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

Good morning, my name is Mohit Bansal. I'm one of the biopharma analyst here at Wells Fargo. And this is my third year hosting it. And I think...

Third year's [ a charm ].

So thank you, Andy, for joining us today.

Thank you for having us. I'm thrilled to be here. I appreciate the invitation.

Awesome. So I mean, maybe like before we start in Q&A, so let's just talk a little bit about, I mean, what is going on with the company and then the company has seen some success with PrEP market, that space as well. So just talk a little bit about where Gilead is today.

Sure. Yes. So again, thanks for having us. Happy to provide a little color. For those of you that don't know Gilead. Gilead is one of the world's largest biotech companies, biopharma companies. focus in 3 areas: virology, oncology and inflammation, immunology. We have the world's largest HIV set of assets, both for HIV treatment and prevention. We have a large liver franchise with viral hepatitis products and a new launch in that area that's very exciting that we'll talk about that turns that franchise into a growth franchise. And then we have a growing oncology franchise, including the world's leading cell therapy business that's very exciting. So it's an exciting time for the company. I think there have been, as you pointed out, some very promising data, especially in HIV prevention. Recently, that's exciting that we can dig into. But it's a nice chapter for the company. I'd say the other big picture, as we've been building the last 5 years with a new management team to diversify the business into these other areas to build a much bigger portfolio, both research, development and commercial than we had historically, you're seeing significant progress. Our base business grew 8%, 2 years ago, 7% last year. First half of this year, we saw a strong growth at 6-plus percent. And we have a number of product launches that were either in the middle of or that come up in the next couple of years that should drive additional growth. And then the final point, as you saw in the second quarter, the really strong financial leverage that we have in our model with very strong growth in EPS based on a beat on both the top line, a bigger beat on expense management and a significant beat on the bottom line. So it's an exciting period of the company.

Got it. So this is very helpful. And then -- so maybe let's just start with the PrEP space. So I mean we saw successful data with the PURPOSE I trial and the PURPOSE II is also reading out. And when we chatted a couple of weeks ago, you talked a little bit about the background rates and how that could that needs to be considered when we think about purpose too. So can you talk a little bit about that?

Sure, so HIV prevention or PrEP is a very large market opportunity that is still -- even though HIV prevention has been available through primarily our 2 products, one of which is now generic, that are daily oral pills, the market has been -- the prevention medicines have been available for 10 years. The market has grown substantially and you're seeing an increase kind of in the growth over the last 5 years. Certainly, as awareness has increased and additional products have been brought to the market. We had data with what we presented data, I think, 2 months ago now with our every 6-month subcutaneous injectable HIV capsid inhibitor that showed 100% efficacy in a very large study done predominantly in women in sub-Saharan Africa versus -- and there are 2 comparisons. As you know, Mohit, there was a comparison against the background rate of HIV infection and a comparison against the oral alternatives, and you saw the meaningful improvement, both against the background rate of infection. Again, as I mentioned, the lenacapavir every 6 months showed 100% efficacy there's a higher background, significant background rate of infection in women that didn't get any therapy, and then those on oral PrEP because they don't -- they -- people that don't have HIV don't take -- don't tend to take the oral pills every day you still saw a reasonably high rate of infection in women that were -- that had oral PrEP available to them. So really incredible landmark data that underscore an incredible opportunity to open up this market, not only further in the United States, but globally. That study called the PURPOSE I study as compared to the second Phase III study that read out likely later this year or early next year. This study -- the next study is being done in many major markets, including the United States, but predominantly in men having sex with men and the background rate of infection there is lower. It's still -- we still have the utmost confidence that you're going to see a meaningful difference between the background rate of infection in this patient population and the rate of infection with the drug on board. And then there's also an arm in the study where people in the study have the availability of oral prevention pills you should see a difference there, too. So I think just maybe to summarize it by saying just with the data that we have in hand, it's clear to us that lenacapavir should be a game changer and open up an entirely new part of the HIV prevention market, both in the United States and globally.

Got it. I mean one follow-up to that question is that, I mean, we have seen a [ pretty trial ] in terms of what control arm could look like and all that. But you are using a background rate. So how much should we read into the other trials for the cross-trial comparison and...

Yes. I mean they're totally different trials. I mean the nice thing about the trials that have been done historically, so start with the oral prevention trials. They've demonstrated that if people at risk of getting HIV take the oral pills every day, there's a very high degree of protection from the transmission of the virus. Probably not as high as the injectable that guarantees the adherence, but because of the adherence component of it. There isn't an injectable that's on the market that it requires 2 intramuscular injections every month or every 2 months. These studies were done head-to-head against the oral and demonstrated nicely that by guaranteeing the adherence through the long-acting injections, you get better outcomes than you do on the oral pills in the real world and in a real-world setting. And we don't expect that to change with this study. Again, the key difference in this study versus those studies is there's 2 ways to win. One, the first comparison is against the background rate of infection, and then there's a separate comparison against the arm of people in the study that are on oral Truvada and you can win either way. And as I said, the existing data for lenacapavir, both in HIV treatment, but also in HIV prevention is so strong. From our vantage point, there's a very clear path to both successful clinical study and then approval by the end of next year and launch.

Got it. That's super helpful. And then let's just talk about the commercial side of it. And as we understand, right now, PrEP market from whatever -- however CDC defines it, it's about 1/3 or so. So like because lenacapavir is a major improvement versus what is out there. How do you see this market evolving? I mean, there are numbers out there, people think 50%, 60%. But how do you think about 1 opportunity to grow this market. And then two, I think the adherence and compliance could have inherent pricing benefit as well, let's talk about that.

Yes. I mean there's a lot of different components here that we should talk about and kind of pull apart. So the first is that the market that's evolved over the last 10 years is really today only in the United States, and that will change over time. I'll come back to that. and it's predominantly in a pretty rigid category of people that the CDC defines as being at risk of getting HIV. And it's mostly men having sex with men. So -- and as you said, Mohit, if the market is maybe 1/3 of the way penetrated to date. So it's still early days. And you've seen significant growth of the PrEP market over the last 3 or 4 years as awareness has increased. There are a number of organizations out there that are building businesses around us, raising awareness that are helping us build the market. The easiest way to think about the market, in my mind is when the first approved therapy, our drug Truvada, went generic 3 years ago, our sales -- and we had 2 drugs approved at the time, Truvada and Descovy. Our sales in the prevention market were approximately $2 billion a year. That was over 3 years ago. Since that time, the market has grown dramatically we would estimate that if the market were branded today, it's a $3 billion to $3.5 billion market. And as you mentioned, most of the people that are taking HIV prevention don't take the pills every day. They take them on-demand or intermittently. So for purposes of illustration, it's hard to say what the compliance rate is. If you just assume that the compliance rate is 60% or less, with lenacapavir launching overnight, you should, because of the level of innovation and the guaranteed adherence, you should convert -- our goal is to convert the majority of the market, including patients on generic oral pills to the long-acting, much better efficacy, insured compliance and you get this significant lift from the compliance. So if the market is $3 billion to $3.5 billion branded market today on the oral pills directionally, you get a step up in compliance, that grows the market substantially. And then think of the market as growing further in the United States, both in the rigid CDC population. As I mentioned, the Purpose I study is in women. There are women and people that have multiple sexual partners that are at risk of getting HIV that should expand the market further. And then, of course, we expect the market to grow outside of the United States with this really incredible data.

And then like one thing you mentioned, I just want to follow up on that was you can share from Truvada as well.

Sure.

Would the data are definitely supporting it. So I mean like how -- is there -- is it easier? Like how should we think about it?

Well, I don't think it's ever easy, but the level of innovation that you see in the clinical data is like profound. I mean this is a step function change. So the easiest way to think about it is when Descovy, which was arguably a better version, safer version of Truvada was approved for prevention, we moved, half of the market in the United States, roughly half of the market in less than 18 months move from Truvada to Descovy before Truvada went generic. The level of innovation between lenacapavir and the 2 approved orals is a step function change in order of magnitude better in terms of the insured compliance and as a result, the efficacy that you should see in the real world. So it's not unrealistic to expect that we will target moving both the branded market and the generic market over, and we will target doing that as quickly as reasonably possible.

And is there a bar in your mind that, I mean, the MSM trial need to look this good for you to have that kind of conversions?

I don't think so. Again, I think if you talk to -- we -- one of the leading KOLs said to one of our shareholders a couple of weeks ago that in her mind, it would be almost unethical to not give some -- given the clinical data. And that's not from our perspective, an unreasonable way to think about it. So I don't -- I think it will be raising awareness. A lot of the prevention market is raising awareness in a direct-to-consumer advertising campaign that our team will work through. So clearly, we believe that we have what is going to become the gold standard for HIV treatment for years to come, and we will develop that market as quickly as we can.

Maybe like sticking with HIV for a little bit. If I talk about -- if I think about -- so you have a really good longer acting agent with Sunlenca but people are looking for the other stuff which can be combined and then we can have every 3 months or every 6 month kind of treatment. So where are you with that? And then when can we learn more about some kind of combination?

Yes, we're making a lot of progress on all of our next-generation HIV treatment regimen. Two of them are actually in Phase III clinical development that I can talk about. One of them is in Phase II. And then we have a number of Phase I programs and programs coming into Phase I that are partner agents for lenacapavir. So maybe just to step back, again, lenacapavir is such a unique molecule. It's the first HIV capsid inhibitor. We believe it's also best-in-class, first-in-class and best-in-class an incredibly potent molecule that's been formulated as a once-daily pill, a once-weekly pill. It can be formulated as a once-monthly pill and then every 3 months, every 6 months and maybe every 12-month subcutaneous injection. For treatment, the [ ART ] is now if you're highlighting, finding agents to pair with it. We have 3 of those in clinical studies today. So if you look at the Phase III clinical studies, there are two. One of them is a daily pill of 2 drugs, lenacapavir and bictegravir, which is our integrase inhibitor that is the backbone in Bictarvy is really another incredible molecule. That's probably an underappreciated opportunity in Phase III. Even though it's not long acting, patients another choice if for any reason, they want to switch off of Bictarvy, most patients in the U.S. and outside of the U.S. start on Biktarvy. If they want to switch for any reason this gives them what we think will probably be the best alternative, and we look forward to seeing that data -- there's a Phase III program in partnership with Merck, with lenacapavir and islatravir. We'll have data out there as well. That's a once-weekly oral that will have -- is in Phase III. And then the most near-term and probably largest opportunity for the long-acting for treatment is our wholly owned once-weekly integrase inhibitor, which is a novel integrase inhibitor, long-acting oral integrase inhibitor together with a prodrug of lenacapavir that it's formulated for once weekly. That's in Phase II studies now and should progress rapidly into Phase III and be available by the end of the decade as well. Then beyond that, there's a whole series to your question, what are you going to see data of compounds that are in Phase I or moving into Phase I. Some of those could be monthly orals that we're very excited about. I think that maybe one of the most exciting things is our scientists would say today that monthly orals are much more of a possibility than we maybe would have expected a year ago. So we're excited about the progress that we're making internally there. And then every 3, every 6 months, subcutaneous agents. We have a number of partnering agents, including integrase inhibitors. Some of them are going through Phase I testing, and we'll share more data later this year and next. So to your question of where are you going to see data, we'll have an HIV day we expect later this year in the fourth quarter, and we'll share some updates at that time, and then we'll continue to share updates through next year and beyond.

I mean, so on your point on this capsid plus bictegravir combination is underappreciated. We have seen that with [ HUMIRA ] have as well. We have seen that with some of your [ predecessive molecules ] where the products were not that different. But every time you launch a new product in the HIV market, it does gain some share because there's always some subset of patients that you...

Yes, I think this is different because the HIV capsid is so unique and add something completely different. Remember, I mean, this is a completely orthogonal different treatment mechanism there are patients that don't want to take some of the existing therapies or develop resistance to them, whether it's a side effect or they've developed resistance. So when you look at the daily doublet that we've talked about, I think, yes, there are new agents that will -- that people may want to switch to over time. You've seen that in the market historically, it's really the agents like Biktarvy that are step function changes. I mean Biktarvy wasn't the first 3 drug single pill combination, but it was by far the best and it's become the absolute gold standard for HIV treatment. 70-plus percent, if I remember correctly, patients in the U.S. started on Biktarvy roughly half in Europe. Total market share is approaching 50%. I think our daily doublet brings -- and we'll see -- we need to see the data could bring that level of innovation and change. And by having this orthogonal treatment mechanism, may lead to even greater usage over time versus some of the other launches that you're referencing. It's definitely an exciting opportunity that we think is underappreciated. And then you layer on all of the long-acting launches that should be following it. It speaks to the sustainability and durability of our HIV portfolio that we think people probably underappreciate broadly.

20 minutes, almost 20 minutes on HIV.

Yes.

Good, let's just talk about another launch you are launching right now at seladelpar, the asset you acquired earlier this year. It seems like still under the radar a little bit. Part of it is because of the competitor, which is doing okay. But again, talk a little bit about your own expectations for this drug? And what are we missing?

Yes. Well, so to step back, we acquired seladelpar from a company called CymaBay earlier this year. The drug is now approved -- recently was approved. It's launched incredibly exciting, great label. So this is, from our perspective, a best-in-class treatment for PBC. PBC is a liver disease that it's a large orphan disease. 130,000 patients in the U.S., roughly probably an equal number, slightly smaller number in Europe -- probably underdiagnosed and undertreated because there have not been good treatment alternatives available for patients. We think it's a really big opportunity. We are the world's largest liver disease company with our hepatitis C and hepatitis B franchises. We have a large commercial organization. This is a perfect strategic, synergistic fit, 80% physicians that treat PBC also treat viral hepatitis. So there are a lot of synergies in terms of slotting this into our organization. They already have long-established relationships with the physicians that treat PBC. I'd say -- and we think the market is really underestimating the potential for PBC, likely because there haven't been effective treatments available for patients, and you see that in numerous examples, over the last couple of decades. The best example in my mind, and there's lots of them is the pulmonary hypertension market. When Actelion launched Tracleer 20 years ago, people thought that Tracleer, broadly, I'm generalizing would be a $300 million or $400 million product turned out to be orders of magnitude bigger, and the pulmonary hypertension market is a $10 billion to $15 billion market today. There's a lot of similarities, both in size chronic nature of the disease, severity of the disease pricing. So I think PBC is an underappreciated opportunity and seladelpar is clearly in our mind. And when you look at the label, we believe a best-in-class opportunity. So have the opportunity in front of us to shape the PBC market in the same way that Actelion and others did the PAH market. And it's really exciting to see what we can bring forward for patients. So more to come. I should say on the launch, the first couple of quarters of the launch will be -- you'll see very modest sales. It's typical in orphan diseases where you're working through formulary access, step edits, prior authorizations, you should really see the growth in seladelpar. Livdelzi is the commercial name, I should call it Livdelzi you'll see that really driving additional top line growth next year and then beyond. So it's exciting. Maybe the big picture, as I alluded to earlier, our liver franchise will be growing again. I mean the liver franchise, the hepatitis C, incidence rate and the cure rates are roughly equal. You've seen kind of the viral hepatitis market, our business has flattened after years of decline after curing hepatitis C and now we have another leg of the stool that's going to drive growth. So you have the durability of our existing hepatitis C and hepatitis B franchises, and the growth coming from PBC. So it's an exciting time to see not only the HIV business growing, the oncology business growing, but the liver disease business unit growing again is our expectation.

So on that point, I mean, I want to bring into 2025 somewhat in the mix because you did talk about the challenges with the Part D design in the past that HIV business will face. But how do you -- I mean, obviously, I don't want you to give the guidance here. It's too early, but -- how do you see qualitatively how 2025 could look like, given that you have oncology business growing and [ share ] that as well?

Sure. Yes. I mean we have given some guidance, and I'm happy to repeat it and put it in the proper context. The Part D reform impacts all companies with Part D drugs, including Gilead. The vast majority of our Part D drugs today are HIV medicines and in particular, Biktarvy that we mentioned earlier, which is the gold standard for HIV treatment. What we've said is that the growth in our HIV business next year, which will be meaningful will be offset in large part or entirely by the impact of Part D reform that really starts next year and then carries through. So it will -- the Part D reform will mask the growth of our business to some extent next year. But you still will see overall growth in the business being driven not only by HIV, but also the oncology business in seladelpar. The other thing that we should say is that when we give that guidance, we tend to take a very conservative approach. We are not assuming that with Part D reform, that prescriptions that are left traditionally at the pharmacy counter because patients can't afford the co-pay or they're moving through the donut hole are then taken and that you see an uptick in actual prescriptions that are filled and paid for. So there's upside to our guidance. So we tend to be appropriately conservative in our expectations. So it's an impact that will go beyond '25, but you see it in '25 because you have the step down. It's modest, but it's real. We've highlighted it. and we have plenty of growth in the business to kind of grow and then grow meaningfully from there. As I highlighted earlier, we have a number of launches, both underway with seladelpar and additional launches coming. So as we look at the coming years, we have obviously the HIV prevention launch that we're very excited about. We have a BCMA cell therapy that we're incredibly excited about that's partnered with Arcellx that should launch into the cell therapy BCMA market, that's an exciting opportunity. There's a number of growth drivers that will be coming in the coming years that should drive additional top line growth. So it's manageable. We've talked about the impact. We'll provide more updates as we work through this next year. But it doesn't mean that our business is not growing or going to continue to grow.

That's helpful. So since you mentioned BCMA. So next question on that. I mean, in terms of profile, I mean, obviously, Carvykti is out there already. But how do you see -- I mean the profile looks interesting. Obviously, it is comparable efficacy and the safety, there's a benefit. How do you see it competing given the lead time Carvykti has? That's the question we get. And also, how much does the manufacturing time comes into play because it takes some time for Carvykti to...

Yes. No, it's really important. So just to step back, we have the world's largest cell therapy business that we acquired through our acquisition of Kite, I think it was almost 7 years ago now, which is hard to believe. We have 2 approved cell therapies, Yescarta and Tecartus. It's a $2 billion business and growing for us and we have the world's best cell therapy manufacturing. We have 3 global cell therapy manufacturing plants that are up and running. They have significant expansion capacity. We're bringing the cost of manufacturing down, year after year, making progress. And then we have this really exciting program partnered with Arcellx of a next -- what we think is probably -- has potential to be a best-in-class BCMA cell therapy for multiple myeloma. There are 2 approved therapies, including the one moment that you mentioned. And we're excited to present together with our Arcellx data at ASH later this year that will be the first larger set of data that is in kind of more of an apples-to-apples data set relative to the -- I think it was called CARTITUDE I, if I remember correctly, the first study of Carvykti, so very excited to see that. Even if we have a similar profile, this is a big commercial opportunity for us. And part of that is our ability to serve the market. We have the 98, 90 -- I believe it's 96%, 98% manufacturing. So that's rate in cell therapy, which is far greater than the other competitors in the cell therapy space. And we have a much shorter turnaround time. And for a lot of these patients that have advanced explosive disease the turnaround time is pretty important and the reliability of the manufacturing. The thing that's interesting when there's discussion around the order of entry in cell therapies that may be less relevant, our perspective. Because remember, cell therapy is essentially a onetime potentially curative treatment that it's very different than standard small molecules and antibodies. So if you have to choose which treatment you have, you're going to want the best. And so far, our data suggests that our BCMA cell therapy could be differentiated both in efficacy and safety. And we need to see more data to confirm that. But if that's the case, it's a relatively straightforward that if you're a patient and have an option, you're going to want to take the cell therapy that are going to want to be infused, the cell therapy that has -- gives you the best chance for long-term benefit and survival. So we'll see how it all plays out. But I think the order of entry may be less relevant in cell therapy than some of the debate suggests and the profile that we have suggest that we could be best-in-class as well. So it's an exciting time for anito-cel is the name of the product that's in development together with Arcellx. So it's an exciting one to watch. And again, the ASH data later this year should be another important inflection point for us.

And then maybe staying with cell therapy. So how are you thinking about Yescarta into CARTs franchise near term and long term because near term, there are some challenges you talked about. But how do you think about...

Yes, there are some near-term headwinds in cell therapy. The business is growing beautifully outside of the United States, right? So I mean nothing has changed in terms of our long-term expectations for cell therapy. We think that cell therapy is going to be an incredibly important treatment modality, not only in hematological cancers but likely also in solid tumors and in autoimmune and maybe neurology over time and that the market will grow for decades just like antibody therapies and protein therapies grew, and we're in the early innings of cell therapy. The clinical data for cell therapy. If you just look at whether it's our data in DLBCL, follicular lymphoma or the data that's available today. in multiple myeloma is really incredible in terms of the level of efficacy that it delivers and the life-changing nature of it for many of these patients. So that gives us a lot of confidence that the market is going to continue to grow over the long run. It's very hard to foresee biosimilars of cell therapy. So the durability of this business, I think, is probably underappreciated. In the short term, there are a couple of headwinds. One is in the United States. Cell therapies are not being used in as many patients as they should be used in. When you look at the level of it, the clinical data suggests that everyone should get this then yet in DLBCL, second line plus, only 2 out of 10 patients are getting cell therapy. And it's up to us and the other competitors to continue to raise awareness. We saw a little bit of an increase in the second quarter, which is great. But just to put it in context, 15% of patients in the United States now roughly are getting at 15 plus percent or minus depending on the quarter, second line plus in France, it's 40% plus of patients second line plus they're getting it. So there's a big opportunity for us to take this $2 billion business and continue to grow it just by increasing the number of patients that get access to the medicine. The other headwind is one of our competitors has released additional manufacturing availability and you have some bispecifics that have launched. All of these feel like more short-term headwinds to us, they're real, they're manageable. Again, we think that you saw growth in the U.S. in the second quarter from the first quarter, you saw greater growth outside of the U.S. But yes, we may continue to see those headwinds throughout the rest of this year, maybe into early next year. But overall, when we look at a multiyear period and certainly over the long run, we expect our cell therapy business to continue to grow, both the approved products plus products like anito-cel that we could be launching.

Super helpful. So since you are here, I have to ask about BD as well. So how are you thinking about BD at this point? It seems like you have a lot going on right now. But at the same time, it's always -- it's always good to have something when you don't need it, were needed. So how do you think about that?

That's a good question. I mean, First of all, we're going to continue to be very active in business development. But what that means over the next 5 years is very different than what it means over the last 5 or 7 years where we needed to rebuild the pipeline and diversify the business in a really significant way. And you saw that in the number of deals that we did and the amount of capital that we allocated to BD. So we will continue to focus on ordinary course partnering and small acquisitions. CymaBay is a good example of a great deal that's late-stage derisk synergies. We would like to do more of those deals over time. You should expect us to do a kind of a regular cadence of those deals. That typically means 1 of those every 2 to 3 years, sometimes it might be faster, sometimes it might be slower. We'll continue to look at it. But you should not expect us to allocate the quantum of capital necessarily over the next 5 years that we did over the last 5 years. Because we have a much larger diverse, very healthy portfolio, and a lot of programs internally, both internally and externally developed that we'd like to allocate more capital to. So for instance, we have a number of programs in autoimmune and inflammation, including an oral alpha-4-beta-7 and an oral TPL2 inhibitor, both of those are in Phase II. We think those are really exciting programs. They're kind of under the radar. And if the data continues to look promising, we'll allocate more capital to those over time. So we will balance internal and external innovation, but we really like where we are today, and the amount of capital we need to apply to that strategy is probably different going forward than it has been in the last 5 years.

And then any thoughts on the oral GLP-1 you have internally?

Yes, we have an oral GLP-1 small molecule that's moving into Phase I, Phase II clinical studies. We'd be appropriately cautious. There's always high risk when something moves into Phase I. This is a program that we've been working on for years, even when I arrived at the company 8 years ago. I think it was already the works. We have some of the world's best chemists. They've done an incredible job in HIV, viral hepatitis and other areas. They worked on this program tirelessly -- it's interesting. We think it has -- it appears to be very potent. We believe it crosses the blood brain barrier. So it could be unique. But there's always risk in a Phase I study. We're going to do the Phase I, II -- Phase Ia/Ib study this year and next in patients with obesity and metabolic disease. We'll see what the results look like. And if we have something that we think is differentiated, then we'll decide how to move forward. That could be on our own. It could be with -- in combination with a partner or it could be an out-licensing to a company that has a large presence in this space. So it's definitely exciting and it's early, and we'd be cautious about people getting out over their skis on it. But -- and we'll provide updates when we can. That probably is next year at some point.

Thank you very much and we really appreciate it.

Thank you for having us again. I Appreciate it. Thank you.