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

Good morning, everyone. Welcome to the third day of Cowen's 42nd Annual Healthcare Conference. My name is Tyler Van Buren. I'm a senior biotech analyst here at Cowen. For this next session, we have a fireside chat with Gilead. It's my pleasure to introduce Andy Dickinson, Gilead's Chief Financial Officer. Andy, thank you very much for joining us here. It's a privilege to have you.

Thanks for having me. I'm happy to be here. Appreciate the invitation.

Right. Before we get started, I want to mention to the audience that you can submit questions via the web portal or e-mail me at [email protected] and I'll do my best to get those answered.

So we'll go ahead and dig into it with TROPiCS-02 and the disclosure on Monday. So you mentioned that, obviously, we need to wait for the full disclosure at a medical conference, but you did give us some hints. One of those was that the median PFS results were consistent with the single-arm Phase I/II basket study, which showed a 5.5-month median PFS, which would suggest that it was roughly in line with your expectations for powering. So is that fair to say? And are you able to say whether the impact to CDK4/6 pretreatment was equivalent to -- was equivalent with both Trodelvy and chemo?

Yes. Let me get to that in a second. But I guess I would start by emphasizing a couple of things. I think there's 3 or 4 points that are really important on the study but just kind of the overall effect and the key message. What are the key takeaways from the study? So first and foremost, the drug was clearly active and provided a clear benefit, statistically significant benefit, clear benefit versus the standard of care in very late line, very difficult to treat patients. The question and really the key takeaway, Tyler, as you know, is the magnitude of the benefit great enough to get approval based on this data set, or do we have to wait for overall survival data to mature further? So I think the way to think about it directionally is there will -- certainly, in my mind, the KOLs and others that when they see the full data set, say, this is very strong data, this is a very clear and unambiguous benefit to patients that have no other options, and this alone would justify approval, there will, of course, be based on the debate that you and I have seen over the last couple of months, the last year, there will be others that may take a different view, and we'll see it. It depends on the data package. We certainly think that there's a reasonable case to be made that we should be able to proceed at this point in time, but we have to have the discussions with the regulatory agencies. So that's where we go from here in terms of the current data study. In terms of the CDK4/6 use, I mean, we'll provide as much data as we can at the scientific conference. And of course, we're targeting a presentation at ASCO. I think the most likely outcome if they accept our late-breaking abstract and you'd see the side-by-side data from the [ DESTINY ] breast study as well as TROPiCS. I don't think the message is that the prior CDK 4/6 use. And of course, the team is looking at it and looking at it every which way that you can, change the outcome meaningfully. We'll see as we do additional analyses, but the outcome was largely consistent with the prior study that has been published, the Phase I/II study. And that study, as we highlighted in some of our materials around this data release, had a 5.5-month PFS benefit for the treatment arm. The patients there had less prior pretreatment with CDK4/6 than the TROPiCS study, where almost all the patients, I believe, had prior CDK4/6. So the message is not that bad, in our minds, had a significant impact. What was bigger, Tyler, is just that these are all very late-line patients that are sick. They've had metastatic disease for a long time. And I think the entry criteria, as you know, where we're different between that and the [ DESTINY ] breast study. So it will be interesting to kind of see them side-by-side. But clear result, unambiguous, clear benefit for patients, then the question is, is there enough to get approval today?

Okay. That's very helpful. On the topic of overall survival, you mentioned while the release mentioned simply that there was a demonstrated trend and improvement, is there anything you could say beyond that? People are clearly wondering if the separation and overall survival curves could get greater as we go forward. That, to me, kind of suggests something you would normally see with an IO mechanism, maybe not necessarily a cytotoxic payload with an ADC. But anything you could say there would be helpful.

Yes. I mean, there was, again, a very clear trend, unambiguous, did not reach statistical significance at the interim analysis. And is there the potential for the curve to separate further over time? Absolutely. Can we give you a high degree of confidence that's going to happen? Not necessarily at this point. I think it still remains to be seen, but it's certainly a possibility. And the further out we go, maybe the higher the probability despite the fact, as you say with IO agents, sometimes you'll see these late responses and with the targeted ADC, it's a little bit different. The key relief for here on OS is, do we do another interim analysis or not? And so that's something that we're working through. Obviously, we'll talk to the regulatory authorities about it. You increased the odds of a positive result if we reserve the alpha and do one final analysis in 2024. Arguably, obviously, the downside is that if you have a statistical -- if the result converts earlier, you're waiting longer than you would want to get that data and to submit it to regulators and to make the medicine available to patients. And so a clear view on our side that this medicine would really benefit patients in very late line, very advanced hormone receptor positive HER2-negative breast cancer, and we want to get it to them as quickly as possible, but we also still want to make sure that we're moving forward appropriately based on feedback from the regulators. So we'll know more in the coming months. And then the last thing I'd say on that is, you'll see -- again, I don't think we can provide much more on the overall survival data other than I think you'll see a very -- you'll get a very clear sense of it at the scientific conference presentation would be my expectation.

Okay. Great. That second interim analysis, if you guys chose to take it, is that likely a 2023 event?

It could have been later this year or early next year. So again, there's -- I think there's options around when the team would do that. Previously, we were thinking it would be, and I think as we've said publicly at the end of this year or early next year. So I don't know that, that changes. But -- and it's all subject to our review of the totality of the data that's available and our discussions with regulators. So more to come.

Okay. And the guidance assumed a potential launch at the end of this year. I'm assuming that's now less likely, but maybe we have to reserve to hear back on the regulatory front.

Yes, I think we have to reserve to hear back on the regulatory front. It will take a couple of months at least to get the briefing package to the FDA and get the meeting and get the feedback, both from the FDA and the EMA. So the time lines will definitely be pushed out a little bit from where we were before. Whether they're pushed out 2 or 3 months or whether they're pushed out longer, I can't say with any certainty yet, but we'll provide as much color on that as we can over the coming months in terms of where we're going. So stay tuned for updates on that as we have a clearer sense of when we can get a meeting and get the materials to the FDA.

All right. And you mentioned that you're evaluating an impact in process R&D on the balance sheet, which could impact guidance. So can you clarify this? Does this mean that would be taken a write-off?

Yes. I think that's certainly a possibility, and I might say that it's likely. I mean I think that -- the message is that the data didn't quite hit our base case. So the base case when you acquire a company, you take your valuation form the acquisition, you apply it to the in-process R&D. It's held on your balance sheet until you have -- and then you have to revalue it when you have a triggering event. And this data is a triggering event for the portion of the in-process R&D on the balance sheet that relates to third line hormone receptor positive -- third-line plus hormone receptor positive HER2 negative data. So we'll be taking a look at that. It's not -- it's -- we're still looking at the other lines of therapy as well. I think it's less clear to me that we would take a different view in terms of the first-line and adjuvant studies and the value that's on the balance sheet in the same indication. I think the data actually gives us a lot of confidence to continue to move forward in those lines of therapy to -- and we expect to see a much bigger result. And the same thing is true for lung cancer. So my guess -- and again, this is something, Tyler, we'll work on in the coming weeks because we have to take a view for the first quarter financial results, as you know. But our expectation is that you couldn't see a write-down in the first quarter as a result of the data not hitting our base case.

Okay. Understood. And the last one on TROPiCS-02. Just at ASCO, you mentioned that we could get a side-by-side if both data sets are accepted, which I've got to imagine they will be with [ DESTINY ] for breast and TROPiCS-02. So I guess in advance of seeing that data, of course, how are you guys thinking about potential competitive landscape and whether both in HER2 and Trodelvy can coexist? Obviously, in HER2, we've got a focus on HER2-negative population. I really try to compare that to head to head.

HER2 low, HER2 negative, right? Look, we've always known that there'll be some overlap. So when we acquired Immunomedics and as long as we were running the study, we are focused on in HER2 as a potential competitive agent. It sounds like from their release of data -- the good data, it will be interesting to see the data side by side. So when we talk about the overlap, it all depends on the data and the population that they study the drug in and where their effect is really being driven by, Tyler. So our expectation was that there would be overlap. Whether there's 5% to 10% overlap or 20% to 25% overlap, we'll know more after we see the data. Again, hopefully, they're presented side by side. But we'll have a better sense and we see their data and the magnitude of the benefit and where that benefit is coming from in terms of whether it's medium expressers of HER2 or whether it's truly those that are very low or negative. So more to come on that. I think the other thing that's really important to understand is the entry criteria for the 2 studies, although they're both in later lines are very different. And if you look at, in particular, the prior lines of chemotherapy in the HER2 study, patients to have had 1 or 2 lines of prior chemotherapy, in our study, it was 2 to 4. So in our study, you have a lot of patients that have had 4, 5, 6 or more prior therapies, some potentially in combination. So I would expect that you would see that our patients were -- had metastatic disease for a longer period of time and more prior rounds of treatment, which, of course, always impacts the effect that you're going to see in the study. That's something that we knew when we did the deal. We understood it in the path forward. It allowed us to enroll a study quickly. And of course, we will continue to explore. We expect to continue to explore Trodelvy in the earlier lines. But you'll have to look at the entry criteria, the demographics of the patients and then the data, and then we'll have a better sense of the overlap. It's not -- maybe another important way to describe it, Tyler, it's not -- there's still a very sizable commercial opportunity for both of us. There will be overlap. And regardless of where it ends up, there is a big opportunity commercially and to benefit patients for both products. I think both products will probably be shown to be significant improvements for patients, again, assuming that the regulatory agencies share our view of the data being clinically meaningful and important.

Understood. So maybe to close out on Trodelvy, you have a client question that's asking for the timing of the Trodelvy lung cancer data.

Yes. So there's a number of lung cancer studies that are just starting now, including the first-line study that Merck is running. Those data sets will come out in the coming years. If the question is around the basket study that we've been enrolling, still an open question of when and if we share the basket study data. Obviously it's a competitive area with the Trop-2 ADC from AstraZeneca and Daiichi. So we want to be careful. I think the important takeaway there is that we've seen enough -- in our studies, the basket study, we've seen enough data together with the competitors' data and with the data from Trodelvy across other tumor types and patients that we have a lot of confidence as to our partners, including Merck moving forward with these studies quite "at risk." So no specific guidance in terms of when we'd share any basket data. We're also looking in that study at endometrial tumors and believe it's head and neck, I don't remember specifically. So there's a lot of data that we're looking at there that will inform future clinical studies. I'm not sure if and when we would share that basket data. But the Phase III studies, obviously, the data will be a couple of years out. On our Oncology Day in the middle of April, Tyler, I'd expect that we provide a little bit more of an update on the breadth of the studies as well as some of the timing.

Okay. That's great. So I want to touch on business development. While we still need to see the full TROPiCS data, you mentioned it's a little bit below your base case. So does the urgency for business development increase?

No. I mean I think we're -- again, it may sound counterintuitive. I mean I think one of the key takeaways from the study is that Trodelvy continues to be active and it shows a very clear benefit in patients, as I said, in multiple tumor types, different lines of therapy. So we actually have -- we've always had and continue to have a lot of confidence in Trodelvy as a pipeline in a product. And then we've done a lot of deals on top of that. Magrolimab is something, recognizing it's on clinical hold. I think we have confidence that we can work through that and that could be an important drug. Obviously, the Arcus partnership. And then everything that we're doing with lenacapavir and HIV, among many other things. We've increased the size of the portfolio by 50% or more. We have a lot of very high-quality programs and a lot on our plate to execute on. So this data doesn't change that at all. In fact, I think we really like where we're going. And the way that the story is shaping up, you have to recognize this doesn't happen overnight, as you know. We operate in an industry where the development time lines are long. And Kite is a great example of that. We're over 4 years past the acquisition now. And I think people are finally starting to see we saw and the vision that we had in terms of what this business can become over time. And we've made a lot of progress with Kite over the last 4 years, and in particular, over the last 2 years. So we believe the same thing will be true with Trodelvy and with Arcus and the other programs, it doesn't change our business development appetite. You'll still see us do ordinary course partnerships. You'll still see us potentially do some small acquisitions. But this doesn't -- this doesn't in any way, shape or form change our focus in terms of to go out to do larger acquisitions to further supplement the pipeline.

Okay. But just to wrap up on BD, what's the maximum capacity you guys have at the moment to do deals and how levered might you be willing to go?

We don't provide specific guidance on that. I think that we have enough capacity and enough cash in particular. I mean we're very happy with our leverage now and our credit ratings. We're committed to maintaining a strong investment-grade credit rating. We have the capacity to do the deals that we need to, to continue to build the pipeline in the ordinary course. And as I said, we're not really focused on doing medium or large-sized deals. So plenty of capacity to do the ordinary course partnerships into smaller acquisitions if needed to bolster the pipeline. But again, the primary focus of our capital allocation policy is investing in our internal pipeline and now, to a lesser degree, external given the portfolio work that we've done and then really growing and maintaining -- maintaining and growing our dividend over time. So that's the focus.

Okay. On Arcus, you guys opted into nearly their entire pipeline. So maybe at a high level, we obviously need to see data later in the year. But at a high level, can you describe to -- what you saw when they brought you under the hood in the fall and what made you guys so excited about dom, TIGIT and the rest of the pipeline?

Sure. Well, I think, first of all, we've always been excited about the pipeline just based on kind of the biological rationale on the preclinical studies, including for the both adenosine molecules and use. We also love the team and the strength of the team, the scientific prowess. You see the progress that they're making in their HIF-2 alpha program that people are finally starting to recognize. So Arcus to us is much more than just the 3 or 4 programs. I mean they have a great team of people, a lot of energy, a lot of commitment to moving things forward that can benefit patients and the partnership is working really well. We saw -- what we've said and we'll continue to say, we saw early glimpses of the data across all 3 of the TIGIT and the 2 adenosine molecules in various combinations, all of which were exciting but early. And they were required additional patients, additional data and additional time. And we'll have a better sense, Tyler, later this year. In the second half, there will be some updated data sets that we expect Arcus and Gilead would share that will give us and you a better sense of where those programs are. But the excitement around Arcus is not necessarily about any one program. It's about all of them in the totality of the quality of science, the quality of the molecules, the quality of the team that give us a lot of encouragement and confidence that they're on the right path and that collectively we can create value here for both of our shareholders and mutually benefit from it. And again, whether that comes from all of the molecules or there's a lot of different ways for us and for them to win in here, all of which makes us excited.

Okay. Let's move to magrolimab. Can you tell us anything more about the nature of the [indiscernible]? Or give us any hint and regardless when we should expect to get an update and when we could get resolution to hold.

Yes. I mean, unfortunately, there's not much more that I can say other than provide -- continue to provide as much background as we can. We don't want to get in front of the FDA on this, of course. So that's the caution about not providing more data. It's not getting in front of the FDA as we work through this with them. So there were 2 serious unexpected events with patients that had been treated with magrolimab that led to the clinical hold. And they are events that I think we would fairly characterize as unexpected. So the expected kind of tox profile of magrolimab is reasonably well known and understood. So these are things that I think most clinicians would say there would be a rational connection or an obvious connection. What we've also said is that we don't see a connection. We don't believe that these are related to drug treatment, but we take the FDA's concerns very seriously. So we've unblinded a small team internally that's looked at all the safety data. They've shared the safety data both with the FDA and with our data safety monitoring board of independent outside experts, and we'll provide an update as soon as we can. So the other thing that we've said and we'll continue to say, we have a lot of confidence in the program and belief in it. And it's a little bit different than the clinical hold for lenacapavir where our sense is there certainly will be a resolution. It's just a matter of timing. This one, we also think there's a reasonable probability of a resolution that allows us to continue to dose and move forward and to benefit patients. But we'll provide as much of an update in the coming months as we can. So more to come, but we're making progress on the review behind the scenes, and it's important for us to get this drug back to patients as soon as possible. Nothing has changed in terms of our view of magrolimab and what it could potentially do for us and for patients.

Okay. That's good to hear. Before we move to cell therapy, maybe we could ask a client question here. Why not do a more aggressive buyback with the stock where it is after all this TROPiCS-02 debate and the study reading out below the base case? I've seen these be very well received with others like Bristol, Amgen, et cetera.

Yes. No, it's a good question. It's something that we always look at. So Dan and I and our Board and Audit Committee and our Treasurer look at this on a regular basis. We want to make sure -- Gilead did, as you know, a lot of stock buybacks historically, this is prior to my time as the CFO, that didn't create a lot of value for shareholders. And I recognize that, Amgen in particular, I think, is viewed as a company that has done it reasonably well and has created value. for shareholders. So it's something that we look at all the time. We just want to make sure that we stay true to our capital allocation priorities, which, first and foremost, in order to build the sustainable top growth company in the industry that we aspire to be, we need to make sure that we have adequate cash and resources to invest in our pipeline. And so that -- and the dividend is critical to us and our shareholders. So to the extent that we have additional cash available to deploy beyond that, of course, we will consider it and we'll be careful. So more to come on that as we -- over the coming years, I would say, in terms of whether we see an opportunity. But I think it's an obvious question to ask now given where we are and where we trade and some of the recent background. So it's certainly something that we debate. Obviously, some of our shareholders, Tyler, favor that. Others do not favor that approach. So Dan and the team and I always analyze it carefully, think through it, and we'll always do what we think is best for the shareholders in the long run.

Okay. Let's go to cell therapy, you mentioned it earlier. And you guys, I believe it was at JPMorgan, mentioned the Maryland plants coming online. Obviously, potential second-line approval midyear, a 50% year-over-year increase in capacity. But I still don't think people recognize that the CD19 CAR T class is becoming a multibillion-dollar class here assuming run rating at $2 billion. So in terms of this 50% year-over-year increase in capacity, though, is this -- are we supposed to be expecting increases in capacity year-over-year over the next several years? Is this a continued process? Or this a onetime kind of near-term event?

It's a continued process, but you won't see that large of an increase every year. I mean, a big piece of that is bringing on the third major manufacturing facility. So as you said, we have the primary -- the original one in El Segundo, south of the airport, and in Los Angeles. We have the manufacturing facility that came on last year in the Netherlands and now the new facility in Maryland, which is actually automated from the start. 25% of the cell processing is automated and that will increase over time. So our capacity will increase as we ramp up production at all 3 sites and as we automate more of what we're doing at all 3 sites. So it will increase, but you won't see the same increase as we are prepared for with the second-line approval. I'm happy to report that the NCCN guidelines were updated recently to already recommend cell therapy in second line, which is remarkable in advance of the formal approval from the FDA. So we're excited about where it's going. I think you're exactly right. I mean the cell therapy business is doing well. And again, it's right on track with -- in general, of what we expected when we did the deal. And we see continued long-term growth in kind of a unique and differentiated platform to grow on for many, many, many years to come in the future. So we're excited. These things just take time to play out, as you know. And cell therapy is certainly moving in the right direction. And I share your view on the class for sure. I mean, the class is growing. And I think usage will continue to grow as physicians get very comfortable with this. It's really not that different than the stem cell transplant historically that took many years to become the absolute standard of care.

Yes. Well, when you're generating cures. Obviously, it's going to be used. It's just a matter of getting it to the patients. But you guys are the clear leader in the CAR T space right now, but you're noticeably absent in the BCMA CAR T race. So why is that? And why don't you guys have any super visible next-gen products right now?

Yes. That's a good question. I mean obviously, BCMA space is one that we've been active in. We had programs -- Kite had a program when we acquired the company. That program, based on all of our preclinical data, did not suggest that it was going to be differentiated relative to the bluebird-Celgene program at the time. Now the BMS program in Legend, obviously, was just kind of coming into play at that point in time. But I think we're appropriately cautious about what we take for, Tyler. I mean, the bar is really high. Yescarta is an outstanding cell therapy. And it's hard, whether it's our allogeneic constructs that we've been working on or whether it's our BCMA constructs or other antigens, the bar is really high for us to take them forward. And -- but there are a number of programs internally. So we are working on bispecific and bicistronic CARs against many of the known targets, including BCMA. We'll see where we end up going with these programs over the coming years. But we are continuing to invest in research and development. We just want to be appropriately cautious in terms of bringing things into the clinic that we don't yet see clear signs of being better, either in terms of efficacy or safety or preferably both, as you know. So more to come. I mean we have a lot of confidence in where that business is going to go. And we think that Trodelvy -- I'm sorry, Yescarta has a lot longer runway than maybe people expect.

And potentially Trodelvy as well.

Yes, for sure.

But maybe a quick point of clarification on magrolimab, [indiscernible], those 2 [ SAR ] events you mentioned. Are those 2 different toxicities? Or are they the same?

Not exactly the same, no. And again, at some point, I'm not sure if we'll be able to share them specifically, but no.

Okay. I want to move to COVID and Veklury, have another client question and just an update for the oral version of remdesivir. You guys did give an update at the recent Virology Day. But maybe just what are your latest thoughts for -- obviously, we need to see the initial Phase I/II PK data here a little later in the year. But what are your initial thoughts in terms of when a pivotal trial could kick off and what a design might look like?

Yes. I mean that's obviously a tough question to answer because a lot of it depends on the progression of the pandemic in terms of where it goes. The -- so more to come on that. I think the key is getting through the Phase I data here in the coming weeks and months and having a sense of where we are with the Phase I data and the dose and then exploring where the pandemic is and whether there's pockets globally, Tyler, that would allow us to do the pivotal studies quickly in the way that we are able to do them before. So there is a variable time line in terms of where the pandemic progresses and whether we see additional outbreaks either of Omicron or other strains. So I want to be careful about giving too much guidance, but we're certainly targeting moving forward as quickly as we can. And it just depends on where we need to go to do clinical studies and the availability of patients in those areas.

Okay. Maybe we'll get one HIV question in here since after all it is a massive business for you guys before we wrap up. But with the recent virology event, you guys mentioned a couple -- well, some illustrative guidance to 2030, potentially doubling prep but also half of the market potentially transitioning to long actings. Do you think that's possible by 2030? I mean, I guess, obviously, if you gave illustrative guidance, it is, but just to have a short period of time for them to get on market and transition products or patients.

Yes. No, I think it's a very good question. Look, it all assumes, and this is really important, that our long-acting therapies are equal to Biktarvy in terms of safety and efficacy. And that is a very high bar, as you know. Do we see that potential of lenacapavir and our other long-acting agents that we started highlighting in our Virology Day? Yes. But we have to do the clinical studies to show it. So when I think when we talk about up to 50% of the market transitioning, you're assuming that you have agents that are as good as Biktarvy, that are as easy to take or to administer as Biktarvy and that are -- whether they're orals that are every 2 weeks or injections that are every 3 months or every 6 months, we'll see. But that's the assumption, Tyler. And of course, the better the profile and the longer the duration, the more that you'd see. So could it be 30%? Absolutely. I think 50% is kind of the goal if you have gold standard molecules and products that are very similar to Biktarvy in all other respects.

Okay. That's clear. We're up on time here. So to wrap up, Andy, what aspect of the Gilead story do you believe is most underappreciated by investors?

I think that's relatively simple. I think it's the scope of the pipeline and the breadth of the pipeline. I think that people -- we talk a lot about the individual programs. But when people step back and look at how we've reset the company and the pipeline and increase the pipeline by 50%, there's a lot of really interesting, exciting programs underneath the surface across all 3 areas that have really significant potential for patients and for the company. So I think it's the breadth of the pipeline and the quality of the pipeline that people will continue to grow to appreciate over the coming years. So -- and it's our job to share more information on that. And we look forward to doing it.

Fantastic. Well, Andy, thank you very much for your time. Really enjoyed our discussions.

Thank you.

Thanks, everyone.

Thanks for having us.