Gilead Sciences, Inc.'s (GILD) Management Presents at Cowen 41st Annual Health Care Conference - (Transcript)
Gilead Sciences, Inc. (NASDAQ:GILD) Cowen 41st Annual Health Care Conference March 4, 2021 12:10 PM ET
Company Participants
Johanna Mercier - Chief Commercial Officer
Andrew Dickinson - Chief Financial Officer
Conference Call Participants
Phil Nadeau - Cowen
Phil Nadeau
Good afternoon, and welcome once again to Cowen and Company's 41st Annual Healthcare Conference. I'm Phil Nadeau, biotech analyst here at Cowen. It's my pleasure to introduce or to moderate a fireside chat with Gilead Sciences. Happy to have with us today, Johanna Mercier, the Chief Commercial Officer; as well as Andrew Dickinson, Chief Financial Officer.
First, maybe I'll turn it over to you guys. Could you just give a brief sort of the company overview, biggest strengths, biggest challenges? And what needs to happen to continue to grow Gilead and create shareholder value over the next 12 to 24 months?
Andrew Dickinson
Sure. Hi, Phil. I'll start, and Johanna can jump in as well. Thanks for having us again at the conference. We appreciate it. Look, I think we're really excited. 2021 is going to be an important year for Gilead. And there's a real probable sense of excitement across the company in terms of what we've been able to accomplish over the last couple of years as we work on the next chapter of Gilead.
So first and foremost, as you know, we completed a number of important transactions last year. That really built out our pipeline. So we have a pipeline that's now 50% larger than the pipeline was historically, which we think was an area that we really needed to focus on. And just as importantly, those pipeline assets, we think, are unique and differentiated and have the real chance to be first-in-class or best-in-class across the board.
So we're excited about what we've done, again, not only in oncology, which we talked a lot about, but also what we've done to strengthen our virology business, and where we see our immunology business going over the long run. So it's an exciting time to be at the company.
And in terms of where we're going for growth, then I can talk about the challenges, there's a number of key areas for growth for us going forward. First and foremost, the HIV business, led by Biktarvy, will continue to grow, and Johanna is happy to provide a lot of color on that. The cell therapy business continues to perform. We expect that that will grow over the next many years.
We have some important ZUMA-7 data coming later this year in second-line DLBCL, Phil, as you know. Our hepatitis B business is growing, in particular, in China, and Johanna and her team are doing a great job there. And then finally, the oncology business, led by Trodelvy, which we're incredibly excited about the body drug conjugate that we acquired from Immunomedics.
And then maybe the last part of your question, Phil, on the challenges. There's always challenges for any company. The pandemic was a significant challenge. Obviously, something that we're really proud of the way that we weathered the pandemic, both with our base business, as well as what we did with the remdesivir development for patients and for the companies that also benefited our shareholders.
So that's really exciting. Partnerships are always challenging. There are a number of things there that we're working through. Galapagos, in particular, we've talked about. But there are a number of things that were there that we're excited about as well with other partnerships, whether it's Arcus or a number of other deals that we've done. So when we look [Technical Difficulty]…
Phil Nadeau
Thanks, Andy. With that, maybe we'll open up to some questions. Johanna, can you discuss the HIV business? It's clearly Gilead’s foundation. How would you characterize the competitive position today? What's competitive position likely to be in five years? And are you facing any challenges to Gilead’s market-leading position?
Johanna Mercier
Sure. Thanks, Phil, and great to be here. I think that, as Andy just mentioned, Biktarvy is really what's leading our HIV leadership today. And Biktarvy has basically set the standard of care for HIV patients and not only for patients, but obviously, for physicians. And we've seen that not only in the U.S., but many markets around the world.
We believe that continues, right? We have a long runway with Biktarvy and with the patent goes out to early 2033 or so. And so we do think we have a couple of years ahead of us to continue to grow this franchise. And if you think about even just last year, what we've done, pretty incredible growth when you think about it. We've added $2.5 billion on our franchise in HIV last year, specifically led by Biktarvy. So I think more to come on that front.
I would say that the biggest challenge that we've seen thus far is really the pandemic. And so that's more the shorter-term, I'll get to the five year term. But, of course, there's always competition, and we expect that, and we're ready for that.
But from a competitive standpoint, we believe two things. Number one is the best components are really critical here. It's not about two or three, but it's about having the best component within the treatment regimen. And the other piece of the puzzle is making sure that we're listening to our patients. And so whatever innovation comes across in HIV, it has to be patient centered. And so those are the things that are kind of driving our portfolio, not only with Biktarvy, it's what led us to Biktarvy, but also in the future, with potentially long actings and whatnot.
But I do think that the pandemic itself in the market slowing down a little bit, specifically in our switch market is something that I'm really looking forward to as efforts to normalize as we get out of or create a new normal, I guess, is probably the better way to say it. As we're seeing the cases and the hospitalizations come down, which I do think is super exciting for the economics, but across the country, but also just normal living.
As you think about 2025, 2026, et cetera, and probably that was a little bit of need thing, I need to get out of the house, but just to add to that. I do think that as we think about longer-term, Biktarvy being at the forefront of that, but we also have a lot of work going on with lenacapavir in our HIV franchise with the capsid inhibitor, not only in treatment, but also in prevention. And so we're looking at different opportunities internally, externally to make sure that we can bring those to life for patients.
We think that's probably the last piece from an innovation standpoint that needs to be addressed. And when asked from physicians or patients, what they're telling us is Biktarvy hits all the key points, what's left is really a longer acting, and the ideal longer acting is looking at something that could be every six months or so. Lenacapavir dosing flexibility from an oral to every six month subcu is something I think that can be really interesting for patients. So that's, of course, our focus for a little bit for longer-term to your earlier point.
Phil Nadeau
And maybe circling back on lenacapavir. What is your ultimate goal for that program? Could that form the backbone of Gilead's HIV regimens in the 2030s, kind of similar to what tenofovir has done over the last couple of decades?
Andrew Dickinson
Yes. Maybe, Johanna, I'll start, and again, you can add in if it makes sense. The - look, lenacapavir is a really exciting molecule, Phil, as we've discussed. I mean, before we go there, though, I mean to just step back and we talk about the 2030s with your question, to pick up on Joanna's point, Biktarvy is really and bictegravir is a foundational asset that goes into the 2030s.
So when you think about, there's really the potential for two foundational assets. So Biktarvy has long patent life. Bictegravir, there’s also potential for other products with bictegravir or other integrated inhibitors, of course. But then when you talk about long acting formulations, there's no doubt that lenacapavir is a special asset. And certainly, to your question, has potential to be the backbone for a number of products.
We've said previously that there are really two paths forward. One is in PrEP studies and of the second in treatment. In PrEP, we believe that lenacapavir may be effective as a single agent. And we've already shown in studies that formulated, both orally but for PrEP, most importantly, for long acting subcutaneous administration, hopefully, at the end of the day every six months, is what we're really targeting.
Thestudies in PrEP are starting this year in the first-half of this year, or I think one is in first-half of this year, one in the second-half of this year. So two Phase 3 studies in different patient populations. Those take years to read out. So the PrEP studies are longer, as you've seen, both with our historic development programs and as well as some other market participants’ development programs. And then the second piece is the therapeutic option.
So you do think, to your question, lenacapavir has the potential to be the backbone for long acting therapeutic combinations. We're looking at both internal combination partners and external combination partners. External combination partners could accelerate our time to market as well if we could find the right program and the right partners.
So we're very open to that. But we're excited about it. It's a great molecule. It's unique. Its potency is unique. The fact that you can formulate it both for oral once weekly, for instance, formulations or the long acting subcu formulations. There's a lot to be excited about there.
Johanna, would you add anything to that on lenacapavir?
Johanna Mercier
Yes. The only thing I would add is that we actually plan to file for highly treatment experience, right, by the end of this year. And even though that's a very small percentage of the total HIV market, it's about 2% or so. And I think this is - it proves not only its potency, especially in this very hard to treat, it's a very high unmet medical need right now, but also it gets us fast to market strategy, right? So we get into the market, have an opportunity for providers to get some experience with lenacapavir and then build on that experience as we think about the other trials that Andy was referring to.
Phil Nadeau
Okay. That's really helpful. Maybe becoming more short-term focused first in five years than really the next one year. In terms of HIV growth, how much is left or how much is reasonable over the next three to five years? Cowen, for example, projects about $5 billion in incremental HIV revenue from 2021 to 2025, with HIV sales going from $18.6 billion to $23.8 billion. And is that reasonable? Are we overly optimistic, too conservative? Any feelings on those numbers?
Andrew Dickinson
Well, we don't provide long-term guidance. I think what we've said and said consistently is that we believe in the durability and potential for our HIV business to grow over time. And you see that. I mean, again, if you look at the growth in our business from 2010 through 2021, it's remarkable.
And as Johanna said, we think that Biktarvy, in particular, now and then lenacapavir based products going forward, have a lot of room for growth to go. So we are optimistic about -- we're really happy with where we are, and we're optimistic about where we're going. And Johanna, do you want to add any color to that as well?
Johanna Mercier
Yes. I think I'd agree with everything you said, Andy. But in the next year, we just saw the growth quarter-over-quarter 10%, over last year was 53%. So yes, we do believe there's still runway, not just for this year but in the upcoming years. And I think it goes back again with kind of that bar that we've set. And that's why I think we've been able to differentiate despite competition entering the market and been able to continue to grow Biktarvy in that same tent moving forward.
Phil Nadeau
One of the challenges we foresee over the next year is in the PrEP business, where Truvada generics are going to launch. You mentioned on the Q4 call, the PrEP market and the Descovy share of the PrEP market was 46% kind of stable quarter-over-quarter despite those all the generics launching. How do you expect Descovy share and price to trend in 2021 as additional Truvada generics enter the market?
Johanna Mercier
Yes. So I think you're absolutely right. So what we saw in Q4 last year as the first generic came in on Truvada, what we saw is more of a mix between Truvada -- the branded and the generics. And so really no limited impact to Descovy, and we were able to hold share. The piece that I would say there is, obviously, that's going to evolve. There's no doubt about it. But I think Descovy does differentiate itself, specifically on bone and immuno safety. And I do think physicians understand the value of that for people that are at risk of HIV.
Having said that, I think the pressures won't come so much from a share standpoint. But to your point is, I think, where you were going, is more from an access standpoint. So from a rebate perspective, right, with our payers because as the generics come in, it's going to put even more pressure on the payers, and therefore, it's going to put pressure on us to make sure that we can keep that kind of level of access if it makes sense to make sure that physicians and patients have -- people living at risk, excuse me, have a choice. And that's where we want to stay focused on.
So I think there will be some pressures this year on the payer front, but we also believe that we can pretty much hold share and hopefully grow it as well, right? If you think about the market, one of the dynamics that's really impacted us in 2020 because of this pandemic has been the market. The market was growing about a year ago at about 20% or so, or even a little north of that. And now last year, it was growing about 3 or 4 points.
So we do think that once we can get out of this pandemic thing to turn to some type of new normal, we do believe that those social dynamics will be recreated, and therefore, the market will pick up again. So – and, of course, all those will rise on that front.
Phil Nadeau
That's really helpful. Maybe moving on to Veklury. Can you discuss trends there? I guess, in particular, since your earnings call or maybe beginning just before your earnings call, there's been a rapid decline in COVID cases. Was that anticipated and factored into year 2021 Veklury guidance of $2 billion to $3 billion? Or has the steepness of that decline also caught you some off guard?
Andrew Dickinson
I mean, at a high level, Phil, it was factored into our guidance. So we expected to see a significant decline. There's always variability, as you know. And the one thing that we've seen with the COVID-19 cases and the overall situation is that it is incredibly dynamic, and it changes very quickly and rapidly.
So I think within reason, it's what we expected. And what we've always said is that sales should track hospitalizations and that continues to be the case. So we'll update you over the coming months and over the year on our quarterly calls, but at a high level, yes, that's kind of what we expected.
Johanna Mercier
If you recall, just to add to that, Andy. If you recall, so we did talk about, we do think the market would start rebounding by Q2. And so this is all in line with that as well with what we had originally said in our guidance.
Phil Nadeau
Got it. And maybe on Veklury extending out a bit longer. What part will this play in your business over the next three to five years? Do you expect it to be a meaningful contributor of revenue? Or do you hope like the rest of us, there’s no hospitalizations and there's no need?
Johanna Mercier
I can jump in, and Andy can add to me. I like the latter part of that. I think that we really do hope that there's no need for any of this anymore. I just don’t - I'm not sure that's totally realistic with what we're seeing. And so I do think our assessment of the situation is, I think Veklury and it's shown its efficacy, it's shown the fact that it reduces by at least five days hospitalization. So it puts a lot less pressure on the healthcare system.
So I think it's an important part of the treatment care for COVID-19 patients. And I think it will continue to be. I think it's great that vaccines are out and the distribution is starting to accelerate. I think that's encouraging for all of us. At the same time, there is a lot of folks that might not actually want the vaccine, and there's a lot of folks that will get the vaccine and still get COVID-19, right? So I think we need options for patients. So I think it will continue to be part of the armamentarium as we go forward, and hopefully to a lesser degree, though, as the time goes by. And of course, the variable that we can't predict are the variance of these mutations that we've been seeing. And because remdesivir is not impacted by that thus far, I think we're encouraged that at least it will continue to play an active role. Andy, do you want to add to that?
Andrew Dickinson
I think that's perfect. We're completely aligned. I mean, I think we hope that it won't be a meaningful contributor for all reasons that Johanna I described. But to the extent that the COVID virus or different versions of it hang around, we think that it's going to be an important treatment option. And the other thing that we've said, Phil, is that we'll thoughtfully reinvest the revenues from that into our R&D programs and to other programs that are going to benefit patients. So whether that's virology specific or oncology, we think that it provides an opportunity for us to further push forward our programs that are going to benefit society.
Phil Nadeau
Turning to your oncology portfolio, where there's been a substantial amount of investment over the last 12 months in particular. Maybe starting with Trodelvy. Any update on how Trodelvy’s launch in triple negative breast is progressing? Maybe specifically, on the Q4 earnings call, you noted that more than a quarter of third line triple negative patients in the US that already initiated Trodelvy. What do you estimate that Trodelvy’s peak penetration could ultimately be?
Johanna Mercier
So I think that we're -- listen, we're excited to see what this team has been able to do despite the pandemic, right? As you can appreciate, not exactly time to launch a product in a pandemic, and super impressed with how this is resonated with KOLs across the US. I think the ASCENT data is super powerful. The [OS] data really goes a long way. And so therefore, we do think there's a lot more opportunity for growth within the third line segment. We've seen acceleration between second line and third line as well, just to make sure that patients have the opportunity to try Trodelvy and see if there's response. I think the key pieces for that acceleration coming into 2021 are the ASCENT data publication and the FDA full approval, right? I think those two things go hand in hand. Those two potentially create an update on NCCN guidelines, which obviously are very impactful for the oncology community. I think we've done some great inroads at the academic level. I still think we have work to do in the community. And I think the pieces that I just mentioned are really the accelerators for triple negative breast cancer, specifically. So I do think there's a lot of room to grow there. I also think as we think about new data coming around the corner in breast cancer as well, different opportunities as well with HR-positive towards the end of the year. So I do think breast cancer as a whole, Trodelvy has a lot more opportunity in front of it.
Phil Nadeau
Maybe speaking to the long term growth prospects. How does the TROPiCS-02 did in HR positive HER2 negative breast fit into your plans, how confident are you guys also going to succeed? And similarly, in lung cancer, on your Q4 call, you mentioned beginning a pivotal program there later this year. How does that fit into your long term plans for the franchise?
Andrew Dickinson
Yes. Maybe I'll take this one. Look, I think on the hormone receptor positive HER2-negative data, we expect that the Trodelvy will show a meaningful benefit for patients in this segment. We'll have the data later this year and we're excited to share that with the market. You remember, Phil, that we increased the size of the trial at 520 patients from 400 to increase the powering for a key secondary endpoint, which is overall survival. We also highlighted that we didn't think it made sense to take the look at the data for the overall response rate, given that you'd have the PFS data shortly thereafter. And if we looked at it for overall response rate, which we didn't think would be a fileable endpoint, we would have to take some of the alpha from this statistical analysis plan.
So we're excited and we're confident that we've got the right trial design and the right sizing and powering now. So we look forward to sharing the data later this year. It's an important program. On the lung cancer data that you asked about, that's a basket trial that we're looking at. That's more of a Phase 1 study, as we've said, Phase 1, Phase 2 study, looking at different groups that will -- and we'll have a readout at the end of the year. So that is not a pivotal study. It is a study that will give us a clear idea of where we want to go in lung cancer from here. So we're also looking forward to that data, but it's not the same type of trial as the HR-positive HER2 negative.
Phil Nadeau
Here at the conferences, there's been a lot of discussion of the anti-TIGITs that looked on as being very promising. You have data coming up in we believe Q2 from the Arcus Phase 2 study in lung cancer. What data must the anti-TIGIT produce in order for you to opt-in and progress the program?
Andrew Dickinson
Yes. We're looking for an overall response rate of 50% or greater, which is we think is generally in line with the data that you've seen from some of the other compounds that have been studied that are anti-TIGIT. So again, we'll look at the totality of the data. It's not just the overall response rate. It's also the deepness of the response and the durability of the response. And there are clinicians we'll be focused on. So it's a more comprehensive set of data that we and Arcus will be looking at. But overall, at a high level, we'd expect to be looking for an overall response rate of at least 50% in this patient population.
Phil Nadeau
On magrolimab, how optimistic are you that it could be approved by FDA to treat first line MDS in intermediate to high risk patients based on the single Phase 1b trial, that's, I believe, going to complete this year?
Andrew Dickinson
Well, we think that -- what we've always said is that we think the submission is possible based on the data. I mean, obviously, there's additional data coming. And as we continue to see data, we'll make the assessment of whether we think it's appropriate to move forward. So we think it's possible. If the data suggests that that's the right path, of course, we will go down that path. We were already starting the Phase 3 confirmatory trial, if you know, that's underway, and we're excited to see the data from that as well. So we continue to like what we're seeing with that molecule and the program overall. We're also, as we've discussed, looking at opportunities in AML and solid tumors. So we expect to expand that development program over the coming year and beyond to really maximize the potential of the asset.
Phil Nadeau
I think you actually added a new trial on AML to clinicaltrials.gov yesterday. For which indications do you think magrolimab is most promising outside of MDS? Is AML kind of top of the list or are there others that you'd like to highlight?
Andrew Dickinson
Well, I think MDS and AML are the obvious ones, and there's already data that suggest that this could be an important therapeutic agent for patients. I think the big question then is solid tumors. And as you know, there are a number of other companies with anti-CD47s that are looking at the solid tumor space. We think that magrolimab has potential in the solid tumor space as well. So that's the area that outside of MDS and AML, in particular, in the heme space, we'll be looking at different solid tumor opportunities over the coming years.
Phil Nadeau
And into a few of your pipeline programs, some of those that are most topical long investors. Are there any others that we haven't discussed that you want to highlight or focus investor attention on?
Andrew Dickinson
Johanna, you can jump in as well. I mean, I think there's a lot of exciting programs. I mean, again, the Arcus collaboration overall is really exciting to us. So it's not just the TIGIT program. We like the two adenosine programs, the CD73 and the A2a/A2b receptor antagonist, I believe, programs. Those are exciting. We talked about the HIV portfolio and lenacapavir. So there are a number of other programs that we have options on that we're excited about in the oncology space. We also have an oral alpha 4 beta 7 program. Similar to the Morphic program that you read a lot about last week and this week that we're excited about that during the clinic. So those are just a few. But again, I'd go back to the point, though, helping people appreciate the expansion of the portfolio overall and our confidence in the quality of the portfolio going forward. So it's all of those things. Johanna, what did I miss? Anything else that you would add?
Johanna Mercier
No, I don't think you missed anything. I think it's really been part of our strategy that we rolled out over a year ago now. And really executing against that strategy is to build out the pipeline, obviously, not only early but actually late phase pipeline, and that has a lot to do with what we've done just recently with 47 and Immunomedics. I just want to add that actually today was a big day for us. We just closed the MYR acquisition. So that's exciting as well for HDV patients where there really hasn't been anything out there in the past. So leading a great unmet medical need there, and so now for that execution. It's about making sure that we build on the strength of our foundation in HIV and really build up from there. So we're excited. We have a lot to do, but I think we're super excited with what's to come.
Phil Nadeau
Maybe to sneak in a question on another piece of news today. We did see the data from the MANTA studies a press release by Galapagos. In the past, Gilead has suggested it's unlikely to move forward in the US in inflammatory bowel disease with filgotinib, but not impossible. Any update or your thinking about the filgotinib program post this top line metadata?
Andrew Dickinson
Johanna, you can jump in on this as well. I don't think anything has changed, Phil, based on the data. I mean what we've always said there are two issues with the FDA. One was the potential for testicular toxicity. And this is just the first preliminary look at that data. The FDA wants to see how these cases resolve over a much longer period of time. So there will be additional data cuts as you saw in the press release over the coming year that will really be important on that point. And then you still have separate from that, the risk benefit profile of filgotinib and the assessment, either in RA or in IBD, including PERMs and UC, as you suggest. So I don't think it changes anything on our end. It was good to get over that hurdle. But at a high level, there's still a lot to do. And the bar, what we've said is the bar is very high for us. We will only move forward in the United States if we think that we have a clear path to approval in any of these indications and if we feel that we have a profile that's best in class. So the bar is high. We'll continue to monitor the data and work collaboratively with Galapagos as our partner and support them, but I don't think it's changed anything in the US. Johanna, is that fair from your perspective?
Johanna Mercier
No, I think it's fair. We'll continue to assess it. It's not like we've made a final call on it. But I think to your point, we've always said, first in class, best in class. And so if this was something that we would go forward, it would have to be best in class. And so therefore, in the time frame that Andy was referring to and the data that's needed, it becomes much more challenging as time goes by.
Phil Nadeau
Great. That's really helpful. Maybe last couple of minutes. Andy, can you discuss Gilead’s capital allocation strategy? How do you balance returning money to shareholders versus investments in your current pipeline and acquisitions? And maybe kind of part B to that is you were very active in business last year. How much more capacity do you have to do deals this year?
Andrew Dickinson
Yes, good question. So our capital allocation outlook and policies have not changed. So there are really three parts to it. First and foremost, we're going to invest in our pipeline through internal and external development. So that hasn't changed. Secondly, we're committed to our dividend and growing our dividend over time. We also expect, as we’ve said as part of that, when you think about the use of our free cash flow, to pay down at least $4 billion of debt this year. And then third, we'll look at share repurchases but really only opportunistically and to the extent that we feel that we have excess cash or a good use of cash.
When you think about the dividends, the dividend and share repurchases last year, collectively, we paid out about 67% of free cash flow to shareholders. The dividend is less than 50% of that. I don't expect us to do the same amount of share repurchases this year than we've done in the past years as we pay down our debt from the Immunomedics acquisition. We still have capacity to do BD deals. And to go to your last question, Phil, and we are going to do BD deals in the ordinary course, but we got a lot done over the last couple of years that we wanted to do. So we have a lot on our plate to focus on and to execute. So it's unlikely that we're going to do large BD deals or even medium sized BD deals. I think we're focused on ordinary course partnering deals, maybe some small acquisitions like the MYR transaction, and then we're really focused on moving forward all the different puzzle pieces that we pulled together. So it's an exciting time, but that's where we are on capital allocation.
Phil Nadeau
That's perfect. With that, it does look like we're out of time. So I'd like to thank Johanna and Andy for a very interesting discussion, and thank everyone who was watching online.
Johanna Mercier
Phil, thanks for having us.
Andrew Dickinson
Thank you.
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