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

Great. Good morning, everybody. Thanks for joining us. I'm Terence Flynn, Morgan Stanley's U.S. biopharma analyst. For important disclosures, please see Morgan Stanley's research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. I'm very pleased to be hosting Gilead this morning. Joining us from the company, we have Dan O'Day, the company's Chairman and CEO; and Johanna Mercier, who's the company's Chief Commercial and Corporate Affairs Officer. Thank you both so much for flying out here to the East Coast and taking your time as well.

Good to be here.

Looking forward to it. Maybe Dan, I'll just turn it over to you to make some opening remarks, and then we can go into the Q&A.

Sure. Thank you, Terence, for having us. Delighted to be here with Johanna. Look, first of all, maybe just to kind of set the table for Gilead. We are at, I think, a really important point in our journey. We, I think, are at another inflection point in value. And let me just kind of explain why I believe that. I mean, first of all, we have the most robust portfolio, I think, in our history, certainly since I've been here in the past 7.5 years. And this cadence of launches that we have right now is really going across all therapeutic areas, and we'll talk about that a bit. But the setup is such that we're a bit unique in the sector in that we don't have any significant major patent expiries until 2036, with a very strong plan on how to handle that time expiry in 2036. But let me just break it down into a couple of components. I mean I think about our portfolio from strength but also diversification -- and I think there's 2 different ways to look at diversification. One is the diversification that we're going through right now within our core business, our HIV business, which is in the past and currently, still largely based on Biktarvy. But we're in the middle of kind of transitioning the entirety of our HIV franchise across both treatment and prevention. I know we'll talk a lot about both of those and particularly prevention. But it's important to note on the treatment side, we just recently launched a new daily oral called bixlenvo both. Yes. And so you roll up I know it's so close to the other name. I should be a little bit better at that, which is an important addition to the treatment landscape, in particular, the fact that it allows us to participate in the switch market, which in the past, we haven't been as participated in about 20% of patients on HIV treatment new switches a year. And then we have an expected launch of the first weekly oral treatment with is land next year as well. And beyond that, and we'll continue to update you a really robust portfolio of weekly oral we-- sorry, weekly and monthly orals and once every 6-month injecting rules, including Lenacapavir is the backbone and really strong capsid inhibitor, the first capsid inhibitor, combined with a variety of different medicines, including 3242, which is an interesting entity that we are currently in the clinic on for every 4 months. and PK data suggests we may be able to take that to 6 months. So stay tuned for that because that trial is ongoing. So there's just a tremendous optionality within the treatment landscape that will evolve that whole treatment landscape over the course of the coming years. Secondarily, PrEP is now almost -- the number of users on perhaps more than doubled since 2022, so in the past 4 years, driven by S2G now the soy but also with line of sight towards 2 new launches in the next couple of years, weekly oral prep first quarter of next year, -- and then in 2028, a 1-year injectable version of YES 2 go. So just we think about diversification across that broad spectrum of HIV in both treatment and prevention for a growing durable business well into the end of the next decade. And then combined upon that strength, the work we're doing on oncology and I&I. Just briefly on oncology, we'll get back into this, but a needle cell is the most imminent launch in oncology of a new molecular entity in fourth line plus multiple myeloma. We're really excited about that being a best-in-disease profile a one-and-done type of opportunity from people with multiple myeloma. We are fully enrolled in the second line plus study expect that data to read out next year. So moving that up in lines of therapy allowing people to achieve treatment-free durations is really what we're focused on in multiple biloma and then a broader cell therapy approach with bicystronics in lymphoma, in vivo constructs in autoimmune Combine that with the work we're doing in ADCs, both with Trodelvy and first-line triple-negative breast cancer as well as the acquisition of Tubulus, which we really are excited about as a novel ADC platform starting first in platinum-resistant ovarian cancer but then many indications with that platform as well. And then -- so that's our oncology base, which is really just beginning to kind of shape and form and grow. And then I&I at an earlier stage, you're going to hear more on that later this year. let I just point your attention to what our chemists have been working on for the past 6 or 7 years is a couple of small molecules that we intend to read out Phase II results later this year with Alpha 4 beta 7 and IRAK4. We also have a STAT6 program. as well as an acquisition we did earlier this year on a BCMA T cell engager for B-cell depletion. So all this to say that this is a special time at Gilead. I think we're in a unique position to drive value and growth and not all against an operating model that we're committed to, which includes top industry quartile margins strong cash flows and ability to deliver to shareholders and the patients.

All right. Great. A lot to talk about, obviously. So I guess the first one, just again, high level, I've been asking most of your peers this just seems like we're in a different place this year versus last year on the policy front, which I think is a good thing. But just anything that's on the company's radar as we head into midterms that we need to think about coming out of D.C.

Look, Johanna and I and the team work constantly on policy. So -- and I think it's just part of the integrated fabric of what we're doing. I'd say a couple of things on that front. First of all, I think the best defense is a good offense. So more innovative your portfolio, the more differentiated portfolio in any country around the world, so it just gets back to what I said before. I think we're really in a unique position of having this very, very robust portfolio. It's highly differentiated as we approach any policy environment. But 2 things I would say. Look, we've been spending a lot of time in Washington, D.C. I think there will always be pressures on pricing in pharma. And the conversation is broader today than it was 5 years ago. In other words, people understand the better the complexity of the health care system, where dollars go in the health care system, and I think we made real progress on making sure that people not only focus on pharma pricing, but also focus on health care pricing, in particular, insurance and PBMs and 340B, which I think we made some some progress on and more to be made there. So we'll continue to focus on that in a bipartisan way. I think the conversations in Washington are always about how do you improve the health of Americans keep a strong American industrial strategy. Anything on that point, everybody can agree on the details, of course, we need to get into the details. And then finally, what I'd say on our front is we spend a lot of time focused on the diseases that we're in. And I can say that regardless of the administration, we've been able to draw attention because of this incredible innovation to the importance of funding HIV, public funding for HIV in this country, the work we do with the state department in countries where HIV is more rampant and higher and I think we always get an important audience on that, and we'll continue to stand for those patients there and patients with severe diseases like oncology.

Okay. I guess going to the recently launched product, Yeztugo, obviously, front and center, I know it's a huge focus for you, Joan and the rest of the company. So maybe just talk to us about kind of the the transition that's been going on in the marketplace from orals to injectables. Any other points of friction as we think about kind of the forward outlook here? -- and then we'll come to broader prep market growth, which I think was one of the bigger takeaways for me from your second quarter earnings was being able to deliver, again, kind of teens market growth off an even larger base. And so I guess, first part of the question is just kind of Yeztugo latest dynamics and what you're most focused on in terms of driving -- continuing to drive that growth.

Yes, sure. Thanks, Terence. Good morning, everyone. I really think the Yeztugo launch is an incredible success thus far. And it really has a lot to do with the preparation of the marketplace, but also the work that we've done for the last 10, 12 years. in prevention and really understanding the market, the consumers for PrEP. We really have grown Yeztugo. We're now expecting our guidance is at $1 billion for its first full year of launch. And that's not by chance, that's obviously a lot of increased awareness, education of physicians and of course, consumers. The -- I do think it's exciting to see that the market continues to grow. And one of the things that we always knew as we were launching FTO, our focus and the scripts would come really from switch patients, switch PrEP people. And -- but what we're seeing is actually a quite a nice mix of both naive coming into prep on Yeztugo,Q6 as well as the switch. And so you're seeing a nice balance there. We also know that it was important to grow the market. The growth of the market happens in different ways, but one of the ways that we've done it in the past is always just with new options in the marketplace, it kind of picks up the market and make noise, increases awareness, purpose 1 and 2 trials were such powerful trials for go it really helped everybody kind of sit up and pay attention to what prevention could be -- the research that we've done with consumers is very clear that longer is better. And so the Q6 monthly is really an option that people were waiting for. And so that's why we're seeing not only switch from daily orals and from other long-acting to a Q6 but also even seeing naive people come in to prep for the first time. And so we're seeing that nice balance. One of the things around the market itself is it's growing at about 14%, 15% or so, to your point, on a larger base. And again, not by chance, right? This is a lot of work that we do to increase awareness that our competitors do to make sure people understand the why, make sure people feel empowered to own their sexual health, making sure it's very targeted in who we speak to, where we speak to them, meet them where they are. And so we've really advanced the work that we do and AI helps us do this, of course, even better than we've done in the past. And so that has also helped all the boats rise. So it's not only helped Yeztugo, but it's also helped Descovy. And so you've seen really nice upside on Descovy as well. And the total prevention portfolio is now over $1 billion for the quarter. So that looks like an annual run rate of about $4 billion just for the business. So a lot of work behind it and a lot more to go. And one of the -- probably the signals that I'm most excited about is, for us, whether it comes from a specialty pharmacy, whether you have to go goes through a specialty pharmacy or through buy and bill, it doesn't matter to us. But what's been interesting is to see the uptake in both segments but actually buy and bill is growing faster than we thought. What that means for me is a signal to future volume, right? If people are setting up their clinics, their setups to include buy and bill, which is actually administratively takes a little bit of time in energy and resourcing, then basically, that is very clear that they're thinking about increased volumes in the Key6. We also have a lot more options coming around the corner. I think Dan mentioned, not only do we have a weekly oral early next year in February, PDUFA date, but we also have the potential of 212 monthly by 2028. And so we also think that continues to expand the market. Two things. Expansion in the market happens with more options. It happens, of course, with the data that's provided by those options, but it also happens by making sure we're educating different people. So not just the HCPs that have always prescribed PrEP, but actually HCPs that have never prescribed prep. And people that have never been on PrEP as well need to enter this marketplace. And that's what we're starting to see slowly but surely. So we think there's a lot of runway here and a lot more work to do.

Great. And maybe just -- I think you said recently, the current kind of user base is 550,000 roughly in the U.S. What's the what are the kind of upper brackets as you think about that, like addressable opportunity?

Yes. So the CDC defines the addressable opportunity at about 2.2 million people in the U.S. The way they define that is really leveraging their estimates of man having stacks with men. And so we believe that number is actually much higher than that. If you just look at FTD diagnosis in the U.S., there's about 13 million a year. These are the people you would want to have a conversation with. Having said that, even if you just take the CDC estimate, you're only at about 25% or so penetration of the total prep estimate that the CDC is laid out. And so we believe there's a lot of space to grow. And we think that the opportunities are with options like Q6 or even the Q12, we can really make a difference here.

Okay. Great. Maybe you mentioned the oral formulation of Usta coming next year. I guess 1 question that comes up is what's the -- what's your anticipation for the source of business for that formulation? Again, is this switch dynamic? Is it new? Like how do you think about that given what you've seen for yes, 6 monthly?

Yes. I would say, I would start with Q6 because as much as the Q weekly coming out, we still believe is actually really going to be the target? And what is preferred just because of this -- the 6-month frequency really helps. It just meets them where they are. It's much easier to fit in their lifestyle. Having said that, we do think the key weekly is going to be a nice option for folks that don't like injections or folks that don't want to take a daily oral pill and wanted to stay on an oral long-acting. This is going to be the first oral long-acting available and a real opportunity to go once a week, maybe every Sunday or every Monday morning, you take your pill. So we think that's going to source from Descovy as well as the generic tubes that are in the marketplace, different from the Q6 that actually sources from all, right? It sources from new. It sources from the Q2 current competitor, as well as the daily oral otoscopy and generic. So a little bit of broader base for the Q6 than the Q3 weekly.

Okay. Makes sense. And I guess the other question, which again, I mean, kind of waxes and wanes is just what you see for second shot frequency with Yeztugo. It sounds like you guys also have a more recent campaign to kind of even improve that further. So maybe just talk about where we stand right now. and then some of the steps you're doing to kind of continue on that second shot journey.

Yes. So obviously, it took us a little bit of a while to have the right data, right? We've been following the claims launched to differently. -- to ensure that we understood what the persistency was at that second injection. On our Q2 call, we shared that it was over 70%, which is well beyond anything we've seen from any of our competitors, has a lot to do, again, with the profile of this medicine and what it offers to consumers of prep. So we're excited about that. We also believe that it's important to continue to surround sound it. And what I mean by that is -- we know that specialty pharmacies right now are obviously calling back people to make sure they come back in for their injection at the right time. We know that the clinics, the doctor's clinics are also doing that. to make sure that they get within the window. We believe it's important to just make sure we just add a little bit of color to that. And so through a digital app, it's actually a program called Ready to go, kind of playing on Yeztugo. And it's really about SMS texting, alerts, things like that. It's all on digital. But it also has people as much as AI is fabulous, people also want to talk to real people. And so there's also an opportunity to have an inbound, outbound nurse call center, which I think is actually proving to be very useful to manage anything along the way, but also to remind them that it's important to make your appointment to go back for that second, third, fourth injection.

Yes. Okay. Great. Maybe just on the Rest of World opportunity. Where are we right now in terms of some of those conversations? I know that's an area that you guys have been working on and felt like there were some hesitancy with a once-daily oral to maybe embrace that, and we haven't seen much of a rest of world prep market. But maybe now with every 6-month option or even once yearly, maybe some of those governments are going to be more willing to kind of lean in. So where do we stand on those efforts?

Yes. So a lot of work going on. And I would say, I would kind of areas, I would say, the U.S., obviously, we've been talking about. We've also done incredible work in mobile income countries. And of course, that no profit to the company, but work in sub-Saharan Africa where diagnostics rates are 1 out of 4, 1 out of 5 in certain countries, which is just in certain areas, which is just horrible. So anything we can do to help there, and we've been partnering with Global Sun as well as the State Department to do just that. And then you have the other countries, which I think is what you're referring to, which are the first full countries. And it really depends. We've been working to ensure that lenacapavir has been a drug that we have been working on for 17 years prior to its launch. It is incredibly transformational versus what is currently available. And it is one that we want to ensure that, that value gets recognized across the different countries around the world. And so we are making sure we're educating and the value, the persistency, all the benefits. And it's not for everyone. It's not the whole point of optionality -- and -- but there is an opportunity in certain countries where you have a government that actually really want to leave a legacy of ending new incidents of HIV and they see lenacapavir as a solution. And those are the governments we're working super closely with and for very specific populations. You have populations, great examples in Canada, where in some of the northern provinces in the West of Canada, you have very high rates similar to sub-Saharan Africa, which is crazy. And so there's real opportunities to do something and that for Lenacapavir can really make a difference. So we're working through it. But I will tell you, many markets have an HTA process that compare to a daily oral generic. And that's a tough comparison when you're bringing this kind of innovation to the market.

Okay. Great. Maybe we'll just pivot over to the HIV treatment side. Dan, you mentioned a lot of the similar efforts to kind of transition the portfolio here as well. have some new launches on the switch market, but also working on the long-acting. So I guess the first question is just on the current kind of market state. Again, you guys had a dip in growth in 2Q, but you expressed confidence getting back to kind of that 2% to 3%, which we've seen historically. So maybe just -- is that still -- should that still be our expectation there? And what are you seeing as we kind of into the end of the third quarter.