Gilead Sciences, Inc. (NASDAQ:GILD) NASDAQ 47th Investor Conference December 7, 2022 8:00 AM ET
Company Participants
Dan O’Day – Chairman and CEO
Conference Call Participants
Matthew Harrison – Morgan Stanley
Matthew Harrison
All right. Perfect. Thanks for joining us for the next session. I’m Matthew Harrison, one of the biotech analysts at Morgan Stanley. Really pleased to have Dan O’Day, the Chairman and CEO at Gilead with us. Just a reminder, personal analyst holding disclosures are available on morganstanley.com/researchdisclosures. And with that fun out of the way, Dan, thanks for being here. I thought maybe…
Dan O’Day
Pleasure…
Matthew Harrison
I thought maybe a good place to start off is we’re sort of, I guess, you’re 3 years into your tenure almost?
Dan O’Day
Almost at most 4.
Matthew Harrison
At almost 4 years, that’s right. And obviously, part of the – when you came in, right, was the transformation of the company, right? You put a lot of capital to work on external assets. So where do you think you are in the transition of the company, sort of reflect on where you are versus where you’re going at this point?
Dan O’Day
Yeah. I think 2022 has been a really important year to see the whole strategy play out in its entirety. And I think we’ve seen that every quarter this year in terms of both the commercial and clinical execution. But maybe just to take us back when I joined in 2019, I mean, the objective was to take a company that had extraordinary success in virology and obviously broaden beyond virology into new therapeutic areas, which, you know, as we all know, is not an easy thing to do. A lot of companies have tried that.
I’m really impressed with what the team has done over the past several years from a couple of standpoints. I mean the first one is having a clear strategy, really understanding where we wanted to expand our scientific innovation, which was basically using our immunology scientific base and virology you know, that we had in virology and expand that to oncology with a real focus on immuno-oncology and also to inflammation.
And when I think about what’s happened over that period of time, because of that and because of the people we brought in with really some depths of experience in new therapeutic areas, we put around $30 billion of capital to work over the past 2, 2.5 years to build this portfolio that I think is really extraordinary.
So we’ve gone from 30 molecules in development to 60. But more important than the number is actually kind of the shape of the portfolio and the risk-adjusted nature of the portfolio. So we’ve got continued strength in virology, and I know we’ll talk about that. I mean, HIV is – and the long-acting strategy has really strengthened over that period of time. Certainly, we played a role with COVID, and we’ll continue to play a role with COVID.
But the oncology franchise, I think, really has some strong unique assets alone and in combination that has tremendous potential. In fact, as of the third quarter, if you look at our run rate on oncology, it would annualize out about $2.5 billion. And that’s a really high growth phase, which both cell therapy and Trodelvy now contributing significantly in a high-growth phase.
So we have specific goals for our diversification. We want to be 30% or more of our revenue in oncology in 2030 on top of a growing HIV virology base, and we’re well on our way to do that. And then the final thing I’ll say is I just think the people and culture aspect of the organization is really coming along. It’s tough to get the right talent in for new therapeutic areas. And because of the portfolio we’ve been able to attract just top talent in the industry at all levels. I mean sales and marketing, research, development and within development deeper into things like biostats, clinical operations, regulatory. So we have an organization that can really execute. And I think you’re seeing that on a quarter-for-quarter basis now.
Matthew Harrison
Okay. Good. And maybe just to follow up on that, like as we think about 2023, what’s on the horizon, what’s the biggest focus for you as you think about next year, either from an execution standpoint or a pipeline standpoint?
Dan O’Day
Yeah. I mean both are going to be important. So as I said, we’ve had really good quarters every quarter this year, and that’s going to continue in 2023. I think some highlights as I think through it. Let’s start with HIV. I mean lenacapavir for highly treatment-experienced patients, the PDUFA date is in December. We have approval already in Europe for that patient population.
I think that’s important because that’s – first of all, there’s a big medical need. It’s a small subset of patients, but it’s a real medicine with regulatory approval now with big plans as we continue to look at long-acting and prevention and also in treatment.
We’ll have our oral – just to stick with virology, our oral COVID nucleoside has started now Phase III trials, and we’ll see how that plays out, but as an option to remdesivir in the pre-hospital setting. And then in oncology, we have a lot of things coming up here in oncology, continued execution in cell therapy in terms of moving up in second line and execution on clinical trials into the first-line setting.
For Trodelvy, we have the PDUFA date for the HR-positive HER2-negative in February this year, which expands significantly beyond our triple-negative breast cancer and bladder cancer into a large patient population for breast cancer for Trodelvy.
And then a very comprehensive program in lung cancer. Trodelvy, we have at least 5 studies there. TIGIT, which you’ll see more data on in December 20th and the ability to expand that into 3 trials ongoing in lung cancer and one in GI cancer.
And then just the remainder of the portfolio playing out clinically, we have a lot of milestones next year with magrolimab with other partnered assets like ARCUS assets with long-acting partners to Lenacapavir, and the bNAbs in Phase I. It’s going to be a really robust data year from a clinical execution perspective. And from a commercial perspective, you should expect to see us continue to drive our growth.
Matthew Harrison
Okay. Great. Great. I mean one of the – I guess one of the questions I get a lot is around capital allocation. I guess, there’s sort of two parts to that question, which is – do you need to deploy a lot more external capital to continue to build the pipeline? Or is that sort of done at least from a chunky standpoint? How do you think about that versus returning cash to shareholders and priorities in terms of returning cash?
Dan O’Day
So that’s done from a chunky standpoint. As I mentioned before, I mean, we put a lot of capital to work. We needed to put that capital to work to jump start and to really build our oncology portfolio. But when I look at our portfolio today across urology, oncology and an early portfolio and inflammation, we have everything we need to make sure we execute now to drive our growth through the end of the decade.
We have no patent exposure until the early 2030s. We have more than enough to do with our individual oncology medicines, our pipelines in products like Trodelvy and TIGIT and magrolimab and cell therapy to expand that out. So the capital deployment will be consistent with what we’ve done in the past from the standpoint of priority.
But to your point, much – we don’t need these large transactions and we won’t – unlikely to do these large transactions, we don’t need to do them like we’ve done in the past. But the order of priority continues to be invest in this portfolio we have and both in R&D and a commercial execution standpoint.
Secondly, more ordinary course partnerships and smaller M&A bolt-ons. Thirdly, growing the dividend. It’s something we’ve done for many years now. We want to continue to do that in line with earnings. And then finally, repurchase of shares to offset dilution and to take advantage of share repurchase where appropriate.
But it’s in that priority order. I would say that we’ve been able already to return to our leverage position pre-immunomedics now only a couple of years later due to the cash generation of the underlying business, HIV, but also the cash generation of Victoria remdesivir during that period of time as well.
Matthew Harrison
And while we talk about oncology since top of mind, you’ve got some stuff coming up. You mentioned TIGIT on December 20th. It’s a category where people have seen the initial Roche data right and skepticism had mounted on sort of the target and the meaningfulness of it. I think you as a company have maintained a lot of optimism around the target even with the sort of skyscraper data from Roche. So what’s your conviction in the target? And what do you – what’s your sort of ultimate outlook for that?
Dan O’Day
Well, we look – it will be great to have this conversation when the data is public, and it’s not that far away. It’s December 20th. I’d point to a couple of things that we’ve said publicly from a qualitative perspective, and that is that, we believe, from a large Phase II standpoint that this data is clinically meaningful from the standpoint of three specific measures that will provide numbers with on December 20th, one is overall response rate. The other one is medium progression-free survival and the other one is landmark progression-free survival.
And what we said is this is a 3-arm study. The comparator arm is a PD-1 you know, our PD-1 with Arcus. And then the other 2 arms have both PD-1 and TIGIT and then PD-1 TIGIT and adenosine. We said both of those TIGIT arms are clinically meaningful relative to the comparator arm.
Look, I think there’s a couple of differences from the – first of all, this will be the largest data set that’s been exposed on TIGIT to date that you’ll see data on. I’ll remind you that the previous Phase II trial from Roche was around a 50-patient trial. This is 150 patients. So it’s significantly larger, not designed to show statistical significance, but much more robust in terms of the number of patients.
And the other thing I would just say is that this is a different molecule at the end of the day. There is so-called Fc-silent TIGITs and there’s Fc-enabled TIGITs. There’s hypothesis preclinically around the potential advantages of that. And we’ll see how that plays out with larger scale trials. But all I can say is back to our conviction on this Phase II data as a signal. We already have 3 Phase III trials that are either started or to be started soon in lung – you can imagine that we don’t make those investments lightly. So we make those investments based upon our conviction on the data and the Phase III data.
And it’s the first time I think the world will really see the data on Arcus’ and Gilead’s TIGIT because previously, we’ve just kind of articulated, this is the fourth interim analysis, but the three previous ones, we’ve only kind of released qualitative data. So you’ll see quantitative data this time and then we’ll have the discussion. We remain convicted that TIGIT as a complement to PD-1 provides at least from a Phase II perspective, meaningful benefit.
Matthew Harrison
Okay. And then one of the questions I get a lot is, there’s obviously significant entrance players in IO, namely KEYTRUDA right as a sort of significant wall of data as a monotherapy at least. So how do you break into that? Like – or I guess another way to say is how much clinical differentiation do you need to be able to move people from one therapy to the other, just given the number of studies and indications that KEYTRUDA has?
Dan O’Day
Yeah. Look, I think that what we’re going to need to show because every trial is unique in terms of patient populations and exactly how it’s treated. So I think what – what the world will want to see and what we want to see and why we’re terming this clinically meaningful is a difference to a PD-1 comparator arm alone. And at the end of the day, developing that data in large Phase III trials, we have trials that will be targeted towards different patient populations in lung cancer and other disease states like GI malignancies to show that difference.
So I think just as KEYTRUDA establish its position based upon data that it compared to largely in chemotherapy in that case, we’re going to need to show the add-on benefit. And that’s really our goal and objective not only with exposing to the Phase II data, but the design of our Phase III protocols.
Matthew Harrison
Trodelvy TROP2, you talked about – you obviously mentioned Immunomedics and that asset. You talked about lung studies, which I think is a focus for investors now. So how do you think about your competitive position in one? Because obviously, there’s another TROP2-ADC that’s a bit ahead in lung as well. So how do you think about that outlook for lung? And is that an indication you guys are excited about?
Dan O’Day
Yeah. Look, I think I’ll start with – I mean the reason one would have a conviction in another disease state is that you’ve had some success in previous ones. So I would just remind you that for Trodelvy, we have two different disease states in breast cancer that have shown overall survival. So triple-negative breast cancer in second-line plus. And in hormone receptor positive, HER2-negative in very late lines, right? So this is CDK4/6 plus a median of 3 chemotherapies, we showed significant overall survival in that patient population. So this is an active medicine that has shown overall survival, which is the gold standard, of course, in 2 disease states and good preliminary data in bladder cancer as well. So that gives us conviction. It doesn’t mean that every indication will work, but it does mean that you’ve got a medicine here that is very active.
Now in lung cancer, we have a very aggressive program, right? And I think there are two things that I would mention here. One is that we are doing some trials on our own. But in some cases, we’ve got partners helping us do trials. So for second, third line lung, we have Trodelvy as a monotherapy where there’s very few options versus chemo. And then in earlier lines, first-line lung, we have two different trials, 1 PD-L1 positive, 1 PDL negative. And the PD-L1 positive, actually, our partner, Merck, is executing that trial in conjunction with KEYTRUDA. And again, they’ve seen the same data we’ve seen and are quite [indiscernible] benefit, obviously, to partner with us and execute on that. And the PD-L1 negative, we’ll do that with chemotherapy. So there’s not only our own internal conviction but others that have looked at the data.
Relative to the competition, first of all, TROP2 is a highly expressed antigen on many, many different tumor types. So I think we’re just beginning to scratch the surface of this pipeline in a product, I would say, with breast and lung. I think there are other disease states that we’ll also look at.
The first thing I’d say is I think there’s plenty of room for more than one TROP2 player in these disease states. And we will have different focuses than perhaps the GAZ [ph] in terms of what lines of therapy we go, what order of entry and what combinations we do. So there’s plenty of opportunity, I think, for both to succeed.
And having said that, I think there’s reason to believe that the two molecules are different. They’re at least potentially different in their safety profile. We’ll see how that plays out. But at least in the data that’s been produced so far in multiple disease states, our safety profile has side effects that are largely reversible and manageable. And we’ll see how the ADC from Daiichi Sankyo plays out, but they have a higher incidence of interstitial lung disease, and we’ll see if that continues to play out in the late-stage trials.
But particularly when you’re treating lung cancer, one has to be at least thoughtful about the incidence of different side effects that can affect the same organ that you’re trying to treat. So I think there’s room for both. There’s different combinations. There’s different approaches, and we’ll see if the two molecules, in fact, do significantly discriminate as we go into different disease states.
Matthew Harrison
Okay. Outlook, just on the current approved indications and as you add on breast cancer sort of runway where you are, how much upside do you think you can see in the sort of medium term from some of the approved indications?
Dan O’Day
Yeah. Look, I think we’re just beginning to really approach the new standard of care in triple-negative breast cancer. We’ve articulated that in second line plus triple-negative breast cancer. This figure was provided more. I think in the middle of the year, we said we have about one out of every four patients in second line plus. So there’s certainly opportunity to grow there.
When one looks at the trials we have ongoing in the first-line setting for triple-negative breast cancer, it’s roughly the same population in the first-line setting of triple-negative breast cancer as it is in all other lines of therapy. So depending on the outcome of that trial, there’s opportunity for growth still in earlier lines of therapy of triple-aged breast cancer and potentially adjuvant, neoadjuvant as well. And then you go over to hormone receptor positive HER2 negative, which is the largest form of breast cancer. 70% of all breast cancers are HR part of HER2 negative. And as I said, our PDUFA date is in February.
And in that patient population, there’s a variety of opportunities for Trodelvy to be used there. One population that’s quite clear relative to the competition is those patients that are IHC zero or have no HER2 status. And that’s about 35% of the total hormone receptor positive HER2 negative. And then certainly, TROP2 works across IHC status. So one could imagine then both being a benefit to patients regardless of HER2 status in earlier lines of therapy, whether they’ve been treated with CDK4 or certain lines of chemo or other therapies. So – and we’ll be doing trials to move up into lines of therapy.
So I think there’s a tremendous amount of growth potential in breast cancer alone. And then obviously, lung cancer is many fold higher than the breast cancer opportunity, plus bladder plus GI cancers. So we are just scratching the surface, I think, of Trodelvy.
Beyond your question on the growth rate, too, I mean, I’d just remind you, in our cell therapy business, we’re also in the early stages of really penetrating that only about – in the third-line setting of LBCL only around four out of 10 patients get referred for cell therapy today of what two out of 10 actually get the therapy. So there’s lots of growth potential also with our cell therapy business and not only a third line lighting setting, but the second-line setting.
So these are all really near-term growth drivers as we think about 2023, 2024. And then we really start to blossom in 2025 with these other lung cancer and other things reading out and expanding the Trodelvy and the general oncology opportunity off of a very strong durable HIV business, which we haven’t talked about.
Matthew Harrison
Coming up.
Dan O’Day
So coming up.
Matthew Harrison
Right now, in fact. Maybe we should just talk about PrEP briefly. Obviously, sort of no branded competition, at least foreseeable brand and competition in PrEP. You have a clear strategy with lenacapavir. You have a further runway on Descovy now in PrEP. Sort of where are you in PrEP and sort of what’s the – what’s your goal for PrEP in terms of size of that business?
Dan O’Day
Yeah. PrEP is a really interesting opportunity. I think one that could really change the epidemiology of this disease over the mid to longer term. Because today, PrEP medicine are very effective. I mean they’re 99% effective at preventing HIV. And yet still, to this day, in the U.S., which is the largest market PrEP in the world, only around 25% of people that could benefit from taking PrEP or taking PrEP.
And largely, when we talk to those people that are at risk, they say, you know what, I’m not sick. I’m not really interested in taking an oral daily medicine. But if there were other types of options, if I could go for a longer-term option, I’d be very interested in taking those medicines.
So lenacapavir, by the way, is an extraordinarily unique molecule. It’s the best of Gilead chemistry and knowledge around HIV coming together. It is a molecule that has a really unique PK profile in that it can be dosed every 6 months subcutaneously. That’s actually what it’s approved for in Europe for the highly treatment-experienced patients and in treatment and also to be soon, hopefully, in the United States.
So what that does for the PrEP market because it provides an option that is sorely needed for patients that are at risk of HIV. And we believe that we can – and we should be launching this around 2025, presuming success with the 2 late-stage trials, which is – we feel pretty good about. We think we can move that market in the U.S. alone from around 25% and potentially doubling that over the course of 2025 to 2030. And we can tap into markets that have yet to kind of pick up on PrEP around the globe, including our commitment to the developing world. So we think this is a significant growth opportunity for our HIV business in 2025 and beyond.
I’ll just comment quickly on what’s the status of the current PrEP market post-pandemic. Descovy is our branded medicine, Truvada is generic. But Descovy continues to do well. We’ve seen the market grow by around 9% coming out of the pandemic. And Descovy, despite generic Truvada continues to maintain around a 40% share. So 40% share in a genericized market is really pretty good.
So – and I think important to note that the TAF litigation that we settled a couple of months ago, provides us runway on that from what was initially 2025, Descovy and other medicines that are based upon that backbone until early 2031, 2032, which provides even more certainty and conviction around our ability to grow the entirety of the business, but certainly the prevention part of the business because we no longer have to worry about transitioning all of Descovy in 2025. That can still be our base business through 2030 while we’re building the lenacapavir base. It also has an impact on treatment as well.
Matthew Harrison
And then I guess on treatment, obviously, a bunch of combinations you’re looking at with lenacapavir, – maybe just a 2-part question. One is what’s your conviction that you will – out of those, you will have something that you can transition Biktarvy or other patients to and sort of keep that base business going past the early 2030s.
And then second, I don’t know, just describe for people why you’ve chosen different strategies, whether it’s a weekly strategy or a longer-term strategy. And there’s a lot of things that you’re exploring there?
Dan O’Day
Yeah. So the answer is it’s very high. And it’s very high for a number of reasons, not because I’m not aware of the attrition rate in the industry, but more because there’s lots of ways to win. And I think you’re getting at that, which is, as I said before, lenacapavir is a very unique molecule in terms of its PK profile and dosing frequency.
But lenacapavir is not only a medicine that could be dosed every 6 months alone in prevention. But it’s also a medicine that has a range of possibilities, including oral weekly oral monthly subcutaneous 3 months or subcutaneous 6 months. So as we consider partner molecules, of which we have 8 now in-house that are going into Phase I, 2 of which you’ll get more information on next year that are in the so-called bnAb class, but there are other classes like NC classes.
And the real question will be what is the best partner for lenacapavir for the particular treatment duration that we’re looking for. And to your question, how do we know what the right treatment duration is while we’ve done a lot of research. I mean, we speak with both people that are on HIV treatment right now. And what they tell us is, first of all, a lot of people are very comfortable taking 1 pill once a day. I mean, it’s an extraordinary advancement over 30 years to think that you could take 1 pill once a day, keep your disease undetectable and die from something else other than HIV because of the control of the disease. So that’s a huge advance.
And many people like the convenience and like, frankly, they feel good about taking a pill 1 pill once a day. But we also know that there’s probably 50% or more, and we’ll – obviously, when you have reality that would really like to take it less frequently. And what do they mean by less frequently. They don’t mean – I mean for them, if it’s an oral medicine, I think it has to be at least once a week less frequent. It could be once twice a month, it could be once a month. But it has to be at least once a week. So something that they take every 2 or 3 days is not going to work. It’s going to be confusing for them. But once a week works.
And so we targeted that or less frequent oral dosing is our kind of minimum threshold and maximum threshold. And as we look at these 8 medicines that are coming through, some are more appropriate for oral, some more appropriate for parenterals. We’re finding the one that’s going to work best for lenacapavir, and I’m convinced we’ll find that relatively soon on the oral side.
On the subcutaneous side then, it’s about finding the molecule that could have the PK profile that could fit within once every 3 months or once every 6 months subcutaneous. So I mean not all of those are going to work. We’re not going to have every option available, but we know that if we meet those minimum thresholds that those 50% of the patients that are looking for alternatives, some of them will gravitate towards that.
And I think what we’re seeing in the first-generation long actings out there is they’re not quite meeting the mark of patients. I mean having a 2-month every intramuscular injection doesn’t fit with when people with HIV see their physicians and nor does it fit with kind of their lifestyle. So we have to keep the bar high for making sure that it is something that really will shift people from daily oral and then we’ll work on that accordingly.
I think the important thing is we think about this franchise over the course of the next 10 years is that with all of these optionalities and all these advances, that in addition to Biktarvy, which is the gold standard right now, I mean, we have 75% market share in HIV treatment in the United States today. And Biktarvy alone is at 45% after a few years post launch.
The nice thing about all these other options is it reduces your concentration risk on Biktarvy when that goes off a patent in 2033. So exactly what ones work and how they work and when they work, I think we’ll discover actually in the near term. Over the next 12 to 18 to 2 years, these 8 molecules will be through development in virology is fast – so we’ll know where we’re going to go, including, by the way, our partnership with Merck on islatravir for the once weekly oral. We’ll know where we’re going to go in the next 18 months, 2 years.
Matthew Harrison
Okay. I guess just final question on HIV. It’s been a mid-single-digit grower business. Is the outlook on that, that people should think that, that continues? Or are there any – how do you think about just sort of the overall growth rate of that business?
Dan O’Day
I think that should be the threshold. I think what we’ve seen pre-pandemic, and now we’re returning to it, we have now post-pandemic 5 consecutive quarters of return of growth to the HIV market, both in treatment and prevention. Prevention grows a little faster than treatment coming out of the dynamic. But generally, what we saw before the pandemic is a 2% – 2% to 3% market growth for HIV. So I think that should be considered the threshold.
And then with some of the things we spoke about before, I mean new advances in long-acting could provide better value to patients and therefore, opportunity to see an even higher revenue growth rate. And then the untapped market and prevention that comes into that.
So I think we see a really strong, significant HIV base that’s growing over the course of this next decade on top of what you see oncology over this period of time. And then we didn’t talk about inflammation. We probably won’t have time to today. That’s a little bit of a longer-term play for us. But longer term, I think we’ll see things more towards the end of the decade coming out of a very innovative pipeline there, but that helps us then as the third leg of the stool as we go into 2030.
Matthew Harrison
Perfect. I think we’re out of time. So thank you.
Dan O’Day
Thank you very much.
Matthew Harrison
Thanks for being here. Appreciate it.
Dan O’Day
Thank you.
Question-and-Answer Session
End of Q&A
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