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

Well, it's 1 of the 3 scientific areas that are our core focus areas. So again, step back, we're the world's largest virology company. We've built a robust oncology business. And the third leg of the stool, so to speak, is the I&I business that we're growing. The other big picture comment that I'd make is I've been back at Gilead for 10 years, we have completely transformed the portfolio, the quality, size and depth of the portfolio, the research portfolio. we've made the investments that are required to grow internal research and development, and you're really starting to see the fruits of that. And honestly, the alpha 4 beta 7 outside of lenacapavir, which I think people expect us to show that level of innovation in virology -- but outside of virology, lenacapavir -- I'm sorry, the alpha 4 beta 7 maybe 1 of the -- it's 1 of many examples, but it's the most prominent one. The data -- the Phase II data in ulcerative colitis will be shared here in the coming months at a scientific conference, so I can talk more specifically about it. We have said that we're excited about the data. We're moving the program forward into Phase II as a monotherapy and we're exploring combination opportunities for it, which -- and we know this market really well. We followed the leading injectable alpha 4 beta 7 for years. We know the other companies that are developing the oral versions of alpha 4 beta 7 LICA program. So we followed it closely. We know what good looks like. We're excited to kind of share our data and talk about it. But maybe more importantly, I think this is a proxy for where the company is going in terms of the breadth, depth and quality of our portfolio and additional growth opportunities that are coming outside of just the HIV business and the HIV prevention business.

Okay. So your firm we're going get data this year. We're going to set it at a medical meeting. In terms of potentially executing on combinations, is that something Gilead can do internally alone? You need to look at potential partnering or external at .

Yes. I mean we do have other assets in IBD. So for instance, we have a TPL2 inhibitor that also was internally developed. We have a gut-restricted FXR agonist that we have 2 of them, but we have -- 1 was acquired -- the 1 that we're taking forward is internally developed as well. all of which could be combination partners. But then when you look at the logical combinations in this space, I'll use 1 example, like oral IL-23s, right, which could be a logical combination when you see some of the drugs that are approved those today would come from outside partnerships. So we are looking at multiple potential partnerships. I think we've been pretty open that as we build this business, and it's no different than, frankly, what we've done in HIV. Over time, Gilead has partnered with a number of companies, most prominently, BMS on a triple back in the day, J&J on SYMTUZA, -- more recently, the Merck partnership for the weekly oral that we just talked about, doing the same thing in the IBD space or an I&I more broadly makes a lot of sense. Maybe the other thing, Carter, that you and I have talked about is we don't yet have a commercial organization in I&I. We do have a large organization in oncology, virology and then in liver disease, part of which is kind of has an I&I focus through our CymaBay acquisition and PBC franchise. But as we build that out, there's always the opportunity to leverage what other people have built as well. So more to come. Those are early stage discussions. I can't tell you where it's going to go. But the most important point is I think there's a lot happening in that I&I franchise. We didn't talk about or 1 of the acquisitions we did this year. You'll also see data I expect later this year of the -- in the B-cell depletion space. That's a partnership with Lake Front Bio, 1 of our partners, formerly known as Galapagos. So you should see some data there, too. Just another example of a program that we have in that space that then we can build out over time. Okay.

We could go down that for another 20 minutes, but we'll move along. Why don't we move to cell therapy. You do have the Natal PDUFA coming up before the end of the year. Been a lot of questions, certainly, debates within the halls of Caner around what that label will look like. Any updates on the conversations with FDA and your confidence you look at that fourth line plus label?

I mean no specific updates. We still have a lot of confidence that we're going to get the fourth line plus label -- that's always been our expectation. We don't comment specifically kind of on the interactions with the regulatory authorities, and we're going through an approval like this. But again, nothing has changed from our perspective. We see a need cell as a significant growth driver for our cell therapy business, an incredibly important entrant in the multiple myeloma market. We think it has a differentiated profile. The most obvious piece is kind of on the safety side. When you look at the neurological side effects that 1 of the competitor regimens has as well as some severe colitis side effects that some KOLs will highlight. We think we have the potential to have a therapy that is safer on both of those measures and that over time, could take a significant part of the multiple myeloma market. You highlighted that we expect to start in the fourth line plus market, which is a smaller piece of the market. Still a pretty big commercial opportunity for us when you look at the size of our cell therapy business today could easily directionally double the size of our cell therapy business. But then moving into the second line plus, we've already fully enrolled the Phase III trial looking at a net cell in second line plus. And then as you would expect, we'll have that data over the coming years, and we would expect an expanded approval in second line plus that really opens up the opportunity for a net cell. But we see cell therapy in multiple myeloma and the BCMA cell therapies, in particular, is a huge part of the long-term treatment algorithm. -- especially in second line plus and in some earlier line settings, and we think a needle cell can drive a lot of growth in that franchise.

And sort of your confidence and willingness to make those investments, is that -- has that been in any way impacted by the progress we see in the bispecifics we've seen combination bispecific data. We've had more BCMA bispecific data just last week with better CRS profiles. Does that...

Well, it's certainly something that's been part of the calculus. So I mean we look very closely at the bispecifics. We have a number of our own bispecific programs. Actually, the B-cell depleter that I talked about earlier is a BCMA B-cell depleter that we acquired together with Galapagos. So we look at all of these spaces. Look, the multiple myeloma treatment guidelines are relatively clear. I mean when you look at the -- I forget the exact organization, but the group that develops the treatment guidelines for multiple myeloma suggest saving the bispecifics for after CAR-T recognizing the benefits of CAR T. One, the data to date suggests that you get much more durable responses with CAR-T. You certainly see that in the DLBCL space. And this is the patient's really 1 opportunity for what -- something that could be a curative regimen, right? There's some important differences between the DLBCL market where we started with Yescarta in multiple myeloma and DLBCL, the first-line and second-line treatments are also curative, right? When you look at R-CHOP and then stem cell transplants, -- so physicians treating those patients already have curative regimens in the multiple myeloma space, the -- generally, today, it appears that cell therapies are really the only potential for a cure in that market, which is incredibly important for patients and physicians. So our belief is that the cell therapies over time will be used earlier and will be really solid for many patients, second-line kind of treatment option and then you can save the bispecifics for later for patients that don't have the robust response of cell therapy. But all of that, to your question, did go into kind of how we looked at it. When we bought the rest of our Selex earlier this year that we didn't already own, that was based on our expectations, not only for the label, but how the market is going to develop over time.

Okay. As far as the other acquisitions you completed this Cerro and Tubulus, -- you alluded to some potential updates on the Oro side. Maybe just recap that as well as on the tubular side. The ovarian data at ASCO was standing room only. You had our associates hours before to get feet -- what else can we expect on these fronts this year? .

Yes. I think it's -- again, it's just an exciting kind of examples of where Gilead is. I mean I talked earlier about the strength and breadth of our internal research and pipeline, and then we can add to that over time with these acquisitions. So we just talked about the full acquisition of Arcellx right and kind of owning all of that. Part of that, by the way, is like the things that we can do with the BCMA binder from our cell and other programs, especially for in vivo cell therapy that we've been focused on and others for years now. So we're excited about that. But on Tubulus and Oro specifically, maybe just starting with oral given that I highlighted earlier, this is -- the B-cell depletion space is a really exciting space. Many of you have seen companies working on this. But the idea of resetting the immune system and letting the B cells and plasma cells repopulate in order and getting rid of kind of the cells that are causing kind of the disease aberrant, B cells in a safe way. The early data from Oro and it was a very competitive process, is really exciting. The company was studying it or as a small company. They licensed the drug from a company in China, studying it in 3 relatively large orphan diseases, which I also think is a great fit for us in terms of your question earlier about building out in the I&I space, if we continue to see success and get these products approved, building out your commercial organization in these large orphan diseases is a really elegant and capital-efficient way of building the next step of our of our I&I franchise. [indiscernible] do with that, that we're really excited about. The other thing kind of when you look at our capital model, like we -- we're a very efficient company. We're finally spending at the right level. R&D as a percentage of revenue. Roughly 20% of our revenue is reinvested in R&D. We are much, much lower than that when I joined Gilead 10 years ago. But we had the ability to bring in all 3 of these assets and fold them in. There'll be a modest increase in our R&D, but it doesn't really change anything in the long run to kind of build these out. We still expect to -- that our top line growth will lead to significant earnings accretion and over time. So we're excited about all 3 of them. They all go to kind of the diversification, the build-out of the business. And most importantly, like everything that we've done, the data -- the early data, recognizing its early looks really significant in terms of moving the needle for patients.

And since we have you here, I would be Deleted duty to not ask you on sort of capital allocation and continued focus on M&A. You guys have been pretty disciplined. You made some splashes this year. But I guess the question is really, again, like how that M&A appetite you expect that will evolve over the course of this year and into next year. and the appetite to move into some of these additional TAs or should we view your TA scope sort of as established now and unlikely to evolve? .

Yes. Maybe starting with the last part of the question. I think our TA scope, at least for the reasonable foreseeable future is firmly established, and that's where we're focused. I mean we always retain the right to change that if we see something that we think could dramatically change health care for patients or an opportunity that we just can't pass up. But I think it's -- it's -- we are very focused and highly likely that we stay in oncology, virology and I&I for the foreseeable future. The -- in terms of the M&A appetite, we're always going to add things from external innovation. I mean, there's a lot that's happening outside of our walls that is really important. You see that with the tubules or deals or sell we're going to add that. But the big picture is we're just in such a different place than we were 10 years ago when I joined the company where we had a very modest, say, the lease pipeline, a much smaller research group that was focused predominantly on viral hepatitis and virology or HIV. Today, we have a really robust internal research engine. We -- I mean to put this in context, when I joined, we would have 2, 3 or 4 molecules move from research into clinical development any given year on average. We're now at 10-plus a year moving towards more of those. And we can be really selective about what we take forward. So the need for large external deals is -- we don't have the need that we had 10 years ago, 7 years ago when Dan joined and when I joined. But we'll always look at things. So do I expect to do more deals like the tubulus deal over time? Yes. But there's no sense of urgency to do that. Many of our peers that have large patent cliffs coming up, I think, have a greater need than we do. We are really excited about what we're seeing, not only internally but in the outside world in terms of the level of innovation. So we'll want to keep adding some of that, but we can be pretty selective -- maybe the other thing I'd say, Carter, on this is like we are really focused on kind of the capital model, the efficiency pulling forward, we went through this big phase of growth as we rebuilt the business -- you see the last 2 or 3 years, we've been very focused on making sure that we pull forward efficiencies across the entire business. I still think we're relatively early in that journey, and there's more that we can do over the next 5 or 10 years in terms of pulling forward efficiencies on things like procurement and contracting, leveraging kind of different models over time to find efficiencies that will help drive the bottom line as well. So more to come on that.

Maybe on the last point, and I'm going to do the unfair thing I've only given you 1.5 minutes to answer the last question. As you think about those push pulls around contemplating potentially expanding your alpha 4 beta 7 taking that into what would almost inevitably be a large set of later-stage trials against what you talked about discipline on the margin side and still some ambition on M&A. So how do you balance all that? I guess it kind of gets back to the earlier question around that, that appetite and that willingness to make those big investments at I&I.

Yes. I think that the -- first of all, we have to see where we go, right? Some of those trials, as we said earlier, could be combination trials where you're sharing that both the risk and the cost with the partner. So the other thing to remember is we have a lot of large trials that we started in the last 10 years that are rolling off. So like any company, we have a really disciplined modeling approach where we're looking at where we are in our R&D spend, what's rolling off, what's rolling on. So honestly, at the beginning of the year, I was more concerned about not having enough in the pipeline as we looked at '27, '28 and '29 in -- so not only do I think these 3 deals really add to kind of the quality of the portfolio, but we also had a need to add to the overall portfolio. . We are at a point, though, where there's more that we could do than we're going to do, which is a really healthy place. Historically, when our portfolio is smaller, it was much easier to take everything forward because you didn't have enough -- so I think we're in a very healthy place now, and you can kind of balance both. But R&D spend as a percentage of revenue is never a flat line. There will be periods where it may go above 20%. There will be periods where it's below 20%. I always think about this over the cycle. But when I look at it right now, -- there's a lot that we can do -- first of all, maybe the other thing to say is we will always focus first and foremost on what's best for patients. If we have something using alpha 4 beta 7 as an example that we think we can really benefit patients, we will take it forward and find a way to take it forward. The last thing there, we -- on the Trodelvy lung cancer study that we did over the last couple of years, we did a partnership around that where we had some R&D funding that helped pay for that study. And that's just -- there's examples like that of ways that companies can use partnerships or capital partners to make sure that you're taking all the programs for that could benefit patients.

We'll have to leave it there, Andy. Thanks for -- appreciate it. .

Thank you very much.