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

Well, great. Well, welcome, everyone, to our next session at the Raymond James 43rd Annual Institutional Investors Conference. I'm Steve Seedhouse, biotech analyst at Raymond James. Really my pleasure to welcome Gilead to the conference this year. Gilead, of course, one of the largest well-known biotechnology companies in the world, developing and marketing therapeutics for infectious disease, cancer and other diseases. Privileged to be joined for a fireside chat by CFO, Andrew Dickinson, Andy joined Gilead in 2016. Prior to his current role, CFO, served as Head of the company's Corporate Development and Strategy Group, in that role drove all of Gilead's licensing partnership and acquisition transactions and guided investment into new areas. So Andy, welcome.

Thank you.

Pleasure to have you here.

Thank you. We're thrilled to be here. Thanks for having me.

Yes. Well, I guess, given the news yesterday with TROPiCS-02, let's start there, been receiving a lot of inbound questions from investors, and obviously, you have as well. Just really on what you were trying to communicate with the press release and the data and sort of reference to prior studies that you put into that press release, we could start there and you could just maybe expand on what we see in the data and what it means?

Yes. No, I'd be happy to. We understand, of course, that this is a study that there's a lot of focus on for good reason. It's an important study in a patient population that really needs new therapy. So the key messages are relatively simple. One, there was a very clear effect from the drug in patients versus the current standard of care, consistent with what we've seen in prior studies. So really not a lot of ambiguity in the data, right, completely clear signal. That being said, the strength of the signal was less than our base case previously. It was within the range of outcomes that we modeled and expected. And I think the key for you is we try to put it in context, again, hopefully, people recognize that there are limits in terms of our ability to share the quantitative data if we want to retain the ability to present the data at a conference like ASCO. So we're targeting, as you'd expect, presentation at ASCO in a couple of months. We look forward at that time to sharing the full data set with you and clinicians where people can look at the totality of the data. But I think it's fair to say maybe the easiest way to think about it because there's always been this debate about what is clinically meaningful. There will be some clinicians at ASCO and some experts that look at the data and say, this is clearly meaningful. This is incredibly important for patients. that are late-line patients that have no other alternatives. It's very clearly better than the current standard of care. And then there may be others that say that doesn't quite meet my bar for clinical meaningfulness because the duration of the benefit is less than they may be looking for. So I think you're going to see a mix set of opinions. It will be interesting to see kind of where people come out post ASCO. And I reiterate, I think it's really important to look at the totality of the data. But we're trying to be as clear as we can in terms of what we saw in the data, the consistency of the signal and preserve the data for ASCO.

So much of that, I'm sure, is with respect to the PFS. The OS data also, you had been waiting basically because of the convergence of events for that to accrue. I'm curious just the effect that you see there. I know it's a trend that you had mentioned -- is there anything you can expand on the...

Yes, that's a good question. There's a couple of other things about the study. There are a number of things that are worth mentioning. But I'm -- a very clear positive trend in overall survival, but not yet statistically significant. So -- and again, you'll get a better sense of the data when you look at the Kaplan-Meier curves, assuming that they're shared at the scientific conference. You'll certainly see them at some point. So again, I think it goes back to the point there is a very clear signal that's consistent, not only in this study, but with prior studies, and a promising positive signal on the overall survival, but it's not yet statistically significant. And there's a question of whether, just like there's a question of whether KOLs universally or regulatory agencies would view the data as clinically meaningful, and I think some will, some may not, the overall survival. There's a reasonable chance that it converts down the road. We may have to wait until 2024. We do have the possibility in the protocol of taking another interim look at our OS, of course, that's something that we'll discuss with the regulatory authorities. So from here, the next key events, of course, are; we'll prepare a briefing package. We'll review the data with both the FDA and the regulatory authorities in the EU and talk about potential path forward, again, the clear messages. There may be a path forward at this time with this data, there may not be. We've to see what the regulators say. And then on the overall survival, again, we'll take another look at the data, but we have to work with the regulators and our development team to figure out when we want to do that. We'll also look at a subset analyses. It's too early to provide any color on patients or subgroups that may have benefited more than others. But you can imagine that we're looking at lots of different data cuts this -- over the last weekend and the last couple of days, we'll be looking at it over the next couple of months. We'll look at things like TROPiCS-02 expression levels. So -- and we'll share as much of that as we can over the coming months and the coming years. So -- and then when you step back from this, I think the other key takeaway is, I mean, this is the third major trial, but really fourth trial overall that shows a very clear signal TRODELVY being better than the standard of care. So it's a little bit of a double-edged sort. We're trying to get to be transparent that the data was not exactly where we expected it to be. It's within the range. We still think that it's promising data. And when you step back and look at it from a macro perspective and look at the thesis that we had in the deal, you have incredibly strong data in triple-negative breast cancer, very strong data that led to a preliminary approval in bladder cancer. And now you have data that's very clear in hormone receptor positive breast cancer, in very late line, very difficult to treat patients. So it actually gives us a lot of comfort and it may seem counterintuitive to some people, gives us a lot of comfort. This is a rare drug that you see significant activity across multiple solid tumors, different patients, different lines of therapy and gives us additional confidence to move forward in lung cancer, in earlier lines of hormone receptor positive breast cancer, earlier lines of triple-negative breast cancer. So the thesis of this being a drug in a pipeline in our minds, is supported by the data. And again, I think it will be easier for people to understand when they see the full data set.

Okay. So with respect to the broad spectrum of programs beyond HR+/HER2- breast, safe to say unaffected?

Yes. I mean full speed ahead. I mean again, we'll continue to look at the data and if there are things that we see in the data that inform our development plans, we'll take those into account. But when our experts look at the data, we discuss the data with our Board and others, there's no reason not to move forward. And again, I'd say while may seem counterintuitive to some, I think our confidence in TRODELVY has actually increased by the consistency of the data. And part of it is when you look at it again, I mean, these are very advanced patients in the TROPiCS study. I mean these are patients, some of whom have been through 4 prior chemotherapies in addition to other agents, as you saw in the press release. So with that background, we're impressed with the signal that we're seeing. And again, it's consistent across multiple tumor types. And we always knew. The other thing that we should say is we did the transaction, and I think this is true for other blockbuster oncology products. You're not always going to see the same out-of-the-park home run signal in every tumor type and every trial. Sometimes it's based on trial design. Sometimes it's based on the patients that are enrolled in the study, sometimes it's biological. But when you really look at the totality of the data that we have for TRODELVY, we find it really encouraging.

Okay. And just back on TROPiCS-02. Was there anything in the chem arm, the control arm that was unusual? Or was that as modeled?

Well, we'll -- again, we'll share that with the full data, but the message is not. Again, we try to bend over backwards with the press release and the frequently asked question that we issued as well to give people as much color as possible. The message was not that the control arm performed in a way that was different than expectations. So I would leave it at that.

Okay. And now as we think about the financial impact, just to the extent that any uncertainty has been added to a path forward towards approval, maybe the commercial opportunity. Anything you can say there?

Yes. I think the guidance we provided in the FAQ is relatively straightforward. For 2022, the impact is modest in terms of revenue expectations, the approval -- the earliest approval would have come -- we would have expected it would have been at the end of the year. There's really no change in our expense assumptions. The trials are already underway or will be underway. Again, we'll continue to look at the data if that changes, we'll let you know. The one thing that we will look closely at with our auditing team is the in-process R&D that's on the balance sheet from the acquisition related to third-line hormone receptor positive HER2- breast cancer. There's also some in-process R&D for earlier lines, although it's not clear that we had changed any of our assumptions there. But again, recognizing that our base case was different than where we ended up with the data, we will now work over the coming weeks to look at our model, work closely with our team and work with our auditors at Ernst & Young to figure out what, if any, impact it will have on the in-process R&D that we're carrying on our balance sheet.

Okay. That's clear. And with respect to second line or maybe even first line in HR+/HER2- breast cancer, does -- I mean, have you learned now just something about the nature of CDK4/6 treatment treating post that with TRODELVY, maybe if you move into earlier lines of therapy, all of a sudden the effect size is larger, there's ...

Well, we really would expect to see regardless to CDK4/6 prior therapy, we would expect like most drugs. And as you move up in lines of therapy, you're going to see a larger effect over a longer period of time. And we think we'll see that. So again, the plan is to move into earlier lines of therapy. And we think you'll see that. Not clear yet to us whether CDK4/6 prior use had that significant of an impact here. Again, the study, all patients that have prior CDK4/6 use. And as we said, the data are generally consistent with the prior data where there was a subset of patients that had CDK4/6 data use, but not all. So we'll continue to look at it. And again, that's something that I would expect over time, whether it's at the ASCO presentation, assuming that we're granted one or otherwise, we'll try to provide as much clarity as we can. But I think it goes without saying that as we move up in lines of therapy. Same thing we're doing in triple-negative breast cancer, and we're planning to move up in lines of therapy. We've started first-line lung studies with Merck, as you know, I think on all of those, we would expect to see an outsized effect relative to what we would see in later lines with sicker patients that have more advanced disease.

Okay. And then just with respect to timing on when you'll have sort of a clear understanding subsequent to conversations with the FDA, I assume on path to market here...

Yes. It always takes a little bit of time to put together the breathing materials for the regulators, to get the meetings and then to get the feedback. So it's not going to happen in the coming weeks. It's going to take months to get that feedback to get a sense of whether there's a -- based on the current data, whether there's a regulatory path for it. So I doubt that we'll have much of a meaningful update on our oncology day that we scheduled for the middle of April, which is an important event. I hope everyone can join as we talk about the oncology strategy and portfolio more broadly, including TRODELVY, but -- and by ASCO, whether we'll have an update, again, if not clear, we'll see. We're going to do everything we can, obviously, to have the discussions with the regulatory agencies as soon as possible.

Okay. And then just from a competitive standpoint, we're getting a lot of questions, obviously, before your press release yesterday because it was the most topical newest data. This is an in HER2 study in HER2 low breast cancer.

That's breast study. Yes, [indiscernible] study.

Yes. So I mean, the question really is there's some Venn diagram here where that population they overlap with the TROPiCS-02 population. I mean what do you -- what's in the middle of that Venn Diagram? How big of an impact is this competitive?

Yes. It's hard to tell until we see both data sets side by side. So when we acquired Immunomedics, we always assumed one, that their study would be positive. It's a good drug. And that it really depends on the data and what's driving the response in their study. So obviously, they issued like we did and it's a standard in the top line press release without sharing the specific data. They did mention that they hit overall survival at their first interim. So we look forward to seeing the data presumably get at ASCO, basically the data side by side, we would hope. But in any event, a couple of things worth mentioning there. One, in terms of the overlap that you mentioned, there is some overlap. We've always assumed that it will depend on their data and what's driving the effect size. So if they show and stratify the data by HER2- expression, we'll get a better sense, you'll get a better sense of how much overlap there is. So I think whether there's 5% to 10% overlap or 20% to 25% overlap, we don't think it's 50-plus percent overlap. I mean, there are very significant opportunities for both drugs here in late-line patients. The other thing that's worth mentioning when people look at those studies side by side is the entry criteria. So again, if you just look at the entry criteria for the studies, even though they're both in later-line patients, you would expect that the patients in the TROPiCS Study had -- were -- had more advanced disease, were further along because there were more prior lines of therapy that were part of the entry criteria. So it's interesting to again look at the patient demographics across the 2 studies and to see what, if any, impact that had in the results. So both of them are -- from our perspective, and I think you'll likely hear the same thing from KOLs. These are both very important studies for patients and clinicians. And I think there's a place for both of them. We have more work to do on our side to figuring out where we go in terms of the central regulatory approvals.

Okay. And obviously, this flagship oncology program for Gilead. You've put, what I would call, flag on the ground in 2030 with respect to 1/3 of revenues you expect coming from oncology. I just wanted to ask open-ended question. I mean, can you unpack that for us? I mean what comprises that 1/3 of the level to get there?

First of all, I think it's really important to highlight in order to understand our guidance, if you call it that, in terms of kind of 1/3 of our revenue coming from oncology, you have to understand the other piece of information that we guided to, which is a stable or growing HIV business, right? So that's really important because I think the biggest disconnect between our view of the future and Wall Street's view of the future is our belief that our HIV business could not only be stable, but likely grow even from [ 25 to 30, 33 ] before the BIKTARVY patent cliff. And that's driven by our long-acting pipeline, which we think is best in class and holds a lot of promise, including lenacapavir. So if you imagine the HIV business, that -- which is today, a $16 billion to $17 billion a year business after our TRUVADA triple patent cliff and growing the HIV markets, growing the PrEP market is growing faster. So if you imagine that continuing to grow over the next decade, which we believe it will, then on top of that, we're saying that we expect to have 1/3 of our revenues coming from oncology. And the key is, when you unpack it, it's driven largely by our cell therapy business and TRODELVY. Obviously, there are a number of other things that we have in our pipeline that provide optionality and upside. But just on TRODELVY alone, I mean I should say, we continue to believe that this is a blockbuster pipeline in a product. And as I said earlier, I have a lot of confidence in moving into other lines of therapy and other tumor types. So could you get there just with TRODELVY and with cell therapy? Of course. And then on top of that, we have magrolimab, that's on clinical hold now. We think there's a reasonable possibility that we can work through that with the FDA and get off clinical hold. We think that's a really important drug for patients, in particular, with hematological cancers, maybe with solid tumors. And then on top of that, all the Arcus programs that we've offered to do. And there's a bunch of exciting programs there. We have a CCR8 antibody that we in-licensed from Jounce that we're really excited about as well as some other programs. So there's lots of ways of us getting there, and we look at lots of different scenarios as we always do the same way that we looked at it, we acquired Immunomedics, lots of different ways to get a really attractive return on that deal for our shareholders and we still think that's true. So -- but when you unpack it, just cell therapy and TRODELVY can easily -- can get you there. And then there are a number of other ways to get there from our perspective.

Okay. And that other 2/3 component, I mean, so you mentioned HIV, obviously, that's the vast majority of it. But what about immunology and inflammation and new areas? Do you model all of that?

We do. I mean our -- that's the third leg of the stool and a very important therapeutic area for us. Again, it's all based on kind of the scientific connections between virology, which is largely an immune-based disease, why does your immune system recognizes some viruses in clear and not others, Immuno-oncology or oncology generally. Our primary focus is on immuno-oncology. TRODELVY, of course, is a little bit different, which became an anchor for us to build around for oncology. And then in immunology, we're still very focused on immunology, even though we're not moving forward with filgotinib as a commercialized product in the U.S. Of course, our partner, Galapagos, is moving forward in Europe, and we have an approval in Japan partnered with Eisai. So our immunology programs are earlier stage, but there are a number of clinical programs have been the ones that I would highlight. We have a [ TPL2 ] inhibitor that is interesting. And we have an alpha 4 beta 7 small molecules. So for those of you that follow Takeda and ENTYVIO and understand that antibody, there are a number of companies. There's a small company called Morphic and Gilead that are kind of out in front of people, I think, in working on small molecular 4 beta so and so. So that's a program that we're excited about and pushing forward. And then, of course, I think we will build an immunology over time. So that's another potential area of growth, but it's not at the same place as our virology business and our oncology businesses.

Sure. Okay. A couple of things that you mentioned, just speaking about that oncology flag in the ground, do want to come back to magrolimab. What can you say about just your confidence in that hold being lifted? And really -- I mean the question is about the long-term outlook for that asset is paired in any way?

Yes. Well, I'll take the financial question separately, but we still have a lot of confidence in magrolimab. We think that CD47 space is important. We're out ahead of others. Clinical development in our field is never easy. So to be clear, we had a small number of unexpected adverse events that we saw in the study shared with regulators. These are not things that you would logically think would be connected with the drug. And that may actually, in fact, be absolutely no connection with the drug. Remember, in myelodysplastic syndrome, the majority of these patients are elderly. They're old. They have a lot of comorbidities. So you're going to see other adverse events. I think that out of an abundance of caution, the regulatory agency wanted to look at the data unblinded. They wanted us to unblind a small team internally, which we've done. I haven't seen the data or as our CMO, but we have a small team working with our data safety monitoring board and then with the FDA to look at the data. So yes, I mean, I think there's a reasonable chance that we work through this and we continue to have a lot of confidence in the drug. It's a little bit different than the clinical hold on lenacapavir, which has nothing to do with the drug and everything to do with the viral. So I just want to be clear that we have a lot of confidence. I think we can work through it, but these are things that take time and we'll have to see where the FDA comes out based on the data that we're sharing. So more to come in the coming months.

Okay. And just with respect to lenacapavir and the viral issue, you're confident that the clinical path there and prep, which, of course, is important given the 2025 [indiscernible] is intact and likely to have a long-acting data before that?

Yes, that hasn't changed. I mean, again, it -- that depends on -- is based in our belief that we can work through. So there's 2 things. There's the clinical hold and then we received not surprisingly, the complete response letter on the approval for highly treatment-experienced patients, read those last week now, time fly. So those could be resolved at the same time. They could be resolved at different times. So the clinical hold, there are a number of things that we're thinking through with the FDA in terms of how we can push those [indiscernible] forward. Remember, on PrEP, for instance, many of the patients had just been enrolled in the study and received their first 6-month dose. So there was a window where it's easier for us to work through this with the FDA before most of the patients are coming back in for a second dose. We also have an oral version of it available that could be used to dose patients while we're working through the viral issue. But the expectation that we will work through this issue with the FDA, I think, on both. The question is how long does it take? And the goal would be to get the issue on the clinical side -- both of them resolved as quickly as possible, but the clinical side, certainly in the coming months, if at all possible. And then -- the complete response that will take a little bit longer. Of course, we've been providing additional updated materials on an alternate viral to the FDA, and then we'll pull together another package for them in response to the complete response letter file that and then it depends on the review period that they give us. The hope is that after we submit that we have another 2-month review period, and that we could still get approval at some point later this year.

Okay. And just on PrEP commercial, I mean, you mentioned it's a growth at one point, an unexpected growth driver years ago and then, of course, a pretty reliable growth driver and then COVID hit. And just curious, I mean, how has that evolved in the last couple of months? You had the Omicron wave. What does PrEP look like? I could be mistaken, but I think Gilead sort of is providing less granular detail on that on earnings calls, for instance. So curious how PrEP looks outlook for 2022?

Yes. Well, we're trying to provide as much detail as we can. I mean the PrEP market is still growing. So to be clear, when you think about it in general terms, remember, when we had TRUVADA and DESCOVY, both approved for PrEP, that was at least a $2 billion a year business for us. When TRUVADA went off, at least half of that in a way it's -- think of it as a slightly sub-billion business, but growing. So the whole market, the PrEP market is growing. These are incredibly effective therapies if patients stay on the daily therapy. Obviously, there's a new competitor in CABENUVA that was approved for PrEP. I think it's a different trade made for PrEP but -- in any event. And that will also help grow the market. So we are seeing growth in PrEP despite the pandemic. And I think that we don't see the same effect on the PrEP market at this point in the pandemic and with Omicron that we did previously. The surges do continue to have more of an impact on the treatment business, which is also recovering from the pandemic, but not as good as PrEP. On PrEP, the other things that are worth mentioning, of course, is that we said we expect the market to increase by at least 50%, if not more by between now and 2030. And what's really going to do that, again, if lenacapavir is a once every 6-month subcutaneous injection, assuming that the data plays out the way that we expect. Remember in virology, we have a long history of extrapolating our preclinical models to clinical models in a very effective way. So there's a lot of confidence that this is a great PrEP option that could be equivalent to the once-a-day orals. And that would really open up to the PrEP market dramatically. Because you're right, the PrEP business had a kind of a turbocharging effect of the HIV growth over the last 7 or 8 years, really over the last 5 years until the TRUVADA patent cliff. So -- and more importantly, it's great for patients, right? So we're really excited about where that market is going to go, but you won't see that lenacapavir driver until around 2025.

Yes. Okay. I wanted to squeeze one question on VEKLURY because you put out guidance for 2022 is $2 billion. Just wanted to ask basically what that assumes with respect to new waves? Or I [indiscernible] want to...

Yes. It assumes that there is the Omicron surge in the first quarter and that the there would be a significant weighting of our sales for VEKLURY in the first quarter of the year, and that hasn't changed. So we don't expect another surge this year as part of our base case. Is it possible that we see one? Of course. I think your guess is as good as ours, although our virologists spend a lot of time looking at this. So I think with the level of prior infection, with the level globally, including in the U.S., with the level of immunizations that have taken place, our base case is that we're not going to see another significant surge. That doesn't mean that you don't see pockets. Globally, of course, you're seeing in Hong Kong right now. And maybe within the United States, but that's our base case. And of course, if it's different than that, we'll update the stream on a quarterly basis in terms of what we're thinking.

Okay. Broadening the lens. So Gilead's BD strategy, just given the market, given resets and valuations across the board, at least in public biotech land also, to some extent, among private companies, cost of capital. There's just a lot of moving pieces. What can you say about what's maybe changed Gilead, if anything, about BD changed?

I don't think a lot has changed. I mean, first of all, we always focus on the science and the quality of data, right? So -- and we recognize that a number of these things, whether it's our larger deals like [indiscernible] and Immunomedics can take many years to play out and to kind of prove themselves out. Our earlier stage deals are also based on the science. We use a lot of creative deal structuring as you've seen, in particular, in the Galapagos and Arcus deals as well as the Tizona and Pionyr deals, where we had some creative kind of options structures. We bought half the company in those last 2 deals, and have an option to buy the rest of the company on data. So we'll continue to do that. Is it easier to do deals today because this -- a lot of the smaller companies either don't have an IPO path or need to raise money and are much more open to partnerships? Yes. Does it intently change what we're going to do in terms of BD? No. I mean I think we're really comfortable with the size of the portfolio that we've developed. We will continue to add to it over time. So we'll do ordinary close partnerships this year. We may do small acquisitions. But I think our primary focus is on execution now. I mean we have a lot in our hands appropriately with TRODELVY and magrolimab, lenacapavir all the other assets that we have and feel really good about where we're going. So primary focus on execution will bring things in. Are we a little more opportunistic? Or do we get better deal terms as a result of it? Maybe, but I don't think it changes things fundamentally.

You think just with respect to deal terms, maybe bid-ask spread narrowing because we've been in this market for now over a year. Do you think that window will close or do you think those opportunities...

So I think they'll stay. I'm seeing in my career, I spent a lot of time in this industry, like many of you, the fastest reset that I've ever seen in terms of the smaller companies, whether they're private or public, in terms of their boards of directors and management teams, having a very real sense of where the market is, where it's going and what they need to do to keep their companies going. So usually, it takes much longer for them to stop focusing on their 52-week [indiscernible] if it's an acquisition context or the partnering terms. I mean, we have a number of companies that we've talked to, where it's very clear that there are expectations for a partnership today are dramatically different than they were 4 or 5 months ago. So that's not just true for us. That's true for a lot of the larger companies. So it's a really -- it should be a fertile time for partnering, and it's something we're very focused on. Does it mean that the M&A market, especially for larger deals is going to open up wide? I'm not so sure. And for us, again, I don't -- that's not really where the focus is. We will always look at opportunities like that, but the focus is really on what we have. We really like the portfolio. We like the depth and the science behind the portfolio, the potential of the portfolio. And I think we will add to that, but it will be -- continue to be selective.

Okay. And I just wanted to maybe go back to one question I meant to ask on TRODELVY. So you had commented on the -- because obviously, with the data now in hand, just want to check if you're still thinking in this way. So on your fourth quarter earnings call, you indicated plans to significantly increase clinical development in oncology in 2022. You mentioned 7 Phase III trials for TRODELVY, for instance. So is that unchanged?

Unchanged, unchanged. I think we -- if I remember correctly, we started 13 new oncology studies last year. We plan to start 20 new oncology studies. This year, if I remember correctly, I think 15 are related to TRODELVY. That's unchanged. And again, if there are any updates to it, we'll provide it. But I mean, I think we're really excited about where we're going in oncology, and we recognize it doesn't happen overnight, right? This is the -- the tough thing in our sector when you're turning around a company and broadening the strategy and broadening the portfolio, there takes many years for these things to play out. But that's unchanged. On the expense side, just to be clear, we're really guiding to kind of flat R&D expenses year-over-year because of the Arcus opt-in expenses you know that we had in the fourth quarter. So we were very clear when investors are trying to look at kind of a run rate, there is an increase year-over-year. But when you're looking at our guidance, if you're trying to understand why it's flat year-over-year, it's because we had this $650 million net opt-in expense to opt into all of the Arcus programs in the fourth quarter, just to be clear.

Okay. Well, great. We're up on time. As I was mentioning to you earlier, we'll have to schedule our conference for the day after your biggest [indiscernible] year every year. But thanks so much for being here. Really a pleasure to have you. And to everyone in the audience, there's a breakout session in Cordova one. So we look forward to seeing everyone there for a follow-up.

Thank you. Thank you very much.