吉利德科學 (GILD) 2011 Q1 法說會逐字稿

Welcome to the Gilead Sciences first quarter 2011 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, April 20, 2011.

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

Please proceed.

Thank you, Stacy.

Good afternoon and welcome to Gilead's first-quarter 2011 earnings conference call.

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

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

Your speakers for today will be John Milligan, President and Chief Operating Officer, Kevin Young, Executive Vice President of Commercial Operations and John Martin, Chairman and Chief Executive Officer.

John Milligan will discuss the financial results from the first quarter 2011, followed by Kevin Young, who will discuss our commercial performance, and finally, John Martin will provide update on our research and development progress and discuss our view about the future and opportunities for the Company.

Norbert Bischofberger, Executive Vice President of R&D and Chief Scientific Officer, and Robin Washington, Senior Vice President and Chief Financial Officer are here as well to answer your questions later in the call.

I would first like to remind you that we will be making statements relating 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 statement.

I refer you to 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 make 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, as well as on our corporate website.

I will now first turn the call over to John Milligan to discuss the quarterly results.

Thanks, Susan and thanks to all of you for joining us today.

The first quarter of 2011 marked a challenging quarter for Gilead, with several unpredictable external factors simultaneously affecting our US business.

Kevin Young will take you through the specifics of these US issue, but first I'll briefly run through the highlights of the first-quarter financials.

Gilead generated $1.93 billion in total revenues for the quarter, driven by net product revenues of $1.86 billion, which were up 4% year-over-year, and down 3% over the fourth quarter 2010.

The year-over-year increase was the result of healthy product sales in Europe, while the quarter-over-quarter decrease was due principally to a decline in US antiviral product sales.

We believe that the fundamentals of our business remain strong, particularly with regard to patient demand, and prescription growth in the retail sector.

However, during the first quarter, there were reductions in US wholesale inventories, and lower sales in the non-retail sector that led our results to be less than people may have anticipated.

Even with these challenges to the business, Gilead continued to maintain a healthy non-GAAP operating margin of 50.4% for the quarter, down from 52.4% in the fourth quarter 2010, and down from 59.6% in the first quarter of 2010, driven primarily by the significant decreases in Tamiflu royalties.

Our non-GAAP research and development expenses, up 21% year-over-year and 2% sequentially, increased as a result of the timing of expense reimbursements related to collaboration with Tibotec Pharmaceuticals, higher head count and expenses associated with expanding our business, including our recent acquisitions.

Our non-GAAP selling, general and administrative expenses were up 50% year-over-year, and 10% sequentially, increased primarily as a result of the new US pharmaceutical excise tax, bad debt expenses related to aging receivables in Southern European countries, and higher headcount associated with our expanding business.

We reported non-GAAP EPS of $0.87 per share as compared to $0.99 per share in the first quarter of 2010, which benefited from a $0.19 contribution to EPS in Tamiflu-related royalties.

For the first quarter of 2011, Tamiflu-related royalties contributed only $0.01 to EPS.

Year-over-year revenues from Tamiflu royalties received from Roche decreased 95% to $11 million, from $246 million received in the first quarter of 2010.

As you may have seen, Roche released their first-quarter 2011 earnings, last week reporting Tamiflu sales of CHF252 million, which will result in approximately $37 million in royalties payable to Gilead this quarter.

I would like to note that it is difficult to gain insight into the core performance of the business when conducting year-over-year comparisons, as there has been and will continue to be a significant reduction in Tamiflu royalty revenues over the course of this year, as world wide pandemic planning initiatives have declined dramatically.

Turning to the balance sheet and cash flow from operations.

Our cash balance at the end of the quarter was $6.4 billion, due in part to the $821 million in cash flow generated from operations for the quarter, and in part to $987 million in net proceeds from our recent $1 billion debt offering.

Our solid cash position will allow us to continue to invest in our pipeline, pursue strategic licensing and M&A activity, and return value to our shareholders through our share repurchase program.

For the first quarter of 2011, we repurchased approximately $550 million or 14 million shares of Gilead stock, leaving approximately $1.4 billion under the $5 billion three-year repurchase program that Gilead's Board authorized last May.

We intend to complete this program by the end of this year.

And finally, despite the challenges we faced in the first quarter with regard to US antiviral sales, we're reiterating the full-year 2011 guidance provided to you in January.

This guidance can be found in both our earnings press release and on slide 19 of the earnings call deck, which is available on our corporate website.

Our net product sales guidance of $7.9 billion to $8.1 billion assumes two factors.

First, that state ADAP purchasing will resume, and I will note that we are encouraged that the federal ADAP funding has been announced, with an increase over 2010 funding, and second, that we will see only a modest change in our US payer mix.

We continue to deliver on the strategic fronts we outlined at the beginning of the year, and as Kevin will discuss, the underlying fundamentals of our antiviral commercial business remain strong in both the US and overseas.

I'll now turn the call over to Kevin to discuss our commercial performance.

Thank you, John.

Gilead generated total antiviral franchise revenues of $1.6 billion for the first quarter, up 2% over first quarter 2010, and down 4% sequentially.

This sequential decline was primarily driven by US performance, which decreased 7% sequentially.

While demand in the US increased at the prescriber level during the first quarter, there were reductions in certain state ADAP purchases, and in inventory at the wholesale level.

Let me immediately address the mismatch between US demand and revenues.

First and foremost, it is important to point out that we continue to see what you see, namely, strong and very healthy growth in underlying demand for our HIV products.

The first quarter [Walters Score of Health] total prescription growth of both Atripla and Truvada were a robust 5% and 4%, respectively.

These are some of the largest quarterly gains that we have seen in the past year.

We are pleased with this high level of operational execution and the reassuring evidence that treatment guidelines supporting earlier ARV initiation and the preferred status of Gilead products, are being pulled through into provider behavior.

With that backdrop, the question then becomes, why did these healthy prescriber dynamics not translate into equally positive Q1 revenue numbers?

There were two primary reasons for this disconnect.

First, the financial strains faced by two large state AIDS drug assistance systems programs, namely Florida and Texas, led to a significant decrease in ADAP purchasing, as they approached the end of their budgetary cycle.

The well known state budget crisis in Florida led not only to an increase in ADAP wait lists but also to a temporary rolling off of some previously-covered patients into industry-supported patient systems programs, until April, the beginning of the ADAP fiscal year for federal funding.

Florida did not place their typical orders for Atripla and Truvada in the second half of Q1.

The Texas ADAP program handled Q1 quite differently from Florida.

Texas did not roll patients off drug, nor did they start to wait-list.

They instead utilized existing inventory, and stopped ordering until Congress provided more clarity on the federal budget for 2011.

The recent announcement of a new ADAP drug budget for fiscal year 2011, has been positively welcomed by providers and advocacy groups.

A total of $885 million has been granted.

This is $50 million, or 6%, above the previous year's initial budget, and in excess of most people's expectations.

Whilst ADAP programs will not know their final 2011 allocations for another month or so, HRSA, the administrators of ADAP, did release initial funds on April 1, to ensure that states could continue to support their patients.

The very latest intelligence we have gathered at the state level indicates that there is Q2 purchasing by ADAP programs, including Florida, within the last week.

The second reason for the revenue versus demand disconnect was a change in inventory levels at both the large and independent regional wholesalers.

In both cases, we believe the reduction in quarterly purchases was in part a reaction to the lack of ADAP pull-through.

In Q1, we saw reduction of approximately 2.5 days across our three major wholesalers.

Collectively, these organizations handle approximately 90% of Gilead antiviral product volume, and whilst we have inventory monitoring agreements in place, they went from the higher end of their contractual range to the lower end.

The same situation occurred at the smaller wholesaler level, where we believe they reduced their stock levels below that to the end of Q4 2010.

The difference here is not Gilead does not operate IMAs with these entities.

I hope this information provides a helpful up-front commentary for you, and I welcome your questions later in the call.

Now turning to our international performance.

Europe contributed $651 million to our antiviral product sales in quarter one, an increase of 4% year-over-year, and flat sequentially.

We were pleased to see this steady performance after all the economic turbulence of 2010.

Whilst the 2010 austerity-mandated price reductions in Spain, Germany, Greece and Turkey are still affecting our year-on-year financial performance, we did not see any other major government interventions in Q1, 2011.

Moreover, there were several positive movements for our market-leading HIV products.

First, apart from the 2010 introduction in Spain, by a national company, we have not seen generic 3TC launched across Europe.

Second, Atripla new starts continue to grow at a healthy clip.

Atripla is now prescribed in 26% of patients naive to anti-retrovirals.

This is despite the fact that we do not have a naive indication in Europe.

And, third, the most significant milestone occurred in the quarter was the change to the European AIDS consortium guidelines.

These now state, and I quote, generic HIV drugs are becoming available, and can be used as long as they replace the same drug.

But do not break up recommended fixed-dose combinations.

We believe this endorsement will result in continued growth of our fixed-dose combinations in single tablet regimens.

Today in the form of Truvada and Atripla, and in the future, in the form of Truvada, TMC 278, and Quad.

Finally, I'd like to make some closing remarks on Letairis, which we seen a recent increase in ERA market share.

Q1 data from our proprietary survey showed a growth from 35% share in Q4 2010, to 38% share in Q1 2011.

Moreover, share specifically in PH centers grew from 38% to 42%.

Letairis achieved revenues of $62 million in Q1 2011, a 12% increase versus Q1 2010.

However, this was down 3% sequentially, due to a drawdown in inventory of the specialty pharmacy level, where do not operate IMAs.

Importantly, in early March, we announced the FDAs approval of a change to the prescribing information for Letairis, where the language concerning the potential risk of liver injury was removed from the black box warning.

In conjunction with this label update, monthly liver function tests are no longer required before a Letairis prescription is fulfilled and distributed to the patient.

LFT should be ordered and reviewed as clinically indicated.

This change was due in part to post-marketing data reflecting more than 7,800 patient years of experience, which we collected through the Letairis education and access program, and which were consistent with the clinical trial data used to support our NDA.

The new label now reflects a major medical difference between Letairis and the older marketed ERA, [Lisentan], which still requires monthly monitoring.

We believe this fundamental distinction will build upon the momentum we have already begun to see in Q1.

In addition to the higher scientific bar now established by Letairis, there are clear benefits for PH patients on their caregivers.

Not having the workload of mandated monthly liver enzyme testing has been universally well-received.

The Letairis medical affairs team have completed an intense month of education activities, and while slowly, we are already seeing a noticeable pickup in patient enrollment.

In closing, whilst we have the unusual effect of shortfalls in non-retail sales for our HIV drugs in Q1, it was a good quarter for continuing commercial gains and milestones, especially US prescription growth.

I remain confident about our prospects for the rest of 2011, both across our franchises and across our regions.

I'll now turn the call over to John Martin.

Thank you, Kevin.

I'd like to highlight the significant progress we made in R&D during the quarter.

In March, at the European Association For the Study of Liver Conference in Berlin, Gilead showcased 23 posters and one oral presentation related to our liver disease product portfolio.

Data presented relevant to hepatitis B concluded efficacy of GS 9620, a TR7 agonist in the woodchuck model, and also predictors of estro-antigen loss in bariatric patients.

These two represent progress towards identifying a finite therapy resulting in a cure of hepatitis B infection.

Of particular note for hepatitis C virus, the first clinical data on GS 5885, an MS 5A inhibitor, were also disclosed at the conference.

Three days of dosing with GS 5885 result in a three more drop in HCV RNA.

Data emerging for the HCV protease inhibitor, GS 9451, has led to its selection over GS 9256 for future studies, based on once daily dosing at safety profile and lower manufacturing costs.

Because of this progress on multiple fronts, an all oral four-drug regimen study will be initiated in this current quarter.

This study will compare two doses of GS 5885 in combination with GS 9451, GS 9190 and Ribavirin for 24 weeks in genotype-one infected patients.

To our knowledge, this will be the first study initiated to evaluate four oral drugs to cure HCV infection.

Now turning to Cayston.

Burkholderia cepacia is a serious pathogen that affects approximately 3% of patients with cystic fibrosis, resulting in a poor survival prognosis.

We have recently completed a 100-patient study comparing Cayston to placebo, which failed to show benefit in this population.

The Phase III program to evaluate Cayston for the treatment of Bronchiectasis is expected to initiate during this quarter.

This program consists of two identical Phase III studies of 172 patients, comparing Cayston to placebo, with the end point of improvement in patient-reported outcomes.

Now, turning to the HIV pipeline portfolio, in January, following the FDA's refuse to file notification for Truvada GS 278, single tablet regimen, the NDA was resubmitted within two weeks to include the requested CMC information.

On April 6, the FDA accepted this filing and granted a priority review with a PDUFA date of August 10th.

Additionally, at the CROI conference in February, data were presented from a 14-day Phase I-b viral dynamic study of GS 7340, a novel pro-drug of tenofovir.

In this study, doses of 50 and 150 milligrams of GS 7340 were shown to be more potent than Viread at 300 milligrams.

Thus, a second Phase I-b viral dynamic study has been initiated to evaluate the potency of 8, 25 and 40 milligram doses of GS 7340.

This second Phase I-b study will allow for the selection of doses to take into Phase II.

As the ultimate dose of GS 7340 will be significantly lower than 300-milligram Viread, GS 7340 should have a better safety margin, making it amenable for use in special populations, like the elderly and renally-impaired patients.

Also, this lower dose should allow for the creation of a smaller fixed dose combinations, for which Viread of 300 at milligrams is too large to co-formulate into a single tablet.

A GS 7340 and tricitabine tablet has been developed, and will enter into a human bio-availability study this quarter.

Relating to the development of the Quad, we released impressive top line data from our Phase III study of elvitegravir versus raltegravir which demonstrated that elvitegravir was non-inferior to raltegravir, in treatment-experienced HIV patients, with a lower bound of the 95% confidence interval at minus 6%.

The safety and tolerability of elvitegravir given once-daily was comparable to BID raltegravir.

For the development of the Quad, elvitegravir and cobicistat, four Phase III studies are necessary in support of regulatory submissions for all three agents.

We have reached agreement with FDA to accelerate the filing of the plot to the first quarter of 2012, ahead of the cobicistat and elvitegravir filings.

Both pivotal studies for the Quad will reach their 48-week endpoint in the third quarter of this year.

With the data from the Quad versus Atripla study preceding that of the Quad versus boosted atazanavir, results from the final study, Cobicistat versus ritonavir will be available in the fourth quarter of this year, and therefore elvitegravir and cobicistat, NDA filings are expected to be during the second quarter of 2012.

Top line data from these three Phase III studies will be shared with you later this year, as they become available.

And, finally, I'd like to comment on two recently-completed acquisitions.

Arresto and Calistoga provided exciting opportunities in fibrosis, myelofibrosis, solid tumors and hematological malignancies.

In addition, the collaboration with Yale University, announced last month on the application of genomics in cancer to identify driver mutations and promising targets has broadened our capabilities in cancer research.

Building on this momentum, Norbert will be recruiting additional scientists to further strengthen oncology research at Gilead.

The progress over the last quarter demonstrates our commitment to advancing science for unmet medical needs.

We are in excellent financial health, have a solid pipeline and motivated employees to carry out this mission.

We will now open up the call to your questions.

Operator?

(Operator Instructions).

As a reminder, we will be taking a maximum of one question per person at a time.

If you have further questions, you are welcome to rejoin the queue.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Brian Abrahams with Wells Fargo, please proceed.

Hi, thanks very much for taking my questions.

I have a 30,000-foot view question regarding ADAP, with the wait list continuing to grow, federal funding up, I guess, relatively incrementally, you already providing drug at a significant discount.

Can you talk about some of the strategies that you might consider to help ease this issue, and are you guys expecting significant supplemental funding throughout the year, given the budget deficit?

Thanks.

Hi, Brian, this is Kevin.

Brian, maybe I should just frame a little bit more in terms of Q1, and put a bit more color around my script just to sort of bridge into your question.

So we saw what you saw, in terms of very healthy underlying prescriptions.

We have also seen, the increase in the wait list.

What was a surprise for us in the second half of the first quarter, was that both Florida and Texas didn't place orders through their normal large wholesaler supplies that they had done in previous Q1s.

So basically for different reasons, they essentially shut down their ordering.

Now, when we take the bigger picture question that you pose, we were actually pretty pleased to see the new federal funding.

It took some time, of course, in keeping with the overall settlement of the US budget.

I think some people were really quite worried that ADAP would only get the core funding, at $835 million.

I think to come out with the extra $50 million, was actually a very positive result.

Obviously, a key component of our business is ADAP.

It now makes up 23% of our business in the fourth quarter.

We think it's the right thing for patients, to support the programs.

We did put in the supplementary discounts.

They are now set until 2013.

So we think we've done everything in terms of our discounts, and in terms of our PAP, to support the programs.

It is important also to say that, while clearly Florida have had a real challenge around their program, particularly because of the difficulties with their state budgets, there are several of the large ADAP programs that don't have waiting lists.

California, New York, New Jersey, Illinois.

So they are managing their programs well, and they're integral to the support of HIV.

The final thing I would say, is, of course with increasing testing, with increasing earlier treatment, which all good things from the point of view of HIV care comes more stress on federal and state payers.

So we've always discussed that the need to treat patients, does increase the political demand to support the area.

So one doesn't come without the other.

Thanks very much.

Your next question comes from the line of Matt Roden with UBS.

Please proceed.

Great, thanks for taking the questions.

We've seen this kind of lumpiness in 1Q non-retail performance in the past, so, Kevin, I was wondering if you could maybe put in context for us the relative contribution to the 1Q sequential step-down between the two factors that you mentioned.

And then secondly, with respect to the increase in federal funding, are you thinking along the lines it would maintain the status quo in the ADAP wait list or is this the sort of thing that could actually reduce the ADAP wait list over time.

Thanks.

Good questions, both, Matt.

I want to set up my answers by reiterating that ADAPs order through our wholesalers.

One of Florida and one of Texas order through one of the large wholesalers in our inventory management agreements wholesalers, and one order through one of the smaller wholesalers, and we do think that's when ADAP is affected, of course, that has an influence on these wholesalers from the point of view of their inventory levels.

Specifically on the two questions, if you look at the phasing, there is a changing pattern.

If you go back four years to the relative splits of our ADAP purchases, so if you go back to the fiscal year 2007, Q1 made up 32% of the purchases.

That then moved for 2008 to 29%, it moved to 27% for the previous fiscal year, and then for 2010 fiscal year, it was 25%.

Now, there was a number of reasons for that, if you remember, four years ago, the budgets were given out fairly late, and so people were trying to catch up with using all of that budget.

We've had a situation where budgets have been given out earlier, but, of course, they have their challenges just around the total funding.

So it's basically gone from 32% phasing of a quarter, down now to 25%.

In terms of the allocation, HRSA have given out, and they actually based on the previous core budget of $835 million, they give out approximately half of that on April 1st.

So just to make sure that ADAPs would not run out of their federal funds.

But now, in terms of parsing out the full $885 million, we think that's going to be the next month or so.

We think it will be done all at once, because it is late, anyway, so why have extra supplementals.

So we think when they finally get their individual state allocations, it will all be based off of the full $885 million.

Thereafter, whether any emergency funds or any topic funds come later the in the year, just remain to be seen, Matt.

Thanks a lot.

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

Please proceed.

Hey, guys, thanks for taking the question.

Two-part question, wondering, Kevin, if you can give detail on the ADAP purchases with respect to budgets and other states, like say, New York, Illinois, California, some of the bigger HIV contributors.

And then the second part is, you went over the guideline impact for the past couple quarters, and I know the sales read-through isn't there, but when you look at the patients on a Gilead regimen, this quarter versus last two, it is in fact down.

I'm curious if the market is growing, how I should interpret that.

Yes, let me try to answer both of those, Geoff, thank you.

Basically, when it comes to Florida and Texas, Florida, the patients in the program is about 12,000 patients.

Texas is about 9,000.

So that's the third biggest and the fourth biggest of the ADAP programs in the United States.

So obviously, with that cutoff that we had, for two different reasons, that is quite a large effect within the quarter.

If you look at California and New York, California have 25,000, they're the biggest program.

New York have 15,000.

You come down to New Jersey , they only have 5,000.

Now, we haven't seen big problems or big issues around these other ADAP programs.

They don't have a wait list.

I think the other thing to also bear in mind is when it comes to California, New York and New Jersey, that they aren't central purchase, they operate through retail pharmacies in their rebate program.

So they typically aren't operating in inventories and then some of the swings that come with inventories.

The second part of the question, again, sorry,

So the guideline impact that you talked about with respect to CD4 counts and things like that, so the impact from sales, you've discussed here, but I wanted to reconcile the patients coming on the Gilead regimen this quarter versus the past two, it looks directionally down.

Yes, right.

So, again, we always say this, and I apologize it, it sounds a little bit like a stuck record, sort of it has its ebbs and flows, we don't go crazy on a great quarter, we don't go desperate on a poor quarter.

The number of patients treated on anti-retrovirals was quite a large increase, and that is up to 619,000, but it was a little bit lower in terms of growth for Gilead products.

I just think that's the swings and roundabouts of ADAP.

Obviously, it was the fourth quarter, so it's one quarter in arrears.

The start CD4 counts for the fourth quarter were a little bit lower, but as you can see from the annualized numbers, there is still a nice improvement.

And then finally, Geoff, the ultimate acid test is always prescriptions, and we look at Walters Score of Health, I think you normally look at IMS, but it was a pretty good quarter.

And we were pleased with that.

So you always go back to does the underlying prescribing look healthy, and it certainly did for the first quarter.

Got you.

Okay.

Thank you very much.

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

Baird.

Please proceed.

Good afternoon, and question on expenses, actually.

For SG&A and R&D there were some explanations, the bad debt in southern Europe, hitting SG&A, and then R&D the timing of charges related to Tibotec.

Would you be able to quantify both of those, and then also tell us how we should expect those to look going forward over the rest of the year?

Thanks.

Sure, Tom.

So related to the Tibotec thing, that was overall $100 million collaboration over the past three years, so in 2011, the last tranche of approximately $23 million to $25 million is obiT base, so I think we booked about $23 million this quarter related to that.

And so that was one of the key drivers overall for R&D expense on a sequential basis, if you total it up.

The other thing you have to remember, too, is one of the things that we're looking at relative, we think about guidance, is the impact of acquisitions, right?

Those aren't things that we necessarily factored in, but given where we look today, we have been able to fill up the ones we've acquired as of today, relative to our guidance.

So we feel good about it, but definitely see a trending towards the high side.

SG&A?

And relative to SG&A, on bad debt expense, right now variants in the number is probably about an incremental $6 million to $8 million of expenses associated with southern Europe.

The other big major change in SG&A was the excise tax, is a number we explained, that we expected that new tax to yield about a $30 million to $50 million impact for the full year SG&A.

So that's is brand new.

That is one of the key drivers of our overall growth.

So we now are projecting that range to be towards the high end, as well.

So a quarter of that $50 million is reflected in our Q1 SG&A expense.

Okay.

Thanks.

Your next question comes from the line of Ravi Mehrotra, with Credit Suisse.

Please proceed.

Question for Kevin and just to mix it up a little bit, I thought I would ask something about Letairis.

You mentioned about your one-month education program for your reps, and them having gone out with that message.

Can you give us more color on what that message is, and concomitantly, can you remind us what percentage of patients on bosentan have elevated LFTs?

What I referred to was a very committed educational program through our medical affairs team, so we've done a lot of speaker programs, we've done a lot of explaining and updating to our key opinion leaders, and to, broadly to the PH audience.

We got a great response that has largely been based upon, of course, the label, and explaining why the change came from the FDA, built on the analysis that we submitted, and explaining now what this means to the day-to-day management of the PH patients.

So it is very logical, it is very kind of straightforward around everything that has changed for the label.

Now, I think, typically the type of LFT elevations can be up to about 15%, so we have been told by opinion leaders for bosentan, right now we get about 30% of our starts for Letairis from bosentan switches.

The sense that we're getting from the point of view of the reaction on the increase in enrollments that we've seen, over the past five weeks, since the label changes, it's coming across the board.

It's coming from new patients, it's coming from bosentan switches, and also coming from the patients who require the addition of an ERA when they're on some other form of therapy, some sort of combination So it seems to be a nice across-the-board patient spectrum as well as across-the-board from point of view from the geographic response that we've had from the PH centers.

Thank you, that is very -- quick follow-up.

Is the message that you don't have to do monitoring at all, or just moving into a greater interval than one month.

Our label is that tests should be done as clinically indicated.

Fair enough.

Thank you.

Next question comes from the line of Mark Schoenebaum with ISI Group.

Please proceed.

Hey, guys, thanks for taking the question, and Kevin, thanks a lot for all of the clarity.

I thought that was very helpful.

But I want to follow up on somebody else's question.

I still am trying to quantify the inventory change versus the ADAP buying.

Are my calculations vaguely right, that 2.5 days of inventory, the USA-HIV franchise is worth something on the order $25 million and the miss from consensus was on the order of $85 million so the ADAP component might have been around $60 million and the inventory component around $25 million or so?

Am I in the right ballpark?

Mark, it is Robin.

I'll answer the first part of your question around --

Sorry if I was confusing.

No problem.

I can't do math.

No, I understand your point.

You're right, what Kevin talked about is the range change relative to the IMA agreements, but if you recall today and last quarter, you talked about Q4 inventory gain at the higher end.

So when you think about the inventory change, you mentioned about using 10 million as the average of a day, you're going from the high end to the low end, so the real change on a sequential basis is about four days.

I see.

So four days.

I see.

Okay.

At $10 million a day.

Okay.

Got it.

Okay ?

Mark, just let me add something.

Nothing has changed with our IMAs.

Typical IMA agreements for the industry are a range of five to seven days, whilst I won't share with you the specifics with Gilead, I can certainly tell you that our ranges are lower than five to seven days.

So I believe that we have in place some industry-leading IMA agreements.

They don't include any provision for buying, so these organizations cannot buy in.

So nothing has changed.

They haven't gone outside their boundings, they haven't lowered their total inventory.

So nothing has changed since we introduced some new IMAs about 12 months ago, and they're going to run through until 2012.

In terms of in terms, again, of the ADAPs, it is very difficult to actually quantify that, because of their kind of inventory, if they're a central purchasing, we never quite know that.

We don't have any type of IMA equivalence with them.

They are state entities.

We never know quite what their inventory holdings are.

But suffice it to say, clearly Florida is number three and Texas is number four.

And are pretty big entities.

Think about ADAP as $40-ish million impact in the quarter doesn't seem crazy.

I think you're in the right ballpark.

Right.

I really appreciate the color, guys.

Thank you very much.

And your next question comes from the line of Geoff Porges with Sanford Bernstein, please proceed.

Thanks for taking the question.

Just tackling some of these issues in slightly different way.

Kevin, could you talk first of all about Europe, the patient trend and the pricing trend in Europe, across your HIV portfolio?

And then, could you give us a comment about what your realized pricing trend was in the US for the HIV product, too?

I'll take the first part of it, Geoff, yes, it was a very steady quarter for Europe.

And actually while that doesn't sound great, actually, I think that was good.

Because you know very well about all of the heavy waves that everybody has faced in Europe.

In terms of actual pure kind of dollar-to-dollar, it looked fairly flat, actually underlying demand growth was just a little bit better than that.

And that's because we had a strong fourth quarter for 2010 and that's very typical of Europe, they tend to buy in at the end of the year, to see them through the Christmas and New Year period.

So there was a little up tick in the fourth quarter, as is the standard for the pharmaceutical industry.

There was also an additional buy-in, in the UK, where you might know that the UK increased their sales tax, so called VAT, value-added tax, and that applied to pharmaceuticals.

So some of their hospitals that had budget in fourth quarter, did buy ahead of Q1.

So it was a positive quarter for us in terms of underlying demand, and I think that really quite nice.

In terms of pricing, there were no flash dramatic headlines in terms of government interventions.

Of course, behind that, we still have some day-to-day pricing trends where countries reference, and countries negotiate with us.

But what we said in terms of the austerity type of reductions, of within the range of 2% to 3% for 2011, still at this point in time, looks to have held well.

In terms of the US, obviously we have locked our prices around ADAP.

I think in terms of prices across the board, it depends on your splits.

We've included those splits in our slides.

You'll see just a small change of ADAP going from 22% to 23%.

So that is just a small change, but we just have to watch and wait to see if there are any kind of any future mix changes.

And another part of this is that although we did take the 7.9% increase on April 1 for Truvada, which runs went through Atripla.

So the comment from John around our guidance is that we believe we've made the right provisions within our guidance on our mix, but it is something that we've continue to watch carefully.

Thanks very much.

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

Thanks for taking my question, as well, and thanks for all the clarity.

This is really useful.

It is a question for both Kevin and Robin, just so we understand a little bit from your vantage point, do you feel that you have a good sense of where pricing is going in Europe this year?

And what other new price increases are expected this year, so we can model and put those in our model correctly?

Well, I'll jump in and Robin can answer you--

I'm sorry, price decreases in Europe.

Okay.

All right.

If there is price increases, then go for it.

Actually on that point, in a serious way, of course, there is going to be an event later this year in the US, of course, which will be the launch of, we hope, Truvada 278.

We won't control the pricing of TMC 278, because that is a new price, for us with a new product.

That will apply in Europe, probably just at the back end of the year with Germany, we think, and the UK.

Coming back to primarily Atripla and Truvada in Europe, we haven't seen any of the kind of seismic type of interventions.

We've got the full-year effect of Spain from June and Germany from August.

The one that we continue to watch is Portugal, you see that in the economic headlines, and they have their own budget issues and that's the one that we continue to watch very carefully.

I must say that our value story around Atripla being significantly cheaper than particularly the protease inhibitors, continues to resonate.

I think we've got to face up to some of the pressures that the whole industry has seen.

But when you look at our single-tablet regimen, actually that's a very good argument for us.

So there are some positives there.

Should we not expect new price decreases then in Spain and Germany in June and August?

Isn't that an annual price decrease?

No, of course, any country Yaron, can jump in at any point as a public payer.

But our expectation was that was essentially a one-off.

It might, it could happen in any country in the future.

But the way it was set up, and the way it was agreed with the industry, that was not to become an annual decrease.

It was basically an intervention that took place in the middle of last year.

Another example of that, another sort of parallel, is the UK, where they have something called PPRS, so in negotiation with the industry, now, that is an agreement that typically runs anywhere between three and five years.

So a government comes in, they're looking for some form of change, it is negotiated, and typically stays in place for a number of years.

Okay.

Great.

Thanks so much, Kevin.

Your next question comes from the line of Michael Yee with RBC Capital Markets.

Please proceed.

Great, thanks, just to be clear going through in the inventory data issue, just to be clear, can you reiterate what you said as about the new funds were released, Florida and Texas, how they resumed, and I assume that they will resume normal purchasing as the funds get released?

And then with that, would you expect that the inventory levels, would then resume back in reverse, until you get some buy-up in Q2?

Thanks.

Thank you, Michael.

It's difficult to know exactly how the wholesalers are going to react in terms of what amount of product that they will kind of replace within their operating band.

Again, we have IMAs in place, contractual IMAs with the big three wholesalers, that's about 90% of our antiviral business.

But we don't have IMAs in place with the smaller wholesalers, and so they can change their inventory levels according to their particular operating, as well as financial, requirements.

It is also important to say that one of Florida go through one of the majors, one of Florida-Texas go through one of the small wholesalers.

So if they're seeing smaller -- if the wholesalers are seeing lower uptake, then it does, obviously, alter their perspectives on holding inventories.

Strictly, when it comes to Florida and Texas, obviously, we get a little bit of a delayed news on the purchasing, because this is all based on the chargebacks through these major -- through the wholesalers, sold them through those financial checks and balances.

We do know for sure that Florida have placed an order.

We haven't heard that that's the case yet with Texas.

I do think this is not going to be a complete bolus overnight ordering by these central purchase states.

I think it's going to take a little while and whilst they are feeling a lot better about the federal funds from a totality point of view, they obviously want to know what their allocation is.

And then they do their numbers on the federal allocation, together with their expectations of state allocation.

Because it's always a mix.

So I think we'll start to see their confidence come back as we move through the quarter.

My follow-up then is on why have the bands, what happens when you fall through it?

What is the recourse?

There are penalties -- there are penalties, which I can't disclose, but there are penalties for falling below or going outside your banding.

Okay.

Thanks.

Your next question comes from the line of Rachel McMinn with Banc of America-Merrill Lynch.

Please proceed.

Thanks, I wanted to switch gears a little bit, just hepatitis C, John, you mentioned that you are going to be starting this new Quad study, and I guess my question is this, I had heard from other companies that the FDA wants to see a reasonable amount of safety data from one of the experimental or the lead experimental compounds before starting combinations.

So I guess, how much confidence do you have in 9451's safety?

Can you go into a little bit more detail there?

And I guess what kind of margin did it have over 9256 in case that one does run into problems with longer term dosing?

Thanks.

Hi, Rachel, this is Norbert.

I would like to first thank you for the question and thanks for giving Kevin a break.

I would also like to mention John Martin had to leave earlier, he had a flight scheduled that he had to catch, so he left about five minutes ago.

So I'll take your question.

Rachel, we are very encouraged by our own portfolio, what we have, and I was also even more encouraged when I saw some of the presentation at the EASEL and for UFC, I'm sure you had seen them, particularly the one on DMS where they took PI and then 5A and treated non-responders in place of four out of 11 SVRs.

So we are doing a similar experiment, with the exception as we're not only adding in 5A and PI but two other drugs, and ribavirin and GS 9190, and both of those we know add something to the antiviral activity.

So the question that you asked about 9451, our protease inhibitor, as you might know, it has gone into a larger 150-patient Phase II study end of last year, and we are now at a point where we are looking realtime at safety data, particularly laboratory, and we feel very comfortable that this is the right compound to take forward and we have enough patient experience now that we can make that judgment.

With regards to FDA, we haven't had any signs that they would have a problem with that.

I'm sure they are convinced they don't, and we're going to initiate the study in a few months, and we're, as I say, I'm hopeful that we'll see some very significant SVR rates.

Did I answer all of your questions?

Yes, yes, and just as a quick follow-up, your nucleoside, when will we get some hint of how active the compound is?

The nucleoside is right now going through dose escalation, and at this point I do not have any information on either efficacy or exposure.

Those will come in a few months, at least internally.

Great.

Thanks so much.

Your next question comes from the line of Sapna Srivastava with Goldman Sachs.

Please proceed.

Thanks for taking the question, most of them have been asked, so just a quick clarification.

You mentioned that your guidance was contingent on two factors, ADAP funding and modest change in payers?

Could you elaborate a little bit on the second point?

Sapna, this is Susan, would you mind -- you faded out during your question.

Can you re-ask it and speak a little louder?

Sure.

Hi, there.

There you go.

Sorry about that.

Just when you spoke about maintaining your guidance you spoke about two factors, ADAP funding, dependent ADAP funding, if it resumes, and secondly on the modest change in the payer mix.

I just want to get more clarification on the second factor that you mentioned, what kind of changes in the payer mix?

Sapna, it is Kevin here, it is just a matter of seeing how these things play out.

I hope you've seen that we've updated you in our slide for fourth quarter on the scripts of the various parts of our public and our private.

There was not a lot of change Q4 over Q3.

That was just a 1% increase in ADAP.

That actually came out of the Medicaid section.

There wasn't a change in the in the private, plus the Medicare Part D portion.

So there wasn't a lot of variability, but where you have changes in state economies, we just want to watch this from the point of view of these splits going forward.

So I think it is prudent for us to point out that while we try to forecast these things, and place it into our guidance, it's something that, it always somewhat of a -- of some movement.

And Sapna, this is Robin.

The other component that I'll mention, is you recall, when we talked about healthcare we talked about that new component that Kevin was alluding to around managed Medicaid, and because it is based on charge backs for things that happened in arrears, we saw in Q1 and still continue to see for next two quarters chargebacks and rebates associated with that.

We had talked about it being in a range of 2% to 4% which is included in our guidance and part of that overall 5% to 6% of healthcare reform impact in 2011.

I think what John was alluding to was that, to Kevin's point, we can't predict it.

We've made some assumptions around it.

But if conditions worsen significantly, or if something changes, it may be greater than we projected.

Thank you.

That's helpful.

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

Please proceed.

Thanks, my question has been asked.

Your next question comes from the line of Thomas Wei.

Hey, Thomas.

With Jefferies & Company.

Please proceed.

Thanks.

I just wanted to ask about the state allocation to ADAP funding, is it -- am I thinking about this correctly, that the state's pitching about a third of the overall funding for ADAP, and can you just remind us, have those budget decisions at the state level already been determined, in particular in Florida and Texas?

Hey, Tom, this is Kevin.

Thanks for the question.

Honestly, Thomas, it is a real smorgasbord of different contributions across the states.

Interestingly, some like Florida has a relatively small state contribution, where you look at something like New York, and they come up, we believe, about 50-50.

So it goes to quite a spread of contributions from federal and contributions from state.

The other aspect of this is, as some of the states have different financial years.

So the timings at which they get to know their own state numbers, again, varies from state-to-state.

So for them to actually predict when ultimately they get their total-total, it is quite difficult for them.

And I think that's actually a good back drop to that will happen in Texas.

And our understanding in Texas is that they have got state dollars remaining, they held back on their purchase and done some inventory in the first quarter, because they just wanted to see what was -- what the federal was going to play out like, and I guess once they get the federal, they'll be looking to see ultimately what would be coming in the next financial year for the state.

So there is always a yin-yang here, and all of these timings I think are unique to each state.

We're getting short on time, so I think we'll take two more questions.

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

Please proceed.

Thanks, I have a question about the Calistoga acquisition.

General question, that first of all with regard to what is the rationale for diversifying into cancer after you got out of the business a number of years back, and specifically, are you concerned or are you -- can you discuss at all the liver enzyme elevation issue with CAL 101 that we've seen.

Hi, Joel.

So what is the rationale diversifying into ) cancer.

You know, we made the CGI acquisition, afterwards the Arresto acquisition and now Calistoga, we have a really nice portfolio of agents and research that is applicable both in cancer and inflammation, and what the rationale was, Joel, we felt that now is the time where cancer chemotherapy, and how we think about cancer is completely going to change.

As you know, it went from cytotoxics in the 1970s and 1980s to more targeted therapies like antibodies, HFR antibodies, to really very much targeted therapies that had to do with cancer genomics, like the Plexxikon, the DRAF mutation and the 600B that makes melanoma so virulent.

So that is the reason why we think now with this Yale collaboration, we have all the ingredients in place to be a major player in oncology and inflammation in the future.

With regards to Calistoga, yes, we absolutely very much looked into these LFT elevations.

We talked to both liver toxicity experts, we talked to oncologists and the overwhelming response that we got, that was that these liver elevations, given the benefit that the compound has, in terms of progression-free survival, that the benefits largely outweigh the risks, and that's why we're comfortable with moving ahead.

Also, needless to say, we are looking both into potential predictors for liver toxicity, if you can identify the patient that actually get it, up front, we're looking at genomics in that respect, and we're also looking at potential clinical management of liver toxicity as well.

Thanks.

And our final question comes from the line of Ian Somaiya from Piper Jaffray.

Please proceed.

Thanks for squeezing me in.

Just a question for you, Norbert.

I was curious about the Quad and specifically related to the potential drop-outs that you might be seeing in the trial.

If you could just remind us of what the trial is designed to sort of take on?

And what was expected in the control and what is expected in the treatment arm, and how the trial is tracking and how that might affect the eventual outcome.

Ian, are you talking about the Quad study?

I am.

Ian, just to back up, you may be referring to we in the past have said that we had concerns about the elvitegravir versus raltegravir, non-inferiority study because we saw larger numbers of dropouts than we anticipated, but needless to say, nevertheless we got a very tight confidence interval with the 6% margin, which is absolutely wonderful.

Now with regards to Atripla Quad, we are seeing very few discontinuations and that study will be completely in line with what we've seen in other Phase III studies, so I have no concerns about that.

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

Great.

Thank you very much, and thank you all for joining us today.

I appreciate your continued support and interest in Gilead, and we look forward to providing you with updates on our future progress.

We'll be available back in our offices to take your follow-up calls and thanks for your time.

We thank you for your participation in today's conference.

This does conclude your presentation.

You may now disconnect, and have a great day.