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

Okay. Good afternoon. And welcome to the final day of the BofA Healthcare Conference, Virtual Vegas, as it were. My name is Geoff Meacham. I'm a senior biopharma analyst here at BofA. And I have Jason Zemansky from my team with me as well. And we're thrilled to have CFO, Andy Dickinson from Gilead. Andy, welcome.

Thank you. Thanks for having me. Appreciate it once again.

Yes. So what we'll do is, we'll do some questions here with Andy. We won't get into anything post the quarter. Obviously, we've talked about that a week or so ago. But let's get right into it, Andy.

When you think about the HIV business. It's a flagship business for you guys, has been for a long time. Maybe just help us with kind of the big announcement of the shared capsid inhibitor development with Merck. Just give us a sense for the rationale that went behind it, what kind of decisions you guys made to continue to go after it internally versus partnering to help accelerate? What are the puts and takes of that? We can get to the economics of it, too.

Yes. No, it's a great question, Geoff. It's something that I'm not sure that people fully appreciate. So look, this is a really important deal for us and Merck and most importantly, for HIV patients. The deal only covers treatment. It doesn't cover prevention. So we should talk about our HIV prevention and treatment business separately, even though lenacapavir will be developed for both as an agent. But what it does is it accelerates our time to market, and it combines the 2 most promising long-acting agents in developments and research today. So islatravir is a fantastic agent, great clinical data to date, very potent. We've studied it for years internally as well. And the same thing is true with our lenacapavir. So these really are kind of the ideal agents that combine. Physicians and various HIV organizations have encouraged us to work together for years. These deals are hard to structure. So it took a long time to bring it together, but we really, at the end of the day, I think, found a creative, thoughtful structure that benefits both companies equally. And reflects the fact that we have a very large existing franchise, to some extent, but to a less limited -- more limited expense, but I think people appreciate it will be impacted. And we had a longer IT estate, at least at the outset, that's recognized in the deal terms as well. So what -- we started work on once-weekly oral formulation. We've also started work on subcutaneous formulations. There's more work to be done on developing a subcutaneous formulation of islatravir. The once-weekly oral formulations will be in the clinic this year, what we said when we announced the deal that we think we could be -- to have a commercial product as early as 2024. if I remember correctly, which is roughly on par with when we think lenacapavir gets to the market in the PrEP market as well. So it's an exciting period of time for us in '24 and '25 in terms of where our HIV portfolio goes. It really sustains our HIV portfolio. I mean, Jeff, at a high level, you should think of it, this is, as I said, the obvious combination of 2 agents, it sustains our portfolio with the high probability of success through the late 2030s, if not later. And we don't lose any degree of freedom nor does Merck in terms of our ability to pursue other internal combinations. So we have 10 or 11 preclinical programs with long-acting agents. Some of those hopefully will be entering the clinic later this year and next and beyond. All of those we can take forward together with lenacapavir, together its other agents, to develop other regimens, similar to what we did historically when we developed Atripla together with partners, Genvoya together with 1 partner and then Biktarvy as a wholly-owned agent. So pretty exciting in terms of what it does for our franchise and for patients over time.

Absolutely. And so you mentioned the 2024 time lines for the oral. Is the injectable and 2, 3 years later, is there more -- what's the chop and the development of that for the subcu? And then the bigger question is, what percentage do you think of the HIV population ultimately that would prefer a long-acting injectable?

Yes. So 2 good questions. So yes, the subcu formulations will take longer. We don't -- it will take a little bit of time to figure out how quickly we can move forward. Even since we did the Merck deal, we've done another partnership and Merck was involved in it may bring another piece of the puzzle there that we haven't talked about publicly, but something that could be interesting to help us move that program forward in the subcu development. So more to come on that in the next year or so, Geoff. But yes, the timeline on the subcu would be a year or 2 at least out from the oral we would expect at this time. In terms of the size of the market opportunity, the key is the profile of the combination at the end of the day, right? So if you look at the market today, the existing long-acting therapy that's available that was recently approved. We don't think we'll take a substantial portion of the market. It has a suboptimal profile in terms of the 2 intramuscular injections every month or every 2 months, potentially, which is off track with when patients typically go in to see their HIV physicians. Intramuscular injections are painful. You may see some patients use it and then maybe I would expect to see or we would expect to see a number of those patients roll back to the once-daily oral and so the second or third generation, the long-acting therapies are made available. So what we've always said, Geoff, and you and I talked about last week at the fireside chat, I said, the long-acting market, if it stays as it is today, be it a very small part of the total HIV market. If we're able to develop a once-weekly therapy that has the same safety and efficacy of say, our bictegravir, then a more substantial portion of the market can move to that. And if ultimately, you're able to develop a once every 6-month subcu injectable. It's a combination of 2 drugs that again, has the same safety and efficacy of the gold standard Biktarvy, that could be up to 50% of the total HIV market, all of which is exciting. So today, we think it's a very small portion of the market with what's available in '24 and '25, if we're able to do what we think we're going to do, both in the PrEP market and the treatment market, we think you'll see a step function change over time from there in terms of the move to long-acting therapies.

This is Jason. A quick question follow-up. We've talked to a number of KOLs and historically, there's been some resistance within the market for a 2-drug regimen just because HIV is so notoriously good at evolving around. I mean both lenacapavir and islatravir are very potent agents. Do you suspect there could be some resistance to uptake of a 2-dose regimen for that reason?

Yes. Thanks, Jason. It's a great question. And look, I think that what we've always said and continue to believe is that you need to have the right 2 compounds together. And that 2-drug -- there's a reason that the market moved to the 3 and 4 drug regimens, and that Biktarvy is the standard of care. You need to have adequate protection beyond the dosing cycles in the patients that aren't as adherent as they should be, but if you don't put them at risk of virologic breakthrough and mutation. So our sense is that islatravir and lenacapavir, given their potency and their resistance profiles, which are different and complementary are actually a perfect combination here for 2 drugs, which gets both us and Merck comfort in moving them forward. I think we've also said before that the 2 drug regimens that are currently on the market, we don't feel are optimal for patients that you may see something that the market will watch closely over time. So we think that the 2-drug regimens work as long as you have the right 2 agents with the right profile. And so I think you'll see progress on that front, Jason. A physician with patients will get more comfortable as better options are available over time.

Great. Just shift to PrEP for a second. Obviously, it's been a great market opportunity for Gilead, especially over the last few years. I know Descovy penetration was about 46% as of the end of 2020. Where do you see that going now that Truvada is generic and then ultimately, thinking about a long-acting formulation of lenacapavir, how could that market grow?

Yes. That's another great question. So let's just maybe step back and talk about the total PrEP market, and then I'll get back to Descovy. So we grew in a relatively short period of time, if I remember correctly, it's roughly 4 years with Truvada and then Descovy. The PrEP business into about a $2 billion business, right? And we had highlighted that we thought we had penetrated maybe a 1/4 or 1/5 to 1/4 of the market in the United States, and probably less than that or significantly less than that externally. And that's -- and Mark has also put out, Jason, some commentary on their views on the PrEP market recently that I think were helpful as well. There is a sizable opportunity for the right agent with the right profile. Descovy has done really well. So even with the generic Truvada approval in the United States, we've maintained significant market share roughly around the 46% that you highlighted. So that's, of course, of the patients that are taking for PrEP, 12% of the patients are on Descovy. We think we can grow that over time, but you're not going to see the same growth that you saw over the last couple of years. So the way to think about the PrEP market is you have the fundamental significant growth in the PrEP market over, let's call it, the last 4 years, you're going to see a period of transition until something like subcutaneous lenacapavir is available in a '24 to '25 timeframe, hopefully. And then you -- we think you'll see a step function change in the PrEP market when patients have a therapy that's available that they can take every 3 or potentially, every 6 months in a very more private, confidential way that makes sure -- and it also gives them the comfort that they want on adherence. So pretty exciting in terms of where we think the PrEP market goes 2 or 3 years from now, once we have lenacapavir in the market. We think that what we did with the oral, once-a-day oral, is the tip of the iceberg in terms of what we do in the PrEP market over the longer run, if we have a good long-acting agent.

Andy, last question on HIV and this -- we're sort of moving the paradigm here with the long-acting injectables. But when you think about the neutralizing antibodies or the immune components, those are earlier. But help us with kind of where Gilead sees other modalities beyond long-acting injectables for HIV? Could there be an opportunity for even cell therapies down the road?

Yes. It's an interesting question. It is something, Geoff, as you know, we spend a lot of time on cure programs as well and a lot of research effort for obvious reasons. So I think there are a couple of areas that people are looking at. But historically, our focus has been on the kick and kill strategy where you're using immunostimulatory agents to bring the latent virus out, so to speak, where it can be -- where you can then kill the infected cells or the virus using the nukes and other agents that are available as well as in combination with vaccines. So we have a number of vaccine collaborations. We did another one earlier this year with Gritstone that we're really excited about, we can keep a partnership in both HIV and HBV. There's a company in Spain called AELIX that we partnered with. We've done work with J&J. So on the vaccine side, we've done a lot of work, Geoff. We also have, as you said, the bNAb programs, the broadly neutralizing antibodies that are exciting. Those also could be used in combination, potentially actually also in treatment in combination with something like lenacapavir. So that's something that we also look at. And then cell therapy, you're absolutely right. Some of the early cell therapy work that was done was done in HIV. And so we continue to look at that. The final area, Geoff and Jason, that people are looking at is gene editing, right? You use gene editing to excise the virus, for instance, or to change the mechanism by which the virus invades some of the T-cells. So there's been a lot of work in that area, all of which we're looking at and involved in, we think that the key there is that those are all longer-term options. We don't see -- unfortunately, don't see any of those likely moving the needle substantially towards a cure for the next couple of decades, but it is -- will remain our mission to cure HIV, and we're going to continue to focus on it and hope to get there someday.

Right. Well, let's wrap up the antiviral section with a quick discussion, Andy, on remdesivir. And we've talked to a ton of companies with various vaccines and antibodies and antivirals in development. And there still seems to be a bit of a focus on the endemic phase if we move past the pandemic, looking to '22, '23 and beyond. Is this something that Gilead has focused on? I know you're developing the inhaled formulation. Is the longer tail for remdesivir something that Gilead has to put a lot of capital to work here to really invest in? Or is it something that you think could be easily just deployed and if it happens, great.

Yes. It won't be easily deployed, I can assure you. But I also don't think we have to put, in your words, a tons of capital, a lot of capital to work. We've already done that, right? We made all of the at-risk investments and pulling remdesivir forward. We've been investing in additional research and development. So the cost that we brought to really scale up manufacturing and to get all the clinical trials going were disproportionately hit our P&L in 2020. There still will be -- and I don't want to trivialize it because it's real. And we're talking about tens and tens of millions of dollars of expense to continue to develop remdesivir or prodrugs in remdesivir or other broadly active nukes for coronavirus and other emerging viruses. So that's all going to continue. I think that we do have health formulation of remdesivir, we're continuing to do work in a nebulized formulation. We've also looked at dry powder formulation, although that's earlier and maybe something that we would partner with external partners that are been down there. The primary focus now, Geoff, is on the oral prodrugs and formulations. Those, we're making progress and we hope to bring something into the clinic later this year or next. We do think, to your point, that this will be endemic and that our current intravenous formulation, IV formulation is going to continue to see years not only in '21, but in '22 and beyond. And if we're able to develop an oral that's as good as the IV, then obviously, that's a longer-term opportunity, more like the Tamiflu development that Gilead did decades ago. So I think there's a longer-term tail to remdesivir in the franchise that people appreciate, but it's very hard for us or anyone else to model it, and we'll have to see how the pandemic plays out over time.

Right. Okay. That makes sense. Well, let's switch gears and talk a bit about oncology. And you guys have done a ton of deals and you have access to a lot of different approaches in oncology. You have cell therapy through Kite. You have ADCs, you have bispecifics, you have targeted therapies, you name it. So If you were to sort of fast forward a couple of years, Andy, what do you think would be the prevailing driver of the oncology business in Gilead? Is it 1 or 2 of the modalities or is sort of a collection of everything?

I think it's 1 or 2 years down the road, it's clearly cell therapy in Trodelvy, no doubt, right? So those are the flagships, and it's not just Yescarta, it's also Tecartus, which is doing very well in its launch. So we believe that both of those franchises got longer legs than the market appreciation gives us credit for. On the cell therapy side, we think that the autologous therapies are going to continue to improve. We had a recent label update in the U.S. with Yescarta that we're excited about. So we're making progress. And we think it's going to take longer to get to allogeneic therapies. We will get there someday, and hopefully, we're the first to get there, but the cell therapy franchise, we think, is underappreciated, and we got a strong first quarter. The same thing is true for Trodelvy. It's early days in the launch, right? We had the first full quarter of launch and the first quarter of $75 million of sales in the United States. We had full approval in the United States, as you know, in breast cancer, in metastatic breast cancer with a broader label second line plus, be in the market anticipated, given the strength of the data. The broader label was a result of the strength of the data. And we received the accelerated approval of bladder cancer, which is exciting metastatic bladder cancer as well, which just underpins kind of our belief that this is a pipeline and the product. So I think over the next couple of years, Geoff, and frankly, even beyond, we think those are 2 big drivers. Beyond that, we're really excited about all the different puzzle pieces that we put in place with our internal pipeline. We have some programs that are just now getting into the clinic. And with the auction deals that we've done like the Arcus deal, the Tizona deal, the Pionyr deal. We in-licensed a CCR8 antibody from Jounce that we're really excited about. We have some programs from Agenus that are interesting. So there's a lot of good things happening in the pipeline. I like to say lots of different ways for us to win over time. And we'll keep adding to that portfolio with additional partnering deals.

Andy, this is Jason again. I'd love to ask one more higher-level question on kind of oncology and how you see the company growing. In 4 to 5 years, is the idea that Gilead is going to be primarily oncology company with kind of backstopped by virology or do you envision the company essentially becoming kind of overall more diversified like more mature pharma?

Yes. Definitely become more diversified. Look, I'll just step back. I think people underappreciate the strength and longevity of the virology business led by HIV. I still think that our HIV business is underappreciated and the Merck deal should help open people's eyes over time as we move into the clinical study. So to be clear, the HIV business is here. It's going to be here for a long time. It's going to grow. And we have a lot of confidence in terms of the value of that business that we don't think is fairly reflected in where we trade today as a company. On top of that then, Jason, to your question, we do think that the oncology business will be a significant source of growth and will diversify the company over time. And we think that these -- the existing assets that we have, have very significant potential to move us more to the balanced type of pharma profile that you're looking for where it's not 80% in 1 therapeutic area within virology itself. So I think over the next couple of years and then certainly over the next decade, you'll see greater balance. That should not be interpreted, however, as a belief that the HIV business doesn't have significant potential for a very long period of time with what we've already done, which, again, I think is fundamentally probably misunderstood today, at least from our perspective. And then for reasons that we understand and we hope people will see it differently over time as we move some of these programs forward that I talked about earlier.

Great. And then obviously, Trodelvy, as you mentioned, is a flagship. The ASCENT data was extraordinarily positive. But as you kind of alluded to earlier, oncology is a dynamic space. Earlier this week, you had the Daiichi, their anti Trop-2 data, which was also very positive in TNBC and then, of course, this morning's update, of KEYTRUDA's efficacy in the space. How do you view things competitively evolving? And can you give us a little color on Gilead's strategy to ensure that they capture everything that the Trodelvy can?

Yes. Of course. But these are all things that we knew were coming and that we anticipated when we did the deal. So to be clear, whether it's the Daiichi Trop-2 antibody, which is ahead of us in lung cancer, but behind in breast cancer. We expected that they would have data similar to what they had. It's a relatively small Phase I basket study, the way I would describe it, as you know, so small numbers where a patient, one way or another, can make a big difference in terms of how the data see. We have different side effect profiles, we believe, ultimately, when you look at their more mature data in lung cancer or other areas, in our data in breast cancer, relatively clear differences in terms of the side effect profiles that we think will play out over time. And these are big markets. So there's plenty of room for competition, whether it's from the AZ Daiichi, ADC or otherwise. So none of this is different than what we expected. In fact, again, I would step back, Jason, and highlight that again, The label for triple negative is broader than our base case and what the market expected years ahead in triple-negative breast case, there's room for additional players and needs for additional agents. And the bladder cancer approval came earlier than expected. So if anything, the development since when we did the deal to where we are today are all moving in the right direction and taking us even above kind of the base case that we used to support the deal. And we're excited to see where we go from there. The data today from Merck in the 522 KEYNOTE study in neoadjuvant and adjuvant breast cancer. Again, this is something that we've been following closely, we are aware of. We don't think it changes the size of the second-line triple-negative breast cancer metastatic TNBC opportunity. This is great -- it was great news for patients, not something that surprised us. We will have to go back and look at some of the assumptions around, what we used in the first line. And when we do combination studies in the first line as Pembro is still using the first line. Our team had kind of thought through all of those alternatives, so they'll still thinking through it. But at a high level, I think it's important to emphasize that everything has actually moved in the right direction for us since the deal, and we monitor this closing. The same thing is true in bladder cancer with PADCEV and other agents. Again, there's plenty of room for multiple agents there, and we're excited to see the data from our agent and from other agents that are moving in the right direction for patients.

Perfect. And then just one final. Oncology is a relatively new space for Gilead, although, certainly, there is very experienced commercial teams and Dan O'Day, of course, has a lot of background in oncology. So maybe if you could just -- 1 or 2 reasons why you're confident that Gilead can indeed execute in this new area?

I think it's all -- you hit the nail on the head. It's all about the people, right? I mean we have substantially built out the team. I've been at the company for 4.5 years. And the size of our organization, the level of expertise has changed fundamentally. I mean it's a completely different company today than it was before, not that it was -- there was anything wrong with it. We've made the investments that are required to win in this space. So I think we feel like we've done a number of thoughtful deals. We now have a flagship asset at Gilead outside of cell therapy, where we got to build around that attracts people. So the ability to attract talent has changed dramatically since we did the Immunomedics deal as we build out both the clinical and commercial team. So I think that we put the puzzle pieces in place with both the assets that attract people as well as good people bring other good people, right? So it becomes a virtuous circle. And we're certainly seeing that with the oncology group and it all starts with Dan and Merdad and Johanna and Robbie is the latest addition on our new Head of Research. He's fantastic, also deeply experienced in this space. So it's all moving in the right direction, and we're going to keep adding. But I think we put the people in place that have the background and expertise that can allow us to win we're confident of that.

And Andy, all the deals that you guys have done, you have a lot of different mechanisms that are in place. Was there a thought with some of these later deals that you could, down the road, combine different mechanisms of action? Or is that something that, Gilead, the sort of wave 2 of the oncology pipeline and strategy?

No, that's absolutely part of the thinking, Geoff. So I mean it all depends on whether you need to show a benefit as a single agent, as you know, or whether you can. But I'll use magrolimab as a perfect example. I mean we look at magrolimab and some of the other agents in our pipeline or in Arcus' pipeline, and there's obvious combination potential. Or we look at Trodelvy with some of the things that Arcus has in the pipeline that we have options on and there's obvious combination potential. So all of that was bought through. I mean they all came together slowly. And there were times where you then start -- you do 1 deal and then it allows you to think more creatively and broadly about other deals. So I don't want to say it was all predetermined necessarily, but there has been a lot of thought into what makes sense, what could work together and how to put all the puzzle pieces together. And as the portfolio becomes bigger, obviously, we're thinking through it not only internally but externally, right? We've already seen Arcus announce a deal with AstraZeneca that we're involved in, in terms of studying their TIGIT with the AstraZeneca PD-L1. We're looking at ways that we can expand Trodelvy, as we've said, with PARP inhibitors and PD-1s from other companies. There's a lot to be done here. Now that the puzzle pieces are there, we can kind of develop more thoughtful clinical plans with both internal combinations as well as external combinations. So the bat's move is part of the thinking.

And just on the cell therapy business with Kite, are you guys comfortable with the assets that you have in-house and the technologies? Clearly, there's editing technologies and more of an allo approach that is evolving, and there's a ton of newer companies that are focusing on a lot of the nuances to the delivery of the technology and -- or do you feel like Gilead needs to look externally to sort of tweak some of the existing business for Kite?

Yes. I think that we're very happy with what we have, right? And we've looked -- we've done a strategic review of that business, as Christi and Dan alluded to on the first quarter call, and we're trimming our programs and narrowing our focus. I think, Geoff, on the -- our primary focus, going forward, is going to be on the hematologic cancers. In the short run, we will continue to work on solid tumors, but instead of trying to do it all on our own. That's going to be done more through partnerships and options. So I think we're going to look to partners to really drive next-generation development in solid tumors. We're very happy with the Sangamo partnership in gene editing. It's a great technology. We're still trying to develop a program that we think will be meaningfully differentiated from autologous which makes sense to carry forward. The other thing that Christi highlighted, of course, we're looking at other cell types, not just T-cells. So historically, we looked at T-cells in gamma delta cells or T-cells. We're also now looking at things like NK cells, macrophages like other companies. So more to come there, but a lot of it, Geoff, used the Arcus deal or the Tizona deal is a good example, Pionyr. These are deal structures that we can also use in cell therapy. So Christi and her team and my team will work collaboratively to make sure that we have the right focus internally, but we're really comfortable with what we have today and where we're going to optimize Yescarta and Tecartus and to develop next-generation agents. In the heme side of cell therapy and then partner with companies that are developing solid tumor assets.

Got you. Okay. And in the last minute, we've talked virology, we've talked oncology, hematology. Inflammation is an earlier therapeutic area for your earlier stage with a bunch of diverse assets, but some that could be high impact. Care to pick a couple of them that you feel like are exciting and investors are not as appreciative of those?

Yes. I think it's a longer term, with the developments of filgotinib in the United States, in particular, you're absolutely right. Inflammation immunology is a longer-term mission for us now, which we remain deeply committed to. And we do have some interesting assets. I would highlight, first and foremost, our Oral Alpha-4 Beta-7 program that should be coming into the clinic this year or early next. Our IRAK-4 program, which could potentially be used in combination with other agents. And then the salt-induced kinase-targeted programs, the Toledo program at Galapagos are exciting, especially given the kind of novel target that they're developing it against. So more to come on those. And then it's -- think of that's a longer-term slow build. We understand that it's competitive in those areas. We're going to be cautious, as we work on building a business, but we are going to continue to work on building a business both internally and with Galapagos over the coming years.

Right. Okay. With that, we're out of time. So Andy, thanks a lot for your time, really helpful dialogue.

No. Thank you, guys. Great to see both of you again. Appreciate it. And enjoy the rest of your conference.

All right. Thank you.