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

Well, great. Good afternoon, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biopharma analysts here at Morgan Stanley. Quickly before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So pleased to have Gilead with us next, and Dan O'Day, the CEO.

Dan, I thought maybe a good place to start is just a couple macro items that come up a lot and maybe aren't even Gilead specific, but sort of industry specific. There remains a lot of uncertainty about what's happening in D.C. And I think none of us really know what's happening with reconciliation or otherwise.

I still concluded it, Matthew.

I'm just sort of curious, as a company or someone who's been in the industry a long time, if you have a perspective or just some things for investors to think about as they watch that play out.

Yes. Look, first of all, it's great to be with you, Matthew. Thank you and terrific to be at your conference. Thanks, everybody, for dialing in. Look, I think the context I have is that it's a tale of two stories in Washington right now, I would say. Number one, the respect and admiration for the industry particularly on what it's done for COVID on both a vaccine, of course, but also treatment side and therapy side and prevention side. So there's a lot of admiration for the industry on the one hand. On the other hand, we know, obviously, the drug pricing is a bipartisan topic that has been a topic for quite some time. And now with the divided Congress puts us in a more vulnerable position. I would say that in general, let me just say this really clearly, I think as an industry, we've come together more than I've ever seen before in my decades of experience here in aligning around the fact that we are for. So it's not that we're against things, we're for a reform that helps out-of-patient cost. I think that's really critical because that's kind of the existential issue with our industry is that because of the nature of the system, rebates we give to the middlemen, they are not passed along to patients at the pharmacy counter. We get into a position where it becomes challenging to defend the industry when we have out-of-patient costs that are -- that don't correspond with our net prices. So there's a lot of bipartisan possibility, I think, for coming to an agreement here. We've been working bipartisan-wise with the industry to look at plans that obviously are not connected with the infrastructure bill, not directly connected with the reconciliation bill, but hopefully more of a bipartisan manner. And let's see what happens. I think the next few weeks will be super important. I just want people to know that we're at the table. We're being productive around solutions, but we're also defending our turf. I think the types of things that are in HR3 would be disastrous to the industry and things that we just can't live with. And we see the moderates in the middle also having a lot of struggle and difficulty with.

Okay. Great. Thank you for the perspective, and we'll obviously keep watching there. And then the second, I guess, thing, which obviously is specific to Gilead, but also generally to the industry, is just COVID. And I think for Gilead, right, you've got, on the one hand, you see additional COVID waves, you obviously benefit from that given remdesivir, but on the other hand, you've obviously previously called out some headwinds that HIV faces. So just given the recent Delta wave and the fact that we're, frankly, still in it, how do you think about the second half of the year playing out? And what are the implications of continued COVID waves?

Yes, it's a good question. I think when -- if we were sitting here a year ago, I would have said that remdesivir was a medicine that would make a big impact over the course of the next year and then probably be a much smaller contributor to Gilead's forward future. We all had an insight or a belief that we would probably not have all these additional waves, but at the same time, if you told me that we would have a wave like the wave we're having now post vaccination, I would have thought you were crazy. So I think what we're all learning as we go. I think what's really important is that remdesivir is a standard of care. It's a base therapy in the hospitalization. So 3 out of 5 patients on average in the United States are getting remdesivir in a hospital setting. So it completely tracks hospitalization rates. The -- if you like, the sales of remdesivir. There isn't a lot of stockpiling. It's fluid in the channels. And I think really importantly, we can account on remdesivir to be a contributor, both to the pandemic, but also to Gilead financials in the years to come as we wax and wane with different potential waves, with different -- so I think this concept of one and done with remdesivir is something that's not the case anymore. I think one has to look at it as a part of our business. Maybe still difficult to predict, but an important contributor, particularly on the financial side as well to driving our business. So -- and I would say we're not finished. So we have oral programs with -- remdesivir is a highly potent antiviral. And we have optimism that we might be able to convert that into our oral means, either alone or as we've done at Gilead time and time again in combination, co-formulated potentially or not co-formulated with another agent, to really allow us to have an ongoing treatment for this disease into the future. So I think when you look at our virology business, back to your question, Matthew, I mean there are puts and takes. There are natural hedges that kind of occur between HIV business, the same physicians, infectious disease physicians treating HIV patients and those that are treating COVID patients. And so there's this dynamic where although the HIV resurgence and treatment has taken a little longer than expected, as we talked about at the second quarter call, remdesivir, from a financial perspective, has contributed to benefiting from that. And when we see lower remdesivir, hopefully, we'll see an even greater resurgence on the HIV business. So I think that's one way to think about the totality of our virology business, HIV, remdesivir and then, of course, the work we do in HBV and HCV and HDV.

Perfect. Perfect. Great. I think -- look, there are a couple of pipeline catalysts towards the end of the year, and I think we should touch in detail on those. So why don't we flip to those and then we can come back to some questions that normally come up on the base business. Trodelvy in breast cancer is obviously a key catalyst here at the end of the year. I think sort of the key question that people have is, obviously, what's your level of confidence in the program, but maybe even more specifically, what's your level of confidence in the choice of the PFS delta that you powered the study for?

Yes. I know this is a common discussion point, particularly around the CDK4/6. What I would say is as a nonscientist, but somebody who spends a lot of time with our scientists and our clinicians and has experience in the industry about trial design, we remain very optimistic about Trodelvy's role across tumor types because we've already seen it be effective against 2 tumor types now, and also in triple-negative breast cancer in even earlier lines of therapy, which is our strategy, of course, to move across tumor types up in lines of therapy. So specifically around the TROPiCS-02 study in hormone receptor-positive, I really appreciate the work that both Immunomedics did and then we did as we took it over by making sure we did some fine-tuning to that trial design, slightly increased the sample size for greater OS powering. The PFS was powered to begin with well, took out a not needed interim in the alpha hit that one would have from that on overall response. It's not a regulatory-improved milestone and really focused then on the PFS readout that we have later this year. I mean just to remind everybody, we've got the study powered for a PFS hazard ratio of around 0.7, and we've been quite conservative, I think, on the performance of the chemo arm in that 3.7 months chemo versus 5.3 months of Trodelvy. And when we were also conservative in triple-negative breast cancer, we saw the chemo arm did not perform as well. The other thing to remind folks of on this whole CDK4/6 argument is that, number one, there's no mechanistic reason that our scientists can understand for why there would be less of an effect on Trop-2 ADC given prior CDK4/6 therapy. I think the sample size was very small and the concern that was raised there, number one. Number two, it's in both arms, right? So it's in both the control arm and the active arm with Trodelvy, the previous usage of CDK4/6. And then maybe one other data point, which is the data that will be released at ESMO this year on a subset of the triple-negative breast cancer study. The highlights were in the press release earlier this week that 30% of the patients in the triple-negative breast cancer where we saw a really significant impact versus chemotherapy were not initially diagnosed as triple-negative breast cancer. So many of those were hormone receptor-positive cancer patients that, of course, most of them had CDK4/6 therapy that then matriculated to triple-negative breast cancer in that study. So again, small number of patients there. But everything in our hands and in our opinion leads us to believe that: number one, we powered the study correctly to your point, that we're optimistic about seeing an effect size. The question will be size of effect, but we powered it to see a clinically meaningful effect. And then we'll see how the data comes out later this year. We look forward to sharing it with you. And just to remind you on the breadth of the program that we have around Trodelvy, it goes, of course, beyond hormone receptor positive to lung cancer to head and neck to endometrial to other disease states we're exploring. And then particularly as we go from the late lines of therapy to the earlier lines of therapy, I think it's an ideal agent from a tolerability profile to think about combining with other agents, potentially other chemotherapies and maybe standard of care early in the line of therapy or even more desirable with immunotherapy non-chemo regimens. So we're -- we remain very bullish on Trodelvy. Just one other note is that the NCCN guidelines published this week were affirming the use of Trodelvy in second-line triple-negative breast cancer, where we're really just getting going there in bladder cancer where we have the beginnings of the uptake of Trodelvy.

Great. Great. Yes. Maybe I guess a couple of follow-ups there. So first one is, will you look at OS at the readout at the end of the year? Or will there not be any interim on OS and we'll just wait for that data in the coming years?

Don't quote me on this, I'm pretty sure that we look at OS, but it will obviously be immature at that stage, but we may have to get back to you, Matthew, on that. I haven't actually asked the team that question. That's my assumption at this stage.

Okay. Okay. That's fine. And then second, can we talk about some of the approved indications?

Sure.

So we look at gastro. I mean we look at bladder, we look at triple-negative. What's the plan and what's the investment across those to get to earlier lines? And how aggressive are you being there in terms of investing to earlier lines?

Right. So we'll be disclosing more and more about the entirety of our program. You bring up a really good plan. I think it's something that we've spoken about with investors, I spoke about with investors recently, too, is that now that our teams are in place, now that we have active protocols being developed and initiated, we are in a position to more and more release that information to all of you to let you know. But make no mistake, I mean our strategy is, particularly when we've seen significant benefit in late-line patients, to move up in the lines of therapy. So you can expect us to move up in triple-negative breast cancer, bladder cancer. Let's see how we do with hormone receptor-positive cancer. And of course, we're starting in second-line lungs, so we'll see how that moves up as well. But I'll just remind you of what's been disclosed so far is obviously the TROPiCS study that we talked about and hormone receptor-positive HER2-negative. The basket study that you should also get a readout on a little bit later this year done on the lung cohort, this basket study includes non-small cell lung, endometrial and head and neck. The lung cohort should get an update in the second half of this year, endometrial, head and neck most likely next year. And we've already begun the Phase III initiation for the second-line non-small cell lung cancer. So that's immediately publicly disclosed, but for sure, you can expect investment and we are investing, and we will disclose when we feel it's appropriate to do so in moving up in the lines of therapy we've already shown. So -- and I was just -- maybe your question was also directed towards the investment just in the commercial launch. Of course, we're investing heavily in that. We're just beginning the penetration. So in the third-line triple-negative breast cancer today, only about 1 in 3 patients received Trodelvy. It's still getting into the standard of care. As I said before, the NCCN guidelines should help there. And in the second-line setting, which is a population twice the size of the third-line setting, we're only today in 1 of 10 patients. So you can see and obviously in late-line bladder cancer just beginning as well. So the investment on the commercial side in educating people, making sure people have guidelines, the reimbursement systems are set up, we're still very much in an active launch phase here on the indications that we already have read out. But rest assured. And the other thing I'll just mention, Matthew, is in addition to what we intend to do ourselves from a clinical trial perspective, we envision this as having the potential to replace chemotherapy in many lines of setting in combination with other standards of care. And one envisions that, then you work with partners, companies that have the other agents in those lines of therapy particularly as you move up in the lines of therapy to help execute on those trials and to make sure we can scale, if you like, with speed, the impact of Trodelvy. So more on that as we finalize those agreements and publish them, but you can expect a little bit like the PD-1, PD-L1 historical knowledge that we would try to approach this very much like a KEYTRUDA message that became somewhat ubiquitous quickly across the lines of therapy and in partnering with other companies to move this up. We're aware of the competition, of course, in Trop-2. We're also aware of out-of-cost competition. So speed makes a difference here and scaling quickly makes a difference.

Okay. Great. Great. And then maybe just -- you mentioned competition. I mean I think people just -- I guess maybe it would be helpful to have a comment just specifically in lung because there, there's sort of direct indication competition where you're sort of a little bit behind compared to your competitor. And just how you think about your profile versus the competitive profile.

Yes, absolutely. First of all, lung is a really important indication for us. And the second-line lung setting, as I said, we've initiated the trial, and we think there are ways that we can also catch up here. So I don't think the trial readouts will be grossly distanced by time as we think about the second-line lung. What I would say, in particular, of course, is that the data that we've seen so far, and there's quite a few patients, of course, that have been treated with Trodelvy. So far, we see that from a safety standpoint, interstitial lung disease remains a potential safety concern for the competition and maybe a point of differentiation for Trodelvy. Of course, we continue to monitor that overall. But in our hands, so far, I think that's encouraging, particularly to the point we spoke before, I mean, about the ability to think about combining this medicine. Because when you have an adverse event at a decent event rate, you're much more reluctant to be able to combine those as you move forward. So lots still ahead of us in terms of -- I mean, I'm the first one to say big data sets gives bigger confidence, and I understand that. But right now, I think both the in-class competition for the Trop-2-directed agents, we feel good, of course, about our first-mover advantage in breast cancer and in bladder cancer, our ability to be competitive in lung cancer, and we'll see how the tolerability profiles shake out as we get into larger patient populations. And then of course, even the out-of-class competition. When we think about that bladder cancer, are there opportunities for subset of patient populations, given our tolerability profile to take larger patient populations there. So I -- we're not naive around competition. We're -- first of all, we're focused on patients getting the best patient care, but we constantly are mapping the in-class, out-of-class competition and deciding where best to place our capital relative to the next studies so that we have a differentiated profile moving forward. That won't be everywhere, of course, but where we feel we can win, that's where we'll invest.

Okay. Great. Good. Good. Sort of second asset, magrolimab. Obviously, another asset where we're going to get some data this year. I guess to remind people, what do you need to see out of that study to drive a filing? And just talk about your level of confidence in being able to achieve that.

Yes. Look, the filing will be a discussion with regulators. But what we're hoping to see, of course, in the Phase Ib is similar clinical and meaningful improvement that we saw in the very early-stage trials, so with obviously greater duration, which is the most important thing in larger numbers. So if we could get the same clinical meaningful improvement that we saw earlier, repeated, longer duration, we think that would be a win. We think that would be very intriguing to regulators. We also think that given the out-of-class competition readout recently that this opens -- well, the unmet medical need remains very high in this indication of MDS. And we think with that type of clinical benefit, this would really open the door for magrolimab. So we're going to see the data, of course, in the second half of this year. And ultimately, it will be depending on the data on the regulatory side. I would say that we've already started the Phase III ENHANCE study in MDS to support either confirmatory approval or in the case that we needed for registration, it's underway now. So I would just remind you also, we have FDA Breakthrough Therapy designation for MDS as well. So I think that's our approach. Of course, we have an AML program going on. And we are also looking at this in other tumor types as well, of course.

And I guess just briefly remind people about the size of that opportunity. I think it gets lost a little bit in the pipeline, but still a substantial opportunity for Gilead.

Yes, absolutely. I mean the unmet medical need is big. I think the opportunity in MDS itself is large or is basically nothing else for that treatment population. So you can look at that treatment population and calculate the opportunity there. But beyond that, we see this as potentially having pan-tumor opportunities in the same concept, I'm not saying exactly the same as Trodelvy because in addition to hematologic malignancies where obviously, this is the first to play out, there are several other trials that we've initiated right now looking at this in solid tumors. So we have a Phase II in head and neck that's now recruiting, we have a Phase II basket study in general solid tumors, we have a Phase II study that's just opened for recruitment in triple-negative breast cancer. We're considering the possibility of this being a complementary approach to our cell therapy and hematologic malignancies. So the mechanism, as you know, a, is highly competitive. We like our first-mover advantage, we like our molecule, and we like the fact that our portfolio, even within the company, not alone the collaborations we have outside the company, allow us to think about this agent similar to the way I described Trodelvy alone in combination with different disease states. So we have to see how the solid tumors comes out, but the mechanism is very encouraging to us.

Okay. Great. Maybe we could turn to HBV. I think an area after -- we saw, I guess -- it seemed like there were less investment in novel compounds there that I think got lost a little bit on investors, but the flip side is commercially right, you're growing that into a quite sizable business. So maybe just give us your outlook on HBV commercially and then what you're doing as you think about functional cure in HBV.

Yes, absolutely. And maybe I'll take the opportunity to tag on HDV, which I think is a great addition to the HBV franchise. But look, there's no doubt that there's remaining potential in the treatment area before we get to anything about the cure of HBV. Revenue was over $600 million last year. In the first half of this year, it was about $410 million. So it clearly has potential beyond -- sorry, some of those numbers, I was -- I apologize, those weren't the numbers for HBV. I was looking at different numbers. But we have definitely a goal to get to $1 billion and beyond in 2022 with HBV. The other thing I would say is that HDV is a great opportunity for us. It's a big unmet medical need. The acquisition of the molecule, Hepcludex, was very much in line with our strategy of bolt-on acquisitions in areas that we think are of big unmet medical needs. We're looking forward to filing that in the United States and having that be a companion, if you like, as a subset of the HBV business accordingly. In terms of the cure programs, we remain very excited about that. We announced our collaboration with Vir earlier. We have programs now in the market that are -- just going on in the market that are going into clinical trials now to look at HBV cure. We think, although it's more challenging than HCV cure. We think with combination regimens, with multiple mechanisms, there may be an opportunity to approach that into the future, and we'll see how those studies play out. But HBV as a treatment and HDV remain very important drivers for our virology business in the next several years.

Okay. Great. Great. I want to come back to HIV because there's a lot of work ongoing there. But maybe before we do that, if you could just touch on cell therapy. I think finally starting to see some decent momentum there across the businesses, I guess, for people who think about when the company acquired Kite, multibillion-dollar potential was really what people were thinking about. So I guess my broad question is, do you still have that outlook? Do you still think that's the potential? And what do you need to do to achieve that?

Right. And sorry, I was glancing at different numbers on the table. So the numbers I was commenting before were CAR T, but they're not that dissimilar. Actually, HBV in the first half of this year had sales of around -- HBV and HDV had sales of around $457 million, whereas cell therapy had around $401 million. But look, I'm really bullish around our cell therapy. I think the most substantial readout for, frankly, the whole field of cell therapy, let alone Kite was the second-line ZUMA-7 trial. And of course, we look forward to showing more details on that at ASH later this year. But this -- and I think that was really a fundamental turning point for the business, to be very honest with you. I think in the absence of being able to move up in lines of therapy, given the infrastructure associated with this business, I think we were wondering exactly how much potential this business would have. But now in the second-line setting, now having 2 cell therapies out there in Tecartus and Yescarta in different disease states. This is a business that is, again, at the very early stages of its penetration. And I think the second-line and frankly, some of the competition coming in this sector on the market, will have an effect on growing the whole market. I mean I remind you, the market is really underpenetrated. So of patients in the third-line DLBCL setting that are eligible for cell therapy, only about 4 out of 10 ever get referred to cell therapy. And this is -- I mean this is potentially curative therapy where it's certain that patients will die if they don't do something else. So that's still quite a low number that implies we have work to do to continue to get caregivers comfortable with cell therapy, get their access to care. And then even if those 4 of 10 that are referred to therapy, only 2 of 10 eventually get on therapy. So I look at it this way. I think Yescarta discrimination differentiates itself on the duration of response. The 4-year data is really stunning. We'll have 5-year data obviously again this year. Now we move up into the second lines of therapies. This is really an opportunity to have the opportunity for cure in a very difficult disease state. So I'm excited about the future for cell therapy as a component of Gilead's overall oncology strategy.

Great. Good. We got a couple more minutes left. I guess I want to touch on capital deployment and maybe touch on it in this context. You've obviously -- since you've become CEO, you have broadly looked across a lot of the programs, and we see you do a variety of deals to bring in new assets to bolster the pipeline. And so far, I guess, the truth is some haven't readout and some we've had, I guess, near-term sort of mixed results on it. And so I think a lot of the investor questions I get are related to, do you see any need to change how you're thinking about deploying capital. And then perhaps more importantly, among sort of the more high-profile ones where we haven't seen a lot of, I guess, sort of new drugs come out is Galapagos. So how are you thinking about that asset in particular?

Yes. Look, I -- from my experience in the industry, I have very much liked the way we've deployed capital over the past 2 years. It's been completely directed -- or majority directed, I would say, at the portfolio itself. So over the past 2 years, we've built a really diverse portfolio that's 50% larger than it was a couple of years ago. But more importantly than the size, I think the quality of the portfolio has increased significantly now. The bar is very high for things to progress into later-stage trials. We've done really important, shoring up of a very strong virology business with things like our collaboration with Merck on islatravir on long acting, and we've built up, outside of the cell therapy, I think, a very attractive oncology portfolio. Inflammation is still a little bit earlier. And as you mentioned, of course, we are now in execution mode, so we've got to execute on the studies, we've got to turn cards over on clinical trials. We've got to execute on the commercial launch into the oncology setting outside of cell therapy. We have opportunities in cell therapy and that's really our focus. We'll continue to deploy capital, I think, is our #1 priority on the business itself in R&D, whether it's internal investment or continued bolt-on acquisitions. But that bar is very high, and the portfolio is very different. We're not going to see the pace or size of deals that we've done in the past couple of years because now the portfolio is very much at a stage where that's not as essential and necessary and we have so much to execute on. You mentioned specifically around Galapagos. I continue to have confidence in the nature of their discovery research pipeline. We did that deal. It was a 13-year deal for certain reasons, and it was predominantly based upon discovery because of the time we went in, we went in eyes wide open about some of the risk in the late-stage programs, which unfortunately many have failed. But there are still important programs in inflammation, fibrosis that we see as attractive and interesting. We're -- I think having a second research focus that's focused predominantly on inflammation will only be complementary to our efforts to build inflammation into the future as well. So lots of work and promise is still a conviction in Galapagos from the long term.

All right. Well, perfect. Dan, thanks for being here. Thanks for taking our wide variety of questions and I appreciate your responses.

Appreciate it. Thanks for having me.