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

Thanks so much for joining us. Really pleased to have the Gilead team here with us. We have Dan O'Day, CEO; and Merdad Parsey, CMO. With that, Dan, I'll turn it over to you for any opening comments, and then we can jump into Q&A.

Sure, sure. Well, first of all, thanks for coming here and being with us today. I'm delighted to be here with Merdad. Look, I think this is an exciting time at Gilead for us right now. We are coming off of also, I think, a strong ASCO in terms of the entirety of data that we have. I would just say that -- and we'll get into the questions. But I think what the team at Gilead has built up over the past couple of years has really been impressive, and what I mean by that is the pipeline has increased by more than 50%. That number, I think, really underestimates what the potential of the pipeline is because the whole nature of the pipeline has changed accordingly. Our virology business is very sound as we think about the next decade and beyond, and we'll talk a little bit about that. But the growing oncology business is really exciting. We've been focused on really fundamental mechanisms in oncology, both alone and in combination, that we're very confident on an aggregated basis that it will be a major part of our business by the end of the decade. Already is today. I mean it's more than $1 billion. Last year, it's growing rapidly. What we've said publicly that it will be at least 30% of our business by 2030 off of a stable and growing HIV base. So I think those are things that we understand that people want to see us to execute on those, and we're firmly focused on that. We're focused on both commercial execution as well as pipeline execution, and I believe quarter-on-quarter that the market will continue to see the confidence that we share internally.

Great. Maybe I'll start with a clinical question here, so -- given we're off of ASCO. During the process, as you mentioned, of expanding into oncology, getting to 1/3 of your business there by 2030, and you have 3 transactions that played out recently between Trodelvy and Dom and your CD47, when you -- I guess, coming off of ASCO and the Enhertu data that we saw, where does -- I guess where does Trodelvy go from here? Where do you position it in the market?

Sure, sure. Thanks. I think it's really important to remember the overall potential for Trodelvy, right? And that is that it's a Trop2-targeted agent, not a HER2-targeted agent. And we've already got approvals in bladder and triple negative, and we are expanding now into both earlier lines of bladder, frontline; earlier lines of triple-negative breast cancer. We have the data from the HR-positive study that we just released, and then we're moving into lung. So I think it's really important that Trodelvy -- to remember that Trodelvy is this broadly applicable molecule that will have a lot of potential outside of just HR positive. Now within HR positive, I also think that people have been drawing comparison between Enhertu, the DESTINY data, and our data. And it's really important to look at how different those studies are and how different the patients are, and that's not meant to take anything away from Enhertu. I think their data were stellar, and it's great for patients. We have -- we studied a very different patient population, much later-line therapies, 3 median treatments instead of 1, an OS in the TPC arm. It was different by over 5 months. These are really different patients, much more difficult-to-treat patients. And in that population, we had a highly statistically significant, as the KOLs said, clinically meaningful benefit in that patient population. So we'll talk to the regulators about getting approval in that population, but it now opens the door where we've now got multiple positive studies with Trodelvy, one after the other. And as we've stated repeatedly, our goal is then to move into earlier lines of therapy, and that will be the case in HR-positive breast as well and is then expanding into lung and the earlier lines in the approved treatments.

As you go into the earlier lines of treatments or into other indications here, where do they compete with you?

For Enhertu?

For Enhertu.

Yes. So Enhertu is a HER2-targeted drug, and so they're going to be going after HER2-expressing tumors, and that's going to be largely breast and potentially a couple of other tumor types. And remember that in their -- in the DESTINY trial, they enrolled only patients who are HER2 1+ and greater. So there were no HER2-negative patients, which were about 1/3 of the population there. And so I think, again, different patient populations, and their focus is going to be on that HER2-expressing tumor type. For us, it's the Trop-2-expressing tumor types, and that's in lung, in bladder, and other tumors that I think will be just qualitatively different than competing within that HER2 space. Whether people look at potentially sequencing within that HER2-expressing tumor type I think will depend a lot on the data we generate, and so our next challenge is to now incorporating the Enhertu data, along with the patient population, figuring out what to do in that HER2 population. But that's going to be -- it's one study out of multiple trials and multiple other tumor types.

Based on -- you've talked about -- you just talked about the discussions ongoing with the FDA for the filing here. What gives you the confidence that this can go through on the current data package, and you won't require anything, whether it's overall survival or any other?

Yes. It's a good question. I think -- I don't think we know that for certain yet. We are going to talk to them about the PFS data and the strength of the PFS data. The hazard ratio, in particular, 0.66, and a highly statistically significant nature of that as well as the fact that the OS data, once it matures, we believe will hopefully support the filing. So I do think that, as with most breast cancer trials, OS is going to be an important component of it. We believe that will read out over time. And I think as long as our trend continues in a favorable direction, I think that should be -- that should help us out in our discussions with the regulators.

And on the TIGIT program here, we saw the Roche data in non-small cell lung and then at ASCO with small cell lung. We saw the curves going in favor of placebo. So maybe 2 questions. One is, is small cell lung -- I mean, can you even take what we saw there and apply it to non-small cell lung in terms of mechanism? And then secondly, what gives you confidence here that you're going to have the optimal result you want to see with your program?

Sure. I think for small cell, I would agree. I mean, I don't think we're not going to be pursuing small cell. I think that was a great effort on the part of Roche to go after that. Unfortunately, it didn't play out. And so that's not a place where we will be going. It wasn't in our plan to begin with. For non-small cell, a couple of thoughts. The first is I don't think that the PFS miss of -- on Roche's part is an indictment of the mechanism. The mechanism of action is supported by Roche's own data but our own data. We've seen our own data. As we've discussed in the combination of domvanalimab with zimberelimab. We continue to see a benefit, and I think that will -- that forms the basis of our confidence. We'll be able to learn a lot over time, but we are moving forward aggressively in non-small cell with TIGIT because we believe in that patient population, we will continue to be able to show a benefit.

What's your expectation for that upcoming data set in the second half?

For...

For your TIGIT program with Arcus.

Oh, yes. So -- sorry, yes. So we will -- I think we will continue to look at those data. We have additional analyses coming up with -- along with our partners. We believe we'll continue to see a benefit of the TIGIT added on to zimberelimab, so we'll continue to see a meaningful separation. And our hope is that, that will start to -- as the data mature, start to translate into PFS and OS benefits as well. And the data need to mature. And based on what we've seen and what we believe about the biology, based on -- and I want to be careful that I say when I say believe, I mean based on the data that we've seen so far that we're going to be moving forward aggressively without letting those data -- waiting for those data to mature. We think it's very important in the TIGIT space to be very competitive and to move very aggressively. We think that that's -- it's a competitive space. And for us to stay competitive, we don't want to hesitate and want to keep moving aggressively forward.

Then last thing, Merdad, as we think about CD47, what are your thoughts on that as a target now with the data that we started to see? And where do you think -- how do you think about solid tumors?

Yes, yes. So for -- great question. I think solid tumors -- just to answer your second question first. I think solid tumors, we have, I think, repeatedly said, we are -- we need to run a unique experiment. And as you know, we have a number of early-phase trials that we're doing that I would describe as signal-seeking studies to see if CD47 can have a benefit in solid tumors. Preclinically, there is data, but we'll be at the forefront of showing -- seeing whether we can show a benefit in solid tumors. So we'll let the Phase II studies run through and get back to you. And importantly, none of those studies were on hold. So solid tumor trials have all been going forward at pace. For the hematologic tumors, we -- our own data that we showed at ASCO this year, both from an efficacy but also from a safety standpoint, continue to support moving forward with CD47 with magrolimab in MDS and AML. And so those studies are ongoing. We're fortunately off of hold for those studies, and we'll be moving forward in MDS, AML. And remember, we also have the other lymphoma studies that are ongoing as well. So we should see the next data will be the interim analysis for our MDS study that will read out early next year that hopefully will continue to support moving forward. And I just can't emphasize enough if you look -- I know a lot of questions have been around the safety profile, and what we've said is we were put on hold. We came off of hold. We didn't have to make any changes. The Phase Ib data set we've shown at ASCO, you can look at the adverse event profile. So we're very confident in that safety profile of CD47 inhibitor with magro.

Dan, you talked about the effort here in oncology, but it -- and I recognize it's a bad tape out there, but it doesn't seem like investors are rewarding you for that effort when you look at where the stock is at. So I guess what is the idea behind maybe or your thoughts around changing course of direction or your commitment here? And secondly, if you were to do BD, what's the level of urgency here?

Yes. It's obviously something we spend a lot of time on, and we've also taken a lot of efforts in the first half of this year by holding 2 investor deep-dive days on our virology business and oncology business. And I'd refer all of you to those slides that are publicly available, if you missed it. To kind of highlight, I think the 2 key mechanisms that we have a disconnect with -- I think with our share price. So I'll talk about the first one, which is the HIV business because the disconnect here is that most models put us at a declining HIV revenue from '25 to 2030, and we think that couldn't be more wrong. I mean, at the end of the day, BIKTARVY, which continues to grow very significantly, that has a patent life to 2033, and we see ourselves stable to growing. I say stable just to be able to be conservative, stable to growing in the '25 to 2030 standpoint. So first of all, that base -- and that's largely driven by both BIKTARVY but also the fact that we can navigate the remaining TAF patent cliff, which will predominantly be in a PrEP space by that time with DESCOVY with the introduction of new long-actings and in particular lenacapavir, which is now, again, off clinical hold. We didn't really lose momentum with that, so we believe those studies will read out around the middle of the decade, around this time in the TAF patent cliff. Not only does TAF present an opportunity to offset any DESCOVY revenue we have at that stage, but actually, this is why we're confident we'll also be able to grow the market. I think the ability with a true long-acting in prevention, and we'll talk about treatment in a second, really can expand the market. Because, today, the PrEP market is probably only 20% penetrated after now more than a decade of orally available daily medicines. And so there's a certain limit, behavioral limit, I think, to being able to get much better at PrEP. But with -- and our market research has done this. With a once-every-6-month subcutaneous injection, we think that market grows significantly, so on top of a good treatment base. And then, of course, we know that some people that could benefit from PrEP or that have HIV will want to stay on their daily oral medicines, but quite a few will want to switch to these long-actings in both treatment and PrEP, and so that belies our confidence. And again, in the virology deep dive day, we tried to give you a very robust picture of the fact that, not only in PrEP, but also in treatment, long-acting treatment, we have a number of shots on goals. Those studies, by the way, take longer to run than obviously the PrEP studies. And that's the totality of our confidence around HIV. There are other elements of virology that we could talk about, but I'll just leave those aside for a second, including HDV and HBV. But beyond that then, I think we also have the disconnect in our share price with the oncology business. We're just not getting credit for that today. And so to your point, what are we doing there? I mean, first of all, we're firmly focused on execution. The oncology deep dive day, I think, gave a really robust view. It's something we hadn't probably exposed The Street to completely the entirety of the portfolio. So we spoke about much of it at the beginning of this discussion around anchor molecules, like, first of all, let's talk about the cell therapy business, which, with the second-line data, continues to be a big growth driver for us. But beyond cell therapy, Trodelvy, magrolimab being pipelines in a product, TIGIT also potentially on top of that, 2 adenosine receptors and a variety of other mechanisms, both within Gilead and outside Gilead, that will continue to combine. So there's a tremendous robustness there to that oncology portfolio, a business that did $1 billion last year and is growing fast. That again belies our confidence. So we need to do 2 things, I think, at the end of the day. We need to continue to execute quarter-on-quarter, which we intend to do both commercially. And then secondly, we need to deliver and execute on the development portfolio. I do think there's some interesting upcoming milestones that I'm sure people will be focused on. I mean, obviously, the TROPiCS-02 regulatory submission will be important; the magrolimab readout in the beginning of next year, the first of those readouts. We'll also have some TIGIT data at the end of this year; Hepcludex, we expect to be coming along in the regulatory process later this year; and lenacapavir being approved in the highly treatment-experienced patients. So there's those elements of kind of near-term execution on the regulatory, if you like, clinical portfolio that will quickly become commercial drivers. And then there's the entirety of the clinical portfolio that we'll continue to execute on quarter-by-quarter. So that's -- even now, we're firmly focused on showing and telling our story, and we're going to continue to do that.

So how important is business development then when you think of capital allocation?

Yes. That's important to know. So what we've done over the past couple of years puts us in a position today to make all the statements I just made without doing any additional BD. In other words, on an aggregated risk-adjusted basis, we feel very confident that not only that we can continue to grow in the short term, but that by the mid to the second half of the decade, we have industry lean growth with what we have in-house. And much of that hasn't even been dimensionalized yet when you go towards the latter half of the decade. So that's to be said. So what does that mean for BD? I mean, for BD, what it means is to pursue kind of normal course business, which I think is very important for a healthy business that we're constantly thinking about, not only in the next 5 to 10 years, but the next 10 to 15 to 20 years as well, so normal course of business. I think you'd see more -- I know people say this a lot, but probably small to medium-sized bolt-on acquisitions, things that fall in our therapeutic areas, like Hepcludex, which could use the channel we have in HBV and a very digestible-size acquisition. I don't think -- do we need to nor do -- should we, at this stage, given our bandwidth, necessarily do large acquisitions of the type of Immunomedics, not that we won't have the capital power to do that. I think we will in the short and medium term, and we'll always look at those and be opportunistic around that. But it's a very different sentiment than Merdad and I and others had 2 years ago, where there was -- it was essential to build a risk-adjusted portfolio. Now the bar is pretty high for things externally, and we have a lot to do internally.

So you've touched on this a little bit, but what are the key initiatives for Gilead over the next 12 months?

Yes, really executing on that. I think the work that Merdad and his team have done to lift the 2 clinical holds was really important and hopefully for your confidence but also for our progress. And when I think about it, break it down commercially, our Kite business is really starting to deliver now. It's an important point because I think people always expect from an acquisition to immediately show tremendous potential 12 to 18 months after an acquisition. We're 5 years post the Kite acquisition. There was some skepticism in the early years. I think the fact that we've stuck to it; that we've invested in Kite; that we've got manufacturing capacity, which is extraordinarily important; we've got best data in the industry on the second line now in a market that's underpenetrated just shows you that the resources of a large company putting to work on a smaller company's asset can really make a difference, particularly if you have a 3- to 5-year time horizon. And we see the same thing, that same model kind of playing out with something like CD47 and Immunomedics, where, by definition, those companies as individual small companies only could invest so much. The investment we're putting in those will not play out today, although it's beginning to play out in obviously 3 indications for Trodelvy, but will play out -- will accelerate its play-out in the 4- to 5-year time frame. So we're going to continue to execute on the entirety of our HIV business, having the HIV business return to a pre-pandemic level, which it hasn't yet, even though we're seeing some momentum in that direction. And we certainly did in the first quarter, and we're seeing that grow. I think it's important to note, too, on our core business for HIV is that if you look at the year-on-year growth for the first quarter, it was a 2% growth. But if you took out the effects of the previous loss of exclusivity is [indiscernible] 5% growth. And from quarter 2 moving forward, all that past LOE is washed out. So we'll start to see the HIV business continue to return. The PrEP market returns faster than the treatment market and has, but we'll start to see that play out. And I think you'll see that over the next 12 to 18 months really focus on HIV and our growing oncology business with Kite and Trodelvy and then, as I said before, I mean, just really executing on the regulatory milestones and clinical milestones we have. That's what we're focused on. Of course, we'll stay opportunistic on BD, but we've got a lot to do right now.

On Kite, could you just talk to how the Yescarta launch is progressing post the recent approval in second line, the competitive landscape here and then your next-generation approaches as well?

Yes, and I'll ask Merdad to help me here as well. But just on the current launch, I think it's exceeding our expectations since the approval in the second quarter and also the NCCN guidelines, which came actually before the approval. And the market still has a lot of growth to do. So in the third-line setting, we're still only seeing about a 20% penetration. And I think the strength of the second-line data and treatment centers getting more comfortable with this and better management of the sero side effects, I think we'll continue to see the later-stage patients market share increasing. But on the second line, I also think we're seeing some really -- it's early days. We'll inform you more at the second quarter results, but we're starting to see very good feedback from the thought leaders and use probably in slightly later-stage relapsed patients. So I think as they get comfortable with that, we could see them moving that into earlier lines of the second line, including like around 12 months of relapse. So that's kind of where we're at on that. On the development side, we've got a lot still to do within large B-cell lymphoma and follicular lymphoma. We have studies going on right now in the outpatient setting, high-risk groups in both those populations and will continue to read out. But importantly, I think the question we really are trying to answer ourselves still in those disease states is how do we get to the other 50% to 60% of the patients that aren't having 5-year, long-term, curative responses. And that's where I think we're getting into the bicistronic, so the CD19, CD20 structures, CD19 with other potential structures, and looking at allogeneic as well with a couple of important partnerships there. Solid tumors, we'll continue to look at. Although with some of the data, we need to, I think, be prudent about the types of resources we put there right now. And the last thing I would say, and this is, I think, important is that we've done -- the Kite team has done a really nice job of bringing the vein-to-vein time down to around 16 days in the U.S. from where it started around 21 days. The reason that's important is that scientists think they can bring that down to even a shorter period of vein-to-vein time. And with the duration of responses we're seeing, that starts to kind of conflate the benefit of allogeneic at the end of the day. Because if you can get to a shorter vein-to-vein time, knowing that allogeneic is not an immediate process, it still takes -- I think it really raises the bar a bit for efficacy that you need to see in allogeneic when you reduce the period of time on autologous down to those periods of days.

Nothing to add.

Nothing to add. I'm sure if you have more detailed questions, I would definitely quickly get out of my depth.

Perhaps you could switch to HIV. So you've maintained your dominance over the recent years in that space, and long-acting agents could really offer the next leg of growth, especially the PrEP market. Could you discuss your strategy here, when we're going to see the monotherapy data because that seems to be a key focus for us to understand that outlook? And what gives you confidence you can expand the prevention market and the challenges here?

So on the -- for lenacapavir, as Dan mentioned, the highly treatment-experienced population, from a treatment standpoint, we are -- that should be in the near term. The PrEP studies do take a lot longer to run from a -- as monotherapy in the PrEP market because you have to allow the time for the events to occur. And so those studies will take, as Dan mentioned, to the middle of the decade. I won't say century. Let's not go there. Middle of the decade. So I think that's what we're looking at there. The reason we're confident around the value that it's going to bring, especially to the PrEP market, is, as Dan mentioned, with -- despite the fact that they're oral-daily BIKTARVY, DESCOVY PrEP solutions today, that there are patients or I should say people living with HIV who want something that's less -- reminds them less of the fact that they're in that space; or from a prevention standpoint, in particular, don't want to be thinking about using it. When we do the market research, when -- what we find is that when you get to longer-acting -- longer and longer-acting dosing, I think that gets more and more interesting for people. And certainly, really, it seems like that from a parenteral standpoint, you need to be around 3 months or better. We're targeting 6 months. And we think if we can get to that 6-month dosing, and that's what the studies are today, that really opens up a whole group of people who wouldn't otherwise be considering PrEP. So we do think it's really an expansion of the market there. We obviously have goals to get to even longer, to get to yearly dosing from a monotherapy standpoint. So that will be the transition for us to get there. And I think lenacapavir is -- it's one of those unicorn molecules that you can give it subcutaneously and have it be there and work for 6 months, potentially longer. There aren't a lot of molecules that can do that, so we're really excited about the potential there.

I just want to say one thing on this because I think it's really important. We have a lot of programs around HIV cure as well, and it's a challenging scientific problem. I think we're in the leadership role here, not sure when it's going to materialize. It takes kind of 4 different mechanisms to come together, but we're committed to it. I actually think that -- and our goal to end the HIV epidemic, the long-acting PrEP, in particular, because I think on the treatment side, it provides an option for patients, but most patients are well served on a once daily. But for PrEP, because so much of people that can benefit from PrEP aren't taking PrEP to really reduce the transmission and incidence of HIV with having a true long-acting could, I think, alter the course of the epidemic in a very, very meaningful way in the developed world but of course in the developing world as well. I mean, can you imagine if you could go to different parts of the world and have people provided with the subcutaneous once every 6 months or if we could get to once a year, what that would do to the global incidence of HIV. So I -- it's pretty dramatic.

Most people don't appreciate that HIV continues to grow in the U.S., which, to me, is a tragedy. And if we can have an impact on that, I think that would be really gratifying for us from a...

Particularly underserved communities. And this type of profile of medicine could transform some of those underserved populations.

Last question for both of you. What are you most excited about in the pipeline or maybe that you -- something that you're looking to execute on and show the investor base?

Where do I start?

Pick your favorite child.

Yes, pick my favorite child. I really am excited about the portfolio. I think Trodelvy's potential, in particular, is very exciting, and I think that the number of opportunities there to really have a major impact is really exciting. I think lenacapavir, as we just talked about, is another one that I think will have a major impact. To me, I think what's exciting about those -- and magrolimab is the third to me. Those are the -- those 3 later-stage programs, they're all programs that have meaningful impact. These aren't incremental. They're really meaningful impact medicines, and that's what has got me excited. I think that showing over and over 3 for 3 on Trodelvy and all the opportunities we have, I'm really excited about how those are all going to play out. And of course, TIGIT, I think, is going to be really additive to our portfolio as well. I know I just listed everything.

No. I would double down. I mean, from an on-market, I think BIKTARVY is still perhaps underestimated in terms of the potential it can take in the early stages of Trodelvy and cell therapy. But if I had to pick the development portfolio, yes, it would be Trodelvy, magrolimab and lenacapavir.

With that, thank you so much. We appreciate the time today.

Appreciate it. Thank you for your time.

Thanks a lot. Thank you.