Gilead Sciences (GILD): Report from the AGM

Gilead Sciences ($GILD) is one of the stocks in my portfolio. I previously blogged about how I voted. Last week, I attended their annual meeting on 5/10/2012 to present John Chevedden’s proposal #4 to allow shareowners to act by written consent. This is an important governance feature allowing shareowners to take action in times of emergency between annual meetings.

I also presented my own (James McRitchie) proposal #5 to redeem any current or future Poison Pill unless such plans are submitted to a shareowner vote, as a separate ballot item, within 12 months. Poison pills are plain and simple entrenchment devices and ours is set at a low 15% threshold.

There were several police outside the hotel where the meeting was held. Apparently, they were expecting a large protest from AIDs activists. I met Terri Ford, Senior Director of Global Advocacy & Policy for the AIDS Healthcare Foundation and Lori Yeghiayan Friedman, Associate Director of Communications at the same organization. I didn’t see any protestors.

It was nice to see Kristina Veaco at the meeting, acting as the inspector of elections. I’ve met Veaco several times at Corporate Directors Forums in San Diego… very bright and an asset to any board.

I presented the proposals with little fanfare. One shareowner objected that Chevedden’s proposal was aimed at providing “unions and politically controlled pensions funds with the power to take over companies. That was a little shocking to me. I know a lot of pension fund board members and staff but have yet to meet any that want to take over companies. Some may want to change board members or management but they certainly don’t want to run companies.

Preliminary votes were announced as follows: All the directors were elected with 96-98% of shares voting in favor. The auditor got about 99%. Chevedden’s proposal to permit shareowners to act by written consent passed with 52% and mine to require a shareowner vote on poison pills passed with 79% of the vote.

After the meeting, the shareowner objecting to Chevedden’s proposal asked me if I had ever met him. He said he had been to several meetings where Chevedden had proposals but had never seen him and he wondered if Chevedden was just a made up or imaginary person. I assured him that Chevedden is real. I our further discussion, he characterized us as part of a radical left-wing fringe group… even though our proposals passed with 52% and 79%.  I don’t see either of us as on the radical fringe but good ideas can come from anywhere. I’m glad Gilead shareowners recognized that. I hope the board does as well, when they take up our recommendations.

I was impressed that our company allowed both representatives of the AIDS Healthcare Foundation to speak. They urged Gilead CEO not to “Squeeze every last cent out of Truvada.”  Truvada is Gilead’s blockbuster HIV/AIDS medicine, a key ingredient in its widely-used triple-combination therapy known as Atripla and a key ingredient in its most recent drug combination—known as the “quad”—scheduled to hit the market this year.  It is likely that Gilead will charge two to three times more for the “Quad” than other available drugs, according to Foundation representatives.

Apparently, Gilead is looking for ways to increase revenues as a number of its key patents are set to expire over the next few years. From the Foundations fact sheet about Quad:

Throughout the development process, it has become clear that the Quad is not a leap forward in drug innovation, and will not provide a significant clinical benefit over Atripla and other existing treatments. For example, the drug itself shares a primary active ingredient with Atripla (Truvada), which is then combined with other existing classes of HIV therapies. In fact, the Quad would not even be considered a four drug combo if not for the need to combine Elvitegravir (the integrase component) with a blood-level booster (Cobicistat) to increase its effectiveness (other integrase inhibitors, both on the market and in development, do not need to be boosted with a separate medication). In addition, the clinical trials on the Quad were specifically designed to compare its safety and efficacy to that of Atripla. Not surprisingly, these trials showed that it was clinically “non-inferior” to Atripla.

The single-tablet Quad will benefit patients who take an integrase-based treatment regimen that is currently only available in separate medications. However, using the marginal advancement as the basis of an exponential price increase is unacceptable, and will risk the lives of thousands of people with AIDS.

The Quad must be priced comparably to Atripla and other three-drug combinations. Given the actual cost of producing these drugs is minimal compared to the selling price, Gilead can restrain its pricing while continuing to make a huge profit.

Ultimately, the cost to Gilead of producing the Quad will be a small fraction of its selling price, which means you can show restraint on pricing and still make an enormous profit. By contrast, pricing it beyond affordability could actually hurt Gilead’s bottom line because ADAP and other programs may restrict Quad utilization due to its high price.  Like AIDS advocates, the local and national officials who run these programs know that we have reached a turning point in the epidemic. To save lives, curb the spread of HIV, and lower long-term care expenses, it is imperative to get more patients tested and into antiretroviral treatment. This will be impossible if we continue to introduce new AIDS drugs, like the Quad, at prices higher than the drugs they replace.

Before posting my notes of the meeting I emailed Ms. Friedman twice with a couple of questions.

Since Quad will be such a marginal improvement it may not be worth the extra cost. Couldn’t patients continue with the older, less expensive drugs?  So, the main action you want from the company is to keep prices down?

Her response was basically the same each time. The second, seeking clarification, simply referring back to her first response.

Yes drug pricing is our main concern because it relates to access. We also think the push for Truvada as prevention or PrEP is largely motivated by greed and is not in the interest of public health. More info at www.nomagicpills.org.

I didn’t consider this to be responsive to my question asking why patients can’t continue with the older, less expensive drugs. Since the improvements are so marginal and several of the drugs will go off patent, it seems like more patients will soon have options, even if GILD raises the price on new drugs. Regarding the more information at www.nomagicpills.org, the argument there is the FDA should not approve an HIV preventative pill because of its low rate of effectiveness and the likelihood that it will prompt more unprotected sex.

I haven’t read the studies, so don’t know how effective such drugs would be. I see the Antiviral Drugs Advisory Committee of the U.S. Food and Drug Administration (FDA) has voted to support approval of once-daily oral Truvada to reduce the risk of transmission and also voted in support of approval of the Quad, a complete single tablet regimen of elvitegravir, cobicistat, emtricitabine and tenofovir disoproxil fumarate, for the treatment of HIV-1 infection in treatment-naïve adults. Hopefully, the decisions of this body were supported by the evidence.

I sent a draft copy of this article to the Foundation but got no response, so not sure how much they disagree with my conclusions, as stated above. I may have some quibbles with them but I’m glad they are engaging with our company and keeping Medtronic on its toes.

I’m keeping my shares. The stock has performed well and I think they are doing much more good than harm. I see positive signs for the future in the votes at the meeting and the reports that Gilead continues to make progress in treating and preventing AIDS, as well as in developing products to treat other medical conditions. Listen to a replay of the meeting.

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