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

Thanks so much for attending the Jefferies Healthcare -- London Healthcare Conference. It's already day 3. I can't believe we're more than halfway through. So my name is Amy Li. I'm a biotech analyst at Jefferies. And today, I have the pleasure of welcoming Andy Dickinson, the Chief Financial Officer at Gilead. I'll turn it over to him for some opening remarks.

Great. Thanks, Amy. Thanks for having us. It's a great conference. We appreciate it. Good to see all of you, and thanks for taking the time to join our session. It's been a great year for Gilead. As many of you know, you've really seen over the last 3 years, significant growth in our base business. And I think it's just the beginning of a long cycle for the company. So -- we -- over the last -- I joined the company 9 years ago, since that time, we've diversified the business, both within virology and within HIV as well as into oncology, inflammation and many of you know, cell therapy. And you're starting to see the benefits of all of that work, diversification and the capital that we've deployed. So at a high level, our base revenues, which is all of our revenues, excluding our COVID antiviral, grew 7% in '23 year-over-year, 8% last year. This year, they're growing 5% despite a $1.1 billion headwind from the Medicare Part D reform that implies kind of 9% to 10% base business growth. So you see a really strong period of accelerating growth in the company driven by a number of new product launches and execution. And then the final point before we open it to questions, is the overlay is -- starting 6 or 7 years ago, we really started to make significant capital investments in the company, especially in our R&D pipeline. We've more than doubled our R&D spend from where it was when I joined the company. And again, you're starting to see that play out in the portfolio. So we have a number of launches underway and a number of launches coming, both in HIV and outside of HIV that are going to be driving the additional top line growth. And with that expense discipline and on top of it now, you have 3 years of very strong expense discipline. So you'll see an accelerating EPS growth as well, which is exciting for our shareholders. So let me just pause there, Amy and see where you want to go.

Excellent. Well, before we go into said launches, I wanted to take a step back and touch on your capital allocation strategy. So it sounds like you're looking at deals where you can build -- really build out a commercial infrastructure around an asset rather than just like a bolt-on exit. So can you give us a sense of what areas that you're focused on today from an M&A and BD perspective?

Sure. Yes. I think actually, we've done a lot of that in terms of the -- as I mentioned, the diversification of the business. So when I joined, we went into -- we had a thinner pipeline at the time. We needed to expand our pipeline relative to our peers. So we went into a more significant period of acquisitions and partnerships to build out our pipeline from where it was. We will continue -- and now we're at a very healthy pace of corporate development activity. What that means is about $1 billion to a little more than $1 billion of ordinary course business development every year, partnerships, small acquisitions. You see a number of those deals this year. And those are across all of our therapeutic areas. So virology, oncology and inflammation, including cell therapy. Two good examples this year. We acquired a STAT6 degrader -- or partnered with a company called LEO Pharma, a European company. They had a really promising STAT6 degrader for inflammation -- number of inflammation conditions that we partnered with them on. And then more recently, we acquired an in vivo cell therapy company called Interius for a couple of hundred million dollars. So those are just a couple of examples. On top of that, we will, of course, layer in more regular M&A, larger M&A. And what we're really focused on today, which is different than where we were when I joined the company, is late-stage derisked assets that fit synergistically with the commercial infrastructure that we've already built. So that really means, again, virology assets, assets in liver disease. A good example of that is the CymaBay acquisition we did last year where we acquired a drug in primary biliary cholangitis that's been launched, called Livdelzi. It's off to a fantastic start with its launch. And then in oncology and cell therapy. So we're looking at all of those areas. What we've said is every 2 to 3 years, you should expect us to fold in additional late-stage derisked assets that are synergistic. And maybe the last thing I'll say on M&A is because we believe we're entering this long cycle of revenue growth, driven by our existing portfolio, launches that are underway, more launches coming. I should also highlight, we don't have any major patent cliff until 2036 at the earliest. So we're in a very different position than many of our peers. Our appetite for large M&A is not the same as many of our peers today. So you have seen an increase in the pace of M&A in our sector. We are looking at many of those deals. There's a lot of interesting assets out there. And we're going to continue to be very disciplined in how we deploy capital in our M&A strategy. So deals like the CymaBay deal are more likely some of these larger deals that are really competitive, most of those won't be for us.

Okay. That makes a lot of sense, and that was super helpful. So how are you seeing China help you build out some of these business units, both in terms of innovation and also as a place where you could potentially run more accelerated clinical trials?

Yes. It's a great question. I think for us and other companies in the sector, we've highlighted that what we're seeing today in China is night and day different from what we would see 5 years ago when we visit. So we send our senior research and development and corporate development teams over at least 2 or 3 times a year now on extended trips. There are hundreds of companies there today that we see with very high-quality assets. In many ways, our research team, if they're looking for any specific construct or target, you can find a half dozen, dozen companies that are working in that area. So to put it in context, coming out of -- at the beginning of 2025, when we set our business development priorities based on the companies that we met at various health care conferences over the course of the year, roughly half or more than half of what we prioritized for the year were partnerships or acquisitions that would come out of China. 5 years ago, that would have been 5% of what we are doing. So -- and I don't think we're alone in seeing that. The quality of the assets, the depths of the assets there are really impressive. So -- and I don't expect -- I think for most of the industry, we will continue to look at that as another source of innovation for us in addition to what we see in the United States and Europe, which is also strong.

Okay. Excellent. Moving on to the Yeztugo launch. You put out full quarter revenues last quarter. You've also given some guidance on where you expect full year numbers to be. Can you just give us an update on, one, how the launch is going, and kind of the rationale behind some of these estimates that you've put out?

Yes, of course. Let me maybe just step back for those of you that don't follow us that closely. Yeztugo is an every 6-month subcutaneous injection of lenacapavir, which is a very potent, incredibly potent HIV capsid inhibitor, first-in-class HIV capsid inhibitor that showed remarkable data in HIV prevention. It's already approved for very complex HIV treatment patients in a drug that's called Sunlenca reserved for some of the most difficult to treat patients. But this is opening an entirely new chapter in HIV prevention. So historically, Gilead had developed 2 oral drugs with 2 drugs each for -- daily pills for HIV prevention. You've seen the HIV prevention market grow dramatically over the last 10 years and more in particular, the last 2 years, it's really accelerated. This should open a new chapter. So we had the groundbreaking PURPOSE 1 and PURPOSE 2 studies last year, just to put them in context. In one study, in women in sub-Saharan Africa, we showed 100% prevention of HIV transmission in -- against the background rate that was either high single digits or low double digits, typically in terms of what you would see in the population that was studied. The PURPOSE 2 study was studied in men in the United States, parts of Southeast Asia and Europe, and we had 99.9% prevention of HIV transmission. So really incredible data. Many of you have likely read about it. It received a number of awards in scientific journals. The launch is underway. It's off to a great start, to your question. I think we launched at the end of the second quarter. We had a couple of weeks in the second quarter. We had a full third quarter. When you look at the 2 together, about $54 million in sales. We guided to a little less than $100 million in sales in the fourth quarter, which is unusual for us to provide product-specific guidance. And the reason we did that is there's so much interest in this launch. We wanted to really give the market a sense of kind of what we're expecting. So when you step back, the market is transitioning. The HIV prevention market is transitioning from these daily orals. About half of the market is generic Truvada today. Roughly 45% of the market in the United States is Descovy, which is another Gilead drug. And then there's this big opportunity for the market to convert to long-acting over time. In measuring the launch, the most important thing is to look at the access early on. We're already at over 75% of covered lives being -- having largely unrestricted access to this medicine, and that's across both private payers as well as public payers. So covered lives is not only the commercial channels, it's also the government channels. So that's great. At this point, we're well ahead of where -- we expected to be there by the end of the year, we were there by the end of the third quarter, which is really exciting. The other thing that you see is -- in the launch that's encouraging is the awareness and growth of the PrEP business overall. So in addition to looking at Yeztugo, I think it's important to look at our PrEP business holistically. And when you do that, what you see in the third quarter, Descovy grew 32% year-over-year for HIV prevention. When you add Yeztugo to that, our HIV prevention business grew 42% year-over-year, and it's just the beginning of the launch. So you're seeing the impact of this, like significantly increased awareness of the availability of HIV prevention. Most of that increase is demand-led volume growth. There were some pricing tailwinds that were that were also a piece of it. But when you look at both our HIV treatment business and our HIV prevention business, the growth that you're seeing is really predominantly demand-led volume growth.

Awesome. And then in terms of the patients that you're seeing get Yeztugo, what are they coming from? Are they predominantly switch? Or are you getting any naive patients?

Yes, it's a great question. We are getting -- so there's 4 buckets that we look at in terms of the source of people that are coming over to Yeztugo for HIV prevention. So the patients that are on the 3 existing therapies, there's one other injectable, intramuscular, long-acting therapy that's marketed by a competitor. Most of the patients are coming from that, but not a majority. The second biggest bucket is Descovy, which is, again, our branded oral 2-drug combination daily pill. And then finally, you have naive patients and patients that are on the generic Truvada, which is a daily pill as well. Those last 2 buckets, the percentage of patients at launch through the third quarter that are coming from those buckets is greater than we would have expected, which is great. So you're seeing people that have not been on HIV prevention before starting on Yeztugo, and you're seeing people switch off a generic regimen, which just reflects the value that we're bringing with Yeztugo and the differentiation between the Yeztugo and the existing oral therapies. I probably should have mentioned earlier, our Phase III studies were done head-to-head against the oral therapies, and we showed significant improvement in efficacy over those, as you'd expect, as you're guaranteeing adherence of having the drug in the system for 6 months.

Awesome. And then just going from a reimbursement perspective, like you said, it seems like you beat your own optimistic estimates on kind of reimbursement for Yeztugo. Given that -- we're seeing the most important factor for efficacy, seems like it's compliance, right? Are you seeing incentives from payers to cover these long-acting PrEP medications in order for them to kind of realize the downstream cost savings? And then number two, you mentioned you got your J-code, what are you seeing in terms of kind of the dynamics around -- from a physician side, buy-and-bill, white bagging?

Right. So let me start with the first part of your question. I think that the access that we're seeing speaks to the value that the medicines are bringing. So I'm not sure there's really any incentives from the insurance companies or the payers other than they recognize largely. And the reason that you see -- in particular, the reason that you see this broad unrestricted access is the realization that preventing HIV transmission will save money for the health care industry over time. The pharmacoeconomic argument here is very strong, right? And that's part of why you see such a strong acceleration of coverage even relative to our base case. The second part of your question, remind me was what?

White bagging.

Right. Yes, the difference -- so historically, the first injectable that was launched in this market was only made available to clinics through buy and bill, which is a totally new business model for clinics that treat HIV patients. And that's part of why I think you've seen a slower uptake, at least from the initial competitor launch. The other part is the presentation, which is an intramuscular injection every 2 months versus a subcutaneous injection every 6 months. We've always expected that most of the sales will be from the pharmacy. So when we launched, we made the drug available both as a pharmacy benefit, medical benefit, meaning that a physician can order it. If the physician's offices are treating enough people at risk of getting HIV, they can do a buy-and-bill model and have the drug billed through their physician's office. Alternatively, it could be a -- it can be covered on the pharmacy benefit where the drug is delivered in a white bag from the pharmacy to the physician's office, and then the patient comes back in a week later for the injection or 2 weeks later. So we're trying to make it very easy for -- or people that are at risk of getting HIV to take the HIV -- to get access to the HIV prevention medicine, regardless of whether their clinic has enough volume to justify a buy-and-bill model or less volume where they want to use the pharmacy benefit and have it paid through that versus taking the payment responsibility at the physician's office.

Excellent. That's super helpful. And also, we're seeing the CDC recently almost doubled their estimates for the addressable PrEP market, right? It's from 1.2 million to 2.2 million. If you look at the market, it could actually even be much bigger than that. So how are you thinking about kind of the speed of your launch right now versus kind of the peak opportunity? Do you see any, I guess, milestones in which you could really accelerate the launch? You talked about -- either from kind of an injection capacity infrastructure build-out or from an access perspective. You also mentioned you have unrestricted broad coverage?

Largely unrestricted access. Yes, I think that the speed of the launch is going to -- first of all, there is a change here. When you're moving from oral switch to an injectable, it's going to take time for clinics and physicians to get used to it. So again, we're incredibly pleased with all of the early trends that we're seeing in the launch. And we've always expected this launch to be steady, durable, consistent growth. I always use the analogy of when I joined the company, we were launching Biktarvy, which is our flagship HIV once-daily treatment. And you see, over the last 9 years, consistent, durable, meaningful growth quarter after quarter. I think that's kind of the way to think about Yeztugo. We have a very long patent life on Yeztugo as well, which is different than the switch that you saw from an oral to an oral where you saw half of the market switch from Truvada to Descovy in roughly 15 months. And it doesn't -- in no way, shape or form do we -- or am I by suggesting that we don't believe this is a really large opportunity that's going to grow over time. It's just steady, durable, consistent growth, I think, is the right way to think about it.

Perfect. And this is the obligatory IQVIA question. How well does IQVIA track your scripts?

It doesn't capture everything. So I mean there's not a great -- I mean it's directionally may be helpful, but it's -- there's stuff missing from the IQVIA numbers relative to what we see internally. You've seen that in the quarterly results. I think the key takeaway is it's helpful and it's going to take a number of quarters before you're able to kind of extrapolate from the IQVIA data. The other thing that's a challenge here is everyone -- many investors or analysts have access to different IQVIA feeds. So they're looking at different data. And some are only seeing, for instance, the retail market not the nonretail market, which is a big piece of it as well. So I'd say it's helpful and it's incomplete at this point. And it's going to take a while for people to be able to kind of extrapolate with any degree of certainty from IQVIA to where the launch is really going.

Awesome. And then one last question on Yeztugo. You've said you expect the market to be 50% oral, 50% injectables by 2030, right? There are -- you have your own once yearly Yeztugo in development. There's also a competitor that's developing once-monthly oral. How are you thinking about kind of these long-acting oral versus long-acting injectables? And I mean -- and I think the most important question is what if they come in with a lower price? How are you -- from a patient perspective, can you kind of talk about the need still for a long-acting injectable?

Yes, of course. And I don't think I answered your question earlier in terms of the size of the market opportunity. The CDC did increase their estimates for the people that are at risk of getting HIV that should be on an HIV prevention medicine. They almost doubled them recently from 1.2 million to 2.2 million people in the United States. Arguably, to your U.S. -- you alluded to this, that still understates the need. And maybe one of the best proxies in the United States is there's anywhere from 12 million to 14 million of people a year in the United States that are diagnosed with a sexually transmitted disease. That may be a better way of thinking of the market opportunity. So today, the CDC is saying there's at least 2.2 million people that should be on HIV prevention. We believe that 500,000 to 600,000 people are on HIV prevention today. A couple of years ago, that was 400,000 or less than 400,000, which gives you a sense of the rapid growth of market as a result of awareness and the treatment option. So I think that there -- the market growth historically has been significant. I talked about the growth of our business in the third quarter. And as additional competitors come to the market, I think it's just going to continue to grow the market. I mean part of the challenge here is awareness. You see all 3 of the branded HIV prevention regimens growing in the third quarter, not necessarily at the expense of each other. So it is a market that's early in its development. As is the case with a lot of pharmaceutical markets, oftentimes, when you have additional competitors come in, you see the market grow, and that's what's likely to happen here. We do have a yearly -- we have a number of programs that will be moving forward in HIV prevention in addition to Yeztugo, the every 6-month injection that we've been talking about. Most importantly, in Phase III, we have an intramuscular yearly injection of the exact same lenacapavir that is already in Phase III development. It's really just a PK bridging study because it's the same molecule. So we expect to have data in 2027. We expect it to be on the market in 2028, and we think that will be another step function change in HIV prevention. The challenge with the orals historically, certainly with the daily orals, but I would expect you'll see it with the monthly orals as well, is that people that don't have a disease or haven't been diagnosed with HIV tend not to be adherent to the -- taking the pills. So the nice thing from both a payer perspective and from a patient perspective is when you have the long-acting injectables, whether it's every 6 months or every year, you guarantee adherence and you know you're getting the benefit of what you're paying for if you're a payer.

Excellent. Maybe just really quickly on your HIV portfolio. You have a couple of pipeline readouts, ARTISTRY 1 readout, and then you have a once-weekly HIV regimen. Can you just talk to us about how you see those fitting into your current portfolio?

Yes, of course. We have -- so there's a number of late-stage trials underway that will expand our HIV treatment portfolio. Specifically, there are 3 regimens that are in late-stage clinical development. And there are a number of regimens that are in Phase I and Phase II clinical development, everything from every 6-month combination injectables for treatment, every 3-month injections, monthly orals, again for both PrEP and for treatment and then weekly orals. So the goal is to be able to deliver, between now and the early 2030s, every alternative that patients might want to fit their specific needs. But specifically -- and again, on the HIV prevention side, I already mentioned the yearly, that's in Phase III. On the treatment side, we have -- the next daily combination of a 2-drug combination that combines bictegravir, which is our integrase inhibitor in Biktarvy. We believe it's the best integrase inhibitor in the world with lenacapavir, which is the drug that we've been talking about, the first-in-class HIV capsid inhibitor as a daily oral pill. And there are 2 studies. The ARTISTRY-1 study just read out last week, and that is in the 6% to 8% of HIV patients in the United States that are on complex regimens. So what that means is many of those patients have to take multiple pills, in most cases, because they've developed resistance to one of the mechanisms of the available therapies, typically a protease inhibitor or a nucleoside analog. So it's actually a fairly meaningful part of the market and people that -- it's not easy for them to take their medicine. They'll have different pills, different times of the day, sometimes with food, sometimes without food. It's more akin to what you saw in HIV treatment 20 years ago. So that's one opportunity. The bigger opportunity is in the HIV switch market. And so the next study that will read out later this quarter for bictegravir, lenacapavir daily doublet is in that switch market. And so to put it in context, about 67% of patients in the United States start on Biktarvy, which is our flagship treatment drug. There are some people for various reasons that will switch off that regimen or the other regimens to another regimen. And this gives them a great alternative to switch to in terms of the daily doublet with both bictegravir and the first-in-class capsid inhibitor. It's also a really unique combination, and they both have very high barriers to resistance that are not overlapping. So we think it will be a really -- another important treatment option for patients with HIV. And then we have 2 others that are in late-stage clinical development. One is an infusion of antibodies in lenacapavir for 6 months of treatment. The key there, at a high level, is roughly 40% of patients in the United States are not controlled on their existing therapies. That's because 10%, believe it or not, aren't taking any drugs for their HIV. Roughly 30%, just for whatever reason in their life, can't take them regularly, don't pick up their medicine. And so this is a regimen that could work for those patients in terms of providing them an option where once -- or half a year, they come in and get an infusion of these antibodies in lenacapavir. It's a smaller opportunity, but one that could fit for a certain segment of the population.

Awesome. And I do want to save time for cell therapy. Anito-cel has been kind of an area of interest and excitement for a lot of people, right? So how do you think about the cadence of launch, both in terms of how competitive the data is, how physicians are thinking about it? And then kind of from an infrastructure perspective and the ability to kind of expand payer and get broader adoption?

Sure. So just to back up again, anito-cel is a BCMA cell therapy that we are developing together with our partners at Arcellx. We will have more data here in the coming weeks that's presented at ASH. We expect to file the approval application in the U.S. either at the end of this year or early next year and launch by the end of next year in fourth line plus multiple myeloma. The Phase III studies in second line plus multiple myeloma are already underway. So the key is that the data to date suggests that we have the potential for a best-in-class profile. Certainly, on the safety side, and in particular, with long-term neurotox that you see in some of the competitors, we're not seeing any of that with anito-cel, and you're seeing very, very strong efficacy. We believe this is the result of having a unique binder and construct that I won't go into. But the data has been very strong. And again, there will be additional data update at ASH. In terms of -- we've built the infrastructure to be the world's leader in cell therapy through the Kite acquisition over the last 8 years. We are going to leverage our manufacturing for the launch, so -- just to put it in context, and we'll use the Maryland facility that we have for manufacturing first. We can also use our facility in the Netherlands and if needed, eventually, the facility in Los Angeles. I think if I remember correctly, there are roughly 7,000 patients treated where we did the manufacturing for last year. We've highlighted that in 2026, if needed, we could have capacity for 24,000, if I remember correctly, cell therapy. So just to give you a sense of the scalability and availability of our manufacturing, we don't think -- it's a real competitive advantage for us. We tend to have much more reliable and much faster manufacturing of our cell therapies than competitors across both multiple myeloma and lymphoma. So it's an exciting time for us and Arcellx and looking forward to the launch.

Excellent. Well, with that, I think we're out of time. Thank you so much, Andy. Really appreciate you for being here. Thank you, everyone.

Thank you. Thanks for having me.