Gilead Sciences' Management Presents at 2013 Morgan Stanley Global Healthcare Conference - (Transcript)

Sep. 9.13 | About: Gilead Sciences, (GILD)

Gilead Sciences, Inc. (NASDAQ:GILD)

2013 Morgan Stanley Global Healthcare Conference - (Transcript)

September 9, 2013 11:10 AM ET


Patrick O'Brien - Vice President IR

John Milligan - President and COO


Dave Friedman - Morgan Stanley

Dave Friedman - Morgan Stanley

Alright, thanks everyone for joining us here and Dave Friedman, our tech analyst and joined our stage here with the team from Gilead Sciences. On the far side, Patrick O'Brien, Vice President of Investor Relations and on the near side here, John Milligan, President and Chief Operating Officer. So thanks both for joining us and maybe for the one person here who hasn’t heard of you guys, if you can just give a very brief overview of the company and then we will dive right into questions.

John Milligan

That's a 25-minute question. So first of all, Dave, thank you for having us here. It's always a pleasure to be back in New York. What a great audience here today. Good turnout, I really appreciate that. So Gilead Sciences, we are the largest provider of HIV medications. My suspicion is that this will be last we will talk about HIV during the course of this presentation where we continue to have good product launches and continue to expand our franchise of HIV products.

And as we said on a most recent conference call, we have had seen, we have seen significant growth in our single-tablet regimen franchise including most recent launches of Stribild and now two years ago the launch of Complera in fact for the first six months of this year, we had over $0.5 billion in sales of Complera and Stribild alone. So you can see that an increasingly important part of our franchise and I think a big growth potential for the future of our franchise in HIV.

Obviously secondly, we're focused on bringing products to market and liver diseases including hepatitis B, and our ongoing products and clinical studies and under review for hepatitis C and I am sure we'll talk about that quite a bit.

And overall it's become a very balanced company as we're starting to have significant growth opportunities in hepatitis C and also in our respiratory and cardiovascular franchises where we’re on track to do over $1 billion in revenue this year alone. So it’s a very strong franchise, very strong growth opportunity for the company as well.

So that's to be my two minutes and 30 second introduction and I pass it over to you.

Question-and-Answer Session

Dave Friedman - Morgan Stanley

Perfect. And if anyone in the audience has any questions during this please, feel free to raise your hand we’ll get to you microphone. So maybe if we can start, we’ll jump into some of the pipeline up here, so hepatitis C has obviously been a big focus area for the Street, for the company, maybe if you can just update us on the genotype 2, 3 and genotype 1 with interfere on parts of the program, first of off your sort of lead hepatitis C [assets]?

John Milligan

Yes. Just by way back on just to follow through your applications are under review in the United States, Europe and other jurisdictions now based on the four studies, NEUTRINO, FISSION, FUSION and POSITRON and then those studies we're able to demonstrate two different ways that the drug could be used. In genotype 2 and 3 sofosbuvir could be used with ribavirin for either 12 or 16 weeks of duration and with those patients who are new therapy or patients who have failed other therapies or intolerant of other therapies have very high cure rates and that cure in this case has been SVR12.

So sustained viral response 12 weeks after succession of therapy. And so those are very positive data sets and that’s label and the language that WE'RE asking for from the European and the U.S. authorities is that we would have 12 to 16 weeks of therapy in those patient populations.

In the genotype 1 patients and based on some previous studies we knew that sofosbuvir plus ribavirin alone was not really sufficient to cure high percentages of patients and that there needed to be added additional agents. So in that case we did the study where we looked at genotype 1 but also genotype 4, 5 and 6 but principally genotype 1 the most predominant genotype in United States where we show that 12 weeks of sofosbuvir ribavirin and once weekly pegylated interferon could achieve an SVR12 of 90% in genotype 1 patient so very high cure rate. A side effect profile which was very similar to what you would expect for pegylated interferon and ribavirin alone.

So very significant change in the way that therapy could go forward. And that’s what we've asked for in terms of the labeling for the product that would be used in patients to our treatment who haven’t had treatment previously and who have genotype 1, 4, 5 and 6. so that’s what we are looking for from the regulatory authorities.

And do you have if we just start I guess from smallest to biggest with genotype 2, 3, do you have a sense of which countries around the world are going to be the biggest markets for genotype 2, 3 and about how big those are?

John Milligan

If you look at the United States, genotype 3 is only about 9% of the patients so it's smallest portion of it, and in terms of genotype 3 is relatively difficult to treat much more so than genotype 2 that's something we learned in these recent studies. If you look at Europe, it's more around 15% but there aren't a lot of countries around the world there's a huge percentage of genotype 3 patients to get into ex-U.S., it's still lot of genotype 1 for example in Japan it's principally 1 and principally 1B, China has principally genotype 1, you get into exotic parts of the world, Egypt is genotype 4, Vietnam is genotype 5 and 6. So there are some subtle areas where there's different genotypes, but principally I think genotype 1 is the big opportunity around the world followed by genotype 2.

Dave Friedman - Morgan Stanley

And what are -- and genotype 2, how does that compare to genotype 3?

John Milligan

One, it's easier to cure, so we already know that, we're doing some additional studies to see if we can make it easier still. We know that it's about, if you think about the United States it's about 16%, 17% of the patient in the United States for genotype 2. It's a little bit higher in Japan there has been a genotype 2 outbreak, we think there is a very significant opportunity to treat over 200,000 people in Japan who have genotype 2 infection. And there's very little, very few options for genotype 2 patients, so that could be very good opportunity. And it's about the same in Europe, so we think there's a pretty good opportunity there as well.

Dave Friedman - Morgan Stanley

And then I guess moving onto genotype 1, where I'm sure most of the action is, your first offering is going to be peg and riba based regimen most of the excitement in the space has been around all overall interferon free regimen. So do you have an expectation of so far that we're getting a significant amount of use in this initial through label phase and if so what are the patients that you think are most likely to start coming on to the peg-riba based regimen.

John Milligan

It is a good question. So in fact we've been out talking to doctors and we actually have our field force out now they've been out all of April and they're able to talk to doctors, they're doing some unbranded awareness which they're allowed to do. Any questions they come through, obviously get it over to medical education and our medical scientists. However, we are able to talk to doctors about what kind of patients they have in their practices and there are a significant numbers of people who are waiting for therapy and there are significant number of people who failed other therapies and will be willing to come on to a 12 week regimen.

So, we're in fact going through and figuring out exactly where the areas are that we think we can be successful with this regimen early on and we are on. And it's what you would expect is, there is about 350,000 people who have been under care are not yet cured. They're largely seen or would go to a specialist. So these will be the big tertiary centers with where you'll see all the doctors who are very sophisticated in their treatment of this disease, and who know that they cannot predict how quickly these patients will start to decline and lose liver function and need to go, undergo liver transplantation in future.

So we think there's a very significant number of patients who'll come into therapy, even if there's a visibility towards an all-oral therapy of body here later, because the need is so high. And 12 weeks seems very manageable to most doctors and patients relative to 48 weeks. And it was just -- it's one season, it's just 12 weeks, you can -- it's easier to get through, because it's so defined and the outcome is so much easier. To think about from a patient -- when you think I got nine out of ten chance to being cured.

On the physicians side, they are thrilled because the work load that they’ve had with the protease inhibitors which has been very substantial is really less in the quarter what they had to do before. Fewer meetings, fewer follow-up meetings, fewer phone calls during the course of the therapy and you can tell that. It's kind of easy to predict these things as some ways if you look at clinical study. A, it enrolled very quickly and B, the dropout rate was extraordinarily low. So even in clinical studies, patients don’t like these things, they will quit and the quit rate was very, very low in there, and [trust] me it’s very relatively easy for the staff limitations to get through this.

Dave Friedman - Morgan Stanley

And as you think about potentially pricing this initial regimen for genotype 2, 3, you talked about 12 and 16 week dosing in genotype 1. This is a 12-week program but you’ve looked at eight-week program but you looked at eight-week programs as well. So given that essentially two-fold range, you know, is this something where you have a flat patient price? Is there a way to assess what regimens people are most likely to take? I mean how do you approach something where you have that variable duration where frankly, each week, theoretically could matter a lot in terms of value?

John Milligan

It's a good question, obviously I can’t tell you much about what we enterprise, but I can tell you a little about how we're thinking about it. So, you said we’ve explored eight weeks and 12 for the (inaudible) year. We're not asking pricing other than 12 weeks as the lowest duration. But you are right with our next generation of compounds, (inaudible) year has been combined with [difference] there. We do have data analysis to just eight weeks in treatment naïve patients looks to be sufficient. I don't think there is any chance of it going lower than that and we are going to try to confirm that in the phase 3 studies that 8 weeks will be sufficient in different patient types.

So does add a level of complexity as we think about the [policy] here. In terms of flat pricing per patient that’s not something that we’re considering, when really this is a, it’s a bottle of pills and you charge the same for every bottle of pills. So if you treat for less time, it's going to cost you less and if you treat for a longer period of time, it’s going to cost you more, and we are not contemplating anything more sophisticated in that in terms of having cost. We do think we can provide good value in genotype 3 patients especially those who failed, have very few options, so it's probably pretty good for them. And don’t forget it could be use longer even in transplantation patients where we’ve treated up to 24 weeks.

So it is going to be a flat price per bottle that’s the way we are thinking about it. We are kind of take into account the current value that we bring, higher percentage of patients were cured, lower side-effects, fewer other ancillary medications that you have to have in procedures and so we do think that it provides a good value to the medical establishment and gets more people through more quickly.

So we think there is some value to that and we will factor that into our thinking about the pricing, and then we do have to take into account the fact that there may be eight weeks of therapy in the future and that price that we’ve set for so (inaudible) year in this first indication will in some ways will be a bar that will be interesting to negotiate around as we get in to less therapy. So we will have to start quite a little bit value to (inaudible) I think in those patients as well.

So it’s a complicated dynamic, what I’ve just described to you is a series of models essentially that we put together to try to figure out what's the right area under the curve for us and we are doing this on a country by country basis, in order to figure out as we roll out to Europe in to Canada, Australia, other countries what’s the right pricing dynamics in those areas.

And I think we are at a point where we are pretty comfortable with the models, and we will spend the next few months debating and making sure we are comfortable with where we go and then we will announce upon launch.

Dave Friedman - Morgan Stanley

In terms of the population sizing and patient identification, can you address some of the early efforts or sort of mid stage effort that help departments and governments and companies are doing to try to increase the diagnosis rate, given that there is a pretty widely held belief that there is a large undiagnosed pool of patients both in the U.S. and Europe?

John Milligan

So we have a couple of these things going on already. In fact I was in Washington last week talking to several groups about just this. So there are patient (inaudible) groups and there is other specialty groups like the VA who have a population that still hasn’t been identified to the extent it should and is very difficult to treat. Of those in the VA who have HCV, by the way 63% are ineligible for pegylated interferon therapy because of underlying comorbidity. So it’s a big unmet medical need in that population which I think could be similar in other parts of the world.

So the CDC has recommended as you may know that baby boomers, people born between 1946 and 1965 are be tested one time for HCV because there is the potential that they could have been exposed through medical procedures or other behaviors in that timeframe. It’s kind of a pretty good value, because if you are negative you never have to worry it again and if you are positive then you know that there is a treatment out there. The U.S. preventative task force has also upgraded to at least the B grade having patients tested, so that’s been a positive and we think that CMS will largely follow that recommendation as well so that we broaden coverage for patients who need to get tested.

So next time somebody comes with a [GAAP] it should be part of the blood work that you get as you go in there that you will be screened for hepatitis C, so that you can know what to do. I am encouraged by this just anecdotally I’ve seen quite a bit of advertising, I was driving down (inaudible) Highway 15 in Middle Pennsylvania near Harrisburg and three different times, I saw one of the big local health [AC] or kind of care organizations there had partner with CDC and so there were billboards asking people to get tested. So that’s kind of in the middle of (inaudible) country, so if they are advertising there so you know it's more broad then that. And so I have been heartened by what I have seen that there are already groups out there thinking in advance that we need to get people in, we need to screen them and we need to care them.

Dave Friedman - Morgan Stanley

And then as a sort of second layer to that, of this population that has now been recommend to get tested once; is there an estimate as to what proportion of those patients have actually already been tested either because they gave blood or got life insurance or any of the various reasons why people end up getting tested?

John Milligan

So who has been tested and exclude from this population.

Dave Friedman - Morgan Stanley

Yeah, I guess of this the very large sort of baby boomer population that’s suppose to get tested obviously some of them have been, is there a sense of that where that cut is.

John Milligan

That’s a really good question. I haven’t seen any data as to who has been tested. So the [reason] we did out of this population is shown to be negative from me. It largely isn’t done much as you pointed you get life insurance is a popular reason that most people get tested these days.

Unidentified Company Representative

CDC did say although David that by implementing this test for all baby boomers that they can expect maybe in additional 800,000 patients could be discovered or diagnosed through that process.

Dave Friedman - Morgan Stanley

And then in Europe are the dynamics the same in terms of both sort of interest in investment in the disease and diagnosis and maybe I'll just start there, I mean how the regions differ in that regard or not?

John Milligan

The Europeans are even more enthusiastic, and part of the dynamic in U.S. Healthcare that makes things a little bit strange, is if we treat a young person today who has HCV, you don't know that you are going to get the cost savings down the line, because you are not in a close system. Now there are some exceptions that, the [VA] is good exception to that. If you are healthcare system you can assume that most of the burdens is going to be taken up by Medicare. So really I don't have to worry about it why should I treat today.

In the European healthcare system that's completely different, of course because it’s a close system and everybody is captured for life. So there is an even greater interest in trying to cure as many people now to avoid the long term cost that are going to happen in their system. We can see some of that occurring in other countries where the infection is more mature.

In Japan for whatever reason the infection got into the blood supply about a decade earlier than the United States. And so on average the Japanese HCV patient is about 10 years old, and what we are seeing is that they are very significant strains on their healthcare system, because of that. And let's not forget in Japan there is no liver transplantation, that's culturally not allowed. So you have a lot of people who are succumbing to liver disease, high degree of liver cancer is the number one cancer in Japan right now and a huge burden on the medical system. (inaudible) is all these crazy procedure where you do like a partial ablation of the liver and put it back and it's very complicated and costly. And so there is highly, highly motivated to try to treat as many people as they can, and we see other healthcare officials looking at this thinking we should treat now so that we can avoid these costs and a decade for now which we're going to really be pretty tremendous for the system.

Dave Friedman - Morgan Stanley

I guess, unlike HIV, a [HFC] patients doesn’t have to go on to get psoriasis and liver failure or liver cancer. So how much does that factor in as you interact with these over all change to help agencies and payors. I mean is there a debate or a question around whether very early stage patients with no fibrosis should be treated or whether you should wait and see if they start to progress?

John Milligan

If you look at it today, the risk benefit for treating early patients largely isn’t there, because the medicines are so difficult to pay and there are risks associated with it. So let's not forget that. There has been somewhat of a segmentation to the sicker patient. The irony of it is the sicker you are, the less successful the medicine is, and the more severe side effect have been and so that really created a quandary for treating.

I think much like an HIV is used to make things simpler and safer, the risk benefit to treating earlier becomes higher and higher. There could be a push back on the cost, but for the patients, the doctors and the systems, that all makes sense and that’s why recommendations tend to move towards treating everybody earlier once these things have proven themselves to be safe enough that you don’t have to worry about it and when the benefit is well known. And for most baby boomers, they are not out causing problems with new infections, but there still is a pretty good segment of the population United States which is actively doing drugs that is passing on this disease and we're seeing epidemics. I mentioned somewhere in Pennsylvania than other areas, there are pockets where we are seeing new HCV spread as there has been a rise in IV drug usage over the last year unfortunately.

Dave Friedman - Morgan Stanley

Yes, in HIV, how much have you seen of that the -- towards the increased testing in earlier treatments?

John Milligan

So talking about HIV, how much we’ve seen in terms of early treatment and testing, so we have seen some really good positive trends, so the average CD4 count has come up pretty dramatically over the last two years both in our clinical studies and in the way we treat. So we used to be very consistent of patient who are coming about 275 was on average to CD4 count.

We are now seeing it up closer to 400 in many of our clinical studies and we are seeing significant numbers of patients coming to therapy who are at 500 and above. So these will be essentially a normal immune system above that level, so very close to normal. So we’re seeing the barrier with the -- the thought barrier of waiting to later eliminated in most practices.

It has translated somewhat into more patients coming in the clinical studies, but it’s not been as dramatic as we might have thought it would be, but it has been very consistent push a patient into care and it tends to run around 45,000 or 50,000 new patients per year, and that’s been very consistent over the last five or six years.

So the makeup has changed but the numbers haven’t changed as dramatically as we might have thought.

Dave Friedman - Morgan Stanley

In terms of each individual state that the testing, have you seen much enforcement of?

John Milligan

That’s a good question. So years ago with all the barrier, the barriers were starting to come down for testing and treating. We did start to see more routines training occurring and I don’t have good statistics on the number of tests, the number of positives that have come out. They don’t have a broad view. I do know in areas like California, the testing has been very successful, bringing new patients in Massachusetts has been very successful, parts of Europe I’ve heard anecdotally, it’s a very good success at bringing more patients in.

Beyond that I don’t really know if it’s made its way into the deep south and into the inner cities of the south where I think the epidemic is the most notable. I did try to spend some time in Atlanta earlier this year where the epidemic is pretty bad to try to learn more about anecdotally, but to be honest it seems the doctor is trying to keep their head above water because they had so many patients that they couldn’t accept any more. And so I am worried (inaudible) intercity clinic. There is a capacity issue which is leveled, about 50,000 patients.

Dave Friedman - Morgan Stanley

Your capital allocation policy have placed an emphasis on paying down debt to get to leverage of 1.5 times, you are there now. So how are you looking at capital allocation around doing larger deals going forward and increase share repurchases?

John Milligan

Yeah, that’s a good question, our CFO, Robin Washington, she said in the last call we had been working on paying down our debt associated with the (inaudible) that transaction until we get to EBITDA ratio of about 1.5 which we are at. As we look at the remainder of this year and next, we do have some significant convertible debt that will come due next year and we want to make sure that we have enough cash and especially US domiciled cash to be able to pay that off.

So in the near term our capital allocation is really focused on share buybacks to offset dilution and making sure that we have enough cash for upcoming debt, repurchase of debt that we have to go through.

Your earlier question was about the allocation towards M&A and other activities, and I would just say that with regard to the company right now our pipeline has never been fuller, I don’t think we have ever as a company been busier than we are right now. And so I think of 2013 especially as a year of executing on the things that we have done to make sure that we can be successful with sofosbuvir and its launch and to make sure that we can then as we said on the last call execute on our next series of products including Idelalisib and the filing in the U.S. and Europe for -- into Hodgkin’s lymphoma indication in the fourth quarter of this year, so we are really focused very heavily on those things right now.

As we get into the launch next year obviously the cash flow should increase pretty nice launch for sofosbuvir care, cash flow should increase pretty dramatically. I still think as a company, we should focus on doing small things to make the company more successful, but I feel like we have everything we need going forward and we’ve never really been at a better place from a pipeline perspective.

Dave Friedman - Morgan Stanley

In HIV 2, if any, and what changes in therapeutic that necessitated thing?

John Milligan

Yeah, so we never said HIV 1 and HIV 2, so there are certain therapies that are effective in HIV 1 that are not affective in HIV 2, so like the non-nucleoside reverse transcriptase inhibitor are specific to one or two and all the ones that have been developer specific for genotype 1. So not all therapies work in those areas and there has been an HIV 2 outbreak in Africa that people are started to pay some attention to as well, because some of the current therapies will be inappropriate for those. The nucleosides work well and nucleotides, our portfolio works very well in both.

I have to say I have just started to think (inaudible) in genotype and HIV, I don’t remember that, and it’s a good question. So we are spending a little bit of time thinking about next generation therapy will that be something that will be appropriate to develop. There is not a lot of HIV 2 outside of Africa right now, I don’t know if that will continue, but there is principally in Africa at the moment.

Dave Friedman - Morgan Stanley

Maybe the last couple minutes so go ahead.

Unidentified Analyst

Stepping to ask a question around GS-1101, I was wondering when you might anticipate the earliest that could be approved. And then on the delta data, do you think you will be able to get indication in all four subgroups it was studied in?

John Milligan

So the question is about GS-1101, better known now, less well known as Idelalisib, that's the new generic name for that. So we have said that we have had good meetings with the regulators both in the U.S. and Europe and that we are in the time line to file in the fourth quarter of this year for an indication for relapsed, refractory non-Hodgkin's lymphoma. So these are patients who failed both Rituxan and in alkylating-agent and the data and the package that will flow in had patients failing three or four courses of therapy. So it's a very significantly refractory population that we're working on. So that would be the indication that we would put forward.

We have also been studying Idelalisib in CLL patients. So a variety of other lymphoma CLL in particular and what we said is that that there will be a data set that will come out later this year with an interim analysis that will give us some idea of whether we could file a CLL in the short term. We just simply don't have an update in the United States to file that package today to few patients from the agency’s perspective.

The Europeans are little bit more interested in the CLL indication and it's possible we could that file that one sooner rather than later. So this will be more of a classic oncology development where as data that's come out we will supply more data to the agencies and hopefully broaden that indication. So that it will cover other lymphomas and leukemia as we move forward.

Dave Friedman - Morgan Stanley

Maybe in just a last couple of minutes, since we're on to Idelalisib, if you can just talk that is a set of indications where you have at least a few of the newer drugs, all sort of charging for the same couple of, same couple of indications. So if you can just, maybe just quickly highlight how your drug differentiates itself and how you expect either through the development plan or marketing to separate out your growth from the rest?

John Milligan

It's a good question, Dave. First of all, I don't think marketing ever separates our drugs. I always think that data sets that are in there because that’s what we can speak to. So we're trying to generate a significant number of data sets. If you look at Idelalisib versus Ibrutinib, there is very few overlapping patient populations that I think directly compare. Currently, it looks like we do better in indolent NHL and I think they have more data and more aggressive data, especially in patients who are on monotherapy in CLL and you are right, it is a field that’s changing very rapidly with lots of new compound under review.

So I think our strategy is clearly the use of in combination. We've a combination of Rituxan. We have a combination of bendamustine. Those have a combination of both. So it would sort of fit in to the existing treatment paradigm that most doctors are comfortable with and prevailing wisdom seems to be that Rituxan is here to stay. I never believe prevailing wisdom. So I think that things get replaced when data comes along and there is the possibility that in the future you could have a Rituxan free first line therapy. I don't know if that’s going to happen, but there were sufficient data and the compelling reasons that would naturally occur in the medical field.

And I would like to see us try to push Idelalisib into some of these areas that don’t have injectibles, that don’t have alkylating-agents. So as you will see us develop this further, there is a great interest in developing in combination with our Syk inhibitor. And if you look, there is a whole wide variety of different lymphomas, diffuse B cells molecular, all these different kind of lymphomas where we're now studying the combination of Idelalisib and the Syk inhibitor. So we can have a non-injectible sort of oral regimen that will be safe and effective in those patients and they have seen a real interesting getting away from the alkylating-agents because with the longevity of these patients doctors are now very, very concerned about the secondary tumors that come out after treating with some of these very severe chemotherapies. And so I can’t see it going to a more gentle mild, first line therapy and preserving these others agents for later in the long-term future and that will really be our long-term goal to be able to do that.

Dave Friedman - Morgan Stanley

I think we are out of time. So thanks everyone for joining us. And thanks both for joining us.

John Milligan

Thank you very much.

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