Gilead Sciences, Inc. (GILD) CEO Daniel O'Day presents at Jefferies 2019 Global Healthcare Brokers Conference (Transcript)

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Gilead Sciences, Inc. (NASDAQ:GILD) Jefferies 2019 Global Healthcare Brokers Conference June 5, 2019 11:30 AM ET

Corporate Participants

Daniel O’Day - Chairman and Chief Executive Officer

Conference Call Participants

Michael Yee - Jefferies

Michael Yee

All right. We're going to go ahead and get started because I want all 30 minutes here for my discussion with Mr. O'Day. But as you know, I'm really excited and happy to have the new Chairman and CEO of Gilead Sciences up here with me, Mr. Daniel O'Day. Great to have you here with us on your first investor coming out session to meet all of Wall Street.

Of course, you know most people on Wall Street from your time at Roche, but now that you've had some time to settle in at Gilead maybe just talk to us about how it's been; what have what have you been focused on Gilead and your time there? And obviously, what are you most focused on at Gilead over the foreseeable future and we're getting some of the details on that.

Daniel O'Day

Yes, sure. So, first of all, Michael, thank you very much for having me here. Great pleasure to have a chance to represent Gilead and to give you some of my early insights. I'm now at the three month point, so keep that in mind. It's been terrific, I have to say. All the reasons for why I came to Gilead have been reinforced only in the first three months. And that is, I found an extraordinary focus on the science. I mean really, really strong scientific base.

The second thing I think that comes to mind about [indiscernible] are the ability to really keep the bar high in terms of breakthrough medicines. I mean how many companies in three decades have cured an illness and turned to another devastating illness into a chronic disease. So, I think you know, they clearly have their actions where their words are around breakthrough medicines.

And in addition to that I think you know the capital and the balance sheet of the company provides for a lot of strategic flexibility as we move forward to continue to develop and grow the pipeline internally and also looking at partnerships and external collaboration. So, in the first three months I have been firmly focused on a few key priorities, one is really taking deep dives into the pipeline and really looking at both the internal pipeline partnerships and some of our progress in corporate development.

The second priority is really looking at the commercial delivery. We have a lot to do in the commercial front both with new launches we have out there right now in the field particularly of HIV and also in the cell therapy. But really getting my arms around the commercial delivery of the company and getting ready for filgotinib for instance in inflammation which is an important new area for us.

And then, the third priority is clearly looking at the people and putting a team together, trying to understand how to take advantage of the tremendous intellectual horsepower. I would say that Gilead has and how to put that into context. So rest assured that the rest of the year goes on and as I get further seeded into this seat, I'll be more explicit about the strategy of Gilead towards the end of this year. But also rest assured that, we're not waiting for that. You can see we've taken some actions relative to the company what I think is important both in terms of people and structure relative to KITE and so you'll see other things come out over the course of this year while we're also assessing the strategy.

Michael Yee

Okay. So, as you think about I guess pipeline enhancement or pipeline expansion how do you go about that with Gilead. What are the things you're focused on? What would you like to do? What is your strategic approach to doing that?

Daniel O'Day

Well, the first thing is to really understand what we have at Gilead. And back to the science focus, I've had really helpful deep dive days with the sciences, with the developers, with our commercial experts in each of the therapeutic areas that Gilead has kind of a hallmark experience with. I mean clearly understanding the waves of innovation that we've had for two decades on HIV and those waves aren't stopping. We're continuing to really support our world leading position in HIV.

HCV has predominantly stabilized now, which I think is important but our expertise in liver disease continues, focuses on NASH and HPV, and then, deep dives into the cell therapy business, which is important. And the broader oncology business at Gilead both the immunotherapy partnerships we have as well as the small molecule work in oncology. And then a deep dive into inflammation as well where I think we have some really interesting approaches to inflammation with filgotinib being a key cornerstone I think to the future there. So, that in addition to as you could imagine getting to know some of the partners that we have currently, getting to up the speed with our corporate development discussions. I mean these are the things that both in the process of evaluating, but also I've been impressed by what I've seen so far.

Michael Yee

So, in the first three months, obviously, getting settled in and meeting your partners doing these different deep dives. I think as you look forward over say 12 or 24 months, I'd say that the good thing about Gilead is that we have a lot of opportunity and a lot of big balance sheet to do that. I will use the words partnerships and collaborations a lot. So, we look at something like your previous seat at Roche, a lot of stuff going on. Here we have a lot of opportunity to build that. What is your approach to doing that in each of those areas?

Daniel O'Day

Yes. I think first of all, I mean one big word that comes to mind in my first three months is the potential, yes, that Gilead has. And by potential I mean, world-leading sciences are really hard thing to build in the industry we all know that. And the fact that that has been a cornerstone of Gilead gives us great strength both for our internal pipeline finding out what we can possibly accelerate there. What is the right bets to make in each of those therapeutic areas. But very importantly and this also comes from my experience in the industry over the past three decades using that internal scientific experience to understand what good looks like on the outside relative to partnerships.

So clearly, much of our partnership activity and/or M&A activity, first of all, has been predominately early to mid-stage and will continue to look at late stage assets as they come along. It's been primarily in our key focus areas where you have that scientific expertise, right? So either virology or liver or now inflammation, oncology growing and we'll continue to be opportunistic about that as well.

But I think having a balance sheet that allows us to really think thoughtfully about what to invest in and when to invest. There's also a tremendous advantage. And at the same time, we should use that wisely. And we should put it to work on areas that we really think we'd bring great expertise to and areas that we think we can continue our long-term growth.

Michael Yee

So, Wall Street thinks that you have a fantastic expertise in liver, but most importantly virology. And I think NASH is an emerging area although, obviously, liver disease and I think we're working on. Do you -- I think the street feels like there could be a growing or stronger expertise in oncology and inflammation and some of these areas are historically Gilead has not been as strong. Do you feel that you have the capabilities and/or that the expertise to expand in those areas. People feel reticent to believe that can be a strength for you.

Daniel O'Day

Yes. I think I'll come back a little later this year with a fuller assessment on that. But I have to say that. Let me just take oncology as an example. I do think that having come from an experience steeped in oncology, I think that the Gilead strategy of focusing on a pioneering technology as a potential entry points into our hyper competitive space is actually a very good strategic move. It comes with risk of course and opportunity and I think the types of data that we've seen in late stage B cell cancers is the type of bar that we should expect for entering into a very competitive space.

The data that we've seen with the Yescarta at the two-year mark at last year's ASH and that continues now as we look at the three-year mark is extraordinary for a subset of patients. So the question is, with this new technology in oncology how do we expand to other patient groups earlier lines of these cell disease, other immunologic malignancies, solid tumors, allergenic and complementing that in a thoughtful way and that's a thoughtful way about perhaps some of our small molecule expertise in work at Gilead how that might be used alone or in combination with cell therapy and some immunotherapy collaboration. So that's just one example in oncology of a growing and I take your point, our growing expertise at Gilead. And I think we have to be thoughtful about how we approach.

Michael Yee

It has to be synergistic. I mean, so shall we look at how you have put a centre piece in cellular therapy and people say okay, well, rather than just be in I/O company and try to be the 15th PD-1 [I/O] [ph]. You decided that's where we're going to tell me the expert in that. Do you feel like everything you need to do there needs to kind of center around that and be in sync with that or can you just say, okay, well, look here's a great asset in solid tumors. We should do that because that can be a multi-million dollar drug and we have that global infrastructure to do that. Talk about what the hurdles are for these different areas.

Daniel O'Day

No. I think that's a good point.

Michael Yee

I mean the inflammation is so real and forgotten [indiscernible]. What are the hurdles there?

Daniel O'Day

So, let's stick with oncology, happy to move to inflammation. But with oncology, no, I don't think it has to be only linked to cell therapy. But I think we have to come with a unique approach to oncology. It's your point. I don't think we should be the 15th PD-1 first generation checkpoint inhibitor into the market.

But having said that, I think there are complementary mechanisms here that we can look at with cell therapy and potentially other targeted, or immunological agents -- small molecules or biologics. So, that is one piece of the strategy. But I think we're still forming our strategy around oncology. But, I certainly think if we found a way to use Gilead's leading scientific approach to come into oncology with a highly differentiated breakthrough medicine that's something we would do.

If we can partner with somebody that has a unique or an advance first or best in class on a target, we'll certainly look at that as well. So, it's an evolving piece of the puzzle. I don't want to over speak right now on oncology because you are still evaluating it. I'm firmly behind cell therapy and re-evaluating kind of the bigger pieces outside of cell therapy.

Michael Yee

And then in inflammation same thing you have this blockbuster maybe you talk about obviously your outlook on filgotinib, which is obviously an important product, I thought you made some important comments on the conference call about that. So, maybe to talk enthusiasm around that? How important that is and your desire to build around that, because we see that you have necessarily built around and maybe, okay, well, you are not sure yet. We don't know enough about filgotinib to fully invest in information. So, maybe talk about that a bit.

Daniel O'Day

Sure. So I think I mean first of all, I think filgotinib has a very attractive competitive profile. I mean let's face it. It's been highly successful in three different patient populations at two doses. And we've seen good effect and good safety profile of both of those doses in the JAK class. So I think first and foremost in a field that is looking for options for patients first in RA and then potentially in IDB and other indications that we obviously have a lot of work going on. That is an area that is -- has unmet medical needs around highly efficacious, highly safe and convenient drugs for patients. Patients who are not yet well managed in the field of rheumatoid arthritis for instance and we've got lots of that we could do in terms of [indiscernible] CR58 or 70 responses so they are much higher than we have today.

So filgotinib, I think in and of itself is a very competitive product profile and something we now have to build up to be successful in the commercial launch here. Having some experience in this and my past we really got to ramp up now to be successful there. But to your point it's not filgotinib alone. There's a variety of other targeted mechanisms that we're looking at in the scientific side that as Gilead. They could potentially be complementary, could potentially approach combination type approaches in the future. And that's what we're getting our arms around. So, I think one needs to think about a therapeutic approach to this based on innovative science and that's basically where we're going.

Michael Yee

Okay. Can Gilead be competitive in the inflammation space? Can they be competitive in RA and ulcerative colitis an area where you need to build from scratch to sales force and of all that. Obviously, there is quite a notable competitor out there is a little bit ahead of you, but also the dominant the 100-pound gorilla in that space. How can Gilead be competitive there other than just expect to manage -- potentially better manage them, but there's much more complex than that if it was [indiscernible]?

Daniel O'Day

Sure. No. I think look, I think we have to be eyes wide open going into this market. It's got a lot of options of course. And yet I don't think it's yet well served from the standpoint of a convenient or highly efficacious medicine that's safe. So at the end of the day, first and foremost, it's about the product profile. And I think we have the 24. We have the 24-week data now. We'll have the 52-week data shortly and assuming that's all confirmed. And we have a strong path forward there. I think the product profile even being a little bit later to the JAK game can certainly play effectively. Of course, we have to be smart about how we do that. It's still in most markets particularly around the world of specialty driven markets. So I think Gilead can be successful and has been successful on specialty driven market that some backbone infrastructure that we can leverage.

And then, of course, there's a need for bringing on expertise that will be specific in the medical and sales area for the JAK class. I would say as we go into IDB and those trials still need to read out. It's a slightly different competitive profile where we have the chance to be potentially second and some indications with IDB depending on the data. So, our order of entry also will move up potentially in IDB and that's still quite an untapped market. So you have to look at the totality of the lifecycle management I think of the JAK with a good strong launch.

Michael Yee

Okay. All interest you'll be able to build that infrastructure and do that. And I think people are certainly hopeful that you can be competitive in that space. How important even before we get to that the street seems to be overly concerned about how fast that drug can get to market and all of that. Just a quick comment on how confident you are about the overall safety profile pending or not pending some additional data that you have a good relationship with the regulators to get that drug as fast as possible to market?

Daniel O'Day

Right. I think the overall safety profile has been well demonstrated now in the three trials associated with three different disease states. And we have a clear path forward for Europe. We'll be filing there towards the second half of this year and in the U.S., we think we have a very good -- now with the totality of data it will be the first time and we'll be dialoguing with the FDA in the near term to talk about the totality of the data set, right? So, the entirety of the safety profile associated with the efficacy that we're seeing across different doses and different treatment paradigms and come back to you in the second half of this year with the outcome of those discussions. But we remain optimistic and confident about the path forward also in the U.S.

Michael Yee

See the totality of all of that is perhaps maybe underappreciated by the street because it seems to just focused on one safety study in totality.

Daniel O'Day

So, yes, I think with any medicine and any discussion with the regulator, you have to look at the benefit risk profile in totality. And I think in my experience that's the way, the FDA has always looked at medicines and products and so we need to have that discussion. But yes, I do think one needs to look at the total benefit of that product and put certain early preclinical signals into context.

Michael Yee

Right. Let me hit on some of the other therapeutic areas. I think you focused, obviously, in NASH. It's a huge opportunity that people are still scratching their heads about what ultimately will play out there. Gilead has had a couple of Phase 3 assets they've been relatively disappointing to what we were hoping for. Where do you place the priorities for NASH for you as you go forward? Do you have all the assets you need? It's just going to take time to get all the answers to figure out where NASH is going to be? How do you think about the priorities for NASH?

Daniel O'Day

I think I start with the fact and we all know that NASH is a huge unmet medical need, right? I mean it's -- without a doubt one of those big healthcare problems that companies with expertise in that particular scientific area need to be placed in some scientific expertise in that. And certainly Gilead's heritage and pedigree in liver diseases positions it well to try to tackle a very, very complex problem, right? Let's face it. It has challenges relative to heterogeneity of the disease, the diagnosis of the disease, our understanding of the disease. And clearly, we've invested and we have a tremendous amount of expertise and data now that we can mine to try to understand more and more about what's going on with the disease including our most recent late stage disappointment for patients.

But, when you're pioneering in an area, I think you have to stretch yourself a bit and we certainly did that. Now, we've got to double back and see what that means. So what does that mean for the future in terms of overall priority for the R&D. I mean that's something I'd like to come back later this year and talk more about. But I think we all have also some very interesting data towards the end of this year with the Phase 2 ATLAS trial, which is really, I think fairly comprehensively testing the combination approach. And when one approaches really difficult heterogeneous disease, I think the concept of approaching two targets at the same time is at least a very good general hypothesis to approach a disease.

So at the end of this year, we'll have that in our hands. You may have seen, we announced a collaboration also with Novo Nordisk on the GLP-1. So, I think in an area like this, you need to place a variety of bets. You need to learn from the science and the readouts. You need to pause and kind of reconsider your options and your investment in the strategy from time to time. And I think as we get more data over the course of this year and into early next year, it'll be a good point for us to say where are we standing with NASH right now? And what's the path forward? So, but I do think that the bets and the programs we have in place are the right ones to help us get to that type of decision.

Michael Yee

I think people feel like you are the leader in liver diseases. I think we can safely say that. You have certainly more, I guess leveragable opportunity to be the leader in NASH and that you could be first to market be there, grow the market and be the player. And so, we're looking forward to building out and moving forward there. We're just scratching our heads to figure out how that's…

Daniel O'Day

I understand. And while I agree with you, I want to put appropriate caution into that because at the end of the day, this is a higher risk area for our R&D portfolio on the one hand. But, I think a company our size needs to think about having a balanced approach to high risk or high reward projects and others that we think are slightly more certain at this stage. And beyond NASH and liver disease, of course, we have a really concerted effort around HBB as well, which I think is another massive unmet medical need around the globe and one where I think our liver expertise can be put to work. So I do think our liver disease is world class. And if there is a way forward with NASH, I think replacing the right that's an experience to figure out how to get there.

Michael Yee

Okay. Let's obviously hit on HIV. A competitor recently launched a new product out there. They're talking about long acting injectables. Wall Street is unclear what the durability of your franchise looks like over the next five, six, seven, eight years. Do you feel confident about, a) not only the near-term and mid-term growth trajectory of where Biktarvy is going to take you, b) that competitors are not going to have a meaningfulness impact, we should be worried about in the near and mid-term and see that the longer term durability of the franchise will be okay. It's an [indiscernible] situation.

Daniel O'Day

Absolutely. So, look I think one of the pride points of joining Gilead was to see how they transform this disease over the past two decades with waves -- I call it waves of innovation from two drug therapies to three drug therapies to single pill regimens to prevention. And I think it's impressive both from a historical perspective, but it's also impressive to see the work that the team is doing back at Gilead to think about the next wave as well.

So, first of all, let's talk about the current wave. Biktarvy is without a doubt the most successful HIV launch in the United States and certainly on that track in Germany and France. And we expect to launch in other countries later this year. So there's no question about the power of that product profile, the convenience for HIV patients and the longer term growth potential for that.

Likewise having paved the way for Truvada for PrEP and actually one of the first meetings I had that pleasure of being at when I joined Gilead was to go up to CROI in Seattle and see the Descovy data presented there, which again when we think about the transformation of this disease from a death sentence to a long-term chronic illness. We're now approaching things in this disease that we never thought we would be approaching, right? People on therapy for 30, 40 years longer term effects. How do we handle the over 50-year old population? And therefore having cleaners safety profiles like Descovy presents for PrEP is a really meaningful advancement. And of course, we're looking forward to the approval for that hopefully later this year. So I think there's no doubt that the current generations of products that are rolling out are a true advancement on what's been -- had in the past. And the colleagues are not resting. So we have now long acting programs.

You saw some of the [capsule] [ph] data, which is I think very intriguing and we're now in a Phase 1b for that. We have other programs looking at the cure. And they're just -- a relentless focus at Gilead on making sure that we think about this in the long-term. So, yes, the answer to the question is, I'm very confident that our long-term leadership position in HIV will continue.

Michael Yee

Okay. Maybe in the last minute or show, your background in your tenure at Roche obviously well-known pharmaceutical behemoth and you're coming over here and now to Gilead. People wonder about your philosophy or Gilead's philosophy on M&A. And how urgent or important this is going to be in terms of the puzzle pieces for you over the next few years? Wasn't necessary a lot of M&A done at Roche, but Gilead's got a huge balance sheet. So how should Wall Street's expectations be appropriately put in place for M&A and building out the pipeline over the next year or two, we should be patient or but it's important that you get that you want to convey that to everybody or what should our expectations be?

Daniel O'Day

Yes. Well, let me first of all say what I repeated on the first quarter call, which I think I've really had some terrific conversations with investors over the course of the past few months. Some differing opinions, but a lot of harmony around the belief in Gilead Sciences desire to understand better about what's happening with the portfolio particularly in the short-term and I get that.

And therefore, when I think about capital allocation at Gilead, I think in this priority first and foremost when we have sensible value creating M&A that will be number one on my capital priority list returning proceeds to shareholders through dividends, number two, and then, continuing in sensible buyback programs is number three. So with M&A it's a type of our capital allocation list you can imagine it's been a decent amount of time with that. Now back to what the philosophy and priorities are, I've actually seen that the philosophies of both my previous company and this company are broadly aligned and that is that M&A should be driven first and foremost by science. And here I think Gilead has everything to show for that in terms of the work they've done in both HIV and HCV. So I think that's been kept tight.

And secondly, of course, concentrating on the areas that we know best, lots of early to mid-stage collaborations and acquisitions and yet being very aware of the fact that we need to build up our late stage portfolio. Now, as usual I think we have to approach that with the right level of scrutiny on late stage assets that I can assure you that both in terms of acceleration of our internal pipeline when we see things we can accelerate to fill that and looking for later stage assets externally. It's a heavy focus for us and we'll continue. But, we will be disciplined about that. And we'll make sure we do it in areas where we think we can really make a difference. So, more to come on it. I think you'll see through some of the early actions that we would take. It's always better to put these things into actions than words at the end.

Michael Yee

That's what we're waiting for. But I would presume that Washington should always be a little bit less patient than you would like to hope so. Thank you. Dan. I appreciate your time up here with me. And we look forward to more coming this year.

Daniel O'Day

Thanks for your time. I appreciate it.

Question-and-Answer Session

Q - Michael Yee