Gilead Sciences, Inc. (NASDAQ:GILD) 2024 Jefferies London Healthcare Conference November 20, 2024 4:30 AM ET

Company Participants

Dan O’Day - Chairman and CEO
Andy Dickinson - CFO

Conference Call Participants

Michael Yee - Jefferies

Michael Yee

I’m Michael Yee, senior biotechnology analyst at Jefferies. And very pleased to have up on the front of this stage here with us the management team from Gilead. On my right, we have the Chairman and CEO, Dan O’Day; as well as the CFO, Andy Dickinson.

I would just love to start off and give an opportunity for Dan to make some opening comments because as we wrote in a note last night, I think the good, old days of Gilead are back and I think you guys are in a great spot. Your stock has had a great run this year. We have an Analyst Day coming up about HIV. And we have a whole pipeline of opportunities that I think people may potentially be under-appreciating.

So maybe, Dan, you could give us some opening comments about the progress in 2024 and the outlook for 2025 for the business of Gilead.

Dan O’Day

Yes. Terrific. So good morning, everybody. I’m happy to be here with Andy, and look forward to addressing the questions today.

It is a good period of time for Gilead. We’ve been building over the past 5 years to not only stabilize our HIV base, and we’ll talk a little bit about that and how that grow, but also add a diversification of other therapeutic areas, including oncology and inflammation.

What I would say is the following, I think we’re in a bit of a unique position now in the industry as we look forward to the next, frankly, 10 to 15 years. And that is that we have a robust, growing HIV franchise and we have very little patent expiries. Actually, the patent expiry that we have -- the next patent expiry we have is really in 2033. And even with that, we have a whole long-acting program on the treatment side. And as you’ve seen, a redefinition of the PrEP market in HIV that gives us great confidence in our ability to continue to make sure that, that franchise grows well into the next -- end of the next decade.

And then on top of that, we have 2 other growing franchises right now, oncology, which is around 11% of our business, around $3 billion annualized turnover. And then liver diseases, both with the continual -- residual business on hepatitis, but also we’re very excited about the launch of a medicine called Livdelzi for primary biliary cholangitis that just launched in the United States in the middle of this year. We hope to have this launched in Europe next year. We think this is a really significant opportunity for us in liver disease moving forward.

So while in 2025, we will have a onetime effect of the IRA Part D reform on our HIV business, that’s really against the backdrop of a very growing strong base business. Our third quarter results we just announced, excluding Veklury, we’re around a 7% growth year-to-date through the third quarter. We’re expecting a 5% to 6% growth in our base business this year.

So the volume and growth of our business going into next year, even though we’ll have this onetime effect of the Part D reform in our HIV business, will really be a 1-year effect. And on top of that, on top of the HIV business, which we expect the Part D reform to largely offset the growth for next year as a onetime event, we have both oncology and liver growing next year as well.

So I think we’re in a really good position. And importantly, after 4 years of significant investment, we’re now in a period where we get the leverage back in the model. And I think you saw that, and Andy can comment on that, in the third quarter, but we are really focused on not only driving the top line, but also being efficient about our operational expense management and the EPS line in the years to come.

Question-and-Answer Session

Q - Michael Yee

So since we have a broad base of investors here that offers the opportunity maybe for Andy to comment, so just since we don’t have guidance just yet and that will be coming, 2025 outlook does have some components of it that people shouldn’t be shocked about, both from revenue and earnings. What does that look like with before -- feel free to give 2025 guidance. So just in general, set our expectations on that so we understand that.

Andy Dickinson

Thanks, Michael, and thank you again for having us here. As Dan said, the base business is doing exceptionally well. We have 3 growing franchises. The business will grow and grow substantially in 2025. You have to overlay on it the first year of the Part D reform in the United States. There is -- a meaningful part of our business is a Part D business. It’s an impact that will hit us from that year on, but you’ll really see it in the financials in 2025.

Despite that, we will grow the overall business is our expectation and our ambition is to grow our EPS. So you’ve seen significant kind of the EPS delivery in the second quarter, the third quarter. We’re having a very good year both on the top line and the bottom line. We expect that to continue.

So maybe the more important thing is that if you look through the end of the decade, kind of to Dan’s point, our franchises are accelerating in their growth. So remember, this is all about when Dan joined 5 years ago rebuilding the pipeline. As you know, we had under-invested in R&D historically. We’ve made the investments that we need to make. We’ve broadened the portfolio. We now have what we believe to be one of the best portfolios in the industry, not only in HIV, but in all of our therapeutic areas. And a number of drivers that will drive significant top line growth and then we expect to deliver a disproportionate amount of that to the bottom line, just like you saw in the second and third quarter.

So again, to remind people, when you think about our operating model, we had a 43% operating margin in the third quarter. If you back out a onetime royalty repurchase on seladelpar, a 47% operating margin. Similar operating margin in the second quarter.

So again, we are a very efficient business. As long as we grow the top line in the way that we expect, you will see significant EPS growth to come.

Michael Yee

So despite some uncertainties around this impact, there will still -- should be some growth, both on the top and the bottom line. It’s onetime speed bump.

Andy Dickinson

Yes, that’s certainly -- I mean, that’s the ambition. We’ll provide more specific updates and guidance early next year on our year-end call.

Michael Yee

So I think what has -- I don’t know, I’m just an analyst, but what I think has the stock up this year is a potential opportunity to really transform HIV to another step-up, both on the PrEP side and also on the treatment.

Let’s take that one by one because there are different opportunities. First, on the PrEP side, you’ve announced positive Phase III data with the new PrEP drug. Can you describe the status of that? And there’s a launch -- potential launch -- guided for a launch in the U.S. in 2025, what that could look like for you?

Dan O’Day

Yes. Look, we’re very excited for what this means for, frankly, global public health, but also for our business overall. And what I would say is the following, lenacapavir, as you may have seen from 2 very large trials, has shown 100% efficacy in one trial, 99.9% efficacy in the second trial across different populations, different countries.

This really will redefine the PrEP market today. I mean, the PrEP market, as it exists today, is really under-penetrated when you think about it. It’s largely in the United States. And even of the 1.2 million people the CDC defines today as at risk, we anticipate there’s somewhere around 400,000 people that may be on PrEP today.

And so what does that mean? We’ve got a breakthrough therapy designation right now with the FDA. They’re moving swiftly with -- working with us. We expect to file before the end of the year. That means that we could be launching as early as next summer in the United States, and obviously, we’ll pursue global regulatory filings as well.

But what that means is as we think about redefining PrEP, we think about different phases of that. The very low-hanging fruit, the first phase, is to convert those people that are on a daily oral today, either on Descovy, which is a branded medicine, or Truvada, which is generic in the United States. And that presents, we think, significant opportunity not only from a conversion factor, but also when you think about the adherence factor.

Today, the adherence on a daily oral PrEP, it’s very difficult to get this data, but it’s probably somewhere around 50%, 60% and we think it’s -- well, we think from the trials on len for PrEP, that could go up to 80%, 90%. And so you can see an immediate kind of lift in the models from the standpoint of just adherence by converting both Descovy and...

Michael Yee

So just to be clear, the compliance, i.e., revenues being booked are 50% to 60% of what they should be doing if they were fully compliant. And to be clear, when you’re only 50% to 60% compliant, you’re not fully protecting yourself. And these patients are at risk. The system is at risk because if they catch HIV, then they now have to be on daily treatment for the rest of their life. But there’s a revenue benefit by being fully protected because it’s now a once-every-6-month injection, 2 injections a year, to be fully compliant.

Dan O’Day

That’s right. That’s correct. Yes. So -- but the -- as I said, the -- that’s just the first phase. The different phases are then there are new populations that are represented in our PURPOSE trials that really aren’t being protected on HIV PrEP medicines today, and those include different ethnic populations, women, trans populations. Those are all represented and that represents new opportunities from both a prescriber standpoint and also people that could benefit from PrEP.

And then a third avenue of this is to then think about...

Michael Yee

Can I clarify some of that? To be specific, women are eligible in the U.S. label? I know there was different -- clarification or, for example, are women significantly underutilizing it and/or that’s some incremental population.

Dan O’Day

Yes. For lenacapavir, we fully expect to have women covered. The very first trial, PURPOSE 1, was done in cisgender women in South Africa. So that’s part of the regulatory...

Michael Yee

Yes. Okay. so that’s an incremental population because that’s not really covered. Okay. And then swapping from generic Truvada, which is half the population of utilization, half, but not really generating any revenues because that’s all generic daily pills and not very compliant and no revenues that those people, you believe, will have coverage to swap to a very simple once-every-6-month injection.

Dan O’Day

Yes. I’ll let Andy quantify this. But the last thing I’ll say before I hand it over to Andy is beyond the population of prescribers, then there’s the geographic expansion because today PrEP is really not covered in many countries around the world, and this presents a significant opportunity outside the United States.

Michael Yee

So tell me in another week, we’re going to get coverage and swap people from generic pills to full branded coverage? Are we going to get geographic expansion because it’s not very...

Andy Dickinson

Yes. We should get both. I mean, again -- and maybe just to step back for the generalists in the room. So we’re talking about HIV prevention, the data, the PURPOSE data that Dan alluded to, is data that I think by anyone’s objective standard should completely change the game for HIV prevention. This is an every 6-month subcutaneous injection that guarantees adherence and protection for a period of time. Historically, HIV prevention, when we launched both of our daily oral HIV prevention medicines over the last 10 years, those were really only utilized in the United States. And there was broad payer acceptance in the United States for both of those medicines. We expect that to be the same when we launch lenacapavir. Again, the data stands on its own.

We also have the opportunity to expand in Europe and Asia in markets where government payers have told us historically that they want to ensure that if they’re paying for a medicine to prevent HIV that they’re actually getting the full benefit of that. And that’s exactly what lenacapavir delivers.

So we expect to launch next summer, which is a little bit earlier than expected, in the U.S., shortly thereafter outside of the U.S., and we believe that this market will grow significantly over time.

So where Dan was going, today, you have about 400,000 to 450,000 people using HIV prevention predominantly in the U.S. We believe that most -- the vast majority of those people should and over time will move to the every-6-month injection. And that’s not just people using branded Descovy. It’s also people using Truvada, given the incredible difference in efficacy that you’ve seen in both of the Phase III studies. And then, of course, over time, as Dan said, there’s broader populations that would benefit from this medicine as well, including women.

You asked a question about the label. We should say historically the PrEP labels are just very broad, as they should be. It’s anyone that’s at risk of getting HIV should get HIV prevention medicine, whether they’re men, women or otherwise. The study that -- the PURPOSE 1 study was the first really large study in women, and as Dan said, there was 100% protection in Sub-Saharan Africa, really amazing results. But you should get a broad label. You have an existing population that should convert quickly. And then we expect to significantly grow the PrEP market over the next 10 to 15 years.

And maybe the last thing I’ll say is the prep market has really grown organically over the last 10 years. I mean, when the first -- Truvada was first approved, there’s a lot of word of mouth. If you look at our third quarter results and you see the significant growth in Descovy, the PURPOSE data has really continued to raise awareness. Many people didn’t even know that these HIV prevention medicines were available and as efficacious as they are. So our expectation is that over -- certainly the next year or 2, but over the next 10, 15 years, the awareness and growth of HIV...

Michael Yee

Yes, to be clear, awareness of this new opportunity to be protected, also a significant proportion of population. We were doing doctor calls on this, but you gave us the numbers. More than half this high-risk population is not taking anything. People don’t want to take daily pills to prevent that. They don’t want to have the stigma of these things. They could take simple subcutaneous jab and be protected.

Andy Dickinson

Yes, exactly. There is a significant stigma associated with taking HIV prevention medicines. And frankly, the same thing is true in HIV treatment where the long-actings are a big opportunity, too. People oftentimes don’t want to be reminded that they have HIV or that they’re at risk of getting HIV or they live with family members or roommates. So getting an every-6-month subcutaneous injection at your physician’s office that’s discrete and gives you that significant protection should completely change this market, both from a physician standpoint and for people that are at risk for HIV.

Michael Yee

Now when you launch this, and I think it’s a pretty important thing next year, there’s a lot of focus on this. It’s a multibillion opportunity, could be a $5 billion TAM based on analyst estimates.

But people are concerned a little bit on reimbursement. It is an injectable. Now there’s commercial and payer coverage, but there’s also a bit of a buy-and-bill self -- physician administered or self-administered. So is there a complication to that? Can you clarify, will there be reimbursement for this? Or is that a sticking point next year?

Dan O’Day

No. We absolutely believe that access will not be an issue for this medicine. I mean, again, back to the -- first of all, we haven’t had an access issue with any of our HIV medicines. Even if you look at the difference between Truvada and Descovy, which was somewhat less dramatic than certainly what we’re talking about...

Michael Yee

Widely covering. There were concerns over the last 10 years, Dan, at any rate. There’s different generics and splitting up the pills, but you’ve had complete...

Dan O’Day

Oh, yes. Absolutely. Absolutely. So absolutely, we don’t expect access limitations. Of course, if we launch in the summer of next year, 2025, we do expect a contribution from lenacapavir for PrEP. 2026 will be the first full year, so you’d imagine a larger contribution in that area.

So it depends a bit on the timing of the launch. And of course, there’s just a normal evolution of how payers kind of bring this into their mix, but we don’t expect access limitations at all in...

Michael Yee

Okay. How much contribution do you think PrEP could have if you get half a year?

Dan O’Day

Well, I don’t think we’re going to be guiding here today.

Andy Dickinson

No, no. We haven’t guided. I mean, what we have said, though, if you think about the opportunity, like today, the 400,000 to 450,000 people using PrEP today, that’s probably at most 1/3 of the people that should be on prep using a very narrow definition. So the U.S. government, the CDC, believes at least 1.2 million people should be on HIV prevention.

If you actually add the people that have multiple sexual partners and that get sexually transmitted diseases in the United States, that number is almost 10x larger than that.

So this is a really big opportunity over time. Today, if the entire PrEP market today was branded, we estimate that it would be about $3 billion to $3.5 billion of revenue. When Truvada went generic for us 3 years ago, we had about $2 billion in sales between Descovy and Truvada for PrEP. So it’s a big opportunity, and lenacapavir should completely open the market in a way that the orals couldn’t.

Michael Yee

Yes.

Dan O’Day

I mean, we’re expecting a very strong launch. So I just will remind you, if the launch is summer of next year, that’s 2 injections per year. So you’re only going to have the first injection of people coming on board and then ‘26, you get into that second injection and potentially people having 2 injections in ‘26. So we’ll be giving you more on guidance early next year.

Michael Yee

Fantastic. Now if I may, not remiss that the fact that the treatment opportunity is multiples of that. You are doing significant revenues or that the stock basically only assumes things kind of go out to 2033 because there’s not a lot of visibility beyond that.

But if you have the opportunity to take the HIV tail well beyond 2033 with new treatments that are big step-ups, that could be huge upside to the stock.

So you’re hosting an HIV Analyst Day in a few weeks. Give us a little preview of what is in the pipeline for treatment. And are these going to be things that could totally offer new opportunities beyond just Biktarvy?

Dan O’Day

Yes, definitely. We look forward to as many of you as possible coming to that because we’ll dive into this in a lot more detail. But the bottom line is, look, we -- Biktarvy is clearly the standard of care in treatment today, 1 pill once a day. Overall, HIV medicines for treatment for Gilead are above a 70% share and we still have Biktarvy growing significantly.

Now what we’ve said is our commitment to long-acting is very real. We have the potential to launch as many as 4 new long-actings before the end of this decade and then even more at the beginning of the next decade. So prior to 2033.

Why is that important? For a couple of reasons. I mean -- and there’s a variety of long-actings that we can get into from once-weekly to once-monthly orals to once-every-3-months and once-every-6-months subcutaneous injectables. I won’t go into all of them here today, but we can dive into those at some point in time.

It’s important for 2 reasons. Number one, as Andy mentioned before, there’s about 25% to 30% of people that are not virologically suppressed that have access to the health care system, and for whatever reasons, just uncompliant with a daily oral pill or don’t want to take a daily oral pill.

So I think the first thing to make sure we put into our head is that the treatment market is not fully satisfied today. There’s about 30% of people that are not. And what they’re asking for and what they’re looking for and what we believe in patients and innovation is with these long-acting treatments, we can get to that 25% or 30% of the market in addition to taking away the concentration risk of Biktarvy before 2033.

In other words, people want different options, but most people would like to prefer not to take their medicine once every day, to not be reminded of the disease. By the time we get to 2033, we have a very different treatment landscape, again, with a patent life that goes well into the end of the 2033.

Michael Yee

Yes. And like I said, most people haven’t thought about that or valued anything beyond 2033.

Dan O’Day

Right. So we’re going to talk about this at the Analyst Day and start to dimensionalize what this means for the treatment market.

Michael Yee

In the last part of our discussion, maybe we could obviously talk about some of the opportunities even beyond HIV that you guys have been working to diversify. I’d like to at least talk about the fact that CARVYKTI in multiple myeloma CAR-T drug has consensus sales north of $5 billion, supposed to be a huge blockbuster. You have presented data that you think could be a very competitive BCMA CAR-T myeloma at ASH coming up in a few weeks.

Are you excited about that program? Is this something that’s going to be competitive? And is this another blockbuster drug for you?

Dan O’Day

Yes, go ahead, Andy.

Andy Dickinson

Sure. Yes. Thanks, Michael. Yes, we have a multiple myeloma CAR-T program that’s partnered with a company called Arcellx. anito-cel is the name of the program. And we have extraordinary data to date.

So we have 2 sets of data. There is a Phase I data set and then there’s a Phase II data set in fourth line-plus. There were updated abstracts that were released a couple of weeks ago for ASH. And then we’ll have an even more mature, larger, longer data set that’s presented at ASH here in a couple of weeks.

And we’re incredibly excited. I mean, what we’re seeing in the existing data, and we’re talking about well over 100 patients that have been treated with this cell therapy construct, is what we believe is a best-in-class profile, both in terms of efficacy and safety.

So without going into the details, this is a very unique engineering construct for the cell therapy, especially the binder, which is what we believe leads to both the incredible efficacy, but also the safety benefit.

And on safety, specifically, we are not seeing any signs of any of the CNS complications that you see with the 2 existing approved multiple myeloma CAR-Ts that target BCMA. So we’re not seeing any Parkinsonism cranial nerve, Bell’s palsy, et cetera. So it’s very exciting. And we think we have enough patients treated and enough duration of treatment that you would have seen that by now.

So the setup is great. We look forward to the presentation in a couple of weeks where there will be an updated data set that we and Arcellx present, and then we can take more questions from there.

Michael Yee

Very good. And then maybe just lastly because you did mention that, obviously, you’re launching a new liver drug. You made the acquisition of CymaBay. That could be a blockbuster drug. Comment on the opportunity for the blockbuster for that drug in PBC.

And also, if I may, in the last couple of minutes, do you care about NASH/MASH? Do you care about obesity? You have a GLP-1. So comment on the inflammation liver portfolio on those assets as something to watch.

Dan O’Day

You want to take that?

Andy Dickinson

Sure, yes. So Livdelzi is a recently launched drug for PBC, primary biliary cholangitis. This is a really exciting opportunity for us. Again, this is a drug that we believe has a best-in-class label, incredibly strong Phase III data.

One of the challenges with PBC is patients have this incredible itch called pruritus. But it’s like itch that keeps them up at night. They can’t sleep, they can’t function. It really is a huge challenge. Our drug is the only drug that has shown statistically significant reduction in itch in addition to normalizing the liver bile acids and enzymes.

So very strong efficacy data, strong impact on itch. The launch has gone really well. So we just recently launched the drug. We’ll have another update for the fourth quarter and then you’ll see a full year of sales next year. But the launch has gone as well as we could have expected to date.

So more to come on that, but that’s a big opportunity. I mean, the analogy that we use, people, we believe, underestimate the PBC market. If you look at the pulmonary hypertension market, they’re very similar in size and scope. So I think back to when Actelion launched Tracleer 20 years ago, this is really not that different. I mean, Actelion took what was thought to be a small market and demonstrated that it was orders of magnitude bigger and we think this is an opportunity that people are under-appreciating.

Michael Yee

And in NASH/MASH and then to the relation of GLP-1.

Andy Dickinson

Yes. You want me to take that?

Dan O’Day

Yes. Go ahead.

Andy Dickinson

In NASH, it’s always been an area of interest for us as a liver company. We have a Phase II study with semaglutide and 2 of our compounds that will read out in 2025. That will be interesting. These are anti-fibrotics on top of semaglutide. Whether we do anything beyond that at NASH, we’ll see based on the data.

We also have an oral GLP-1 that we developed as part of this program for years that we think is really unique. We have some of the best chemists in the world. You see that in the compounds we’ve developed for HIV and viral hepatitis. We have what we think could be a really interesting oral GLP-1 that is now in Phase I studies. We’ll get some data next year and have a sense of whether there’s something that we would want to take forward in obesity, either on our own or with a partner.

The key there is that it’s a brain-penetrated drug, which could be a significant benefit. It also could be a potential liability. So we’re cautious about ascribing too much value to it, but it is something that gives us additional upside.

Michael Yee

Phase I. Keeping expectations low there. Got it. Congrats on all the success this year. Looking forward to 2025. Looking forward to the analyst event, and obviously, the continued execution. So thank you guys very much.

Dan O’Day

Thank you, Michael.

Andy Dickinson

Thank you.