BRIAN
Hello and welcome to another edition of Pathfinders from RBC Capital Markets, where we’ll be exploring what’s on the horizon for companies and investors in the biopharma sector. This edition features highlights of a fireside chat held during RBC’s recent Global ESG Conference.
Good morning everyone. I’m Brian Abrahams, co-head of biotechnology equity research at RBC Capital Markets. And I’m really pleased to be speaking with Gilead this morning, a company that has set forward looking goals on sustainability and has consistently ranked highly with ESG investors. As you may know, Gilead has had a longstanding commitment to underprivileged communities and diversity and has been a key part of the world’s response to the COVID-19 pandemic, contributing to key public health initiatives. From Gilead, we have their full team of ESG leads involved in shaping their ESG strategy here with us today. Brett Pletcher, Executive Vice President of Corporate Affairs and General Counsel, Korab Zuka, Vice President of Public Affairs, and Joydeep Ganguly, their SVP of Corporate Operations. Thanks so much for joining us. Starting with the big picture, and I’ll open all of these questions to anyone who’d like to take them, how would you describe Gilead’s ESG strategy overall and how it’s evolved over the past few years. What are your key priority focus areas?
BRETT
This is Brett Pletcher speaking, thank you for having us this morning, we appreciate the opportunity to be speaking with you. In terms of the evolution of our program, about five years ago in 2015, we were seeing that our scores out there for ESG or what was then known as CSR sustainability, they weren’t very good. so we decided we would put out a CSR report. At that time it was really just collecting whatever information we could in terms of what was being done kind of piecemeal environmentally and what we were doing socially. And then over the last few years, we’ve been making that more and more robust every year. And figuring out which framework should we be disclosing to, which disclosures could we actually find and credibly be able to put out. And what goals could we set and how might we be able to achieve those goals. And so we’ve been very deliberate about each year getting better and better at collecting the information, getting better and better at disclosing to different frameworks that are out there. And over time that has assisted us to improve our ESG standing. We’ve also now that we’ve got a little bit more mature at being able to figure out how to find the information, how to repeatedly pull it together, to ask ourselves now that we have a more enterprise view of what we’re doing environmentally, what we’re doing socially, what should we be doing now? Should we be setting goals, should we be more aggressive in our goals? And so this is back in 2020 we did a materiality assessment to figure out what is most material to us, and you know the E in ESG tends to get a lot of focus. But we thought what else should we focused on? And so when we did it, we came up with five areas of materiality and the order in terms of what we came up with in order of importance was our most material element of ESG was access, pricing and affordability of our medicines, followed by R&D to produce drugs that meet unmet needs. Focusing on inclusion and diversity was number three. Four was tracking the talent necessary to bring the innovation and product to market. And finally we had climate change. So we’ve set some goals on the climate side and we’re working on what kind of goals can we set in those other five areas so that we can approach this from a more holistic perspective than we have in the past, and to you know continue to advance the program.
BRIAN
Have certain stakeholders propelled you on your ESG journey more so than others?
BRETT
I’d say in terms of stakeholders that engage with us most frequently on these kinds of goals and ESG issues whether they call it ESG or not, primarily are employees. A lot of employees these days want to come to a company that is doing the right thing in a number of different areas, both from the environmental perspective, a lot of focus on climate change. We’re a company based in California which always has water challenges, and what are we doing with water. We’re a company that has laboratories, what are we doing to make sure that the waste produced by scientific research is reduced to the most extent possible. And so our employees are very, very focused on what are we doing in those areas. Also one of the biggest pieces of pride from our employees is we’ve got 17 million people out there in the world who are taking a Gilead drug every day in the developing world for HIV and people are very, very proud of that. And so employees are the one big one. The other one is the investor community. I do a lot of engagement with our investors and nearly every one of them these days has an ESG analyst or two that come to those meetings and they want to focus on what are we doing and they want to know what our goals are, why aren’t our goals more aggressive, what other goals might we set. And they want to know across the board from E-related questions and also social-related questions. And we welcome that and it’s also helped us improve our program over the years.
BRIAN
I know lab work can use a surprising amount of plastics and disposable materials but what are some of the steps that you can take to ensure a sustainable R&D engine?
JOYDEEP
Hey Brian, this is Joydeep, I’ll take that. So great question, on the general approach to sustainability, Gilead’s got very very deep commitment. We do everything we can to promote a reduction in the use of consumable resources. And I think I’ll answer this question on two levels. The first one is that we have tremendous management support. So it’s okay having a goal but having the C-suite to actually take this as seriously as you would from a cultural perspective is important. So sustainability goals show up in Andy Dickenson’s goals, who is my manager, it shows up as part of Brett’s remit in terms of managing the CSR committee. Our goals are very analytical as you might expect, target from a pure numbers perspective was to reduce our operational greenhouse gas emissions by 25% compared to our 2016 baseline. The reason that is of significance is that was the 5.0 before it began, our facilities’ growth and our footprints. So we are well on our way to achieving that in 2019, our numbers look to be 44% of our rate through that target. Despite having a 14% operational growth which I think results that we’re all very collectively proud of. Last year in October we signed up for the SBTI or the science-based target initiative and will be bolstering our current GH commitments. So we measure it, track it very religiously and we’ve got a very analytical approach. The lab question’s a great one because as you’re familiar with Gilead, we have a disproportionate amount of technical infrastructure, labs and manufacturing, and it’s always tricky here because it’s very energy intensive and consumable intensive operations. And we approach this in three different ways. One is through thoughtful master planning and design. Right, we have, we just took all our labs recently out of some of the older obsolete labs and moved them into a world class state of the arts research center. And everything, right from the design to the construction, to the operations, are based on very very green principles. All our labs that are constructed in the last three years achieved green building certification, LEED gold or higher. There’s a second element where I believe Gilead’s differentiating itself also is the use of technology and automation, and trying to drive this notion of intelligent laboratories, where these, the levels of automation can actually significantly impact consistency in the way you use water, for example during cleaning regimes etc. So using technology and automation to drive some degree of consistency in energy usage is a huge part of our focus. To try and take lab operations and make them less energy intensive. The final and I think probably the most salient point I think is to drive a grassroots culture of sustainability, and that’s where we’ve partnered with lots of local organisations, lots of local non profits like My Green Lab etc, clearly bring sustainability into every sort of local operation within the labs. And our scientists have an inbuilt culture of sustainability, they’ve got a lab recycling program, so there’s a big focus on the consumables end to ensure we recycle what we can, and then as we look to future projects, we use our thoughtful masterplan to construct the least energy intensive operations.
BRIAN
That’s great and I know you mentioned climate change is an important pillar of your goals. With the new Biden administration in the US I know there’s been a lot of discussion on the United States’ commitment to place climate change near the top of the policy agenda as well and we’ve seen policy pushes from other countries like Canada and the UK. Are there any sort of regulatory changes that you’d be anticipating in the coming year? And how might these impact your overall practices and approach? Broadly speaking, do you think business leaders are shifting in how they approach environmental and climate issues as a result of some of these policy trends?
JOYDEEP
Yeah, we are observing the policies. We do believe with the new administration that climate change will be central to corporate discussions, and the trajectory is less carbon, less waste and more focus on sustainability. We’re keeping our eye on some local regulations, specifically things like the California climate accountability act. We expect it to have very minimal impact to us Brian because we believe that any regulations that do get imposed are well in line with the way that we are committing to it. But what I will say in general, you will see a broader industry conversation grounded in some common principles, and it will lead to certain harmonisations of the way we report as Brett alluded to the way we focus on. And that’s all good because you can’t do this alone. As a company we are very reliant on third party suppliers, we are reliant on third party providers to also support our efforts. So having a common vernacular, having common standards, having a common ethos to sustainability is as important as having industry leaders that make a statement about this. So we’re energised by it.
BRIAN
That’s great. And you know, I know as you mentioned, the employees at Gilead are particularly proud of how many patients you guys serve. And Gilead obviously focuses on treatments for diseases that can be life changing for so many people, so there is an implicit societal benefit to what it is you do on a drug development and commercialisation basis, so maybe sort of referencing one of the first goals that you mentioned, just given the high profile nature of drug pricing, how do you guys think about ensuring access and affordability to patients in the developed world? And how might the strategies to maintain fair pricing further of all of this, move into new spaces like oncology, are there learnings from some of the attention we see several years ago on drug pricing in the hepatitis c cure space?
BRETT
Sure you know drug pricing is something that we could probably spend the entire conference talking about, and access has a lot of different pieces to it from the pricing set by the drug company to you know the co-pay requirements set by the insurance companies, but when we think about things that we can do with respect to how can patients get access to our medications, particularly in the developed world, there are a number of things that we do. One is that we never want a patient to be unable to access a medication because of cost. And so for any patient who is uninsured or has certain levels of income, we have a free drug program where that patient can give us a call and we can provide that drug free of charge. We also have co-pay assistance programs where if patients can’t afford the co-pay set by their insurance company we can assist them to some extent. There are some programs that we’re not allowed to provide any assistance, so there are charitable foundations out there to which we’ll give money and those foundations, patients will come to them with different diseases and say I can’t afford my medication, will you help me with my co-pay, and that can help them get their medications as well. And then we do a lot of work, because the cost of drug isn’t always the biggest barrier to access, a lot of times the biggest barrier to access is someone’s access to healthcare in the first place. Do they have a doctor, are they willing to go see the doctor? They may have a disease like HIV or HCV, they might be concerned about acquiring HIV and need something to help prevent them getting the disease. And there’s a tremendous amount of stigma and so they won’t go see the doctor, and so what can we do to make sure that people actually will go see the doctor in the first place and actually have the opportunity to even try to get the drug in the first place. So there are a number of facets we’re working on to ensure people have access.
BRIAN
Would you be able to provide more detail on Gilead’s hiring and diversity practices and I guess, I’m curious, how do you ensure adequate representation of women and minorities both in research roles as well as in management? And I guess given the bottleneck at the PhD level of minorities and women in minorities in STEM more broadly, what strategies does Gilead use to identify and hire the broadest range of candidates?
KORAB
Brian on that one, such a great question and in 2018 we actually included inclusion and diversity as a core value for Gilead. Because we really wanted to create a culture of inclusion and diversity in a way that when we attract diverse talents, with diverse backgrounds, to actually have a sense of belonging in the company. For us it was really important as the environment was already in place. In terms of the specific tactics, we created inclusion and diversity action plans for the company which includes re-establishing the goal of doubling Black representation by 2025, which is really coupled with investing and expanding internal and external talent pipelines. We also in 2021 which is this year we essentially expanded the number of interns that we were accepting at Gilead to 100 R&D interns. We’ve also invested significantly in partnerships with several historically Black colleges or universities, and Hispanic serving institutions really in an effort to further expand access to diverse talent. And then in 2020 we also launched the event in Black leadership strategy and blueprint for change, these are programs that are within Gilead. But they’re dedicated to allowing specific budget aimed at increasing Black and Hispanic hiring, development and retention. And we believe that these strategies are really going to enable us to meet our targets which we disclosed last year.
BRIAN
Great. And maybe before we wrap up, maybe just a couple more questions I wanted to touch upon. On a practical note, one of the prevalent challenges as it relates to ESG and the transition to a lower carbon future, is balancing current performance and business results today with investing for the future when the outcomes and the costs may not be as fully defined. So as Gilead thinks about the projects and strategies to pursue how do you guys balance sustainable choices and societal capital vs near return growth and investor return?
JOYDEEP
Our board is acutely aware of it of the contribution that ESG efforts make to Gilead’s overall success and we actually, it’s a point I can’t make strongly enough and we actually see this as a certain degree of causality that companies that do invest in ESG are actually companies that do well, and from our perspective we do see a very strong link between just an ESG ethos and our results. So everything we do we do with a sense that we believe that ESG is as much an ethos and a core value for us in everything, every decision we make, and we try and build that into the way that we make day to day choices. And I think I’ll leave it at that right now, it’s a combination of being thoughtful, being very strategic, and investing heavily in planning. And then viewing this truly as an investment in the way we work.
BRIAN
What do you think biopharma companies can do to further improve the ESG landscape? Are there any joint initiatives for instance, led by industry groups, that may be worth pursuing or highlighting? What should we be looking for I guess coming from a perspective of a leader like Gilead, what should we be looking for for the biopharmaceutical space in general in the coming years and on this front?
BRETT
We do work with a number of the Pharma companies as part of the business company roundtable and other groups to have discussions about this very question and as I look at it, I think one of the biggest contributions that we can make as an industry in the short term is to help people understand what are the materiality drivers for our industry. And to help kind of get the frameworks of reporting out there and the rating agencies and others to look at us in a consistent way so that we can provide apples to apples information to all of you who are looking to understand what we’re doing and why things make a difference in different areas, and why they don’t in different areas. And so I really think standardisation of how we approach ESG and how we look at ESG so that we can look across the industry and understand what we’re doing in a consistent way would really be something that the industry could contribute.
BRIAN
Great. Well with that, I know we’re out of time, so Brett, Korab, Joydeep, thank you guys so much, really insightful, appreciate you guys taking the time and congrats on all the progress that you’ve made and good luck going forward.
BRIAN
If you’re wondering what else is on the horizon for the biopharma industry, we’ll be keeping track right here on Pathfinders. Thank you all for joining us and stay tuned for future episodes. And of course if there are any areas that we discussed that you’d like to learn more about, don’t hesitate to contact us directly for more in-depth discussion or visit our website for further insight.