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

I think we're ready. So good morning, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Really pleased to have Gilead with us here. We have Dan O'Day, who is the CEO; and Bill Grossman, who heads up oncology. I have to read the disclosure statement before we start. So please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. So with that, why don't we jump into it. I thought maybe a good place to start is actually where I started with some of the other larger companies is sort of a couple of questions on some of the recent developments in D.C. Obviously, the Inflation Reduction Act, Bob Roadway has a different name for it, by the way. Maybe you have a different name if you want to share.

No, I'll leave that to Bob.

I guess a couple of questions. One, how do you think about the impact to Gilead? Two, how do you think about the impact to innovation more broadly? And then three, since its passage, have you made any specific choices or directed any people in early-stage pipeline or otherwise to start thinking about how to make different choices?

Yes. I mean a couple of things. First of all, I would -- I would say 2 things upfront. The best defense is a good offense, when it comes to any type of changes to pricing and access in the country. And so -- and I'll get to what that means for Gilead. But I do think having a young differentiated portfolio under any circumstance will help. The second thing I'll say, and I think this is just important that people understand this. I mean, we have a real problem in this country around patient out-of-pocket costs. And sadly, the IRA does very little on a macro scale to kind of benefit that. I mean the one piece of it, which I'll speak about in a second, does significantly help seniors in the catastrophic phase. But beyond that, there's really nothing here. So we want to lean in. Gilead wants to lean into different policies and procedures that will help outpatient costs. So I mean the -- in order for me to answer your question 2 and 3, I think I just have to make sure everybody is doing the same thing. There are 3 pieces in the Inflation Reduction Act. There's the inflation rebate penalty, which largely, I think, frankly, is a good thing. It avoids bad actors potentially in the industry. It has very little-to-no effect, Gilead because of the way we've done price increases and plan to in the future. So that's number one. Number two, the Medicare Part D reform will have a very manageable impact on Gilead. And this is the one piece of the puzzle wearing that catastrophic phase, particularly for HIV meds, it does bring the out-of-pocket costs down from 10,000 to 2,000 and it's meaningful, but very manageable effect. Well, what we really most of us speak about is the negotiation aspect of it. And I think there are just some unintended consequences in that, and I think this will get into the industry response. I mean why the incentivized small molecules versus biologics for the 9 versus 13 years. But my point is there's a lot that has to be worked out. And I think there will be challenges to aspect of negotiation, which will evolve over the coming months and years. What is the impact to Gilead? I think, frankly, quite modest -- likely Biktarvy will be the one product that would be considered towards the end of the decade, how it could be considered given the fact that it's a protected class drug and other things remains to be seen. And I'll talk -- and -- but beyond that impact, the strength of our HIV portfolio. So the rest of the essential really don't see being impacted because of the relative use of the portfolio and the innovation of the portfolio. When I think about our HIV business and I think about when the Inflation Reduction Act would potentially affect Biktarvy, we're in a much different phase in terms of our HIV portfolio. We likely have lenacapavir launch for prevention, which as we know, the provincial market is highly underpenetrated. It only has about 25% penetration after 10 years and the ability for true long acting to really grow that market happens around the same time. The second piece of the puzzle, which was very instrumental and happened this week was the settlement of the TAF legislation, right? So a litigation, which allows us to have a totally different time frame for that patent evolution from 2025 to now 2031, 2032. So I think that really mitigates in so many ways, impacted the IRA, but also, frankly, just regardless of the IRA for our base business that gives us wings and allows us to kind of lift our HIV base differently than we had when we spoke before this Monday moving forward. I think for the industry, I think it will create some of these unintended consequences. I think it'll have an impact on companies that have more mature, later-stage portfolios that don't have new innovation coming and smaller companies that are trying to develop small molecules with this uncertainty, I think will have an impact overall. And what are we doing internally? Of course, we're assessing everything from the response and work with policymakers to make sure that this is less harmful than it needs to be. And then we will look at our portfolio around or other things we should consider should Bill in his organization considered differently about order of clinical trials. But most of our clinical trials are baked. And I really don't think -- I mean my biggest concern, frankly, about the internal view of it is that, yes, we have to look at it, pricing strategies, development strategies. But what I really don't want to do is distract the organization. In other words, I want 5% of the organization to be thinking about this and 95% to be thinking about execution on our portfolio, which we are demonstrating quarter-on-quarter.

Yes. Yes. Okay. Good. Good. Talked about the TAF settlement, I think we just spend another minute or 2 on that. And I think my -- I guess, there are 2 questions. So one, as you think about PrEP and the PrEP market, you obviously now have a lot longer obviously, you have one agent that's generic, but you have a lot longer to try and build that market with Descovy and continue to grow that market. I mean, how important is that? And what's the outlook? Or do you think your outlook has shifted at all because you've got 6 more years now?

Yes. Well, I think it's really important. I mean remember, those products in the United States, so Descovy, Vemlidy and Odefsey did $2.8 billion in turnover in 2021. So the -- a, it's a size-more revenue shift from 2025 to 2031, 2032. But I think to your point, as importantly, strategically, it allows us to have a much smoother transition in the prevention market for HIV. And as I said before, I think Descovy has done very well. We've seen, by the way, the prevention market -- the market itself come back and grow post-pandemic in the first couple of quarters of this year, and it continues to do that. But we also know there's a limitation, as I said before, to the penetration we're going to get with a once-daily oral when one thinks about patient-centered innovation for prevention, where you think about it once every 6 months, potentially, by the way, as studies will look out in the future once every -- once a year, subcutaneous injection. I think in both the developed world and developing world, this is a game changer for our goal of ending the epidemic for everyone everywhere. I mean when you think about bringing down incidents of COVID, for instance, and you think about bringing down incidents of HIV, I think a long-acting prevention is really -- it's a major shift, I think, in the epidemiology of the disease that we could anticipate. And strategically for us and financially for us, I think it's very meaningful.

Great. Great. One more strategic question, and then maybe we can get Bill involved by talking about some of the oncology you have going. If I were to pull a group of investors, I think the comment that would probably be reflected back to me are Gilead is known for its HIV business or sort of small molecule urology business, let's say, because it's more broad than HIV and the strong and stable cash flow that, that generates. And when you talk to people about investment thesis around Gilead, it's okay, how do you take that cash flow and redeploy it more broadly to grow the business? And I think when you ask people about how they feel about your record of doing that recently, you get mixed reactions. So I guess my question is, how do you respond to that? And I'm sure this is not the first time you've heard that question. And have some of your recent transactions changed your outlook on how to deploy capital at all?

Look, I think it's a very fair perspective that people would have. And I think at times, we forget the time line that's involved in drug development when we ask those questions at the end of the day. And what I would say is the team and I put, yes, substantial capital to work since I came to the company almost $29 billion since 2020. So it's a pretty decent-sized capital. And therefore, I think it's important that you break things down. And at the end of the day, the potential that we have in the oncology portfolio, I would like to get Bill involved here, I mean, Immunomedics was transformational for us in terms of establishing a cornerstone product and wants to build the rest of the oncology strategy. And that was $19 billion of those $28 billion. So we have to remember that at the end of the day. And it's taking time for those cards to turn out. I think the 2 events that as we sit here today that happened recently was the TAF legislation and the OS data and hormone receptor positive, HER2-negative, which is really important yet another indication. Now the third indication where we see real significance for Trodelvy. But at the end of the day, we collectively have a lot of confidence in the bets we placed with that capital. And I'll remind you that when I came in, it wasn't my doing, but it was a previous management doing and I support it. The Kite transaction was heavily scrutinized at the time. And now we're seeing Kite at the annual run rate of $1 billion with a leadership in cell therapy with a lot of potential to continue to grow. And that's 5 years after the transaction. So remember, Immunomedics is still a couple of years after the transaction. And we have lots of other magrolimab and other cards will be turning over. So capital deployment should always be looked at in the rearview mirror. I get it but you have to make sure you give enough distance to that to have the whole strategy come together. I can tell you, the portfolio has increased by 50% in terms of sheer numbers since we've come in but what I think is really important is the quality and profitability and the aggregate PTS on that portfolio. So I look forward to sitting here with you in 1 year time, 2 years' time and 3 years' time, because after the length of time I've had in the industry, I have tremendous confidence in how this portfolio is going to play out over the time. So I would say we had to put that capital to work to build the portfolio we have now. We'll continue to have our leadership in virology and continue to deploy capital there, that's appropriate. But we have a real, real engine in oncology now. I mean it's not hypothetical. We have now almost -- our last quarter was the first quarter of $0.5 billion. It's a start, but that's a $2 billion annualized run rate. And that's going to continue to grow. We're just at the very beginning of that. So you want to get, Bill?

Perfect.

Because I want to get Bill involved in this piece because, I mean, seriously, he came to Gilead because of our portfolio, he can go a lot of places.

Yes. So let's just start with...

I think that's why you can't. I don't -- the secondary.

Let's just start with TROPiCS. And look, coming out of ASCO, right, the biggest question for investors was, where is the place of this drug? What's the clinical meaningfulness of this drug in breast cancer? So how do you feel about how the OS data has changed that or potentially change that view broadly and where that places the agent in terms of clinical meaningfulness?

Yes. Just coming back from ESMO and Paris, I think the sentiment around TROPiCS study was incredibly high across the board. KOLs, we're very excited about the data that we had showed a 21% reduction in death for OS at our second analysis. And I think people are really finally understanding kind of how we place ourselves in HR-positive breast cancer. There's a lot of comparisons, kind of apples to oranges between DESTINY-Breast04 and HER2 and where we were the median of one prior chemotherapy with only 70% CDK4/6 power exposure. And we had a meeting of 3 chemotherapy lines. And really, again, we kind of -- we believe we're owning that IHC-0 space in HR-positive breast cancer. There hasn't been any other big data sets in TNBC. And as we -- with ASCENT, now we're moving into frontline in ASCENT-03 and 4 looking at Trodelvy, the earlier lines across the board. So 3 of 3 -- I'll take 3 of 3 hits across the first indications, and I think we're off to a great start.

And as you think about indication expansion for -- I mean, I guess there are 2 ways we can take it. Obviously, moving to earlier lines -- moving into earlier lines with triple negative and moving into other lines with breast, et cetera, but there's also indication expansion. Maybe we could start with indication expansion. And if you could just help people think about where you have the most conviction because you're obviously doing a handful of studies in other solid tumors?

Yes. Obviously, breast cancer is where we're starting to already move in the front line, the frontline TNBC study, as I mentioned, the ASCENT-03 and 04. We've already mentioned that we're going to go into frontline HR-positive breast cancer next, and we'll give more information on that. And then we're already starting in lung cancer. We believe that's a huge opportunity for us across the board. We have 3 studies. We have 2 Phase II/III studies. We have EVOKE-01, which is in second-line lung cancer. That's meeting all of our enrollment targets to date. We're exploring frontline in our EVOKE-02 study and then we have a partner study with Merck, EVOKE-03, which is KEYNOTE-D46 for them, where they're executing in PD-L1 positive lung cancer with combination with pembro. And then beyond lung cancer, we gain, TROP-2 expression is broad, highly expressed across many different tumor types. And so we have other things going on in head and neck and cervical and endometrial among many others, and we'll have a confirmatory trial for bladder cancer ongoing called TROPiCS-04 as well. So really, Trodelvy is a bedrock, a cornerstone for our portfolio for oncology. But really, the other uniqueness about our portfolio is how we've been developing it to combine with Trodelvy as well for differentiation going forward.

And I guess the follow-up to that is maybe as we think about lung cancer as an example, right? Just given in HER2 and HER2, right, people are then going to ask about, well, Daiichi has a drop to, what is -- what does that mean in terms of competition, there are obviously -- I think we're in a position where we can maybe get some lung cancer day late this year or early next year from them. So how do you think about the potential competitive profile? And then maybe more importantly, how do you think about the study they've designed versus the study that you're designing? And are they different populations, again, that maybe we should think about the differences there?

Yes. I think we're kind of approaching it in all of the kind of unmet need areas and trying to look at how we can combine it with some of our portfolio, again with combination with pembro, for instance, in our PD-L1 positive lung cancer patient population. So those are very similar to what Daiichi is doing in that space. We believe that with our knowledge of what we have Trodelvy with the winter in the payload, we think that we have a great opportunity to kind of take them on in lung cancer. And more so, even with the, again, the differentiation that we can continue to add on to Trodelvy with our portfolio that we've developed over the last couple of years. I think we've really developed the portfolio segment on across the board, and a lot of those are first-in-class, best-in-class assets. And the top assets you want to have in oncology for what we believe will be standard of care evolution across the board in lung cancer, such as TIGIT, as an example.

So I want to come back to TIGIT, but Dan talked about Kite earlier. And I would agree with you that if you were to ask people 3 years ago or when it was launching, I think people were disappointed in the trajectory, right? And now people really take a note about the acceleration that you've seen. And I think I asked the question, which is, we've got innovation in CD19 and CD20 in lymphoma, but we haven't really seen a lot else behind that in terms of late-stage products. So how are you investing in Kite? How do you think about the potential there? Obviously, second-line large cell is a big opportunity, and that's something you're prosecuting now. But should we start to think about more acceleration of the pipeline at Kite and potentially more opportunity now that you've sort of proven out that cell therapy can be a real business?

Yes. I mean the first thing I'd say is we have a lot of work to do on the data readouts that we've already had. So I mean, penetrating that second-line market, continuing to penetrate in the third-line market presents tremendous upside opportunity financially for the company, and we'll continue to do that. But beyond that, in the otology space, I mean, we want to continue to expand indications in hematology stand regions. Our manufacturing reliability is top notch right now, and we've invested appropriately in that network such that we have supply to meet the demand. But we're continuing to work on ways to fine-tune that autologous turnaround time. I mean now it's 16 days being the vein of which 8 days is manufacturing time, and we think we can bring that manufacturing time down to 5 days. So you start to get this benefit from autologous to allogeneic, much more narrow frankly, in our core indications. So we'll continue to work on that as Pillar 1. Pillar 2 is to take a look at different targets, and Bill can speak to this. But how do we get that the 5-year data is extraordinary to see 43% of patients alive, and there's 44% a year 4. So you started to see this flat line. But that means there's 56% of patients that we're not getting to -- you do that with bicistronic activities, which we have now in the clinic with CD19, CD20, do you look at it with other technologies that might evolve there. And then, of course, we'll continue to put capital and investments appropriately. So as the data matures on things like allogeneic, again, understanding that the discrimination-differentiation between autologous and allogeneic is different than today than it was 3 years ago, and we'll continue to explore in solid tumors in other areas. And one can even imagine, although I think it's [ ready for PrEP ] time, the use of cell therapy in other general immunologic indications inflammation. But I think that's still down the line. So we want to be prudent about our capital deployment, keeping it close to the here and now since we have a lot to grow and what's in our hands. But we think very long term strategically about this as well and it's very complementary to everything that's going on outside the cell therapy space. I don't know if you want to add to that. I probably missed something.

You covered it very well. I think there's a lot of opportunities in cell therapy, a lot of cards trained over an allogeneic space going forward. But I think a lot of the combinations are also a possibility in cell therapy, not just the technology going there.

Can I just ask a follow-up there because 2 years ago, I agree with you. We would have said allocate is going to overtake everything and what's the point with auto? And I think what you've seen is that a lot of the auto results are extremely durable and you've seen responses with allo, but they're not very durable. And so then the question becomes, well, what's the difference between allo and a bispecific then because if the durability is different because the whole point of this is to get very long-term durability. So my question is, does that change how you think about investing behind auto products? And does that give you more conviction that maybe you should invest in a broad portfolio of auto products because you can achieve some long-term durability with them?

No, I think for sure. I think you can -- I think I can comfortably use the word cure with auto for certain disease states, granted. So I think absolutely investing in target space to expand that in terms of indications to continue to bring cost of goods down in the manufacturing because it's going to be around to stay for us. I mean, Bill should talk from a clinician perspective, I think it's an interesting statement that bispecifics versus allogeneic. And whether you get that durability or not?

Yes. I mean the durability is still kind of a question for the bispecific clearly active, but the cell therapies clearly have that long-term data that we've generated. The one thing I would add on the auto is that there's a lot of effort going into outpatient as well. So not everything has to be inpatient to the some of the work being done in Vanderbilt and in other places around the point of care essentially and moving that more transition into from an inpatient into an outpatient is really good data as well. So I think there's going to be more people that are going to be able to have the opportunity to get cell therapy in the future.

Great. You talked about TIGIT. Obviously, a lot of debate, let's call it, in the TIGIT space about whether or not this is -- this remains an interesting molecule. I think as a company, you guys have expressed -- continue to express conviction despite the results we got from Roche. So maybe you could just outline from people why you have that conviction and what differentiation you think you can bring?

Yes. I think our conviction in what we're doing in the clinic right now, we have several Phase III trials in TIGIT. And this is based off of 3 different data sets. Slide 4 are really out there with TIGIT. We have obviously cityscape data from Roche early on in the PD-1 high population. We have our own ARC7 data, where we continue to have enrollment and we'll have top line data by the end of the year with Arcus. Beijing presented a really nice set of data at World Lung this year, which extended it not only just from the PD-L1 high, but showed activity in the 1% to 49% population as well. And of course, Merck has gone in there. But we really like what we're -- how we're approaching the TIGIT space. We have 2 different lung trials ongoing. We have OneTen that is in PD-1 high population looking at the doublet, where we think is the highest PTS. We also have STAR-121, which we're getting up and going, which is taken on the front line all-comer space with chemotherapy. That's going to be one that, I think, to watch for in the future. That's obviously the largest market out there in lung cancer. And then we also mentioned that we're going to start up the frontline gastroesophageal study, Phase III study as well. And we'll continue to look for opportunities where we think that TIGIT is going to be part of the standard of care moving forward in combination with the PD-1, PD-L1 therapy combination.

And then maybe just to remind people, I think there should be some sort of data update later this year. What is that data update? And what can investors expect from that?

Yes. We'll be looking at the data with Arcus. I think that what we've been saying externally is that we'll give some level of top line data, but we'll also give more guidance around where the full data set will be presented at a medical conference next year.

Great. Great. We were talking about HIV Dan and then we -- flying around. I mean I don't think even though you've got so much else going on. I mean I think a conversation is incomplete when we think about the HIV portfolio and your ability to sort of sustain that. So Biktarvy is extremely successful, obviously, right? You're thinking about a lot of new combinations, whether it's weekly oral or long-term injectables. I guess my overall question is just what's your level of conviction that you can achieve for that portfolio, what Biktarvy has just achieved for that portfolio? Meaning, if we go back, I think with Gilead, it's happened twice now, right? Before Biktarvy, everybody thought the cliff was coming. Now we have Biktarvy and everyone's like it was not going to be a better drug than Biktarvy, the cliff was coming. So how do you think about being able to again achieve that with some of these new combinations you're looking at?

I feel good about it. I mean I feel good because -- a couple of things. First of all, I mean, Biktarvy has a lot of runway left, number one. And number two, the patent goes out until 2033 at the earliest. And we know that even with long-acting -- appropriate long-acting alternatives and treatment, that there's a good percentage of patients that prefer to take their pill once a day. And so number one, I like the future of Biktarvy. Number two, I like the comprehensiveness of our long-acting program. And what I mean by -- and it's certainly derisked in the prevention space where lenacapavir could be a single agent. But I think it's also derisked in the treatment phase because of the uniqueness of a CAS inhibitor like, I mean, it's a pretty extraordinary molecule. And we have a lot of data on it right now, and we're waiting the HT approval here in the United States. So I think given the strength of our team, biologically and chemically to come up with -- as you mentioned, different alternatives for treatment of patients, including potentially once-weekly orals or once every 3 months or what's every 6 months subcutaneous injections and the number of shots on goals we have. And the time period that we have for that innovation to play out with the strength of Biktarvy, I mean, I feel very good about our ability to come up with the next level of innovation in HIV and treatment. And I think, as I said before, lenacapavir's going to be a game changer for the disease in prevention. I really do think that. So base business, I mean, just to reiterate, and particularly with the TAF litigation settlement, I was confident before the TAF litigation settlement on our ability to have a durable and growing base business between now and the end of the decade and beyond. Now I'm even more confident in our ability to not only have that base business to be stable but be growing on which the oncology platform plays on top of.

Great. So maybe a good place to finish off and is magrolimab another agent with some upcoming data? Look, I mean, AML, tough indication. Historically, always been a tough indication. I think what we've seen from standard of care in recent studies is maybe a little bit of outperformance. So how do you think about probability of success from some of those studies and just how would you guide investors to sort of think about magrolimab in the upcoming readouts?

Yes. Look, I think we're the leader in the CD47 space by quite a margin, especially in heme arena. We are the only one company with Phase III trials right now. As you mentioned, we have our ENHANCE trial in frontline HR or high-risk MDS, we have a frontline EP3-mutant AML as well as unfit AML in frontline. And those are all playing out as we speak with our first ENHANCE study readout. That's co-primary -- the dual primary CR and OS with the CRs should be coming in the next -- early '23 but beyond even the heme space where you see pretty remarkable data, especially from some of our investigators where we're looking at triple combinations now to and delivering pretty remarkable CR rates across the board in AML and PP3 mutants in particular. We think that's going to translate hopefully into other areas in the heme space, but then we're also looking at several solid tumor indications where we have a CRC study going on, TNBC study with and without combination with Trodelvy and several other solid tumors. So if we can demonstrate that this mechanism is not only translatable from heme into solid tumors and I think we're in a tremendous opportunity here for being the leaders in the 47 space.

Great. Great. I guess maybe last thing. I've asked a bunch of management teams this, but early-stage pipeline. If you were to think and you were to say, if you're an investor, what's the product you would be looking at and taking some time to think about something that could be an upside surprise that no one is talking about right now?

You go first.

Ask him what your favorite child is. I think we have some really interesting first-in-class, best-in-class type of opportunity. The 2 that I'd probably throw out there initially would be our CCR8 molecule internally developed as well as our DGK-alpha and I know you asked for one, but then I do some of our collaboration molecules at TREM1/TREM2 with Pionyr and of course, the -- so yes, I didn't answer your question. It's just one, but those are some of the...

You gave us a couple of those, I'll take it.

Yes. And I would just -- I mean, clearly, there's a number of things in oncology. There's some intra stuff in inflammation. I would say the suite of products around virology to combine with lenacapavir for treatment. I'm very bullish on the fact that we have so many shots on goal there to get the PK right.

Okay. Great. Well, perfect. Thanks for being here. Thanks for a great conversation. I appreciate it.

Thank you very much. Appreciate it.

Appreciate it.