Great. Thank you everyone for joining us. I'm Terrence Flynn, Morgan Stanley's U.S. biopharma analyst. I'm very pleased to be hosting Gilead Sciences this morning. From the company, we have Daniel O’Day, the company's Chairman and CEO, and Johanna Mercier, the company's Chief Commercial Officer. Before we get started, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Thank you both so much for making the trip out here to the East Coast. Glad the weather has cooperated very nicely. We'll take it. Dan, I thought maybe you could just start off. Obviously, the company's been on this diversification journey now for several years with you and your team. Maybe give us an update on the progress you've made.
As you look ahead over the next 12 to 18 months, what is left in terms of your focus points for the outlook here?
Sure, absolutely. Again, Terrence, thanks for having us. Delighted to be here with Johanna. It has been a journey over the past six years. It's a very different company than it was when we both started around six years ago, building upon the strength of Gilead's past, but kind of positioning it for the future. I would say today, when I just think about the totality and then I'll break down the pieces, I mean, we have a very strong balance sheet. We have robust cash flows. We're now in a position of disciplined expense management after some purposeful kind of growth on the expense management side. No major patent expirations until the end of 2023. Puts us in a really good position to expect growth from the company across all three of our therapeutic areas. That's kind of a take-home message.
On the diversification front, there's a couple of comments I want to make there. One is often when we think about diversification for companies, we think about diversifying into different therapeutic areas. Certainly, that's part of our objective given the size of the company when I inherited it. Before I get there, let me just first talk about an element of diversification that I think is also critically important. It gets to this concept of durability of the HIV business. The team and I have spent a lot of time thinking about how we diversify our HIV portfolio and how we make it durable even beyond, again, the end of 2033, Biktarvy patent expiry. Lenacapavir was, of course, well on its way when we came here. Since then, we produced this portfolio over the past six years with the team of really strong options for both HIV prevention and treatment.
Obviously, the lenacapavir launch for twice a year prevention is off and running. We'll talk about that, I know. We've started a phase three trial for the once a year HIV prevention, which could come to us as quickly as 2028. We have basically eight different programs now with lenacapavir as the backbone across different HIV treatment paradigms as well. Everything from another option for daily oral, which is Biklan, but then once weekly and once monthly orals and once every three and six months injectables.
The reason that's important is because it means we're diversifying our business on top of and slowly away from Biktarvy between now and 2033, which means even though we have that patent expiry, we're navigating that in a way that we can be very strong and making that business durable well beyond 2033 and the end of the next decade with lenacapavir as the backbone and the IP base. I think I'm really pleased with how the team has more than doubled the portfolio overall. Certainly within oncology, we had probably the best clinical execution quarter we've had since I've been here in the second quarter of this year with really outstanding results in the first-line triple-negative breast cancer setting with Trodelvy, continued good results with the anti-BCMA cell therapy in multiple myeloma.
I think in oncology, with many more readouts to come in the next 12 to 18 months in cell therapy and outside of cell therapy, that's really coming to shape. Importantly, we've invested a lot in our late research, early development, both through internal investment and appropriate kind of external acquisitions and partnerships into that area. The final piece of the puzzle is the inflammation piece of the puzzle, which is a little bit further out, which is fine. We need further out a diversification as we go into 2030s and beyond. Some really interesting medicines and molecules there in early development that we'll see how they play out over the next year, year and a half. Things like Alpha4Beta7 and also the STAT6 program. Bottom line is from a portfolio diversification, we're a very different company than we were in 2019.
We still have a lot to do and we're very focused on commercial execution with our kind of four peri-launches of lenacapavir, Trodelvy first line, and the anti-BCMA cell therapy. We're also diversified better in terms of the structure of our business, our P&L, our expense base. We purposely kind of invested significantly over the past four or five years to get us to a stage where we're at kind of commensurate investment levels with company RSI. Now we're kind of optimizing that expense structure at that high level. I really like where we're at and I think you can expect more of that, more focus on growth on the top line, more focus on continued margin in the top quartile, including kind of EPS, strong EPS growth. I think that's the Gilead of today.
Great. Perfect framing. I guess one I just wanted to follow up on is inflammation. I think, as you said, you kind of had an earlier stage portfolio. You guys have some history here in that space with a JAK inhibitor as well. As you think about that in vertical, are you content to have it be a longer-term growth driver or do you see a need to bring additional scale to the inflammation side? I think that's one thing I've seen through the years is the benefit of scale in immunology in particular versus maybe some other therapeutic areas. How do you think about that, having this longer-term portfolio versus maybe having some of the little bit more scale nearer term?
Look, I think we're very confident or comfortable with letting those earlier stage programs read out. I mean, we know the landscape. Trying to jump into the landscape in a major way in a late stage program, there aren't a lot of assets that exist out there. Our focus is scientifically from an inflammation perspective to look at novel mechanisms and potentially combining those mechanisms to get through what we've seen over the past 20 years are really efficacy caps in a lot of the disease stage and inflammation. We need to play that out over time. I take your point on critical mass eventually in that area, but we don't need to jumpstart that. We'll get there over a natural evolution, including some of our work potentially in cell therapy and autoimmune. We have a number of different mechanisms that will play out over time.
Okay, great. You know, policy obviously is still front and center here. I think from an industry perspective, it's on tariffs and MFN, but then I'd say from a Gilead Sciences perspective, it's more around Medicaid and maybe USPSTF. Maybe you could just take those in turn or tag team talking first through kind of tariffs and MFN in terms of any visibility we might have in terms of reaching a resolution on some of these things. On Medicaid and USPSTF from a policy side, I know you guys have made comments before that you feel pretty good about the position of the business over a medium to longer term, but maybe just tell us why that is given some of these cross-currents that we keep reading about and hearing about.
Yeah, terrific. I will invite Johanna to join me in response to the questions. I know it's a huge question, but let me just try to take it into the three buckets that you mentioned at a high level and then turn it over to Johanna to fill in some of the detail. First of all, and I think you inferred it, I just want to make sure the audience understands why we are perhaps affected differently than other companies from a potential tariff perspective. Let's just use that as one example. The reason for that is that compared to the rest of the industry, we are a bit differentiated in that 80% of our IP is actually domiciled here in the U.S. We recognize 80% of our profits in the U.S., which is different than a lot of our peer group.
As a result, we're actually a productive taxpayer in the U.S. We have a marginalized tax rate of around 20%. While we'll continue to optimize that for potential tariff involvement by looking at country of origin of some of our products for U.S. supply, I think we're less exposed on that and we don't have to do a fire drill to get there, if you so to speak. On the MFN, I think the real question is what is it? I think we are obviously leaning into discussions with the administration. We believe strongly in the concept of looking for ways to reduce out-of-pocket costs for patients here in the U.S. Number one, we think it's the right thing to do.
Number two, from the standpoint of the industry sustainability, I think it's things we need to address, like the Part D reform that Johanna and her team are kind of going through despite a significant effect on our top line for this year. Those types of changes we'll be leaning into and trying to decide where those can come from. There's not a lot more I can comment right now on MFN. We'll kind of see how it goes. The other thing we're leaning into and we've done, not just as a result of the temporal aspect of MFN, is we're constantly trying to find ways for value to be recognized by other countries around the world. In particular situations, we've struggled to launch our products in certain markets because there's a business system that kind of values that innovation. We welcome support from the U.S.
government and others that can help us along that journey. We do believe that value should be recognized more robustly outside the U.S. and that we should get at some of the fundamental issues associated with our healthcare system that are less than functional, whether that's out-of-patient costs for patients or whether it's the fact that the industry subsidizes a large part of the insurance industry and/or hospitals in this country. I think that's 340B reform and PBM reform. We'll continue to look for sensible ways with multiple people around the table to kind of address that. On the Medicaid, USPSTF, let me just tee those up. The first one is on the Medicaid side. Aspects of our business are more exposed to Medicaid. For instance, HIV treatment, we've said, is around mid-20%. Having said that, prevention is more like 10%, 5-10%. It's much lower.
Different aspects of our business have different exposure to Medicaid. What I can say on Medicaid is that obviously it's a very important program in the U.S., number one. Number two, there have been adjustments to Medicaid over the years. Even actually, if you look at post-COVID, there was kind of a redetermination process where people had to kind of requalify, if you like, for Medicaid. In particular, when it comes to infectious diseases like HIV, there are a variety of programs that help people that may need to switch from Medicaid to another program in this country. There's a reason for that. The reason for that is that people that stop taking medicines that have HIV get very sick and die. Also, if they stop taking their medicines, they become more infectious and can infect other people.
There are clear reasons for why, particularly with the HIV class, there are multiple kind of safety nets that are built into the program. We'll have to see. The other thing is the Medicaid changes in the Big Beautiful Bill, I'll just remind you, happen in kind of late 2026, early 2027. We're navigating that, Johanna and her team. The final thing is on USPSTF. For those of you that don't know, it's a guideline that encourages a variety of products, not just HIV, that encourages utilization of important prevention or diagnosis to prevent diseases. In particular, for HIV, it was established somewhere around 2021, puts HIV PrEP into a kind of a category A, which is a high category. That's been the case since 2021. It was clarified a bit in 2023.
What happened specifically, I think where a lot of the talk is, is there was a FAQ or a published FAQ that was published around October of 2024. In that regard, the current PrEP medicines that were approved at that time were included as named entities in the USPSTF. Lenacapavir was not approved at that time, so of course, it isn't in the FAQ today. We feel that the policy is broad to include all PrEP options, so it is inclusive of lenacapavir. We presume that at a future update, that likely lenacapavir could be added because it's one of the most effective PrEP options. The clinical trial data is very, very strong in this regard. It's important to note that regardless of USPSTF, the case for PrEP is very strong from both a person standpoint and a pharmaco-economic standpoint.
For every HIV infection that you prevent, you save about $1.1 million in lifetime costs. People don't get rid of HIV. They have to be treated for the remainder of their life. I think there are strong reasons for obviously commercial and government payers to support PrEP in general. PrEP was growing before that. The whole market class was growing before that USPSTF FAQ was published at that period of time. Johanna and her team are working very closely with all these items and making sure that the merits of lenacapavir are off to a good start. I know I covered a lot, but.
I think you're good.
Would you like to comment on the HIV launch, the lenacapavir launch process so far?
Sure.
I just wanted on the Medicaid side because I think it's, I just want to ask something on the state level. There's some data that we found that it looks like California and New York account for maybe like a third of Biktarvy and the treatment side in Medicaid. Is that in the right ballpark? Meaning like, you know, everyone's looking at the high level, but when you go state by state, maybe, you know, as you know, there's ADAP programs, other means by which people can access these medications. Maybe just walk us through, are there any other like kind of, you know, safeguards at the state level that can maybe help if there were to be a loss recovery?
I think that's what's important. The HIV and Medicaid specific, and to your point, California and New York are two of the top four states for HIV that we track very closely, both in treatment and prevention. From an access standpoint, the piece that's important is there's a lot of programs that have been developed from years before to actually support anybody who's underinsured or uninsured who falls completely out of Medicaid. An example of that, and this is only for treatment, it doesn't apply for prevention, is around ADAP programs, so the AIDS Drug Assistance Programs that are available for people who might need a backup plan. Sometimes they cover for underinsured, so they kind of bridge, or uninsured completely, they would support. Those are state-by-state programs that are available, and some are state-funded, federally funded, and sometimes a mix of the two.
Those are definitely areas that I think people would lean on if necessary. I also do think, as we think about the Medicaid requirements that are coming through and that we're aware of, a lot of those changes are going to play out over time. Different states will do it a little differently, like they did the redeterminations that Dan was referring to earlier. Not every state went day one. They had over a year to kind of pull that through. Even what we saw with redeterminations is people need their meds, and they will find another access way. A lot of them went to HIX plan, for example, in that last period. I don't necessarily think that's the case for this new Medicaid bill, but I think you're going to see it as a funnel.
I think you're going to see, you know, our mid-20% of Medicaid, and it's coming down a little bit because of the most recent redeterminations. What you're going to see is people that are dual eligible will go to Medicare. People that can actually get exceptions because of their HIV diagnosis will get exceptions through Medicaid, most probably in many states. Different states might rule that a little differently as well. I do think for those who truly fall out of Medicaid, then I think that's where the ADAP programs that I was referring to earlier, or even patient access programs that we hold, will support those patients.
Okay, great. Maybe just want to move to the PrEP side. I think the thing that struck me most from your second quarter results was the Descovy growth, you know, 35% year over year. I know you and the team have been working hard to kind of, you know, continue to expand that market ahead of the lenacapavir launch. Maybe you could just talk about how you're going to capitalize on that momentum. What are some of the things you've been doing? That really jumped out to me. I know you and I have talked about this before, Johanna, but in terms of like your longer-term guidance of a million people on PrEP, it looks like if you continue at this growth rate, you're going to exceed that or reach that much sooner than maybe we're all thinking.
Maybe just talk through some of those drivers here on the prevention side.
Absolutely. It wasn't by chance, right? It was definitely the strategy. The strategy was to really set up the market as we go into the lenacapavir launch. Late Q4 into Q1, we really did an additional push into the market. The market doesn't grow by chance. It grows because of awareness, education, both at the consumer level and at the physician level, and expanding that breadth of physicians that can prescribe for prevention. You saw a nice jump. Two things happened, and I'm going to go back to Q1 before I get to Q2. In Q1, what you saw is the FAQs that Dan was referring to around the USPSTF guidance, naming those specific products. We had very strong access for Descovy last year. That access jumped about 10% because of those guiding FAQs.
You had plans that we still had a step edit where you had to go on a generic TDF before you can get on Descovy, for example. A lot of those step edits got pulled. Today, we jumped about 10% on Descovy from a total coverage access, and we jumped about 20% for people who had $0 copays. That's a big jump. That could happen and nothing changes, but what our teams did were very targeted in understanding which plans changed and where those plans were with which physician clinics to make sure that we targeted those to make sure they were aware of that access for Descovy. What you saw in Q1 and then continued in Q2 is twofold.
One is that market expansion that you were referring to, continuing to grow really quite nicely, double digit to about 500,000 consumers or so on PrEP, with an opportunity to continue that growth. With an awareness, it does help Purpose 1 and Purpose 2 with lenacapavir, right? It created a lot of positive noise in the system as well. It just kind of helped. We got some pricing favorability as well through the copays and whatnot and the better access. All and pulled through that demand. All of those pieces led to a really nice market dynamic as you go in with lenacapavir. It just propelled that launch. I think as we continue the launch of lenacapavir, and we can talk more about lenacapavir specifically, our goal is coverage. The best way to get a broad population to have access to lenacapavir is to make sure you have strong coverage.
That's why we've been very clear in our goals of hitting about 75% access or so by six months' time point, and then about 90% or so at 12 months. We're well on our way to meet those goals.
Great. Maybe just on the coverage side, I know there were some headlines about one PBM maybe not covering lenacapavir yet. Just level set us in terms of, as you work through these formulary discussions, is that pretty normal course? Where are you in that process? I know you guys got the J code back on, or it's going to go effective October 1. What are the implications of that as we think about incremental volume starting October 1?
Absolutely. All those pieces are important. A couple of things. Number one, we are talking to over 200 payers already. They all go through a process. I'm sure many of you are very well aware of the process where it doesn't happen overnight. They have to go through the medical review. Then their formulary reviews to see will they get on formulary or not, these drugs. Obviously, these are discussions back and forth between the two parties. Most plans take at least six to twelve months to get on their formulary. There are certain timelines, like January 1st is a big one. That's why your 75% kind of matches up with what we've said our goals are for January 1st, for example. That's course for business, and that's what we're going through right now.
I will say, and I shared at the earnings call as well, we had some early commercial wins that we were pleased with, pleasantly surprised. We also had a couple of big state Medicaid plans come on board in July and then in August with California and Florida, two of the top three or four PrEP plans. We're working through all the rest, right? They're kind of coming in as we go. I think the J code is another one. J codes generally take about two to three quarters before. We were expecting it sometime in January. We got an earlier J code with October 1st, so that's around the corner. I can tell you there's a lot of hype about that, and there needs to be because you have a lot of folks that are a little reticent to start prescribing.
You have the early adopters that started day one, and obviously are going through medical exception processes and working through that. We're helping the specialty pharmacies work through them with our field reimbursement team. We have a very strong infrastructure there to support that. The J code is important for folks that are a little bit more reticent and maybe got burnt in the past or whatnot. To have a miscellaneous J code for many is not enough. October 1st is something that we are absolutely making sure that awareness is clear that on October 1st, they will have the J code so that people that were waiting for that will absolutely start being able to put pen to paper. We're excited about those opportunities. Of course, working through the coverage takes a little bit of time, and that's what we're doing. So far, really pleased with the results.
Great.
One other piece you guys are talking about is logistics versus lenacapavir. Obviously, it's once every six months versus every other month. You have the buy and bill dynamic, as we're just alluding to here. Are you seeing anything on logistics, or is it pretty much in line with your expectations in terms of practices that are obviously having to schedule these appointments, order, get the product, do buy and bill, or the, again, white bagging process? Anything on logistics that you're seeing?
Yeah, I would say in line with expectations or what we shared at HIV Analyst Day in December. We're not at steady state, clearly, and by far. We are tracking it really closely. We are obviously seeing more specialty pharmacy play out than buy and bill. That's normal and what we expected. I would also say that not everybody comes in day one, right? If you think about it, if it takes a few weeks to a few months to get a medical exception through, that's going to take a little bit of time. They're not going to make a special appointment. They're going to come in in their regular scheduled time and go through that. The one thing that gives us an opportunity, I think, at Gilead Sciences is the light of the fact that we have such a strong share in Descovy.
If somebody is coming in and asking for lenacapavir, the messaging that we've been sharing with our physicians is if they're asking for PrEP, give them PrEP, right? Make sure they get on Descovy as a daily oral right away that day and then make the process start on lenacapavir and bridge them with Descovy. Because we have Descovy and lenacapavir, that gives us an opportunity like no other to really set up. What you're seeing is a lot of that bridging is happening with Descovy to set up for lenacapavir.
Okay, got it. That makes sense. The prescription data, I know you guys have talked high level about that. We have a few more weeks in hand now. How should we think about that? Is that pretty on par with what end user demand is, or is it still directionally aligned? Just any color commentary on that?
I think the wording directionally aligned is more appropriate. The reason for that, it really depends on what you're looking at from IQVIA. What data sources are you bridging with more than one? We obviously also have data that IQVIA doesn't have, right? Specialty pharmacies, obviously what they're tracking, they don't have the buy and bill data. That's a much smaller piece of the puzzle, but that's definitely something that we're tracking. I would say to you that the scripts are one thing, and of course, everybody's tracking it, including me, for sure. The most important piece of the puzzle for me is the intakes. For me, when a physician puts pen to paper for a script on lenacapavir, and then it goes into the specialty pharmacy, that's what we need to be tracking because that funnel is the most important piece of the puzzle.
The more intakes, the growth that you're seeing week on week in scripts, we need to see an exponential growth on intakes. That's what we're tracking very closely, and thus far it's tracking to our expectations.
Can you tell us what that number is?
Nope. Nice try.
Okay.
Why not?
Is that a metric? I mean, should we just continue to focus on revenue? Are there other metrics you guys are going to be updating us on the floor?
Yeah, I think revenue is a tough one in Q3 just because what we said in Q3 was you're going to do an inventory build and then you're going to play it out and you're going to pull it through. We'll see. I think the best is to follow the growth of the scripts week on week.
Okay, great. Maybe one is just, you mentioned this, Dan, the once weekly lenacapavir program. Maybe just level set us in terms of, I know you made some progress here in terms of next steps, but where we are, and then what's, other than the dosing frequency, are there any other differentiated features of that program? That could be another, I think, catalyst for the outlook of the prevention market.
Yeah, absolutely. I think this gets into what I was talking about with these eight potential launches between now and 2033. Five of those could be between now and 2030. There's, not technically a long-acting, there's a Biktarvy trial that's going to be read out in the second half of this year that certainly Johanna could provide a little more information on. The first, if you like, within treatment, long-acting that could materialize is the lenacapavir program that we'll read out sometime in 2026. I think in treatment, you have the opportunity to both differentiate in terms of daily oral prevention, but also many people are looking for less frequent dosing. The once weekly will be the lead. That's in virologically suppressed patients.
We have another once weekly that uses an integrase inhibitor from Gilead that will be after that, that has the potential to play in both NAIVE and SWITCH depending on how that progresses. That's kind of the very near term. Over the next several years, you're going to see data on more once weekly, like I just said, the potential for once monthly oral, and then once every three and once every six months injectables on the treatment side. I think the most advanced injectable on the treatment side is the once every six months infused bNAb lenacapavir combo, which will be going into late stage trials now. I think that presents an option for some individuals that are not interested in taking a daily pill and are willing to have an infusion every six months. The point is, there is no one size fits all.
What we've discovered is that person-centered innovation is really important when it comes to HIV. Different groups of people want different things. The ability to, I think, meet those people where they are between now and 2033 is really what we're focused on in terms of diversifying that HIV treatment market.
I would just add, we touched a lot on the treatment options that are around the corner. The one, PrEP 365, which is our phase three program in prevention, obviously the here and now is lenacapavir. The opportunity to go to every 12 months is also an incredible opportunity. The way we are looking at that opportunity is from a market expansion standpoint. As you think of a lot of folks that don't have stable housing, are, you know, from a social standpoint, not thinking through that can come through every six, even every six months, once a year could be really beneficial for some of these people to really broaden the market for prevention as a whole. It's an add-on to, and that one could be in market as early as 2028. That's also something that we're focusing for the future from a development standpoint in PrEP.
Yeah, is it, it's an intramuscular, right?
Yeah. It's an IM for the 12-month injection versus the subcu.
Yeah. Should we think of it, won't have any nodules associated with it? I know that's something else that people have been focused on.
Yeah, some more than others. I think that the nodules are really something that is proof that you're giving the injection for many, right? I want to be clear, if you have a low BMI, then yes, it might be palpable from a nodule standpoint. It doesn't happen with everybody. It's about a third of the consumers. For many, they might feel it, but they won't see it or not at all. It's really about a drug depot kind of coming into your bloodstream over time, right? It will dissipate over time. In the IM early trials thus far for the 365, we haven't seen any nodules. Obviously, we need to go into phase three to see more data. Being an IM injectable might be a little bit different there too. We don't believe today, and we're tracking the social media around it as well, the nodules are non-issue.
Okay, great. Maybe just in the last couple of minutes, I wanted to pivot to the CAR-T franchise. Again, another area where I think you guys have built out a pretty interesting moat here. A lot of the expertise on the manufacturing side with not only Yescarta, but now anti-BCMA cell therapy, which is in pivotal development. I think one of the questions a lot of people continue to have is just making the broader push into the community setting with these CAR-T therapies. Where are we on that process? I know you guys have spent a lot of time here. What can you learn from Yescarta that you can leverage for anti-BCMA cell therapy, assuming that you do launch that product next year for myeloma?
Absolutely. Look, I think there are two ways to kind of characterize the response to that question. One is just getting the medical practice comfortable and the systems and the reimbursement systems in the U.S. comfortable with CAR-T cell therapy in the community setting. We're making progress there. As with any innovation, it takes a little while to make some progress there. Things like the FDA adjusting the REMS program for cell therapy will assist with that. Getting individuals comfortable with that, getting reimbursement systems and payers comfortable with that. Progress is being made there. It's really important that we continue to make progress to get to more patients with cell therapy. Today, only around two out of 10 patients in the lymphoma setting are offered a potential curative therapy. That's on the environment perspective that will continue to grow.
The second thing is, you know, the product itself and how amenable it is to community setting. In particular, the way it's structured, the immediate kind of post-injection period of time to monitor. Here, I think both the anti-BCMA cell therapy product differentiates itself from even our Yescarta product. Also, our next generation lymphoma products, our bispecifics, also differentiate themselves, make them more amenable to prescribers being comfortable and giving them in the outpatient community setting. It's particularly important, of course, for today's business on Yescarta, which is why we're focused on it. It's even more important as we think about multiple myeloma launch. 80% of that treatment is done in the community setting.
Having a profile, potential best-in-class product like anti-BCMA cell therapy coming to market as early as next year in the later line settings and earlier lines of settings, getting both those things right, getting the profile of the product right, which we believe we have in anti-BCMA cell therapy. The work we're doing today on all the ecosystem around the community is going to be really important for the multiple myeloma launch.
All right. I think we're up against time, but thank you both so much. Really appreciate it. Great to see you.
Thanks.
Appreciate it.
Thank you.
Thank you.