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

Okay. Good morning. Thank you, everyone, for joining us on the morning session here on day 2 of the Jefferies Global London Healthcare Conference. I'm Mike Yee, one of the biotech analysts at Jefferies, and I'm really pleased to have with us up here on the stage, the Chief Financial Officer of Gilead Sciences, Andy Dickinson. Andy, great to have you with us.

I would love to just maybe take a step back, talk about your outlook on 2024, but really sort of summarizing how Gilead has been positioned in 2023. You just reported earnings a couple of weeks ago. A lot of people are obviously thinking about growth at Gilead, core business, pipeline and how you're positioned for 2024. So maybe just coming away from third quarter, give us a snapshot about how you're feeling about things. And we'll get in a little more of the details.

Yes. No, thank you. First of all, thank you for having us. It's been a great conference. Appreciate it. It's good to see everyone. Thank you for joining us. 2023 has been another great year for Gilead, and 2024 is set up for a lot of very important catalysts, as you know. So maybe just to kind of step back, for those of you that haven't followed Gilead that closely, we are the world's largest virology company. We have a thriving and growing oncology business. When you look at our financials, if you look at our base business, which is the vast majority of our sales, excluding our market-leading COVID antiviral that's used in the -- for hospitalized COVID patients, which I'll talk about very important for us and for patients. But if you look at the base business in the last 2 years, Gilead has returned to growth in a very meaningful and important way. Last year, our base business grew 8% year-over-year. This year, if you look at our updated guidance, we're projecting 7% to 8% growth. And that growth is being driven both by the core antiviral business, HIV. We have a much more stable hepatitis franchise, for those of you that follow the company. And the oncology business, which has 2 legs, our antibody drug conjugate, Trodelvy, which is an incredibly exciting medicine, as well as our cell therapy business at Kite, are both driving significant growth. So we really have accelerated our growth as a result of the investments that we've made. So to your question, again, 2023, we've updated our guidance, another very solid year. We continue to execute. The big difference between '22 and '23 going into '24 is that the last 3 or 4 years with the new management team have been a period of investment. We've substantially increased the size and quality of our portfolio. The amount of money that we're investing in R&D is now on par with the rest of the industry. For years and years and years, we underinvested in R&D and had a much smaller pipeline than the industry. So we now have a very strong pipeline, a broad pipeline, one that we expect to drive significant growth in the future. We're growing at or above the median in the pharma industry, which is very exciting, and we think it's just the beginning. And now going forward, we have a whole host of clinical catalysts that are coming up. So in 2024 -- I want to make sure everyone in the back can hear me because I know it's loud there. So if you cannot hear me, please let me know. But in 2024, we have a number of clinical catalysts across the entire portfolio. For example, in the first half of next year, we have our Phase III second-line non-small cell lung cancer data for Trodelvy. We also have our lenacapavir prevention data, Phase III prevention data for HIV coming by the end of next year, at least 1 of the 2 pivotal trials. So -- and that's just the tip of the iceberg. You'll hear more about this in the coming months in terms of where we're going. As far as like specific projections for 2024, obviously, we'll provide our updated guidance early next year at the end of January or February. We typically do that on our end-of-year conference call. What we can say -- what we've said and I'll reiterate is that we're in a growth phase and that we expect to grow at or above the median of the pharma industry, and we expect a significant acceleration of our top line growth over the coming years as all of these clinical catalysts play out. So it's a really nice setup for what I describe as a new Gilead.

Okay. That was a great snapshot. Now you -- 2 parts. One is coming out of third quarter earnings, there were some questions around the core HIV business that quarter. The first 2 quarters were quite strong. The third quarter, there was a comment about HIV pricing a little bit. I think there was maybe some confusion around that because you get in a little bit of the weeds of the different channel mix. And some people were just wondering, can you comment about the core HIV business and pricing and how you're feeling out at third quarter? Explain that a bit. And then how you're thinking about that for 2024. I know you're going to give specific guidance, but you said acceleration. So you're saying you can grow faster in '24 than '23?

Well, certainly, after we have the PrEP data, we expect a significant acceleration because the prevention market, as you know, is very large and largely untapped and are -- every 6 months...

So for those -- so the Phase III capsid PrEP data, which would be a once-every-6-month injection?

Should substantially accelerate -- reaccelerate growth in HIV. That doesn't mean though that HIV is not a growth business in the base business. So if you just step back to your question today and if you go back to kind of our second quarter call, you're absolutely right, Michael, that the HIV business grew substantially in the first half of the year. Part of that -- and again, you have to break the HIV market into the 2 different businesses. The HIV treatment business, which is the majority -- significant majority of our sales, again, led by Biktarvy, which is the absolute gold standard treatment for HIV. Biktarvy is a $12 billion a year drug and growing. It's used in 62% of naive patients in the United States, a very high percentage of naive patients outside of the United States and other major markets. And it's still growing. It grew 2 percentage points in the United States last year. So the HIV business is growing for treatment about 2% to 3% a year in terms of volume demand growth in the major markets. In other markets, it's growing much faster than that. Prevention is growing much faster. In the third quarter, year-over-year, the prevention market globally grew 15%. Prior to that, it was growing high teens. Last year, as you know, it's growing at 20-plus percent. The prevention market is largely untapped. At most in a very narrow definition of the prevention market, the prevention market is maybe 1/3 of its way, kind of in the evolution in terms of the potential of the prevention market. So when you combine prevention and treatment, the HIV market is growing. It's going to continue to grow. Prevention is helping in terms of the growth of the treatment.

Yes. So let me be clear because I -- this is probably one of the most important catalysts of next year is that the Phase III capsid data for prevention is important because you're taking -- giving the opportunity to prevent HIV with a single long-acting injection.

Exactly, yes. No, it's transformative. I mean and -- I want to make sure I finish the point though on 2024 because it's important, kind of the...

So that was one of the drivers.

Yes, that's one of the long-term drivers. But in the short run, part of what's happening is as the global economies have recovered from the pandemic and as unemployment has come down, more patients have moved from lower-priced treatment, reimbursement options in the United States, in particular, to commercial pay insurance. So in addition to seeing the demand growth, you've seen an increase in the net price realized for our medicines for us and other companies. We highlighted starting 6 months ago that the market was starting to normalize and that, that trend had kind of run its course and that you're still going to see growth in the HIV business. And as I said earlier, you're going to see growth in our base business overall, including the oncology growth, but you won't have that tailwind. That doesn't mean that the HIV business is not growing. So just to finish the point on the third quarter, I think there was a bit of an overreaction in terms of the market interpreting some of our comments as the HIV business overall would grow at 2% to 3%. The point is the demand growth in HIV treatment globally is 2% to 3%. The prevention market is growing much faster. It's going to continue to grow substantially over time. And then to your point, you start layering on top of it all of the new product launches that we expect to have in HIV, one of them is in prevention with this absolutely transformative, every-6-month subcutaneous injection of lenacapavir, which is an HIV capsid inhibitor, first approved. It's already approved for treatment. This is not theory. This is a drug that's already approved for the hardest-to-treat HIV patients that have HIV, and now we're studying it in the Phase III studies for prevention, which, scientifically, we feel like is a lower bar in terms -- and the probability of success should be very high. Remember, we already have 2 drugs, our oral dailies approved historically for prevention. We are the leaders in this space, and capsid should really unlock substantial growth in prevention. Let me pause there.

We're thinking -- and we'll move away. The final thought around HIV is that we believe that the long-acting capsid data next year would benefit you, first, certainly from a pricing and compliance standpoint because the people who are on PrEP are not necessarily fully compliant. And then secondly, it could expand the market and grow utilization because, obviously, a very convenient, once every 6-month injection is great for patients.

Yes, exactly. Look, I mean, the key in prevention...

That's a driver.

Yes. I mean, again, to step back and kind of help people understand this. Many people that take the existing approved therapies, including our 2 daily pills for prevention, take the drugs on demand. So if they fill a 90-day prescription, they may use 15 days, 20 days, some people use 60 days. But when you look at the market, again, just to put it in context, the prevention market when Truvada, which was the first double daily oral of ours that was approved for PrEP, went generic, the global market was about a $2 billion market for prevention, and the vast majority of the sales were in the United States. The market has continued to grow at a very high rate since that point in time. Today, the branded market would be, I would guess, at least a $3 billion-plus market. And again, it's still only in the United States, predominantly in about 1/3 of the market tapped. So if you think about lenacapavir is an every-6-month injectable that ensures compliance, which means you should get much better prevention and efficacy, it should open up not only a substantial market in the United States, but it will open up a much more substantial market, we expect, globally, including in Europe and Asia. So it should...

Are you suggesting that you should have reimbursement much more broadly than the current DESCOVY for PrEP? Because I'm not sure that there is wide reimbursement beyond the United States.

That's exactly right today. But yes, the expectation is when -- and again, if you look at the proof of concept, one of the other companies in this space has an approved long-acting therapy that is an injection but a regimen that's less desirable for patients. The important thing for investors is if you look at their data, their data demonstrates exactly what you'd expect that when you guarantee adherence with the long-acting injectable, you get better clinical outcomes. And that data should support pricing determinations in Europe, in [ general ].

So the European pharma company that has that approved -- and it's okay, GSK. I think they're in the other room. They have it approved. Is it reimbursed?

Again, I should know that. I don't know...

They're working on reimbursement country by country. And the point is that this is -- looking at any Wall Street model, not -- there's not much revenues in this in models because there has not been reimbursement for daily pills for prevention. The fact that this is super compliant and guarantees efficacy is something that payers outside...

Should open the global market outside of just the United States.

Okay. Last point on HIV because it came up recently this week and also people have been asking about since the earnings call. Can you just comment about the recent -- or any updates or what the time lines are for the various court cases going on in the U.S.? This is something that has class actions, and others have impacted Sanofi and GSK as well. So for Gilead, is there any updates on the current HIV cases that are pending in the United States?

Sure. Again, maybe I'll just step back for those of you that are not familiar with this, this is a set of cases. There are -- these are not consolidated. Well, they are consolidated, but they're not class action lawsuits. There's about -- and these cases are based on a very novel legal theory that you would really only see, unfortunately, in the United States. So this is a theory that we had a duty to innovate and to bring our TAF-based HIV regimens to market sooner than we did. This would suggest, for instance, that automobile manufacturers need to bring a safer car earlier than they can. It's outrageous, and it's something that, again, we see no merit in the cases. There are 25,000 plaintiffs in the California state courts. There's 4,000 plaintiffs in the federal courts. We'll work through this methodically. The latest updates...

Yes. What's the timing?

Yes. I mean maybe most importantly, if you kind of step back again, for -- in the state court case, just to help people understand it. The plaintiffs have admitted that the product is not defective. These are life-saving products. They're still on the market. The risks that they're claiming were in the label from day 1. So the plaintiffs have stated the product's not defective and there was no failure to warn. They believe, however, that we should have brought out TAF earlier than we could have and that we actually did. So the -- when you look at where the state of the cases is, a significant portion of the cases have actually been dismissed over the last year. So just to give you context in the federal case, which is a smaller set of cases, 4,000 or 5,000 cases, I believe 27% of the cases have already been dismissed because it becomes clear that most of the plaintiffs cannot get an expert to support their claims that they either even took the drug or that they were damaged in any way. In the state cases, 14% of the cases have been dismissed. And we're just kind of methodically working through it and managing this. We don't see -- I mean, at the end of the day, again, these are completely without merit from our perspective. We're confident that we're going to get the right outcome. We have an important -- there's a California appeals court, actually issued an order to the plaintiffs and the state court saying, tell us why we shouldn't throw out this case, given that this is a novel legal theory that could be very problematic, not only for the pharma industry, but otherwise. They're going to rule onto -- then we had arguments and post-argument briefings. The California appeals court will rule on that in the coming months. The bar to throw out all 25,000 cases is very high. Whether we win there or we win subsequently a trial or at the California Supreme Court, we're confident that we'll win at the end.

So they'd asked the plaintiffs to provide more information. The judge could either throw the case out or it goes to trial where you think you have a strong case.

Yes, you'll start to have a couple of key bellwether trials, they call them. And again, there's a lot about this case that's subject to a protective order that we can't share. But what I can say is we have complete confidence in our legal position and our claims. The other thing, Michael, that's important to highlight is this is totally different than what many of the European companies went through, with some of the recent class action lawsuits.

That's where -- the summary in context. Sanofi, GSK, some of those that had weighed on the stock because people don't like uncertainty about that. You have not taken any financial reserves on any...

No financial reserves. And again, this is a different set of claims. Again, this is not a defective product claim. This is a duty to innovate claim, which is a novel legal theory. So it's [ really hearsay ]. Apples and oranges.

Okay. All right. So you feel good about that. There is an update on that. It may go to trial. But again, we've sort of summarized that and you feel good about HIV. We talked about capsid, long-acting. And you talked about some of the pricing issues.

Right. Can I mention one other thing on the HIV before we go to oncology? There are 2 other product launches that I would expect would come that people should be aware of and focusing on. One is a daily combination of our leading integrase inhibitor, bictegravir, together with lenacapavir. This is a 2-drug combination. We had very promising Phase I/II data that we're looking forward to sharing next year. We're moving into late-stage studies. So when you think about next to Biktarvy, the other leading competitor in the HIV treatment space is a doublet of 2. This would be very similar.

I saw this on its the pipeline. So you would -- we need more than capsid generally for treatment of HIV. For the treatment of HIV, your next step is to take capsid as a once every 6 months. You would take a daily Biktarvy, but that's how you would have 2 antivirals?

Yes. It's a little bit different, in that -- the answer is yes. Capsid or lenacapavir is the new backbone, we believe, for all of our next-generation HIV...

Once every 6 months, very subcu.

Well, but -- no, but you don't have -- the beauty of capsid -- our capsid, it can be formulated as a once-daily pill, a once-weekly pill, every-3-month subcutaneous or every-6-month subcutaneous. So what we're studying with bictegravir is a once-daily co-formulated pill of lenacapavir, a very small dose together with bictegravir. We also have promising data of a once-weekly oral with another novel integrase inhibitor together with capsid that would also be a once-weekly capsid.

Islatravir?

No, that's separate from islatravir. This is our own integrase...

This is the weekly integrase pill to go with the weekly capsid pill.

This is the weekly intergrase inhibitor. Right. Right. So to step back, we have 9 molecules that are in development to partner with lenacapavir. Three of them are in Phase II. Three of them are in Phase I. Three of them are preclinical. Five of them are integrase inhibitors. We have a wealth of compounds that you're going to see data on in the coming years that are another big part of the HIV treatment story and the evolution of our HIV business.

So for those writing down the catalysts, 2024, you will get some of this bictegravir-lenacapavir data, a daily pill and the opportunity to be a weekly pill.

We'll share it. Exactly. In addition to the Phase III PrEP data. So there's a wealth...

Those are 3 drivers that are improving on and expanding the [ potential but ] also in...

An already-growing portfolio, exactly. All right.

Very good. So now with 5 minutes left, let's talk about -- it's important. It's $15 billion of revenue there we're talking about. So what is also important is, number one, Trodelvy. You guys acquired Immunomedics. Drug is approved, obviously growing, launching in breast cancer. That said, another European pharma down the hallway has been reporting data both in second-line lung cancer. That was just at ESMO. And in HR-positive breast cancer. And next year, they have first-line triple negative. So they're working to come on, onto your home court. How does investors think about that Trop-2 versus yours? And why do you feel confident you're going to have steady growth of this when they have a competitive drug?

Yes. No, I think, first of all, we had a theory and a thesis when we acquired Immunomedics years ago that not all Trop-2 antibody drug conjugates are alike and that the Immunomedics construct, which is Trodelvy and is now approved in 3 separate solid tumor indications, it's $1 billion roughly of sales this year, growing rapidly, is very differentiated. And for those of you that understand kind of antibody drug conjugates, there are 4 parts of our construct that are completely different than the competitor's Trop-2 antibody. First of all, our antibody has much higher binding affinity to Trop-2 than the competitor antibody. Secondly, we have a completely different linker. Our linker is hydrolyzable, which means that when you -- when the ADC gets into the tumor microenvironment, a portion of the antibody drug conjugate is taken up and transported into the cell to kill the cell. A large portion, the linkers are cleaved, and the toxin is released in the tumor microenvironment. We think that can make a big difference, for instance, in squamous cell, non-small cell lung cancer. We'll get to that. Our antibody drug conjugate ratio, the -- I think they call it the ADR ratio, is much higher than the competitor. It's very similar to HER2, [ ours ], at 7.6 kind of toxic warheads per antibody. And then the final thing is that our toxin is very different. Our toxin is a derivative of irinotecan that's 1,000x more...

So let me [ clarify ]. So people see [ recent ] at ESMO. They had second-line lung cancer data. They hit on PFS, weight for mature LS. They believe that they're going to file in lung cancer. However, a lot of the benefit was driven on non-squamous. It was asked on the call -- I asked on the call that you believe that you will show a benefit both in non-squamous and squamous. You kind of just talked about some of those reasons you think there's better affinity and greater uptake in those cells, at least what you're seeing. And so you feel very comfortable that you will have strong data. I mean based on what you're saying, you think you could have better data?

Well, we think we have -- I mean, yes, I mean, the answer is yes, we expect to have better data. But the...

That's a big catalyst by the way. Have you had positive data that was better on PFS than they do? I think you maybe commented [ to The Street ] but if you could talk about that.

Yes. I agree -- but if you just -- right. Just step back today. You have -- if you look at our existing breast cancer data in our existing relatively small set of lung cancer data that we shared earlier this year that's exciting, this data is in more advanced, more heavily pretreated patients. Again, it's not an apples-to-apples comparison. It's hard to do cross-trial comparisons. With all those caveats, if you look at our data, our view, of course, is that it's every bit as good, if not better than the data that we just saw from the competitor in their studies. We have our second line -- Phase III second-line non-small cell lung cancer trial which is EVOKE-01. We'll be reading out in the first half of next year. We have a wealth of additional data coming from our Phase II study in first-line non-small cell lung cancer. We do -- by the way, in our small data set in lung cancer, we're seeing a benefit in squamous cell patients. So again, the other thing I would highlight is these 2 competitors have very different side effect profiles. They are completely different, which underscores our point that the ADCs are not the same. And that...

If you show -- what data is -- we'll go back to it later. So you're saying there's data that shows that you are very good in squamous.

Well, that it's active in squamous is what we're saying. And the competitor data suggested that their construct is not active in squamous. So again, the data is going to be important. We need -- we have a lot of -- maybe what I would reiterate with the oncology portfolio, whether you look at Trodelvy or you look at our cell therapy portfolio with Kite, which is really exciting -- we have a BCMA construct that's partnered with Arcellx, there is a wealth of data coming over the next 12 to 18 months that it is really going to give you a sense definitively of where we stand relative to the competitor and whether our thesis in the acquisition really plays out.

So 60 seconds. Number one, how do you feel about the BCMA Arcellx CAR T at ASH coming in a few weeks? You feel that is rock solid and absolutely competitive and as good as the competitor?

Yes. We are very excited about this BCMA program. We think it has the potential to be a best-in-class therapy, cell therapy for multiple myeloma. It is -- it looks -- the early data looks outstanding. So...

And the durability is going to be holding up, and it's going to look rock-solid.

Again, I'll let you see the data. I love how you lead me to these answers. But the data that we've shared to date is very exciting, and we look forward to sharing more data. And I'll leave it to our partner to kind of take the lead there, but we're excited about this program.

Okay. We will see you at ASH. Thank you very much, Andy. Appreciate it.

Thank you. Thanks for having us.