吉利德科學 (GILD) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences third quarter 2010 earnings conference call.

My name is Stacy, and I will be your conference operator for today.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded today, October 19, 2010.

I would now like to turn the call over to Susan Hubbard, Vice President of Investor Relations.

Please go ahead.

Thank you, Stacy, and good afternoon, everyone.

Welcome to Gilead's third quarter 2010 earnings conference call.

We issued a press release this afternoon providing earnings results for the quarter.

This press release is available on our website at www.gilead.com, as are the slides that provide much more detail around the topics discussed today on this call.

Similar to the format we introduced on our last earnings call, our prepared comments will be brief to allow more time for your questions.

Our speakers today will be John Milligan, President and Chief Operating Officer and John Martin, Chairman and Chief Executive Officer, who will provide some comments on the quarter and our view about future and opportunities for the Company.

Norbert Bischofberger, Executive Vice President of R&D and Chief Scientific Officer and Robin Washington, Senior Vice President Chief Financial Officer, and Kevin Young, Executive Vice President of Commercial Operations are here as well for the Q&A session.

I would first like to remind you we will be make statements related to future events, expectations, trends, objectives and financial results that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on certain assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statements.

I refer to you our latest SEC disclosure documents and recent press releases for a detailed description of risk factors and other matters related to our business.

In addition, please note that we undertake no obligation to update or revise these forward-looking statements.

We will be making certain references to financial measures that are on a non-GAAP basis.

We provide a reconciliation between GAAP and non-GAAP numbers in the press release we just issued and on our corporate website at www.gilead.com.

I will now turn the call over to John Milligan.

Thanks, Susan.

Gilead posted strong third quarter 2010 results with non-GAAP net income of almost $760 million, or $0.90 per share, representing a year-over-year increase in net income and EPS of 4% and 15% respectively.

Sales growth was strong with total revenues of just over $1.94 billion, up 8% year-over-year.

Antiviral product sales were a record $1.65 billion, up 12% year-over-year.

The US contributed $923 million to our antiviral product sales increasing 15% year-over-year resulting from the continued strong growth in patients and market share in the US and up 4% sequentially despite the added impact of rebates to ADAPs and PHS as mandated by healthcare reform.

There are now over 600,000 HIV infected patients in the US taking antiretroviral therapy and we believe we are starting to see the impact of DHHS guidelines endorsing earlier treatment.

Europe contributed $614 million to our antiviral product sales increasing 5% year-over-year and 2% sequentially.

While we saw demand growth for our products across Europe including clinical trial purchases totaling $10 million, this was partially offset by the full quarter impact of mandated price reductions and fluctuations in foreign exchange rates as we described on our second quarter call.

The products in our cardiovascular franchise, namely Letairis and Ranexa delivered strong year-over-year growth of 26% and 23% respectively but were relatively flat sequentially.

Both products saw demand growth that was pared back by small adjustments in wholesale inventories as well as changes to average selling price due to selective discounts into managed care.

Our newest product, Cayston, achieved nearly $15 million in its second full quarter of sales in both the US and some countries of Europe.

In June, we presented data from our head-to-head study of Cayston versus Toby, showing statistical superiority over Toby at day 28, and we're presenting six-month data for the study at the North American Cystic Fibrosis Conference taking place in Baltimore later this week.

We continue to receive positive responses from the CF community as to the importance of having an additional treatment option and a novel antibiotic to adjust to growing incidents of Tobramycin resistance and intolerance.

We continue to be vigilant on expense management resulting in a very healthy non-GAAP operating margin of nearly 55%, and we generated $740 million in operating cash flow for the quarter.

And we've also been aggressive in our $5 billion share repurchase program having repurchased and retired $1.55 billion worth of stock, or more than 45 million shares during the third quarter alone.

Our total share repurchase activity over the course of the year has reduced our total shares outstanding by approximately 10%.

Given our current valuation, we view share repurchase as the preferred vehicle for returning value to shareholders.

We will continue to be opportunistic and leverage our cash balance over the coming to complete our authorized program, in addition to advancing our pipeline programs and considering strategic options through partnerships, licensing, and M&A.

The last financial highlight that I will speak to is our 2010 guidance, which is detailed in slide 38 in the earnings call deck.

The only adjustment we're making to our full-year guidance is to R&D.

We are lowering our R&D guidance for the full year to a range of $830 million to $840 million from range of $850 million to $870 million.

This reduction in R&D spend is driven by the timing of clinical trial expenditures.

All other guidance parameters remain unchanged.

As previously disclosed, on September 24, Gilead received a warning letter from the Food and Drug Administration relating to an inspection of our San Dimas, California facility.

We have responded to the warning letter within the mandated 15-day period.

As a reminder, back in January and February of this year, the FDA inspected our facility and issued a 483 letter citing a series of observations due to concerns about our manufacturing and quality related procedures.

Subsequently, we learned that we were likely to receive a warning letter based on the inadequacy of our response to the 483s.

We disclosed this in our Form 10-Q for the second quarter 2010.

We have been and will continue to work diligently to address the FDA's concerns.

Gilead continues to manufacture AmBisome, Cayston and Macugen and package and distribute products from the San Dimas facility.

Turning now to the key milestones during the quarter.

At the international AIDS conference in July, Dr.

Cal Cohen presented 48-week results from the two pivotal TMC 278 studies during the late breaker session.

The data demonstrated TMC 278 was non inferior to and better tolerated than Efavirenz, leading to fewer discontinuations due to adverse events.

There were fewer grade 2 to 4 adverse events and the difference was statistically significant with regard to some psychiatric and neurological events and rash.

There were more virologic failures in the TMC 278 arms compared to Efavirenz and further analyses of the data presented at ICAC in September suggested that suboptimal adherence and/or higher viral load were the primary predictors of virological failures with TMC 278.

Due to the blinded placebo controlled design of the study, patients in this trial had to take multiple pills multiple times a day, which may have led to sub optimal adherence resulting in virological failure.

As is recognized by the major treatment guidelines, single-tablet fixed dose regimens lead to better compliance.

Therefore, Gilead plans to conduct a head-to-head open label study as a fixed dose combination of Truvada and TMC 278 versus Atripla as well as a study in which we will switch patients from a protease inhibitor containing regime to our single tablet regimen of Truvada and TMC 278.

We'll provide more details as we get closer to initiation of these studies.

With regard to regulatory process.

Tibotec filed for the single agent TMC 278 in the US in July and followed with a filing of the European Union on September 3.

We also filed our EU marketing application for the single tablet regimen of TMC 278 and Truvada on September 3.

We expect a standard review in Europe, which would allow for approval in the fourth quarter of next year.

Gilead plans to file for the single tablet regimen here in the US in November which would be expected to lead to an approval time frame in the second quarter of 2011.

We're very pleased with the progress of this program.

The introduction of this product will give patients and physicians an important new choice for a one pill once daily regimen.

I'll now turn the call over to John Martin to discuss our pipeline and other upcoming milestones.

Thank you, John.

I am pleased with our performance and productivity in the third quarter of this year.

Ultimately our success over the long term is dependent upon continued innovation and pipeline advancement, where we have made significant strides this year.

Management recently completed a thorough review of our R&D portfolio and we are enthusiastic about the number and quality of programs underway across our therapeutic areas.

For our HIV pipeline, the Quad and Cobicistat programs continue to progress rapidly.

As you know last month at the ICAC conference in Boston 48-week data from the two Phase II studies were presented, confirming the positive results seen at 24 weeks.

Enrollment was completed in the pivotal Phase III Quad studies, 102 and 103 in only four and a half months after study initiation.

Study 102 is a head-to-head study of the Quad versus Atripla and study 103 is a head-to-head study of the Quad versus boosted atazanavir plus Truvada.

Both comparative arms being guideline recommend first line regimens.

Each Phase III study enrolled over 700 patients putting this development program on track for availability of 48-week data in the third and fourth quarters of next year.

The speed in which these studies were enrolled speaks to the excitement surrounding this integrated space single-tablet regimen.

The third Phase III study, study 114, evaluating Cobicistat versus retanivir is also making rapid progress, and screening is now completed and the study will be fully enrolled before year-end.

This study, along with the other studies, which use Cobicstat, will support the filings for Cobicstat as a stand-alone agent.

Turning to the ongoing research evaluating the potential for Tenofovir and Truvada to be used as prevention in HIV, a topical gel tenofovir for use as a vaginal microbicide to prevent HIV infection in women has been under evaluation by a South African based group called CAPRISA.

This trial was jointly funded by the governments of South Africa and the United States.

At the IAS conference in July, the first data from this study were presented.

Results demonstrated that the use of Tenofovir gel led to an overall 39% reduction in risk of contracting HIV among participants, and women who used the gel most consistently experienced a 54% risk reduction.

This presentation received a standing ovation at the conference as this is the first study to provide evidence of effectiveness of a topical microbicide for the prevention of HIV infection.

A number of oral prevention studies are also ongoing.

Data are expected shortly from the [IPREC] study which is a placebo controlled double-blind trial conducted in North and South America and southeast Asia of the daily use of Truvada in nearly 2,500 men who have sex with men.

This study is sponsored by the National Institutes of Health.

If the results are positive, Gilead will work with the appropriate regulatory agencies to determine whether the data would warrant inclusion in the prescribing information.

Finally, for our ongoing HCV research.

During the past quarter we revealed that our HCV pipeline has grown to seven candidate compounds with six different mechanisms of action.

Five of these are currently in human clinical studies and two are nearing phase I initiation.

At AASLD in Boston next week clinical data on four of these programs will be presented.

One presentation is a late breaker of data from the three-arm phase IIA study evaluating GS 9190, a polymerase inhibitor in combination with GS 9256, a protease inhibitor.

When used as dual antiviral therapy alone, or as a three-drug regimen in combination with ribavirin, or as a four-drug regimen including ribavirin and peginterferon.

As reported in the published abstract, a substantial portion of patients receiving the four-drug regimen achieved rapid and complete viral suppression after 14 days of therapy, supporting further clinical evaluation.

Therefore, I am pleased to report that patient screening began just last week for a phase IIB study utilizing this regimen to determine if the duration of therapy can be shortened from 24 weeks to 16 weeks.

Shortening of therapy is an intermediate step in the treatment of chronic hepatitis C as we expect that an all-oral antiviral regimen from three or more classes will ultimately become the standard of care.

While there is considerable competition in this space we believe that we have an expanding multiclass anti-viral HCV pipeline along with a talented research and development group in place to deliver on our ambition.

In summary, over the course of 2010, many of Gilead's core pipeline programs have advanced on schedule and in some cases have exceeded our own aggressive time lines.

We delivered strong commercial and financial performance in the third quarter, and we look forward to keeping you posted on our progress as we conclude this year and embark on 2011.

I will now turn the call over to the operator for Q&A portion of the call.

Operator?

(Operator Instructions).

We'll pause for just a moment to compile the Q-and-A roster.

And your first question comes from the line of Geoff Meacham from JPMorgan.

Please proceed.

Hey guys, thanks for taking the question and congrats on the quarter.

Thanks Geoff.

Question for you on slide 17, the CD 4 count.

Do you guys have a sense in this data what the segmentation is of patients for counts greater than 500?

Then, a follow-up, maybe a bigger picture question, after the guideline changes and the CDC recommendations a few years ago, what would you guys say today is the tipping point for converting the patients in care to those on ART?

Hi, Jeff, it's Kevin.

Yes, we do have the underlying data.

We thought it was a lot cleaner put the two together.

There was a small movement of the patients of both 500, the majority of that growth that you're seeing up to 42% is coming from the 350 to 500.

We felt it was important to give you that slide on this quarter as I had referred to this slide on the second quarter.

In terms of the tipping point, I actually think we're in the tipping point.

If we look at the [synovate] data for second quarter to go over 600,000 patients was a big landmark for us.

219,000 patients now on Atripla, 226,000 on Truvada, so we have two products now well above 200,000 patients.

Other markers of earlier treatments include -- we are seeing increases in the actual number of starting patients on antiretroviral and we're seeing a shortening of the average time between diagnosis and starting antiretroviral treatments.

So it does same as though all of the key drivers are now operating in kind of in parallel and all in the same direction.

So what we sensed was happening earlier this year is really starting to come through in the numbers, and I'm quite pleasantly surprised that we're seeing this as early as we -- as early as we are, but I think it shows the commitment to the HIV community to really adopt these guidelines.

So I think we're into the tipping point.

Got you.

Okay, thanks.

Your next question comes from the line of Mark Schoenebaum with ISI.

Please proceed.

I was wondering, follow-up on Geoff's question, I didn't hear you say, maybe I just didn't hear it that the new treatment guidelines are having any material impact in Europe yet.

Are they having impact in Europe?

If not, why not?

Then the follow-up - Well, it's actually a second question, so you don't have to answer it, but I was wondering if you could comment on this issue of does FTC equal 3 TC.

One at a time here Mark.

I was commenting to the first question on the US.

Not quite as strong an indicator yet in Europe around guidelines.

The EPS guidelines changed in November, not quite as strongly as DHHS and not as strongly as IAS.

So we haven't seen a stronger situation as we have here in the US, and that's not unusual because Europe is normally a little bit slower following the US.

I do want to highlight one particular guideline change that's happened fairly recently, and that's France.

France a very important market, as you know.

It's our number one market outside the US.

Very progressive from the point of view of HIV, and the French guidelines so called [Yanni] guidelines, have moved up the start of antiretroviral treatment to 500, so that's a very key change guidelines.

So I would hope to see that starting to come through.

In terms of your question on FTC versus 3 TC, here in the US we are still not seeing the launch of any generic 3 TC, and we are preferred in guidelines here, so I think we have a very, very strong position.

So as would be seen from the growth in Atripla and the growth in Truvada, I think our single-tablet regimens and fixed-dose combinations have a very, very strong position.

But do your customers view them as the same?

Then I'll stop.

When we have been at our advisory boards of late, our HIV specialists are recognizing the difference between FTC and 3TC.

We have medical education, slide sets and discussions that are used by our medical scientists which clearly differentiates the products based on the resistance profile based on the pharmacokinetics.

If I could just add something, I want to emphatically say that FTC is not equal to 3TC.

As Kevin said that's rides by the people who are in the know.

It has a longer pharmacokinetic half-life.

It is more of a QD drug than 3TC.

It is more potent on monotherapy and there's some clinical data emerging that would indicate that there is less resistance development when you're on a FTC continued regimen compared to a 3TC.

Lastly, as Kevin very correctly pointed out, FTC is the only compound that in a preferred regimen co-formulated either with Viread and Truvada or with Viread and Efavirenz and Atripla.

Okay, thanks.

Thanks for the good slide deck too.

Your next question comes from the line of Rachel McMinn with Bank of America.

Two quick questions.

One is on the non-retail purchasing during the quarter, if there's any comments there?

And then, when we think towards 2011, just a comment here about $50,000 worth of pharmaceutical excise tax expected in 2011.

I'm just wondering when we look at that, and think about your HCV pipeline, is it fair to assume just directionally an operating margin decline next year?

Thanks.

Hi, Rachel.

It's Kevin.

First question, non-retail US was really, really solid.

I was very pleased to see the results.

We had excellent purchase from Texas, as you remember, Texas was a little bit cooler in Q2, because they're always waiting for the start of their new budgets, both core and supplemental.

But we had very good purchase very Texas, very good purchase from Florida, that was an unaltered and has had no impact of the wait lists in Florida, so it was absolutely rock solid.

And, as you know, typically Q3, Q4, and Q1 are the stronger of the quarters from the point of view of the financial year.

Rachel this is Robin, I'll take the second part of your question.

If you notice on slide 35, we kind of highlight that we we expect the excise tax in 2011 to not be greater than $50,000 million and it could be less.

We're still working and trying to understand the calculation as is the rest of the industry.

Clearly it's to the extent it impacts SG&A will have some impact on our overall operating margin, but I think overall that's yet to be determined and we won't be providing 2011 guidance until January.

Okay, thanks.

Your next question comes from the line of Yaron Werber with Citigroup.

Thanks so much.

Nice quarter.

If you don't mind I just after quick question for Robin, kind of as a follow-up and then just a follow-up to the follow-up.

In this quarter, how much was the topline impacted because of healthcare reform.

I remember in Q1, it was around $29 million and it was slightly more than that in Q2.

Can you give us a sense for this quarter?

Then a question for Kevin.

Help us understand a little bit -- it sounds like this quarter was again growth resuming both in the US and OUS in HIV -- after the previous two quarters were much more sluggish.

It is all because of the guidelines?

Because if you look at the slide on guidelines changes, you actually saw appear up tick in patients starting at the 500 level even in Q1, so I'm trying to get a little bit of understanding about what's different about this quarter?

Thank you.

So, Yaron, its Robin.

Yes, we did provide the initial impact of healthcare reform in Q1, but we also highlighted that we would not break it out, just because its difficult to do going forward, but we stand by the guidance we provided of around $200 million for the full year.

We are staying on track relative to that guidance.

I will say that in Q3, as well as in Q4, we did see a higher ramp of healthcare reform costs driven primarily by the fact that the discounts in the PHS and ADAPT sector of our payer population increased in Q3.

So the second half as we highlighted before, we see a higher ramp, and we'd expect to see that flatten in Q4.

Q4 will be flattish versus Q3.

It will be based on sales, but yes, relative to the ramp, it will be flat.

Great, thank you.

Yaron, in terms of your question, just as much as we don't get doom and gloom when we have a flat quarter with [Synovate], we probably shouldn't go the other way and get the trumpets out when there is a very good quarter.

I think we always look at Synovate as the trend, as the direction.

Certainly is nice to see that we got over 600,000 patients now on antiretroviral therapy.

I think what we're seeing is the coming together of all of the key parameters in HIV.

We have got diagnosis and screening going on.

We have got earlier treatment.

We have got HIV still in the news, still is a major health care challenge.

So whether it's the US and more testing going on and the $25 million emergency fund went out there to help ADAPTs or whether it's guideline changes France or whether it's diagnosis initiatives in the UK, I still think there is tremendous momentum behind this market and the need to diagnose and the need to treat is compelling.

Thank you.

Your next question comes from the line of Josh Schwimmer with Leerink Swann.

Please proceed.

Thanks, good afternoon.

A couple of quick questions.

One is a clarification really, which is the healthcare reform projections for 2011.

Just if the 2010 impact was primarily back end loaded how do you wind up with the same magnitude on a percentage basis in 2011?

I would thought that it would have actually gone up as a percent in 2011.

And then, a quick question on the prep studies in (inaudible) do you see that as a viable commercial opportunity and if so what kind of parameters can you put around that?

Thanks very much.

Josh, relative to healthcare reform, I think we talked about it being 4% to 5% or 5% to 6% for 2011 and then that 5% to 6% being the same percentage going forward, probably leaning more towards the top end.

And begin, because its half-end loaded, its starts to get built into our run rate.

Josh, with regard to the prevention studies going both as gel both with [eviriad] and with Truvada, we do believe we'll have an important conversation with regulatory bodies to try to determine how the information should be included in the prescribing information around the world because there is appear obligation to provide that information to physicians so they can provide better information to their patients.

But, with regard to a commercial opportunity, we do not see this as a significant commercial opportunity at this point.

Okay, thanks very much.

Next question comes from the line of Ian Somaiya with Piper Jaffray.

Please proceed.

Thanks for taking my question.

Just a question for Norbert.

Do you think you have the all-necessary pieces as it relates to the Hep C program to in essence catch up or provide a meaningful combination regimen?

If not, where do you see the missing piece or asset?

Ian, I'm not sure I understood everything that you said.

Your phone connection wasn't quite ideal.

Yes, so Ian, this is Susan, I'll just clarify.

You were asking whether or not we believe that we have all the assets we need to leap frog in the HCV space.

Is that correct?

That's correct.

Ian, I want to state again what our strategy is.

As you know, the way the field has evolved with HIV that really every drug all 32 of them that are approved right now have been developed as stand-alone agent, either addition to an existing regimen or a substitution for another agent in a regimen.

We think HCV -- and by the way, it has taken 30 years or so for that to happen.

I think HCV will be much accelerated.

We have learned a lot from HIV and I think that's why we are working not on single agents, but we are working on a combination oral antiviral combination that actually leads to cure of Hep-C.

And you know, if you look at the distribution of patients infected, patients diagnosed and patients on treatment, it turns out that only 5% of those that are infected are actually on treatment and that's in large part a reflection of the treatment modality that we have now and in order to substantially change that and really be able to access the large number of Hepatitis C infected patients that are out there, you need to get rid of (inaudible) and that's our goal.

So, we think if we have maybe its three drugs, maybe its four drugs, we will find that out sometime during the next year and also which three drugs or which four drugs, then will we do a combination study with those three or four, show that it leads in certain genotypes to a cure of the Hep-C infection and that's the modality we will get approved by regulatory authorities.

And I think that will leap-prog the field, and it will greatly change how people view the disease.

It will greatly lead to increased diagnosis and those that are diagnosed to increase treatment.

That's our philosophy and we think we have all the assets in place right now internally both in terms of programs and people to execute on that.

Your next question comes from the line of Geoffrey Porges with Sanford Bernstein.

Please proceed.

Thanks very much for taking my question.

Question on the cash performance.

Impressive share repurchase activity since May, and clearly you could go through this -- the authorization much faster than you originally anticipated.

I think it was three years.

So, Robin, just thinking ahead to where you might be another five months from now is your expectation first that if the stock stays in its current range that you would deploy the cash at the same pace or a different pace?

Secondly, would you be willing to lever up further to get more cash to continue with that program at that pace?

And then lastly, you've talked in the past about dividend discussions.

I'm wondering if you've had any follow-up to that.

Thanks.

Sure, Geoff.

So to address the first part, if you think about rest of the year, we plan to probably use in the range -- again, it's based on the valuation of about 3 billion of our share repurchase program.

Then as John mentioned and outlined in the script, we'd anticipate utilizing the rest of that authorization in 2011.

So relative to cash on hand and ability to lever up, we would.

We talked about getting a rating before.

You recall the reason why we did the initial convert offering, back in July was because we didn't have the rating.

So that is also something that we're planning on looking at in 2011.

And relative to dividends, as we've mentioned, we pretty much view share buy backs given our value you situation the appropriate vehicles, returning value to our shareholders.

But, it's a topic we continue to evaluate as our business matures.

We do recognize that our shareholders, while there are a lot of different opinions out there, but they expect us to have a sound capital management strategy.

They also want longer term visibility around our cash usage and return of value.

We will continue to ensure that our method of returning value is complementary to our strategy and our future growth profile.

Thanks very much.

That's helpful.

Your next question comes from the line of Thomas Wei with Jefferies & Company.

Please proceed.

Thanks, just kind of following up on the last question, if we think about Gilead profitability structure right now, do you think that you can achieve your long-term goals in terms of the pipeline, whatever you need to do to fill the patent cliff with the current type of structure on operating margin?

Should we assume that you are going to try to keep the operating margins in this general range, 50% to 55%?

Hey, Thomas, it's John Milligan.

As we model out for the future, I think it's fair to say, for example this year that we're spending less in R&D than we had planned to spend and that was a result of, of course two, things.

Darucentin not going forward as we had thought, and also the issues that we encountered and the safety of GS 9450.

So as I look at this year we're not spending as much in R&D as I would have liked.

As I look at the year, we're going to come in around the mid -- between 10% and 11%, depending on how the year plays out in a couple different areas so that's a little lower than we would want what.

I would like to see us do is return to a higher level of R&D spend.

Now, I'm not saying it's significant higher, but we need to spend a little bit more, and looking at Norbert's pipeline for the future, he is going to clearly need some more money to put into those larger, more important Phase III clinical studies, especially as the HCV port knoll yow mat metrics and I would expect that to happen.

So 55% is about as good as you can do anywhere these days so that's a tough one to main tape, and I would like to put a little bit more money particularly into R&D long term.

Thomas, an additional comment I would like to point out, we're maybe not spending a lot of money on R&D as a percent of revenues, but in the total, absolute amount, $840 million is a huge amount of money, and you can do a lot of interesting things with it, and we will continue to spend money very frugally and judiciously.

Your next question comes from the line of Jason Kantor with RBC Capital Markets.

Please proceed.

Thanks for taking my call, and congratulations on a good quarter.

Wondering if you could comment on how, if any, there was an impact from the patient assistance program and the copay assistance programs which I believe were expanded this quarter.

Hi, Jason, it's Kevin.

In conjunction with our price freeze that we agreed with, with ADAP, we did make some other clappings, one of which was to take up our copay card from -- basically from zero, it previously started at $50.

It's now $0 to $200, just as a reminder that can only apply to private paid patients.

It can't apply to any of the federal payors.

It has been well received.

There were very, very small areas of the country where we probably had a situation where a physician favored a competitive product because of our copay card, perhaps being bettered by a copay card of another company.

So that has been helpful, but I have to say that's probably been in very -- in very small spots.

I think the thing that's really driving this is the extra funding that came from federal, the extra funding that went out in this emergency $25 million fund, and just a desire by the physicians to be adopting the guidelines.

We are having discussions through our medical scientists and our field force around the guideline changes, but the reception to that has been very positive.

We haven't been pushing uphill.

The physicians themselves I think wanted that endorsement to be starting patients earlier.

So I think that's where the real momentum comes from.

Could you speak to how the copay assistance program might work through the P&L over time?

And is that going to be a growing thing something, that we're going see more patients take advantage of?

It's a relatively small amount in my expenses so it's captured in expenses, so it's a very, very small amount of money.

And for the goodwill and doing the right thing for HIV, it's quite appropriate.

I should also say, Jason, that we have seen an increase in our PAP.

That's our patient assistance program, not the copay card.

And that kind of goes hand in hand with some of the growth that we've seen in the ADAP waiting list.

Again, we feel responsible as an HIV company to do the right thing, and typically the PAP is a transitional place for HIV patients until they come off a wait list.

And so whether it be Florida or another state, we make sure people know about our PAP that come on to our PAP, and then when wait lists hopefully eventually come down or are cleared that allows for very quick transition to a commercial paying patient.

Thank you.

Your next question comes from the line of Tom Russo with Robert W.

Baird.

Please proceed.

Good afternoon.

Just a quick -- another macro question on Hep-C.

As the leader in hepatitis B where it's underdiagnosed and underpenetrated what in your view is the key difference about hep-C, is it the ability to get a cure, that would move that needle?

Then as follow-up, would your six mechanisms of action what currently do you think are the most likely that could be combined to achieve an all-oral three-drug cure?

The first question, you're exact right, the big difference between hep-C and hep-B is that hep-C, the treatment, the end goal of treatment is cure, where as in hep-B, that's more what you would like to achieve, but in most cases, it's impression of viral replication.

We are with our seven agonist actually pursuing a hepatitis B cure as well, and that would, I think, greatly expand the diagnosis into treatment of patients that are infected with hep-B.

With regard to which mechanisms are most likely to work, Tom, I don't think there is a particular rule that we have.

You simply need three potent agent that are not -- that don't have have unfavorable drug interactions that you can combine, and that have added or synergistic activities, or that suppress (inaudible), and you have to suppress it for a certain period of time.

That could be between 12 and 24 weeks, and afterwards HCV will be cured.

That's our ongoing assumption.

Okay.

Thanks.

Your next question comes from the line of Phil Nadeau with Cowen and Company.

Thanks for taking my question.

In about six or eight months it sounds like Atripla and Btripla will be competing in the market place.

So, now that you've had more time to digest the Phase III data from TMC 278, could you give us your updated thoughts on how you are going to position Atripla versus Btripla, and remind us how much flexibility you have with your permits with J and J and Bristol to change the strategy, change the horse that you're backing, following the data from the Atripla versus Btripla head to head study.

Hi, Phil, it's Kevin.

Maybe I will try and sort of reverse my answer to your question.

First of all we've got complete flexibility when it comes to our partnership with Bristol-Myers.

That partnership today with Atripla continues to be incredibly professional but in the first quarter of next year, what he essential separate from BMS in terms of that joint promotion.

Both companies can continue to promote Atripla.

That's at their own discretion.

But we will no longer coordinating our efforts with Bristol-Myers Squibb.

Coming back to Truvada 278, yes, we did a lot of work, and certainly we've ramped that up since the two recent presentations of 278.

The first thing I want to say is that I think some people have considered that 278 Truvada is some form of either niche product or is somehow second line to Atripla.

We don't see that it way.

We see this as a really strong first line drug for treatment naive patients, certainly in terms of the tolerability process, side effect profile, it seemed to perform better than Atripla in both echo and thrive, and for the 49% of treatment naive patients who start on Atripla, we've got an alternative.

The other part of the treatment naive pie is obviously Truvada.

The majority of Truvada is with the protease inhibitors are in some cases with an integrate inhibitor with [Ecentress], and that's also an opportunity for us in that naive setting.

So we think the profile of Truvada 278 is very strong and will be -- and we'll be leading out with that for treatment-naive patients.

The final thing I would say is I do think we have a good opportunity with the switched patients.

Certainly talking to the physicians and having advisory boards whilst there are some patients who much prefer the single tablet regimen of Atripla, in some cases they do struggle sometimes with tolerability.

I think to have a second single tablet available as an alternative will provide a good opportunity for a physician to switch a patient.

So the final thing I would say is, it's really a very strong position to have two single tablets, and we can certainly get to a place having those two presented to the physician that we could never get with just Atripla alone.

Phil, I would like to add, and that was said before by John Milligan in the conference call earlier that we believe that Phase III data on 278 do not fully reflect the value of 278 fixed dose combination, because as mentioned, due to the blinded nature of the study, these people had to take three pills, everybody, at two different times of the day, one with food, the other one without food at bed time, and so it may have led to less compliance than you would get if you would simply have one pill once daily, and that's the reason why we're repeating or doing this study open-label, one pill versus one pill, 278, fixed dose combination versus Atripla to really show that that would lead to hire compliance rates and less virological failures on 278.

Okay.

And that we can show that 278 would be truly a winning combination for a good substitute for Atripla.

Right.

If I could follow up on Kevin's comments on the protease inhibitor part of the market, in my prior conversations with HIV physicians it sounds like they use PI's in the first line in many cases in patients where they don't think they're going to take their pills to give them a higher barrier to resistance.

Is there a question with 278 with resistance, or what happens if you miss pills, how likely is it that you are going to be able to penetrate that part of the market?

What's going to be your marketing message to convince somebody to go on 278 plus Truvada instead of a PI plus Truvada?

Well, I think you are right, there are some physicians who, for that reason, use a protease inhibitor.

There are physicians who choose a protease because they don't like efavorens.

They are patients that an alternative would be very welcome.

One thing I want to say is, another comment regarding effect in viral load, basically 75% of new starting patients have a viral load of less than 100,000 copies.

So the majority of patients who are treated in the naive setting have a viral load below 100,000.

So, again, I don't think that's an obstacle to prescribing of Truvada 278.

I would like to mention, I think, Kevin may have said this before, I'm not sure, we are doing a study where we're actually switching in a Phase III design in a controlled way people that are suppressed on the PI regimen to 278 fixed dose combination.

I think dose data are very useful and maybe even necessary to convince a large part of the physicians that this is a viable strategy.

Great.

Thanks for taking my question.

That's very helpful.

Your next question comes from the line of Joel Sendek with Lazard Capital Markets.

Please proceed.

Thanks a lot.

I had a question about your cardiovascular franchise.

You mentioned that the -- in explanation for why there was flat sales for Letairis and Ranexa, inventory and ASP chain.

Wondering what the sequential demand growth was, if you can give us a feel for that help us model it going forward.

Thanks.

Hi, Joel, it's Kevin.

Basically, I'll take Ranexa first.

Depends what data source you use.

But [WorldCure] was 5% sequential increase in prescriptions, and IMS was 6.

So it's 5% to 6%.

That is lower than it was in the second quarter, where it was one of our highest growth levels of 13% for WorldCure and 10% for IMS.

So it was lower than Q2 growth, but nevertheless, there was growth there.

In terms of Letairis, we don't base our demand on prescriptions.

It's shipments out.

And shipments out Q3 on Q2 were about 6% up.

But as John said in his text, we had a slight lowering of inventories, with regards to Ranexa, that's with the major wholesalers.

With regards to Letairis, that's the the specialty pharmacies, and we do do some contracting on a very selective basis.

With Ranexa, that's been all about access.

With Letairis, it's more reactive to some moves we see from competition.

Thanks.

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank.

Please proceed.

Thanks for taking my question.

First question is, according to your metrics what percent of patients really struggle with tolerability on Atripla according to your databases?

And may second question is for Norbert.

Have you given any thought to -- I know your HCV pipeline is early.

Have you given any thought or see a need to participation your drug with some of the earlier drugs that are going to come to market in the hep-C space?

Hi, Robyn, it's Kevin.

I don't have a percentage off the top of my head, but I can answer that more qualitative.

What we typically hear from physician whose we have our round tables is they particularly get concerned about HIV patients who have high technical jobs, so maybe in kind of the financial world or just are dealing with complex information, and so those are the people who sometimes, because of some CNS effects, don't do as well.

So if people are operating machinery, people are driving as part of their profession, that's when -- that's when physicians tend to be just cautious about using an efavorens based regimen.

Robyn, to answer your question about partnering hepatitis C, absolutely, we're looking at that constantly.

We're in a number of discussions with various organizations to look whether partnering makes sense, but I have to say, it makes sense to us, if we believe that it greatly accelerates the time lines for us to come up with the all-oral antiviral regimen, and in that case we would completely enter the partnership and support that.

Cool, thank you.

your next question comes from the line of Jim Birchenough of Barclays.

Please proceed.

Hi guys.

Just want to follow up on the focus on your HCV development program.

What do you view as the major do-risking event in trying to get to a three or four-drug combo?

Is it efficacy?

Is it safety?

Have you done the pharmacodynamic modeling where you feel pretty confident if you can put three drugs together you're fine so it's safety?

Just trying to understand how you're thinking about that and when we'll hit that sort of time point where you can take a step function in terms of your confidence that you are going to be the ones that develop a triple combo.

Jim, we actually have a late breaker presentation at the -- that you may have seen the abstract, and basically this was an experiment to ask the question whether three -- two drugs in combination with this may actually be enough to give a good you a good RBR or suppression or viremia.

The answer to that was no.

We're looking at viral modeling, viral kinetics.

We just need -- Either it's going to be three drugs or four drugs, and we will be in a position to test that concept hopefully sometime by the end of next year and then we can really find out whether the concept works with the three or four drugs are enough.

But, I think in tend it has to do with -- there has to be an absence of antagonism.

Ideally, we want synergy between the drugs in terms of activity.

You want to have potency, which means each drug by itself should lower viral load by a few logs.

All of them together should be additive or synergistic.

When you -- shouldn't have significant drug interactions.

But if you have all that I think you have a chance of being able to cure HCV infection with an all oral antiviral regimen with a limited treatment duration of between whatever it is, 12 to 24 weeks.

If I could just follow up on this I guess what I'm trying to figure out is, if you are quite certain that you've got three or four drugs to combine, then I understand not being aggressive and pursuing partnership or acquisition, but it just seems like it's a pretty high technical hurdle, and why not increase your odds by being more aggressive on the M&A or end licensing front.

It just seems like you're making a bet on what you've got internally with limited information and why not be more aggressive.

Jim, I completely agree with you, and all I can tell sue we are aggressive.

I'm not at liberty to talk about the details of all the discussions we're having with various organizations, but we are looking at that the de-risking event could be -- the only thing we're not certain about our compounds is the safety, because we simply don't have enough experience like with our protease inhibitors yet to be able to say how safe they are.

So it does make sense to look at other opportunities of compounds that are further along in terms of human safety experience and think about should we collaborate with those organizations or acquire them.

And we are actually doing that.

We are in discussions.

Thanks for taking the questions, Norbert.

You're welcome.

Your next question comes from the line of Jason Zhang with BMO Capital Markets.

Please proceed.

Thanks for taking my questions.

Norbert, question for you, you mentioned two HIV trials.

One is Btripla, the other is Atripla, open-label trial.

Another is switching from PI to Btripla.

Could you give us a little more detail in terms of number of patients, when will we be seeing data?

These are two large Phase III studies.

And when we receive data, we are in the stage of protocol development.

We still to have go through FDA approval, IRB approval et cetera, then enrollment.

I would say just back of the envelope calculation, it is probably going to be in the year 2012 before we have data on any of those studies.

And --

The design is very simple.

The one is a randomized one to one Atripla versus 278 fixed dose combination, and the other one is a controlled people on suppressed on a PI regimen, and they're randomized to either continue on that regimen or switch to 278 fixed dose combination.

The endpoint is that in both studies, 48-week proportion, less than 50, with equal failure.

Quickly, of the Phase IIB study, you said earlier ear starting Phase IIIB and try to look at either 24 weeks or 16 weeks.

I assume that is compared to the percent of care as a control.

Looking into the future, if you do indeed move into a regulatory trial what do you think owe what would be the control to be -- if the protease inhibitor is already on the market?

Do you have any dialogue with FDA about that?

So we have had conversations with various regulatory authorities, but the way this is going to evolve in our mind is the following.

So you will show -- let's say you take a triple combination oral antiviral agent -- combination, you show the contribution of each individual agent to this -- to the antiviral response in the short maybe 14 or 28-day viral dynamic study, then you do the typical Phase III study where you use as a control the standard of care that exists at that point.

Once it is approved that may be that together with -- will be the standard of care, but it will then simply compare that standard of care to the three or four all-oral antiviral regimen and show that you can get similar SVR rate, and that will lead to approval of the regimen, whether that's three drugs or four drugs.

Of course, there's the realization by regulatory authority, physicians, patients, that if you get rid of pegylated interferon ribavirin you will after greatly better tolerated regimen that the world would embrace.

The other thing I forgot to say this in HIV, I mean, where he all recognize that you can get value of the study white's still ongoing.

When the world knows that you are actually doing the study, that means there's conviction on the part of the Company that this switch strategy and the randomized versus Atripla has value, and I think that could change the influence, the behavior of prescribers and physicians, while the study is still ongoing.

Jason, I would like to add, obvious well the Quad one of our studies was totally done in the US, and for our second study, 60% of the sites was in the US.

But if you look at echo and thrive, the studies for 278, only 30% of the sites were in the US.

So I think the phase IIIB IV studies that Norbert talks about are going to be very helpful for US physicians to gain more experience in Truvada 278.

Great, thanks.

Your next question comes from the line [Medge Schanooda] of Stifel Nicolaus.

Please proceed.

Hi, thanks for taking my question.

Can you discuss the profile of GS 7340 and what hole in the market that would potentially fill?

Yes so 7340 is a pro drug that actually delivers more active antivirally active components into the compartment in the body where it's really needed which means lymphocytes mostly.

What that means is you can take a lower dose, and actually our clinical study would indicate's 1/6th to 1/10th the Viread dose and you would actually get higher efficacy with less exposure.

So we're looking at this to be used in sub population where people have a concern with Viread, and the one with renal impairment, elderly people that have reduced renal function, and the other population will be adults that have pre-existing or suspicion of bone disease, osteoporosis, and that's where we are initially going to position the compound.

Yes, as you know, probably the hottest topic in HIV is the whole issue of aging.

And several of us here were on a advisory board recently, went around the table and asked the percentage of the physicians populations over the age of 50, most of them had 40% to 50% of their patients over the age of 50.

So in terms of long-term therapy as well as the age of the HIV patient, we want to be progressive and look at potential advantages for long-term care of these patients and potential alternative to tonoprovir.

Great, thank you.

We have time for one more question.

Your next question comes from the line of Geoff Meacham with JPMorgan.

Really quick, there's been some noise on Viread and XMRV.

Wondering if you guys have any feedback on that on chronic fatigue or prostate cancer.

I know its been in the press of late and I know there's been some publications.

But, I wasn't sure if there were any specific Gilead plans to capitalize on any further data in these two indications.

Geoff, we are monitoring the situation, we actually after meeting scheduled internally in two weeks from now to talk about this, what we should do, if anything.

Needless to say so first of all, we have done in vitro studies in-house with XMRV, and it turned out that both are active, and, of course, Truvada would be a very good inhibitor of XMRV.

The challenge that we heard and I think the whole field has is to have some certainty about XMRV as the causative agent of CFS.

There have been in the past various reports about viruses being involved in chronic fatigue or fibromyalgia and they all turned out to be not true on further follow-up.

There was a recent science paper, I think it was in science, where they actually disclosed that it may have to do with contamination in this particular study where they have found mouse mitochrondria DNA sequence, which would indicate that there's some mouse tissue, contaminated -- contamination issue, and not really an XMRV issue.

But we're looking at this and debating what we should do if anything.

Thanks.

Ms.

Hubbard, at this point we have run out of time for additional questions.

Great, thank you, Stacy, and thank you all for joining us.

We appreciate your continued interest in gill girl, and we look forward to providing you updates on our future progress.

we thank you for your participation.

This does conclude your presentation.

You may now disconnect, and have a great day.