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

Yes. So for prevention, the idea is to really push from a time frame standpoint, because we believe that's what's missing here from a patient convenience standpoint. So it probably will be more of a subcu than an oral. Idea is this -- first half of this year is to start the trial. So we're well underway.

Okay, terrific. Okay. Maybe we could move over and talk a little bit about Trodelvy. And Andy, first, on the deal, I think that there's a general consensus that this is an attractive molecule with impressive activity certainly in TNBC. But I think the Street's reaction is "That was a lot of money for a drug." And is it fair to say that TNBC alone is not going to generate a positive return on the purchase price that had been -- NPV positive requires either HR-positive or lung cancer or some other large indication because I think that's the way investors are seeing it.

Yes. Look, I think at a high level, that's probably a fair way of thinking of it, Geoff. I mean, the way -- as you know, the way that we look at this is both through probability adjusted valuations as well as binary scenario. So what we said when we did the deal is there are 4 primary indications that we modeled, and there were a number of other indications and line extensions and combinations that are upside from that. So it really is triple-negative breast cancer, including moving into the second line over time, hormone receptor positive, HER2 negative, as you know, urothelial cancer and non-small cell lung. The probability in non-small cell lung, we also said, was lower -- but any of those and any combination that you look at it on a binary basis could be very substantial opportunities for us. So on a probability adjusted blended basis, we're very comfortable that with those 4 indications, even with reasonably conservative probabilities, we should get an appropriate return for our shareholders over time. And again, on top of that, are the other combinations, the other solid tumors that we could move into that we're exploring, that could also provide value. And then the other thing that we've said, Geoff, is that there's value here that's hard to capture in a DCF model in terms of having a major commercial asset that we can build around. And what it does for Johanna and Merdad and what it brings to the other programs that we have. So on a binary basis, you don't need all 4 of those major programs to work. Maybe you need 2 of them, to your point, even with 1 of them -- just non-small cell lung alone could be a huge opportunity. But to your point, triple-negative where we're already approved today and we're going, I think we expect to do more than that at the end of the day. But there's lots of different ways for us to win. Hopefully, that answers what you're getting at.

That's terrific. And given all of those opportunities, have you embarked on development with the Zim already with Trodelvy? Because, of course, partly, it's about getting a greater share of the wallet in the same way that you've done in HIV.

No, it's certainly something that we have the right to do, and we're thinking through. So Johanna and Merdad and their teams are spending a lot of time working through the expanded development strategy for Trodelvy. We had done a ton of that work before the deal. We constantly rethink it with the Arcus deal and with Zim and -- but we also think that there's interesting opportunities with some of the existing approved agents that are blockbusters, where there's some obvious combinations as well that could be important for us and important for Trodelvy and patients. So we wouldn't limit it to Zim, Geoff, but it's certainly something that Merdad and his team and Johanna think about. And the nice thing about the Arcus deal is that we have the ability to do that through the structure that we have.

Okay. So you mentioned the HR-positive trial. So could we just be very clear about what the endpoints are for that trial? And what the delta needs to be over the comparator arm for that trial to be positive?

Yes. Do you want me to take that, Johanna? We don't have Merdad on the call. So I think what we have said...

We can tag team if you want.

Yes. Yes. Look, we've looked at the powering of the trial, as you know, and we went back and we got rid of the overall response rate interim that would take some of the alpha. We're just looking at the progression-free survival. We expect to have the data at the end of the year. We increased the size of the study to make sure that we had 90% power to see a hazard ratio of at least 0.7, is the target. We've looked very carefully at the patients. Merdad has spoken publicly about the fact that the patients in this indication are different than triple-negative patients. Most of them have been treated with the CDK4/6, for instance. So when we think about the powering assumptions, all of that has gone into our thinking. It was something that Immunomedics frankly was already thinking through when we did the deal. But I think we feel that it's a different patient platform taken it into account. We have very strong powering. There's a lot of data as you know, in the triple-negative trial with patients that were hormone receptor positive at one point that gives us some comfort that we should see a meaningful signal in these patients, and we think that we've set the bar at the right place. But Johanna, what would you add to that? Anything else?

No, I think you did it right. Listen, the expectation is a hazard ratio of 0.7. Having said that, we've seen much stronger data in metastatic triple-negative breast cancer. The assumption would be, these diseases are quite similar, different patients, to Andy's point, but there's definitely a feeling that actually the 0.7 might be quite conservative.

Okay. That's terrific. And then, Johanna, in the marketplace, I mean, you've only been in the market for a couple of months with Trodelvy. But what are you hearing from physicians and particularly, how is the drug being tolerated? Because even though it's not chemotherapy, it also have some chemotherapy like liabilities.

It does. I think thus far, and it's something we're obviously very conscious of what you just mentioned, Geoff. Thus far, it's really had a huge impact in academic centers. And so when you think about the academic centers and those specialists in those centers, they're very used to managing the side effect profile. So as we continue to penetrate in more of the community oncology practices, I think that piece is going to be super important. So twofold. One is I think our opportunity this year is really going to be focused on community oncologists, to be honest with you. Because we have an incredible opportunity here to really increase the awareness but obviously increase the usage as well because we're seeing quite the differential between academic centers and community, which is normal when you launch it. That's kind of the phasing, and I don't think this pandemic necessarily helps us in that setting. The other piece of the puzzle is when you launch with the conditional approval, from a promotional standpoint, your hands are a little bit more tied. So the expense data publication as well as the full approval with the FDA is going to be really key for us as well. So that in the field, we can really have conversations around the OS data, which is so powerful. And I think it's just so impactful when physicians see it, and we've heard that from those KOLs in the academic centers. So I think opportunity is there, and making sure that we educate and that our medical teams really support here educate appropriately, so around how to manage the safety. Because when you hear the KOLs speak, it's clear, it's manageable, you just need to know how. And so just like anything in the past in oncology, that's always something that we just want to make sure we stay on top of. But I feel strongly that we can actually have very similar penetration in community oncology and have even more of an impact from an overall opportunity standpoint just because, as you well know, 70% to 80% of the patients are usually always in a community, right, not in the academic centers. So that's kind of the real focus for this year, specifically to triple-negative.

Great. And so maybe we can pivot a little bit and talk about the Arcus deal. I know that Merdad is not on the call. But Andy, I wonder if you could give me the contract case, the bear case, on why you're putting more capital into Arcus shouldn't be interpreted positively with respect to the data that's coming out of those studies that we haven't yet seen? And why wouldn't you...

I'm sorry, Geoff. I'll start, and then if you had a second part to it, I'm happy to take it. So we're blinded to the ARC-7 study. I mean even the blinded data, right? We're not looking at the data. I mean the investment is really an indication that we really like this team. We like their assets, and we like what we believe they're going to do over the next 10 years. So I think a lot of investors have asked us about this. A lot of the investors that have a shorter-term horizon, in particular, have asked us about it. It's not a 6-month horizon that we are thinking about. We're thinking about a 10-year horizon. And again, part of our partnering philosophy is finding teams like this where we believe in what they're doing. We believe in their science. We believe in their programs. And we want to make sure that they're adequately capitalized to take these programs forward and to do a comprehensive set of clinical development and not compromised because they don't have enough capital. That's really all you should read into it. Yes, we did see the CD73 data as we talked about during JPMorgan, and there was the additional data that they put out at the end of JPMorgan. It's exciting, but it's also early days, small patient numbers, and we don't read too much into it. So I wouldn't read that data into the decision. I wouldn't read the TIGIT data that we're not seeing into the decision. We just -- we believe in the people, we believe in their programs. We think that they're likely to create significant value for patients and for both of our shareholders over 10 years. Whether they can do it over 6 months or a year? We don't know, but that's where we are.

Okay. So Andy, another business development question then. You've done quite a few transactions over the last couple of years. Clearly, the company needs to deploy capital from its established franchises from the windfall of HCV and now the second windfall of COVID and build a more sustainable portfolio. And you did the Galapagos deal, the CD47 deal, Kite earlier before you arrived, Arcus and Immunomedics. What can you take away from all of that, that you will take forward with the further capital allocation from the company?

Well, I think first and foremost, it was required, right? I think if we're being fair about it, Gilead underinvested in external innovation historically and our pipeline was not nearly robust enough to sustain our growth ambitions. And we just had to acknowledge it, both with the prior management team and the new management team, I think we all see it the same way, and so we needed to do things differently. Of course, like any company, there are lessons learned along the way. Acquisitions are tough to do. I think it's fair to say that we're much better at integration today. And that 47 was better than Kite, and Immunomedics has been better. Johanna and her team are working on the MYR integration now, assuming that we close here soon. We're getting better at this as we do more of it. So as our team spends more time with external parties, Geoff, we're better at analyzing opportunities. We've hired more people that have broader expertise outside of virology. So in the 4.5 years that I've been at the company, I think we've made a lot of progress. It doesn't mean that everything we do is going to go well. And the Galapagos example that you and I and others have talked about is a good example. I mean, that hasn't yet gone the way that we expected. We still believe, for instance, that their screening platform and the targets that they identified is really valuable and unique and that they do a terrific job there. They've said and we agree that they need to go back and relook at how they're doing the discovery part of generating then compounds against those targets, how they do their translational work and how they're doing their clinical work to make sure that they're really value maximizing those unique targets and those unique opportunities. So that's a good example, Geoff, where it's never a straight-line in BD, as you know. I mean we still think that they have -- we've capitalized the company appropriately. They have a lot of capital to spend over the next 10-plus years, and we have 11 years to create value for shareholders, and we're deeply focused on it. But we have learned a lot. I think that we've also transformed the company in terms of expanding our pipeline. And Gilead is a much stronger company today than it was before, and we have a lot of programs that can add value, but it doesn't mean that we're done. We still have to execute, and we still have more work ahead of us.

Okay. And just related to Galapagos, since you mentioned it, is it still realistic to expect you to take advantage of the IBD opportunity with filgotinib or should we really be expecting that to be turned back to Galapagos?

Yes. What we've said is that -- Johanna, you can jump in, the bar is just really high for us here, right? And then AbbVie presented some additional data earlier this week or last week that in fairness is very strong data. So again, we'll be looking at what we said, Geoff, and we will look at the MANTA data as it rolls in. We're going to be working with the FDA in the bar side. We will only move forward in the U.S. if we truly believe that we have an agent that's going to be best-in-class.

Okay. And then last financial question, Andy. The -- you've gone from having a pretty simple business model to a pretty complicated one, particularly with the huge windfall from Veklury. So how do you expect your margins to evolve ex Veklury? And for that matter, with Veklury, do they have to have a fair amount of volatility?

Yes. No, I think our margins should be relatively constant, Geoff. I mean, the Veklury margin really, at the gross margin level, is not that different. We're still spending appropriately on research and development and SG&A for Veklury, granted not as much in '21 as in '20, but it's still a meaningful amount of investment. So when we look at our business, overall, even though we don't provide specific guidance on our operating margin, for instance, excluding Veklury, our business generally looks the same. It does provide a lot of additional cash flow that we can invest in the business that supports our dividend and allows us to pay down some of our debt. So it's an important product for patients. It's important for us. But it's not going to change our margin profile meaningfully if it goes away.

Okay. And just related to that, are you committed to growing your dividend?

Yes. I mean we've said it. We continue to believe that you see it this year. We -- not only are we committed to it but we see a clear path to it. So we've moderated the growth appropriately, Geoff, as you see, where we -- we're growing at 10%. We stepped it down to 8%, about 4.5% this year, and we expect to grow it at the pace of our EPS growth over time, like most companies do. So as we reset the company and as our revenue grows, and you see the leverage in our model, as EPS rates start growing, our dividend rate increase should grow again. So that's how we think about it at a high level.

Great. All right. We've reached the end of our time. I want to thank both of you, Johanna and Andy, for joining us today. Thank you to everyone from my office setting this up. Really appreciate all of your answers and look forward to seeing further progress over the rest of the quarter.

Thanks, Geoff. Bye.

Thanks, Geoff. Thanks for having us.

Thanks so much. Thank you. Bye.