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

Great. Good morning, everyone. Thank you so much for joining us. I'm Salveen Richter, Biotechnology Analyst at Goldman Sachs, and really pleased to be joined by Daniel O'Day, Chairman and CEO of Gilead.

To start here, Dan, this has been a really -- I guess, after a period of resetting the foundations and looking at various growth levers, you've really put yourself in a position here where you're executing across your core franchises, which are HIV and oncology. As you sit here, where do you see the growth playing out on the forward? Walk us through key priorities and then just overall strategy.

Yes, sure. So thanks for hosting us here. Delighted to be with all of you, too. It's a particularly important time at Gilead right now after 5, 6 years of kind of developing the strategy that we had around not only making sure that we could continue to lead in virology, and I know we'll talk about that, but also diversify into other therapeutic areas, oncology and inflammation. And I'm pleased to say that right now, we have 3 growing franchises, obviously, virology and HIV, but also oncology with some of the recent data that we just presented at ASCO on both Trodelvy and cell therapy. I think that even provides us with more growth opportunities ahead. And then inflammation with Livdelzi, but also the earlier program. So I would say that, look, I think we're in a very good position. We've got a strong balance sheet. We have robust cash flows. We have -- we're now in a position where we're really looking at managing our operating expenses at a higher level that we've built up over the past 5 or 6 years. And uniquely, we're one of the few companies that has very little patent exposure. Our next patent exposure is not until the end of 2033. And we have a whole host of HIV long-acting programs that will help diversify that concentration risk before 2033. So I would say that we're really in a good position to continue to grow and develop over time, invest appropriately. But I think we're in a very good position right now at Gilead.

Maybe starting here on lenacapavir and the outlook for the launch in HIV PrEP. Given changes at the HHS and the FDA and CDC, is there any follow-through that could play out here on the HIV front as you look to this launch?

So we haven't seen anything so far that would have an impact on our exciting LEN for PrEP launch that is really literally days away, the PDUFA date is June 19. And I would just point out that everything with the FDA has been going as you would expect for a priority review product. And so we've had very good discussions and in the final stretch now waiting for their approval. And relative to the programs that support HIV services in this country, we haven't seen a significant change that would impact necessarily the LEN for PrEP uptake. And what does that mean? That means that we've obviously been advocating with the government to make sure that core services related to surveillance to the disease, diagnosis, PrEP, linkage to care, that those are funded. And at least the conversations we've had with the government, we've gotten good affirmation of that. Of course, they are looking for efficiencies, but we pointed out the necessity of funding those programs at both the federal and state level. And as you know, within the HIV community, we support a lot of that funding as do other philanthropic organizations. So given the incredible data around LEN for PrEP that it's 100% effective in preventing people from obtaining HIV. The community, the awareness of this amongst prescribers and amongst the community is very, very high. And so we are poised now to kind of bring this advancement to more and more people, those that may be on PrEP today and those that haven't considered PrEP before for a variety of reasons, we believe we can really grow that population. And importantly, I think this is potentially the best tool yet in bending the incidents in the arc of the HIV pandemic in this country and globally.

Maybe speak to the commercial strategy in that context because there's a long-term outlook of how you can really grow this opportunity, but in the near term, there is a compliance and adherence, a durability impact that could play out as well. So walk us through the initial targets here and then the cannibalization efforts that could also play out and how these various factors work.

Yes. So I think we think of it in 3 different phases. One is those individuals that are on PrEP today. The second one is getting to new people that could benefit from PrEP that haven't been necessarily well served by a 1 pill once a day regimen in this country. And then the third piece of it is expanding globally. PrEP is largely a U.S. phenomena today for a variety of reasons that we can speak about. But given the incredible data on LEN for PrEP, health authorities in other countries are looking at this differently than they did on a daily pill. But let's go back to the first set of individuals. Today, in a somewhat narrow, CDC defines that there's about 1.2 million people in this country that could benefit from PrEP. I think that number will expand over time given the nature of lenacapavir. But of that 1.2 million, there's about 400,000 to 450,000 users of PrEP today. Those are largely one community, men that have s** with men in large urban areas. And the reality is people -- these people are not -- they don't have a disease, and so they're not very compliant with their therapy. On average, and of course, this varies by different groups, about -- there's about a 50% compliance rate on the oral pills. So the way we think about it and the way the community has told us to think about it is the ability to be obviously more compliant to not have to think about taking a daily pill, but going in a routine that corresponds with when you would get STI testing to your physician, get a subcutaneous injection and then forget about it for 6 months, we think it's really going to benefit these 400,000 people today that have been less compliant, make them more compliant, reduce the incidence of disease in that community. And obviously, it has an impact upon our business to be able to have that assurance of compliance around that somewhat 400,000 folks today. And then moving to the next group of individuals that could benefit from PrEP. This is a variety of other communities. We have a good understanding of where those outbreaks are. There's more than 50% rural south of the United States, and it's different populations of individual. It's black and Latino men, it's black women. It's a larger population of underserved folks that for a variety of reasons, largely around stigma and discrimination access to health care, we haven't been very effective at penetrating in the past. We have new programs that will roll out at the time of launch, but it will take a while for those communities to kind of be able to have awareness and then seek potential -- appropriate prevention therapy. It really -- we have to remember, HIV in this country is increasing. There's more than 700 new cases a week and 100 people a week die from HIV in this country alone. So there is [indiscernible] medical need out there. And so we'll have both of those programs running from the launch. Current users, those that haven't been served well in the past, and then eventually getting to countries outside the United States, where from a global public health perspective, this presents a real option for countries to think about ending the HIV epidemic in the country. And what that means is talking at the health ministry level about programs where we could really work with their targeted populations, reduce the risk and reduce their overall, obviously, better for public health, but also better for their economics in their systems as well because for every -- in this country, for every HIV disease that you prevent, you save about $1.1 million in eventual lifetime health care costs, not to mention, of course, the benefit for the patient. So these are strong arguments and I think good economic thesis to go and expand outside the United States. I'll just say one other thing. Of course, we have a program for low and middle income countries too, an astonishing program, where will be able licensing this on a royalty-free basis to more than 5 generic manufacturers in supplying lenacapavir in the interim period before they're ramped up at no cost to us to get it more than 2 million people in the first few years of launch. Because if we don't stop this virus every year, we don't stop it.

Speak to the reimbursement aspect and with regard to what you discussed in what maybe needs to be achieved here on the pricing side and the access side, but then also how you see this trajectory playing out over maybe the first 12 months or so?

Yes. I mean, HIV is a unique disease in this country. If you stop taking medicine, you die from the disease and of course, you spread it further. So it's always been treated a bit differently than other categories of medicines in this country. And what does that mean for PrEP today? For PrEP because the importance of preventing disease, Descovy, our current branded PrEP medicine, is covered on more than 90% of insurance payers, but 0 co-pay. For those that are eligible for co-pay assistance, we do support it, but it's really not needed today with PrEP medicines and with Descovy. We believe that will continue because of the nature of the guidelines on to LEN for PrEP, so we expect high coverage over time. Having said that, any time you launch a product, it takes a little while to get that coverage. So what we said is, in the first 6 months, we expect to have around 70% -- 70%, 75% of coverage by payers. And then if you go out to 1 year, we expect that number to go up to the 90% or similar to what we have for Descovy today. So we expect high coverage. There's a tremendous demand for this. So we expect the demand to be there as well. And then more broadly, there are several support systems for folks with HIV in this country. So in addition to government support or commercial payer support for HIV, there's also special programs like the Ryan White ADAP program as well. And what we've seen is that people with HIV, regardless of PrEP or treatment, they have options to support them. And of course, we always provide the backstop option for those folks that are either underinsured or need -- or eligible for co-pay assistance. So it's a very well-covered class and we expect this to continue and even more importantly, now with advancements like LEN for PrEP.

Before we head out to the broader HIV pipeline, perhaps you could touch on the news announcement this morning about a clinical...

Oh, yes. Yes. So part of our treatment long-acting program has been -- and I should say, our general long-acting HIV program has been to have as many options as we can for patients either with HIV or for prevention. On the prevention side, it includes LEN for PrEP. It also includes the data that we presented at CROI where we believe we may be able to get to a once-a-year injection for HIV prevention. And that study will start later this year and could be available to people as early as 2028. So that's the prevention side. On the treatment side, we have more than 7 programs between now and BIKTARVY patent loss of 2033 that we plan to launch in different times in different phases. The clinical hold this morning related to a specific program of those 9 that is a novel integrase inhibitor and a novel capsid inhibitor in a once-weekly format that was in a Phase II program. And what we saw in this early Phase II program is for a subset patients, we saw some impact on CD4 cell counts, reduction in CD4 cell counts and absolute lymphocyte counts. So we -- in agreement with the FDA, we put this on hold and we'll be interrogating what that means for this particular treatment regimen. I would remind you that we actually have a more advanced once-weekly treatment program in Phase III, and that's then islatravir. So this was an alternative once weekly, that was intending to launch around 2030, 2031, something along those lines. So we'll take the coming quarters to look at what's happening with this particular trial. This has nothing to do, by the way, with lenacapavir. It's a completely separate novel agent. And because of the nature of Gilead's kind of continual innovation, we actually have alternative integrate once-weekly inhibitors and alternative capsid inhibitors in a Phase I or preclinical right now. So if needed, if we need to shift out either that integrate or the capsid inhibitor in this combination approach for once weekly Gilead wholly owned, we have the ability to do that over the coming quarters as well. So we believe this is probably somewhere between 3-quarter and 6-quarter delay on our Gilead once weekly, that has no impact upon the other 9 options that we have for patients. So when you push the limits of science, I think we're going to see some of these unexpected scientific readings. We have to take them seriously. But it's part of a very comprehensive program for HIV long-acting.

Could you also just touch on the late-stage pipeline and where it stands and particularly your thoughts around diversification away from BIKTARVY.

Yes, absolutely. So the 3 most advanced HIV long-acting programs are alternative to BIKTARVY, I should say, are the BIK-LEN program that's in a Phase III right now that could be launched as early as 2027. It's an alternative daily regimen for patients. The second one is the weekly oral, which is the one I just referred to, the LEN-islatravir. Again, in a Phase III program potentially launching as early as 2027. And then a novel once every 6-month approach, which is lenacapavir plus so-called bNAbs. And that's a once-every-6-month injection infusion program that could launch in the 2029 type time frame, '29, '30, I think, time frame. So those are the most advanced programs. And then behind that, on HIV, we've got once monthly programs oral, once every subcutaneous injection and once every 6 months subcutaneous objections. Those are all either in late research Phase I programs that we expect could launch before 2033. So it's a very comprehensive program. And the reason we're doing this is because we've heard from patients from a person-centered innovation standpoint, that different people want different options. Some people will want to take that daily pill. Some people want it every 6 months and forgetting about it. So I think what we want because today, still in this country, about 40% of people that have HIV are not virologically suppressed. That despite the fact that BIKTARVY is the gold standard of care, if you take it, you're virologically suppressed and you die from other things other than HIV. So there's obviously 40% of people at least that need different types of options. And of course, those people on daily oral options would like options as well. So that's the whole nature of this program. And why we are so convicted when we say that our HIV business is not only secure and growing into the late -- until the late 2030s with this robust portfolio?

So transitioning over to oncology. As you noted, there was data at ASCO, and we saw the full Phase III data for Trodelvy in first-line PD-L1-positive metastatic triple-negative breast cancer among other updates. Maybe help us understand the -- how you think about this data set with regard to positioning these drugs in the marketplace and where you can have dominant positions.

Look, this is really important news for women with breast cancer. This -- the data that was -- that was presented at ASCO covered the ASCENT-04 trial, which is 1 of 2 trials in the first-line triple-negative breast cancer setting. The other trial is called ASCENT-03, and the way they differentiate is ASCENT-04s for PD-L1 positive patients in combination with KEYTRUDA in this case or a PD-1 inhibitor. And then ASCENT-03, which also read out positive. We've announced that in the top line press release is for the PD-L1 negative patients, right? And they split roughly -- things split roughly 50-50 in terms of PD-L1 presence in first-line triple-negative breast cancer. And we'll be presenting that ASCENT-03 data a little bit later this year at conference. But we've already said it's clinically meaningful highly statistically significant, which is what we said about the ASCENT-04 trial. The reason this is so important is because triple-negative breast cancer, which represents 10% to 12% of breast cancer cases in this country, is such an aggressive form of breast cancer that more than half of the patients with this disease actually never go on to a second line or beyond therapy because of the aggressive nature of the disease. Another way to think about that is if you move a therapy from second line and beyond up in the first line, you more than double the number of women that you can impact accordingly. So this is important for women with triple-negative breast cancer. It's also beyond the KEYTRUDA approval. It's the first time we see a potentially new regimen in the first-line triple-negative breast cancer in more than 20 years. All we've had really is common chemo in that setting for more than 20 years. So it's critically important. And both the presenter and the discussion at ASCO, we're using words like this is clearly the next standard of care in first-line triple-negative breast cancer. So big patient impact, most importantly. Secondly, I think it bodes well as the only company with a Trop-2 ADC in breast cancer that has 2 clinical trial readouts in overall survival. It's now the fourth positive -- study for breast cancer in Trodelvy. It bodes well for the other work we're doing in breast cancer with Trodelvy, including earlier line HR-positive HER2-negative that's the ASCENT-07 trial and the adjuvant trial in triple-negative breast cancer, that's the ASCENT-05 trial. Both of those are still ongoing trials and we'll read out in the near-term future. So I think it really rounds out the important nature of Trodelvy as, I think, a unique TROP2 ADC, certainly in the breast cancer setting, both in terms of efficacy and its tolerability profile. In the meantime, we have a very comprehensive program in Trodelvy in other disease states like first-line non-small cell lung cancer, small cell lung cancer, where we have a priority review designation and endometrial cancer amongst others. So Trodelvy, I think, is proving to be now in some of these trials, a really important addition to -- for oncologists to use in cancer, and we'll see how broad that goes with the other disease states.

What is the longer-term outlook for Trodelvy at this standpoint? And if you could venture guess on the opportunity size here on a sales basis, that would be helpful, I think, to put this drug in context.

As you'd expect, we're not giving necessarily sales guidance today. But today, our oncology business at Gilead is more than $3 billion on an annualized basis and growing double digits. $2 billion of that is cell therapy, a little over $1 billion on an annualized basis as Trodelvy. What this does is more than double the potential population going into the first-line setting of triple-negative breast cancer alone. So I think you can imagine as we read out the different trials, studies and lines. Trodelvy becomes, in our opinion, a sizable portion of our oncology franchise moving forward. That's complemented by our cell therapy business, which in addition to having the world-leading cell therapy business today in lymphoma and leukemia, and at ASCO, we presented kind of next-generation concepts for those diseases. We also presented data in solid tumors at ASCO and glioblastoma. And at EHA, which I think is this week, we have -- will provide some extension data on our multiple myeloma anito-cel product, which could launch -- we expect to launch next year in late-line multiple myeloma, which is a market that is roughly 2x the size of lymphoma and leukemia market. So you start to see back to your -- you start to see this growing potential on the oncology side with both Trodelvy and anito-cel and then we have other very interesting options, if you like, in compounds in earlier stage development, whether that's still having an Fc-Silent TIGIT in late-stage development or a really interesting CCR8 program in Phase II amongst others.

And what is the longer-term strategy here for the cell therapy business, recognizing you have anito-cel, but also recognizing that there are -- there's significant development going on in the space with next-generation approaches or broadening beyond cancer.

Yes. So we're participating in each one of those. So as I said, going from lymphomas to multiple myeloma going potentially into some types of solid tumors, but then also expanding out to autoimmune diseases. So our strategy is to potentially use kind of next-generation cell therapies. We call them bicistronics because they're targeting more than just CD19. We have CD19/CD20 bicistronics that we think can be effective in enhancing the number of people that can benefit from lymphoma leukemia. But also those contracts we will be taking into autoimmune diseases because we're the same targets for autoimmune diseases, that we think we can have an impact outside of that. It's a completely different contract, by the way, for the solid tumors because you're dealing with different targets in those areas. But being the world leading company in cell therapy and having scientific expertise on both Gilead and Kite, to be able to put to work towards novel targets is really, really important to us. And it goes beyond just the scientific because of the nature of autologous cell therapy, having the world-leading manufacturing capability with turnaround time for these diseases is really important. So we have our turnaround time now down to 5 or 7 days with lymphoma and leukemia. That's the same turnaround time we'll take into multiple myeloma where we know patients are waiting for those diseases and we can apply those to other disease states as well. But we're constantly trying to iterate to make that time even shorter. And we always have our eye on what are the next disruptive therapies that could come into the space and how do we make sure we're participating in those as well.

And is there anything else you want to highlight from the pipeline overall?

Forgot what we've talked about?

We talked about Trodelvy.

I think we've covered, ultimately the other thing I would say is that I mentioned a little bit about the early oncology pipeline. I would say that Dietmar Berger, our new Chief Medical Officer, came in about 6 months ago. He's an oncologist, but he has depth of experience in immunology inflammation development, which is important that both Sanofi and their work with Regeneron in the past. I think he shares our enthusiasm around some of the novel targets that -- some have come out of our research labs, some we've acquired. So things like alpha-4-beta-7, IRAK-4, the STAT6 that we brought into our group from LEO Pharma at the end of last year. He's really interested as are we in saying, how can we potentially be driving the next wave of breakthrough efficacy in autoimmune diseases. As you know, we've kind of been -- while we've improved in terms of methodologies of delivering autoimmune agents, making them less frequent, making them more tolerable, we haven't really broke through those efficacy barrows, and we think we're going to get at that through novel targets and novel targets in combination. So I would say when you think about Gilead, think about the here and now, which is clearly virology, HIV, oncology growing business, but when you think about Gilead's portfolio, maybe 2030 to 2040, start to think about novel inflammation targets, complementing those other 2 therapeutic areas. And yes, I think that's what I want to cover on the portfolio side.

And how does the business development lever come in here as a tool to kind of enact that path to getting that portfolio you're looking to?

Yes. I mean, look, the business development tool has been instrumental in getting us to where we are today, I would say that. Having said that, the way we use business development over the past 5 or 6 years will be different than how we use it moving forward. One thing that will be the same is that every year, we spend around $1 billion, plus or minus, on late research early development assets. And we've done that ever since I've come in, and we'll do it for many years to come because I think that's kind of a healthy -- always comparing your science to outside science and bringing in new concepts. So that's, I think, important for the routine business. What will change is, we had to put a lot of capital to work in the period of time where we doubled our overall portfolio. Now we have a really -- a very healthy competitive internal portfolio that both are internal things coming from our own research houses have to compete with but also outside innovation as well. So I think you should think that -- I mean, we have the portfolio we need today to drive our growth ambitions on both the top and bottom line in the years to come and we want to continue to make that stronger and stronger. So I think mid-stage, acquisitions every couple of years, something like a CymaBay acquisition that we think kind of mid-single-digit billions to complement our portfolio. The bar is high. They should be later stage. It will allow us to kind of drive growth in the near term. But I think that will be a healthy rhythm we can get into over time. And then we're going to continue to be a strong cash-generating business. So we'll look for ways beyond just investing in our own R&D portfolio or that type of BD to continue to return money to shareholders, including very intent upon our dividend policy of a healthy growing dividend. And we're doing more share buybacks than we've done in the past, given our confidence in the business moving forward. We can always look for different ways to return that cash to shareholders over time as well.

And one last question here. So President Trump's recent MFN executive order has clearly been an overhang on the sector. What are your latest thoughts here on the prospect for such a policy and the mechanism for an approach? And just for you, how you position Gilead through this period, not just maybe from an MFN, but we can go broadly to...

More broadly to principles. Yes, yes. I mean, I would say before I answer your question, that in any scenario like this, no matter what country in the world is considering policy changes, I always think the best defense is a good offense. So everything I just said about our position on the balance sheet, cash flow, innovative products that are all being launched right about now. That's -- you always want that healthy business going into uncertainty, right? So control the things you can control. So we'll continue to focus on that. Now having said that, I think there's still a lot of unknown in that question. I'll just comment on a couple of things. I mean the first thing is that we are engaging with the administration. We always believe in engaging, having a seat at the table. MFN, as a concept and application, could be looked at in many different ways. At the end of the day, it is about this kind of disparity between what the U.S. may pay for medicines and what ex U.S. pays for medicines. Those are often really difficult apples-to-oranges comparisons because we are the only country in the world where $0.50 of every dollar goes to people that don't make the medicines. I mean other countries don't have that phenomenon within their distribution system. So what we say to the administration is if you want to reduce that difference, the first thing we should do is focus on what we're doing here in the United States to reduce that difference. Don't import policies from other countries where many fewer medicines are available to patients in those countries. On average, around 40% of medicines -- novel medicines are available outside the United States versus around 80% here. Americans largely get their medicines quickly after launch outside the U.S. 2 to 3 years. So let's not bring America down to the rest of the world. Sure. Let's try to encourage other countries to pay more and let's address some of the fundamental issues associated with our system that need to be addressed. And so that's the conversation. Where exactly will go on MFN, I don't know, but we're at the table and we're trying to dialogue to be productive on that side. And then the other aspect is on the tariffs. I just say one thing on the tariffs, where I think Gilead has maybe a bit of a differentiated approach. And that is we're an American company. We've been in America for around 37 years. The vast majority of our IP is in this country. And you could tell that by the tax rate that we -- which is different than most of our peers. We pay a higher tax rate than most of our peers. And during the first Trump administration, we actually repatriated even more of our IP. So what does that mean? At the end of the day, it doesn't mean we won't be impacted by tariffs. So what we said about tariffs is the non-sector tariffs we can largely absorb or we will absorb within our guidance for this year, and that's things like steel and chemical supplies. Sector-specific tariffs that don't exist today, but if they do exist, we're less vulnerable than others because we import products in our global supply chain at a higher price than folks that have their IP offshore. So I think that's just something to keep in mind. We would much rather spend money on developing the next cure in our portfolio than spending them on tariffs, and we'll work with the administration try to get that point across, but our vulnerability, I think, is lower than the overall sector there, but I would just leave you with on that point. And let's keep dialoguing. There's ways to solve these problems in the U.S. without policies that harm an industry that is arguably the envy of the world in terms of what U.S. biopharma does.

Well, with that, thank you so much, I appreciate it.

Thank you, Salveen. I appreciate it.