, I also want to sort of mention liver, which sort of seems to be a deemphasized comment. So -- and that's okay if that is the case, but maybe just talk what do you mean by virology? And then where does liver fit into that?

Yes. I'll start, and Dan, you can jump in. I think, in virology, we now include hepatitis C and hepatitis B in our virology portfolio. So Diana Brainard is the therapeutic area head working with Merdad, oversees all of our virology portfolio. We continue to be very interested in things like hepatitis B. We have a number of internal programs. We're looking closely at what's happening outside of Gilead. We think that, that's an important unmet medical need. And HIV, obviously, is our biggest business, and it's something that we're deeply focused on. And it can't be just the internal research. In particular, Michael, as you know, we've focused on some of the long-acting partnerships, collaborations, opportunities. We're looking for other agents, both through our internal research and externally, to partner with our capsid inhibitor. So those are the primary areas of focus. But COVID-19 is a great example. Gilead has been doing work in other emerging viruses for decades, and over the last decade, had a concerted effort to look in this area. And as we see the coronavirus outbreak, I mean, we're always looking at opportunities outside of HIV and HBV as well.

So Michael, back on the NASH because you mentioned it. I mean I think that's obviously a high-risk, high-reward opportunity. I think the road is littered with challenges along the NASH spectrum. By the way, it reminds me a bit of Alzheimer's and CNS in my previous role. Having said that, I think with Merdad and with Andy and the team, we're evaluating. We were encouraged by the Phase II results in the combination therapy. We're obviously discussing with regulatory authorities. So the question is because that is an expertise of ours, the question is do we feel that we could have a high-risk, high-reward bet in our portfolio? But that's not going to be -- that's not going to represent 50% of our R&D spend, just to put it into context. But I think all I'm saying is with Merdad coming in and his expertise in building portfolios over decades, we all understand that a portfolio, particularly when you have a $20 billion-plus revenue base, has to have a balance of singles, doubles and a couple of low ones in there because you need that kind of balance to be able to make sure that you have a consistent supply of medicines that come out and drive that growth more consistently.

That's fantastic. Let me ask you a question about HIV before I move to one I'm sure everyone is waiting for me to ask about you on remdesivir. But on HIV, which is obviously still the vast majority of the business, you made a couple comments on the earnings call about not only capsid but mostly -- probably the introduction of a long-acting bictegravir. I think there seems to be longer-term questions around durability of HIV. Where does long-acting bic and capsid fit into that? Can that -- if you were to think out 5 and 10 years, could that be 30% of the business or more? Like where does that fit in? And how should someone think about HIV over 5 and 10 years?

Yes. Let me, first of all, say, and it's just part of our first pillar on the strategy. The more I learn about the HIV business at Gilead, the more confident I am in its durability. I mean -- and frankly, just seeing the first quarter results again, I mean, the superiority of bictegravir is being reflected, of course, in the market share. And remember, that's got a very long patent life ahead of it. And whereas previous generations of one daily treatment went a bit faster because we were constantly iterating and innovating, I mean, we kind of got it now with bictegravir and Biktarvy. So I think that's really a durable franchise through the patent life, we feel. Now beyond that, of course, we've got our prevention business, and Descovy is doing very well as you saw from the first quarter results, already around 38% share after a very short period of time in the market. And of course, we have a patent cliff coming up in 3 or 4 years on the prevention side of the business, but that will largely be moved to Descovy or to other agents at that stage. I think what's important, to your point, is what's next? What's better than Biktarvy and Descovy? And I think our answer is, for some patients, it's going to be alternative methodologies of taking the drug. And we've set a really high bar from this perspective. We haven't settled for something that's less than what we think is going to be able to move a portion of the market. And that means with our capsid inhibitor, a once-weekly oral, or it means moving from oral to subcutaneous, non-intramuscular drug, subcutaneous at an infrequent interval. I mean whether that's every 3 months, every 6 months, that's all being determined. And back to your long-acting bictegravir, we have a variety of different combination partners, both inside the company and with partnerships that we're looking at, that one could combine with capsid, given the strength of that data, to allow us to kind of extend those treatment intervals. And I'm really positive, even in the past 6 months, just seeing how capsid has evolved, and you saw some of the data at COI this year. But I'm also really positive about some of the partnering discussions we're having and some of the evolution of our internal partners to help us think through, particularly in treatment, where it's likely that we need more than one drug. But in prevention, it could be the capsid inhibitor alone.

Right. That's what I mean. Could that combination of long-acting capsid and long-acting bictegravir, is that feasible? And is that something where 5 years from now, we could be saying, no, people are not taking daily pills, and it's a simple subcu, you could transform a big chunk of the market who'll be doing that now instead of daily pills.

Yes. I mean the only thing I would -- yes, I think, yes, and we'll see whether bictegravir long-acting or something else is the right partner, but we're encouraged by that. But -- and I would just say one thing, in my experience over a long time, is 1 pill once-a-day is a really good regimen. And a lot of people, particularly for a disease like this, a lot of people will be very, very happy staying with 1 pill once-a-day. I think what we want to do is offer for that percentage of patients that want something different, offer something better.

Yes. A segment of the market, which I think...

Yes.

Yes. Let me ask then a couple of other things. Obviously, there's been enormous global attention to Gilead with the developments of remdesivir. And you obviously have done a fantastic humanitarian effort to donate a couple hundred thousand treatment courses. What's next for remdesivir, both from what you will be able to disclose to The Street? Or do you just wait for earnings calls? How does this work out with the price? What are the steps? And what should investors expect to hear about and how they will figure out how you're going to earn a return, if at all, on remdesivir?

Yes. So I think, Michael, this is a topic we take very seriously, and we've been spending a lot of time at Gilead trying to figure out how to be a real enabler of emerging from what is a global crisis. So the good news is that every randomized controlled trial that has read out a completion from remdesivir has been positive relative to what we were trying to say, including the MODERN trial that we articulated earlier this week, which I think is really interesting and good news that treating earlier also has its benefits and inspires us to think about now additional development along the lines of remdesivir, either in taking IV to potentially some outpatient, high-risk areas and the formulation work we're doing on inhaled. But I'm thrilled to be working with a company that has consistently shown this type of benefit for COVID patients. The Board and I and the leadership team were very clear on the donation. It was the right thing to do to make sure that we could -- if this drug worked and how it worked, we get it quickly to patients. And we acknowledge, obviously, that given both the investment we made and the investment that we want to continue to make on this product because we think it could be -- there are studies we can do, there's manufacturing scale that we have to do. We also acknowledge that we have to now move to a sustainable model, right? But that sustainable model, we've been very clear and consistent on, will be based not on the routine way of how we would normally price a medicine from a value standpoint. We are firmly focused on our responsibility here around creating a medicine that's accessible. And that means a very different way of looking at this than we would look at any other product at any other time. But we do recognize, of course, that we have to make sure that we get into a procurement situation that allows us to continue to invest in this product and make sure that we can continue to elucidate the benefits that it can bring to the patients. You're going to hear more on this coming up over the next weeks and months. We're working now with governments because this is predominantly a government-procured product. We're ramping up. But clearly, demand is outpacing supply right now, and therefore, working with governments on the supply that we have and having that distributed is the right way to go. And that's the initial procurement model that we'll articulate in the coming weeks and months. And rest assured, we're trying to balance both of those things.

Demand exceeds supply, do you expect that the million doses you -- of course as you have, that's going to be spoken for this year and that, from a sustainable model perspective, since I don't see any magic bullet yet, that this is a therapy that people will probably have a need for each year?

Well, I think those are the key questions. I mean there's so much uncertainty as we approach this decision and not the least of which is demand. And demand, both from a real-time demand, where is the disease going to go? What other types of agents are going to be available? How much stockpiling is going to occur at governments versus real-time use? I mean this is -- the confidence in our voice on this are really, really wide. And so I think those are things that we're all factoring in to how do we come up with a sustainable model moving forward.

And you think you can satisfy both investors who would want Dan O'Day as Chairman and CEO to earn a return on their capital, right, that's what they want you to do, while still making sure that governments are -- believe it's a reasonable price.

So I think it's a tricky thing to do, isn't it? There's no doubt. And we're conscious of both of our responsibilities here, I would say. And certainly, we're taking all of those perspectives into account as we make our decisions here.

Okay. So we'll hear in the coming weeks and months as to how you'll move through that.

Yes.

Okay. All right. And then, I guess, as that relates to also financial guidance and things for 2020, there was guidance and then it's been adjusted in the sense that because of the uncertainty about remdesivir, that it's hard to say what exactly would occur. Can you just maybe shed some light about how to think about financial results this year? I'm already seeing sell-side analysts put numbers all over the place on things. So maybe, at some point, we need some help with that.

Yes. Andy, I think it would be great for you to...

Yes. Sure. I would say, Michael, just to be clear, as you know, we didn't update our guidance at the end of the first quarter call. We were clear that we plan to update the guidance by the second quarter call. It's most likely that we will provide a fulsome update on the second quarter call. The key is that the situation for us is more complicated with remdesivir. I mean if you just look at the impact of COVID-19 on our core business, it's relatively straightforward. And we've been very clear at that time and since the time that we do think this is going to have an impact on our business, predominantly in the HCV starts, even though we think that some of the HCV starts we may recapture later in the year. As Dan said earlier, it really depends on what -- how the pandemic continues to unfold. But the second piece of the puzzle beyond the impact on our core business, which we're monitoring very closely, and again, we provided as much color as we could in the first call -- the end of the first quarter, and we'll do the same thing in the second quarter call is remdesivir. And we will have a much better sense of where remdesivir is landing in terms of both pricing, moving to the commercial model and supply. I mean the -- so it's possible, just to follow on your prior -- I think it's likely that before the call, we will provide some update on supply and pricing at some point. At the latest, it would be on the second quarter call. It's probably more likely to be earlier. But we'll also provide more guidance and color on the second quarter call...

Okay. That's fantastic. I think, look -- yes, I think people would be -- they're chomping on the bit for not only because they want to know how to think about remdesivir, and I think The Street is really struggling with that. So to whatever extent you can give color on that and then they will ask about in the future, but getting them off on a start for 2020 will definitely be helpful. So I look forward to that part.

I would just say, Michael, Andy and I are firmly committed to doing the right thing as is the leadership here and the Board to make sure that this medicine gets in the hands of patients. And that's the driving force behind our actions. Beyond that, I would say that we understand that with all the ambiguity around remdesivir, we are building a business that is predictable and that is leading to the midterm growth, which is why it's so important that despite all the work we're doing on remdesivir, we're building the underlying portfolio so that, that part of our business can be more predictable. In other words, we're not counting on remdesivir. It's important, I think, to the world and to us and to shareholders, but it's really, really important that you understand that we're committed to building this business.

Fantastic. So we'll look forward to an update either before the earnings call or on the earnings call as to how to think about remdesivir. Last question, and then maybe in the last 2 minutes we have, Dan and Andy, obviously, an important potential blockbuster drug in filgotinib is up for approval. And the questions from people are how confident are you that you will get a high dose approved and that, that will be a competitive product to the gorilla in the room of AbbVie? And then you're going to be able to, as Gilead, compete against someone who is obviously dominant in that space?

Yes. Look, and you saw the EULAR data this morning. It continues to be a very robust clinical profile, differentiated, highly selective JAK inhibitor. And we understand that it's a very competitive space, right? But I think beyond just the data itself, you saw that Mark Genovese is joining us. I mean we've got some really strength of leadership now on both the medical and commercial side to make sure that this differentiated product will be competitive. And I think that's what we're really working on right now, obviously, with the FDA, making sure that we have the optionality and dosing and that this -- the profile of product hits. And we're very aware that we're going into a highly competitive market, but it's a highly competitive market, that is not satisfied. I mean 1 out of 5 patients receive remission in vitro phase in their first year. And people are looking for highly efficacious, safe, convenient medicines. And we think filgo can satisfy that on the first instance. And we know that we have to beef up our medical messaging, and we've got a commitment to the entirety of the inflammation path forward. How do we look eventually at combination therapies in this area with an agent that may have a better safety profile, more combinable. These are all mid- to longer-term things we're thinking about that will help us to break through the efficacy barrier, which we've been living with, by the way, for 20 years, in lots of inflammatory disorders. And that's part of our overall strategy as well. But filgo, we're firmly focused on RA, getting that approval and getting it out there and making it competitive.

Fantastic. Well, without further ado, we're at the top of our time. Thank you guys very much. We look forward to the updates coming up on the quarter and the rest of this year. Obviously, a lot of big things ahead of you guys, you're super busy. So thank you for your time today. We really appreciate it.

Thank you for having us.

Thank you.

Thanks, guys.