吉利德科學 (GILD) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Gilead Sciences' second-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, July 26, 2011.

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 second-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 covered on today's call.

Our speakers for today will be John Martin, Chairman and Chief Executive Officer; Robin Washington, Senior Vice President and Chief Financial Officer; and John Milligan, President and Chief Operating Officer.

John Martin will review the second-quarter milestones.

Robin will discuss our financial results and commercial performance.

And then John Milligan will provide an update on our research and development progress and discuss our future outlook and opportunities.

Norbert Bischofberger, Executive Vice President of R&D and Chief Scientific Officer, and Kevin Young, Executive Vice President of Operations -- Commercial Operations 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 be making certain references to financial measures that are on a non-GAAP basis.

We reconcile GAAP and non-GAAP numbers in the press release we just issued, as well as on our corporate website.

I will know now turn the call over to John Martin to provide the highlights from the quarter.

Thank you, Susan.

I am very pleased with our progress here in the second quarter.

In addition to solid financial results, we advanced a number of programs across our therapeutic areas, achieved several anticipated milestones, and presented study results that set the stage for key events during the second half of this year and in 2012.

On the HIV front two important milestones occurred since our last earnings call that put us another step closer to the introduction of our next single-tablet regimens.

First, in May our partner, Tibotec Pharmaceuticals, announced the FDA's approval of rilpivirine, their non-nucleoside reverse transcriptase inhibitor.

Rilpivirine indication is for use in combination with other anti-retroviral agents for the treatment of HIV in treatment-naive adults.

As you're most likely aware, we partnered with Tibotec in July of 2009 to develop a single-tablet regimen combining Truvada with rilpivirine.

This potential product is currently under review by US and EU regulatory authorities.

We anticipate action by the authorities in both geographies in the second half of this year.

The second major milestone was the late-breaker presentation of the 48-week data from our pivotal Phase 3 study number 145 at the International AIDS Society meeting in Rome.

The data demonstrated that Elvitegravir, our oral HIV integrase inhibitor, was not inferior to the integrase inhibitor raltegravir given BID in treatment-experienced patients.

At 48 weeks of treatment 59% of patients receiving Elvitegravir achieved and maintained HIV RNA levels less than 50 copies per milliliter compared to 58% of patients receiving raltegravir.

Discontinuation rates due to adverse events and safety and resistant profiles were comparable in both arms of the study.

This is an important result and is the first from the four Phase 3 studies supporting our Quad Elvitegravir and Cobicistat programs.

Continuing our vision of bringing additional fixed-dose and single-tablet regimens forward to meet the individual needs of HIV patients, we announced in June that we entered into a license agreement with Tibotec for the development and commercialization of a new fixed dose anti-retroviral combination product containing Cobicistat, our boosting agent, and their protease inhibitor, darunavir.

In connection with this agreement we announced our current negotiations for the development and commercialization of a future single-tablet regimen combining darunavir with Emtriva, Cobicistat and our investigational next-generation NRTI GS 7340.

Because it is a substantially lower dose than Viread at 300 milligrams, GS 7340 allows for fixed-dose formulations not possible with Viread.

And in this case it would allow for the co-formulation of the first single-tablet regimen containing a protease inhibitor.

As we stated at the time of the announcement, the agreement to develop a fixed-dose combination of Cobicistat and darunavir is contingent upon signing -- the signing of the agreement to develop a GS 7340 containing single-tablet regimen.

We will continue to keep you posted on our progress.

During the quarter there were also a member of external releases that contributed to the growing body of evidence supporting the use of Viread and Truvada for the prevention of HIV infection.

The first was the release of results in May from the HPTN 052 study, which defined treatment as a method of preventing new HIV infections.

HPTN 052 is an NIH-sponsored study designed to determine if treatment can prevent HIV transmission between HIV discordant couples.

The study was performed in Botswana, Brazil, India, Kenya, Malawi, South Africa, Thailand and Zimbabwe.

More than 1,750 HIV positive individuals were assigned to either begin taking a combination of anti-retroviral drugs immediately or delay the initiation of therapy until their CD4 count fell below 250, or they were diagnosed with an HIV-related illness.

The results demonstrated that earlier initiation of anti-retroviral therapy led to the 96% reduction in HIV transmission to the HIV uninfected partner.

Based on this finding the study's Data Safety Monitoring Board recommended that the study be stopped early, four years ahead of schedule.

These data were also the subject of a late-breaker presentation at IAS, which garnered significant interest from the medical community.

The results add powerful evidence that treatment benefits the individual and also has a public health benefit in reducing further infections.

Another trial known as Partners PrEP was sponsored by the University of Washington and involved 4,758 heterosexual couples in which one partner was infected with HIV and the other was not.

In this Phase 3 study conducted at nine sites in Kenya and Uganda, daily use of either oral Viread or oral Truvada by the HIV negative participants reduced their risk of acquiring HIV by 62% and 73%, respectively.

Due to the strong HIV prevention effect seen, the DSMB recommended that the results be made public and the placebo arm of the study discontinued.

The difference between Viread and Truvada was not statistically significant, but this blinded comparison continues.

The other trial known as TDF2 was sponsored by US Centers for Disease Control and Prevention and involved 1,200 HIV negative heterosexual men and women.

Data collected on this smaller cohort through the end of the trial indicated that daily use of oral Truvada significantly reduced HIV acquisition by 63%.

In both studies the safety and tolerability was similar to patients taking Viread, Truvada or a placebo.

As previously indicated, we intend to file for inclusion of the prevention data in our Truvada label, and continue our discussions with US FDA to define the content and the timing of the submission.

Turning briefly to our efforts in hepatitis C, we initiated the first all-oral antiviral study in HCV infected patients during the quarter.

This Phase 2a study is comparing two doses of GS 5885 in combination with GS 9451, GS 9190 and ribavirin for 12 and 24 weeks and in Genotype 1 infected patients.

Before the end of the year we will have started multiple Phase 2 studies in hepatitis C, evaluating different combinations of compounds in over 2,000 patients.

We are evaluating multiple regimens that reduce or eliminate the use of pegylated interferon in both treatment-naive and treatment-experienced patients.

I will now turn the call over to Robin to discuss our financial results for the quarter.

Thanks, John.

During the second quarter we delivered record product revenues and EPS, while continuing our share repurchase program and investing in our potential future growth drivers.

We posted total revenues of $2.1 billion for the quarter, with net product revenues surpassing the $2 billion mark for the first time, up 13% over the same quarter of 2010.

We ended the quarter with non-GAAP EPS of $1 per share, an increase of 18% compared to the same quarter of 2010, and generated cash flow from operations of $943 million.

Under our $5 billion share repurchase program authorized in May of last year, we continued to return value to shareholders by retiring more than $723 million in common stock during the second quarter and $4.2 billion since the current program began in May 2010.

Our revenue growth was fueled by strong performances in our antiviral and cardiovascular franchises, with revenues of $1.9 billion for the second quarter and $3.7 billion for the year to date.

The US contributed $943 million to our antiviral product sales, increasing 6% year-over-year and 8% sequentially, driven by healthy underlying patient demand.

Wolters Kluwer Health total prescription growth for both Atripla and Truvada were 3% and 4%, respectively, in the second quarter, with total NRTI prescription share exceeding 70% at the end of the quarter.

Our major wholesaler inventory levels remained constant with levels at the end of the first quarter

As we shared with you last quarter in early April, HRSA, an administrative arm of the Department of Health and Human Services, announced the federal fiscal year 2011 budget for the AIDS Drug Assistance Program of $885 million, or 6%, or a $50 million increase over the previous year's funding of $835 million.

To date only a portion of the full-year budget, $418 million, was provided to the states, which as expected, resulted in measured purchasing by individual states during the quarter.

We expect a second allocation of $417 million to be dispersed to the states shortly.

The final $50 million has now been earmarked as emergency funding and will be allocated to the states that have applied for and qualified to receive a portion of these funds based on need.

The deadline for the states to apply for a portion of the $50 million is August 5.

Europe ended the quarter with more than $697 million in antiviral product sales, an increase of 16% year-over-year.

Growth was 7% sequentially, driven primarily by underlying patient demand and, to a lesser degree, product buy-in typical of the second quarter in advance of the summer holidays.

In the second quarter our cardiovascular franchise continued to expand.

Letairis, which had the black box warning for a liver toxicity removed by the FDA earlier this year, demonstrated strong year-over-year growth of 22% in the second quarter and 18% sequentially.

Additionally, Ranexa grew 42% in the second quarter year-over-year and 26% sequentially.

Excluding the benefit of a one-time return to reserve adjustment of approximately $8 million for Ranexa, growth was 29% year-over-year and 14% sequentially.

Finally, we are reiterating the full-year 2011 guidance provided to you first in January and reiterated in April.

This guidance can be found on slide 33 of the earnings call deck, which is available on our corporate website.

While all guidance parameters remain unchanged, we believe based on our recent acquisitions and collaborations, in addition to further clarity on the calculation of the Health Care Reform excise tax that our R&D and SG&A results are trending toward the high end of the range.

In summary, our second-quarter results are reflective of continued commercial execution and key investments in potential future growth drivers.

Additionally, our strong balance sheet and operating cash flow provides us with the ability to continue our share repurchase program, while retaining the flexibility for opportunistic investment.

Now I will turn the call over to John Milligan to discuss upcoming pipeline milestones.

Thank you, Robin.

As we head into the second half of this year and on into 2012, we look forward to several important clinical milestones and potential product launches, all of which will contribute to the long-term vision for our antiviral portfolio.

First, as John mentioned earlier, we are approaching the US PDUFA date for the Truvada rilpivirine single-tablet regimen, which is August 10.

Pending approval, our commercial organization will be ready to launch the product immediately.

All of our HIV field-based staff will support the launch and promote the product as a first priority detail, and we will be joined in this effort by the Tibotec sales team.

This will be only the second single-tablet regimen available, extending the options currently available to treatment-naive patients, and particularly to women of childbearing potential.

As previously stated, we expect a decision by EU regulatory authorities on the Truvada rilpivirine single-tablet regimen prior to the end of this year, and if approved, we will be preparing to begin launching the product with the first introductions in the UK and Germany.

For the Quad the two pivotal studies will reach their 48-week endpoint this quarter.

The first study compares Quad to Atripla and the second compares Quad to the combination of atazanavir, ritonavir and Truvada.

Both are noninferiority studies with approximately 700 treatment-naive patients randomized 1-to-1.

The primary endpoint is the proportion of patients achieving HIV RNA levels of less than 50 copies per milliliter at week 48.

We look forward to sharing these data sets with you as they become available, and pending positive outcomes to submitting regulatory filings for the Quad in the first quarter of 2012.

For Cobicistat and Elvitegravir, data from the final study, Cobicistat versus ritonavir in a regimen of atazanavir and Truvada, will be available in the fourth quarter of this year.

As a result, the Elvitegravir and Cobicistat NDA filings will follow the Quad filings in the second quarter of 2012.

This summer marks the five-year anniversary of the launch of Atripla in the US.

In that short time Atripla has become the most widely prescribed regimen and the number two brand, second only to Truvada.

In the second quarter Atripla had total sales of over $800 million, helping lead Gilead to record product sales of over $2 billion.

It is clear that doctors and patients recognize the benefit of single-tablet regimens.

And as you can tell from our R&D activities, Gilead is committed to providing even more options for patients for the future.

As we have outlined on many occasions, we remain committed to effectively leveraging a strong cash flow, $943 million this quarter alone, to enable a disappointed balance of continued investment in our growing pipeline, selective licensing, opportunistic M&A, and returning value to shareholders via share repurchases.

I am pleased by the numerous opportunities we have been able to execute upon in the last year, broadening Gilead's R&D capabilities and potentially providing future products to patients in categories outside of HIV.

I am confident that for the future Gilead has the people and the skills to move forward aggressively and rapidly in all our commercial, R&D and business development efforts.

We look forward to the many exciting milestones we have ahead of us and to sharing these results with you.

We will now open the call to your questions.

Operator?

Today's question and answer session will be conducted electronically.

(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.

Geoff Meacham, JPMorgan.

Thanks for taking the question and congrats on the quarter.

A question for you on the Quad filing for the first quarter of 2012.

Beyond the Phase 3s, what are the other gating factors for the filing?

Has the PK and the tox work been done?

And do you guys have to wait for the Cobicistat final data prior to submitting the Quad NDA?

Just help us out with that, that would be helpful.

It is Norbert.

(inaudible) the data that is included in the NDA is essentially the two Phase 3 studies, Quad versus Atripla and Quad versus Elvitegravir, raltegravir, Truvada.

Plus all the supporting PK and preclinical information tox and virology, et cetera.

And that will all be ready.

The gating factor is really only getting the Phase 3 unblinded, analyzed and written up.

There are no new analyses that you have to do by way of the metabolism, the issue that you had that was a short-term delay to the rilpivirine filing?

I know, that is what you're after.

No, so the issue is exactly the same.

And, by the way, all the dose -- the emtricitabine degradation product essentially is contained in all products where emtricitabine is co-formulated with Gilead, so it affects Truvada, Atripla, rilpivirine, fixed-dose combination in Quad.

And we have to submit those data -- it is actually the same data package that is being submitted to multiple NDAs, and we have initiated that in various territories four months ago.

Okay, thanks.

Mark Schoenebaum, ISI Group.

Thanks for taking the question.

I appreciate it.

I didn't know, is Kevin around today, or I guess maybe John can answer this.

But I was just looking at the ex-US patient data that you have provided in your slides for the last several quarters, and it looks like the patients on-drug in Europe, at least according to the data that you guys have provided, has been roughly flat for the last three quarters -- patients on Gilead drug.

Yet you have clearly reported nice increases sequentially over the last three quarters in European sales.

By my math that all can't be explained by FX.

So, A., can you just perhaps explain the discrepancy between the patient numbers and the reported?

And maybe to simplify the question, if you could just give us just volume growth in Europe sequentially that would be great.

It is Kevin.

Unfortunately, they didn't give me the afternoon off, so I am here.

It is good to get your question.

First of all, just to step back, I would like to say how pleased I was with the overall quarter.

I think both my US team and the European team did a heck of a job, not just HIV, but Letairis coming now hard on stream, and just across the products, across the geography this was a great quarter.

So specifically on Europe, please bear in mind that the data that we have supplied is the big five European countries.

And across Europe when we look at actual revenues is a fraction of more countries than just the big five.

So when we supply [sulivate] it is based on the big five countries.

I can certainly reassure you that we have had both growth in Atripla and Truvada.

It is always mixed because, number one, we don't have a first line label for Atripla, so we're never going to get the Atripla type of shares in Europe.

Of course, there is a mixture of third agents across Europe, which continue to keep the popularity of Truvada as the backbone.

So if you talk specifically about Q2, we have had a 7% increase in our revenues.

About 1% of that was FX.

You will see that it's in our slides.

And probably around about 2% -- 2% to 3% was the pre-summer volume that was referred to by Robin.

With European sales Q2 and Q4 are always your strongest quarters.

That is because people are buying in ahead of holiday periods.

And particularly countries like France, Italy, Spain and Portugal, the Southern European markets, still tend to take those big three-week holidays during August and into September.

So typically in June you get a very strong month, which ups your second quarter.

So, if you like, in real demand terms, we probably had about a 3% to 4% increase in our European numbers.

So continue to see good progress.

There was not a price effect, so that was reassuring.

We don't have a crystal ball for the rest of year in terms of European pricing, but there was not a discernible big change in any of our prices Q1 on Q2 in Europe.

Was there volume growth in the big five, and then I will stop?

Yes, there was a small volume growth.

Yes.

Thank you very much.

Matt Roden, UBS.

Thanks for taking a question.

I just wanted to follow up on your last one.

Can you just confirm that you will be seeking and expect to gain a label for treatment-naive patients in Europe for both the rilpivirine fixed dose combination as well as the Quad?

Then the second question is, Kevin, I wonder if you could talk a little bit more about what you are seeing in the US market this quarter?

I think, Robin, you talked a little bit about some of the dynamics in terms of the disbursement of funds.

But can help us with any of the intra-quarter trends that -- was there anything different as you exited the quarter that can maybe be a leading indicator for what we should expect going forward?

Thanks a lot.

I will answer your first question.

The answer is, yes, we will seek a naive indication for both rilpivirine fixed-dose combination and the Quad.

And the reason is very simple.

Both of these products are supported by two Phase 3 studies each in treatment-naive patients.

So it follows that clinical Phase 3 studies.

And Kevin will answer the other question.

Yes, let me take you through the US results for HIV.

The first thing, again, we mentioned this, Robin had it in her commentary.

Q2 was not an inventory story.

Our major wholesalers where we have I&A agreements held their inventory at the low end of the range where we ended our Q1.

That was not unexpected.

I think the sense out there is that the large wholesalers are very carefully now managing their inventory from a financial point of view.

I think you saw our expectation is that it is going to stay at that bottom end of our contractual range likely in the remainder of 2011.

So it wasn't a quarter-on-quarter inventory effect.

The second part of it was we had good underlying TRx growth.

Atripla was 3% and Truvada was 4%.

When you put Q2 on the back of Q1 that is some of the best back-to-back quarters that we have had over the last two years in terms of prescription growth.

So that bodes well for our underlying business.

So the story again is, of course, nonretail.

The growth in nonretail was not as high as the TRx growth, we pointed that out.

But it was high higher than Q1.

Not by a lot, but it was higher than Q1.

So let me give you some granularity on the nonretail.

The first thing to say is that Q2, the calendar Q2, which is the first quarter for the ADAP fiscal year is always the weakest.

If I look back at the past four years of ADAP purchase, Q2 calendar is always the weakest -- has been for every one of the previous four years.

Q3, Q4 and Q1 have always been sort of varied over the years, but Q2 has always been the poorest of the quarters.

That is because ADAPs have always been in a situation where they are waiting for confirmation of their budgets.

In terms of the major purchases, direct purchases for ADAP, Florida routinely ordered during Q2.

Texas ordered from the middle of Q2.

And we saw some very healthy orders from Puerto Rico.

So that is the third-largest, the fourth-largest and the fifth-largest of the ADAPs were repurchasing.

I think our sense was they weren't building inventory, but they certainly were back on stream.

And it has to be pointed out that they have not had the remainder of the 835 core budget allocated yet.

I checked today with my people, they still have not gone out, although do we do expect them in the next few weeks.

And then there's got to be this extra $50 million of emergency funds allocated, and ADAP is going to go through a process on that.

So I think the long and short of it is that ADAP is nicely coming back on stream.

Even with not having their final numbers, we saw the ADAPs that had previously had the challenges in the first quarter, Florida and Texas, back repurchasing.

So I think that bodes well for us going forward.

Thanks very much.

Yaron Werber, Citigroup.

Thanks so much for taking my question.

I really appreciate it, and also congrats on a nice quarter.

So just, Kevin, a follow-up on the last question.

Just help us understand maybe a little bit two things.

Number one, when you look at the ADAP in general, Florida is by far, as you guys pointed out many times and it is evidenced in the data, Florida is definitely the outlier relative to everybody else in terms of their -- the tightness of their budget and how big their wait lists are.

And given that some of these ADAP budgets are so sort of outdated when they originally are sent to the government and projected, what is the likelihood that they can get some kind of a decent share out of that $50 million since the state of Florida really didn't -- didn't really sort of boost their own budget that much?

Then, secondly, help us just put it into context.

We are getting a lot of questions on the ADAP wait list, the patient wait list.

What does that mean?

Does that mean that Gilead or other companies have to provide free drug to these patients until they go on an ADAP?

And at point would you think the budget is really going to increase for ADAP in general?

Okay, let me try and do them in order for you.

Good questions.

So your last set -- I will take the second question first.

So in terms of wait lists, yes, the wait list continued to go up.

It is almost 9,000 patients.

I do think that some ADAPs will use that as a bit of a kind of a safety valves.

The one that obviously has got the biggest is Florida, and as you pointed out, they will have the biggest challenges around that budgeting.

Yes, we -- as long as they hit the Gilead criteria, we do take them into our own Patient Assistance Program.

We think that is the right thing to do.

And ultimately we hope that they transition out at some point in time to go on normal prescribed ADAP drug.

Just to point out, and I think this is very important, you know, we still are incredibly helped by the overall ADAP program.

If you look at 9,000 patients on the wait list versus the 499,000 Gilead patients, that is just over 1%.

So in relative terms it still is a very, very small number of people on these wait lists.

We would like to see it come down, but in the big context it is still a very, very, very small percentage.

Coming to the allocation of the $50 million, as we understand it, they're going to do it very similar to the $25 million emergency fund that they gave out in fiscal year 2010.

So they are now getting the ADAP programs to submit justification for funding.

But we have heard that, unlike last year, that they will cap the amount -- any one amount of dollars, there will be a maximum amount that they will give to any one ADAP.

So if you remember, there was the interesting situation in 2010 where 25% of that $25 million went to Florida.

We are told, and like to believe, that any one ADAP will not be able to get that type of very, very significant portion, that they will put in caps that no one ADAP will be able to go over.

We also are told that it is for the clearance of wait lists to address the wait list situation.

So that is deliberately what this $50 million is for.

Rachel McMinn, Bank of America Merrill Lynch.

I just wanted to better understand the expense guidance.

Robin, I think you mentioned it would be towards the upper end.

But it looks like the first half actually leads to a higher overall number than your guidance.

Is there anything one-time in the first half that we should be thinking out, kind of a net second-half decline?

If I could sneak in a quick HCV question is there anything at all about you that we should looking at.

Sure, I will take the first and I think Norbert will take the second.

Relative to our guidance, the only one time I think you'll probably see, and it is not atypical, is on the SG&A side, where typically promotion and some of our marketing expenses, particularly with our upcoming impending launches a bit higher.

You also have the seasonality in Europe that also drives SG&A up to the higher-end in the first half.

One of the things that we are looking at is just the ramp relative to the collaborations and acquisitions I mentioned on the R&D side.

And as we continue to rationalize that pipeline and work through it the anticipated expenses continue to go out.

On the SG&A side, as mentioned, it is primarily driven by the fact that we now have a preliminary bill on the excise tax, and believe we are now -- expect our overall expense for excise tax to be at the high end.

Also, we are cognizant of Southern European bad debt and want to be sure that we appropriately think about bad debt expense.

We also have some legal expenses associated with [Anders] and DOJ that we are working through as well.

Regarding ASLD on the hepatitis C side, as you know or may not know, we have eight Phase 2 studies that are just in the process of being conducted and to be started.

So they won't be at a point for ASLD for any presentation.

We will have a number of preclinical things to talk about.

But something I wanted to point out is on the hepatitis B front.

We will have some very interesting five-year data on Viread, where we have seen dramatic reversals of hepatic fibrosis and cirrhosis after five years of treatment.

This is supported by parent biopsies from patients in our two pivotal studies.

Ian Somaiya, Piper Jeffrey.

Thank you very much.

I had a question on the Tibotec deal.

The one -- not the one that you signed, but the one that you're negotiating right now for the single-tablet regimen, what will be the regulatory path for that combination?

And as you negotiate a deal with Tibotec is the starting point the deal that you signed for rilpivirine or is this a completely new process?

This is Norbert.

I'm going to answer the regulatory question.

So this fixed, the single-tablet regimen will contain four components.

So it is darunavir, Cobicistat, Elvitegravir and 7340.

7340 is the only compound that is not approved currently.

So we, obviously, have to support this filing with safety and efficacy data showing the safety and efficacy of 7340.

And one way how that could be done, although we haven't finally decided, you could simply compare that single-tablet regimen that contains 7340 to the best standard of care at that time, which may be the Quad, it may be Atripla.

So that has got has got a pathway.

It is fairly straightforward.

And John will answer the other question.

Thanks for the question.

So with regard to the collaboration, obviously, we are still negotiating it, and so it is in progress.

So I think you mean is the rilpivirine deal the basis for that?

Probably from an economic standpoint.

And I would point out that unlike -- the deals are quite different, because with rilpivirine that was an unapproved study in which we invested money in the Phase 3 study, as you'll recall, whereas this would be a different kind of program where darunavir is already approved, not experimental set as it was with rilpivirine.

We will have the experimental agent in there.

So we are negotiating from a different basis of understanding about who brings what to the table, and that will help determine the final economics.

And once we are able to conclude that, we will be happy to share it with you.

Brian Abrahams, Wells Fargo Securities.

Thanks very much for taking my question.

A question for Kevin on the Truvada Edurant single-tablet regimen.

In the past few months we have seen both the 96-week Phase 3 data for the regimen, as well as the -- your partner's announcement of Edurant pricing at a premium to Sustiva.

I was just wondering how these two developments influence your commercial approach?

Then, what is the plan for incorporating the 96-week data into the label.

Is this being provided now to the FDA and EMEA and could it potentially push back the respective action dates?

Thanks.

I will let Norbert take the very last part of your question.

But in terms of our preparations for launch, no big change in terms of what we have seen out of the 96-week or indeed the pricing.

To date the uptake of Edurant as a single tablet has been modest, as you have probably see.

That doesn't surprise us.

I don't think that surprises Tibotec.

It was always going to be a product in combination, and exactly why they wanted a single-tablet regimen together with Gilead.

We have been doing a lot of preparation.

In fact, I'm going down to see my sales organization who are finishing their training this very week.

I think the enthusiasm is very high.

We will share with you once we get into a launch a bit more of what we have done around patient targeting.

But, clearly, I think in the larger more general HIV clinics, because of the benefits of CNS, I think we have an opportunity with this single tablet.

In terms of reimbursement, Tibotec have made good progress.

The information that we have is that the major ADAP programs, places like Florida and California, are all listing Edurant.

State Medicaid programs are, and we are now in the 90-day window of working through the formularies for Medicare.

We don't see any great hurdles or barriers with managed care.

We will still have to do our own reimbursement work, because there is a separate NDC code for the single tablet.

But we think that will go relatively quickly, and the pricing on the reimbursement won't be a barrier to uptake.

Regarding your question about pathways for the 96-week data, this would not delay approval of the single-tablet regimen or of rilpivirine in the EU.

There is really no regulatory path to submitting further efficacy data to an ongoing NDA.

The way this will be done, you wait for approval for the NDA and MAA and submit it then as an sNDA in the US and as a Type II variation in the EU.

Thanks very much.

Ravi Mehrotra, Credit Suisse.

Thank you for taking my question.

On Letairis can you give us any more color on where your pulling patients from?

Presumably the label change is having to kick in.

Is it really from both [sensonality] failure patients or are you having an impact in new patients?

Perhaps I could sneak a very quick second one in for Robin.

You are obviously towards the end of your $5 billion share buyback program.

Can we presume that you'll move straight on to the further $5 billion program that you announced in Q4?

And has your view on capital allocation changed recently?

Thank you.

It is Kevin.

Thanks for the question.

We are delighted with the take-up or the uptick in Letairis since the label change.

Our revenues were up 18%.

It is important to stress that is not representative of the uptick in enrollments.

Unfortunately, I can't share that with you because that is something that is proprietary.

But I can certainly reinforce that our enrollment increases are far in excess of the 18%.

So we have been delighted with the way Letairis has gone.

As you can see from slide 23, in our Web deck, we have done a lot of educational work, because not only is this -- is it a practical benefit for patients and for PH centers, it clearly is a scientific difference between the label for Letairis and the competitor.

In terms of patient makeup, it is listed on slide 23.

About 40% of the patients coming onto Letairis in Q2 were -- are monotherapy, completely new monotherapy Letairis.

29% are monotherapy but have switched -- they come from a switch from Tracleer.

And 31% are combination -- so that is typically Letairis with a PDE-5 or a prostanoid.

So we have broken out for you as a new data point in this quarter.

Thank you.

To your other question on the share repurchase program, I will reiterate what we have committed to for 2011, which is completion of the current $5 billion program, and I think we have got about $700 million, $750 million outstanding on that program.

Also, as we talked about it, overall our view on capital location has not changed.

We view -- so we have done a fairly aggressive job relative to our evaluation of returning value via our program to date based on how aggressive we have been at completing the first program.

Tom Russo, Robert W.

Baird.

Thanks, and apologies for one more on ADAP, but just a little different way of looking at it.

I know it is complex, but if you are able to say, what do you see as the year-over-year growth this year in the national ADAP budget across all funding sources, not just federal, and also across the states?

Then given your dominant share, is that growth in the overall ADAP budget a good proxy for your growth potential in that segment?

It is very difficult for us to actually know the total, total percentage growth.

The obvious one that we do know is the 6% growth in the federal budget.

We've put that in a slide, and the way it is passed out to our best knowledge.

So we have inserted that in the deck this time.

The other components, of course, are states.

States are on different fiscal timelines.

Federal is April/April, some come in July, some come in the August/September timeframe.

From more we have seen so far, and again the best of our knowledge, because some of this is not that transparent, the states' year-over-year HIV ADAP budget seemed to be flat 2011 versus 2010.

Now, of course, you never know quite what happens in potential top-ups or anything else during the year, but from what we understand, two big ones, Florida and California, were actually flat.

Now that is not a bad situation when you think of all the haircuts that have been taking place in state budgets in 2010 and 2011.

So relatively that is not a bad place to be.

So we will probably never quite know the full picture here.

We are always well in arrears when we get a year complete and have that totality of percentage year-on-year.

If I could quick sneak one in.

What is the degree of risk, if any, to the proposed Ryan White allocations, given what is going on in DC right now?

That is it.

Thanks.

Well, Ryan White will be running through 2013.

So it still has two more years to go.

So we are hopeful that we're going to continue to have -- still get funding there, because actually there is legislation in place for Ryan White.

Thereafter, we start to see on the horizon the new Medicaid program for 2014.

So we did, I think, well this year when some people thought that it would be flat funded or perhaps even some risk there.

I think to come out with plus 6% was a good place.

And HIV is still very much at the forefront of people's minds.

The world AIDS meeting will be in Washington DC in 2012.

So we know Washington DC in some ways has been the epicenter of late for HIV.

So, again, I think that is going to put HIV in the US, again, front and center in people's minds.

Thanks, Kevin.

Josh Schimmer, Leerink Swann.

Thanks for taking the question.

I guess with the upcoming Quad versus Atripla data there has been a lot of focus on whether or not it will hit superiority.

I am wondering commercially do you think it matters if you hit superiority versus just noninferiority, and if so, why?

And then what was the share count at the end of the quarter?

Thanks very much.

I will give you just a quick answer, and perhaps John or somebody else wants to add to it.

But I would be absolutely delighted with noninferiority.

I think that is what our physicians expect.

And I think we can do tremendously well with Quad if we hit noninferiority on both studies.

So that is the profile that we are going to be planning towards.

The data will tell.

But noninferiority will be very welcomed by the commercial [of our ambition].

It is Robin.

You can find share count on slide 32 in the deck.

At the end of the quarter it was 776 million shares.

Thanks very much.

Sapna Srivastava, Goldman Sachs.

Thanks for taking my question.

The one question I had is for the core filing.

Considering you are filing for two drugs, are there any external requirements that can emerge or that you think can come forward from the FDA?

The second thing is just following on the last question on noninferiority.

Could you just help us walk through how much edge do you think you'll have over Atripla if you just had noninferiority?

You asked are there any issues with regards to the fact that the Quad contains two new chemical entities.

The answer to that is no.

We actually talked to FDA about all the requirements for the filing.

We will, of course, file both products with regards to the pre-clinical tox studies, the PK studies, the micro support.

And we will also have it supported by the two Phase 3 studies.

In addition, we will also submit the Elvitegravir 48-week data to the NDA, so there is support independently for Elvitegravir as well.

With regards to the issue of statistics in our Quad versus Atripla study, let me just give you the numbers.

So the study we assumed an 80% response rate.

So that means 80% of the people overall in this study are below 50 copies per milliliter at week 48.

Then the study was 700 patients has a 95% power to assist noninferiority with a two-sided P confidence interval, and the lower bound of the delta being 12.

Now you asked how much different would the two arms have to be -- and roughly about 6%.

So, in other words, if we would see overall response rate 80%, the Atripla arm would be 77 and the Quad arm would be a little bit more than 83, and we would have statistically a possibility of having the lower bound of the confidence interval not cross zero.

Just to add something -- we operate close now, so it would be -- it wouldn't be appropriate to throw out marketshare capture or anything like that.

But it is clear that physicians like integrase from the point of view of tolerability.

Initially I think while tegravir did very well, I think there has been some flattening recently because of some of the studies that were halted around its inability to be a once-daily product.

So I think if we are successful with noninferiority, and have our single tablet, then I think that becomes a very attractive proposition for HIV physicians.

Geoff Porges, Sanford Bernstein.

Thanks for letting me get on the call.

Just regarding the TMC278 rilpivirine combination, could you talk a little bit about, first, the significance of the higher rate of viral breakthrough there, and whether that is going to be a liability for you either in the final stages, presumably not with the regulatory process, but also in the market?

And then, Kevin, could you talk a little bit about how this is going to fit in over the next 18 months and then beyond that?

Is this really just a bridge to the Quad or do you think it is going to have an ongoing role as part of the portfolio of those combinations?

Thanks.

I will take it and maybe Norbert wants to come in and just talk about the data a little bit.

I don't think the 96-week had a great bearing on the physicians that we spoke to coming out of IAS in Rome.

We did our normal discussions.

We have had our advisory board since then, so I don't think that really has changed anything.

I think we know the type of patients who are going to be applicable here, particularly people who don't want the CNS side effects of Sustiva.

People with high acuity in their jobs.

People who are working with mechanical equipment.

Certainly, the 20% of patients -- the women of childbearing potential this is going to be, if all goes well, a category B compared to category D that we have for Atripla.

So I think we kind of know the patients that this this is going to be applicable.

Certainly, I think if I was to say to my team who were getting ready this week that we were halfhearted about this, I think they would probably give me a very big scowl, because we're working with the team extremely hard.

So this is not a dry run.

This is not a practice.

This is not a halfhearted kind of tick around for the launch of the Quad.

We want to be successful with Truvada rilpivirine.

We think it has got a role to play.

Of course, we are very excited about Quad, but I don't believe in going into the launch of a product with some form of kind of semi-launch.

You launch a product and hopefully you get it right from the point of view of how the product profile will fit the market.

If I may add, I think with regards to significance a good thing to look at is the US label.

That actually gives you a lot of information how to think about it.

It is broadly indicated for the treatment of HIV infected -- infection in treatment-naive adults.

But then it says consideration should be given to higher viral load failures, and it talks about the resistance.

And then in the clinical section it clearly outlines that, first of all, I want to remind you that overall numerically in the combined ECHO/THRIVE study rilpivirine was actually better numerically to the efavirenz arm.

But it does then say in the label that more virological failures occurred in patients that had at baseline viral load above 100,000 -- about 500,000.

So I would say, as Kevin pointed out, it is going to be a good drug for certain patients, but it is not for everybody, particularly with high viral loads, people are going to think about whether to use this compound or not.

Kevin, how would it fit with the Quad say three years from now then?

All I would say right now is that, yes, Quad, will likely be top of the detail list in terms of our emphasis and what we will do in terms of executive compensation plan.

But the Truvada 278 will be very much still part of the detail, and we have contractual obligations to our partner Tibotec, so both products will very much be promoted.

Terrific, thank you very much.

Thomas Wei, Jefferies & Co.

I had a follow-up on TMC278.

So, as you mentioned, the prescription data have been very modest.

So we are seven weeks into data now and they are running at less than 200 prescriptions a week.

And it looks a little bit like the old CCR5 launch.

So just to play devil's advocate here, you highlight that there is a big clinical advantage on CNS side effects, and the ability to use the drug in women of childbearing age.

Is that by itself not sufficient to get usage of the drug in a naive population, especially when doctors, I think, generally are of the belief that the [fixers] combination is coming so soon?

Or is there some other factor here?

Like has J&J been in semi-launch mode with 278 as a single pill?

Can you help me understand that a little bit better?

So I don't think it would be right of Gilead to sort of be commenting on the qualitative performance of Tibotec.

Please bear in mind that as of our Q1 data from Synovate 55% of new patients began on Atripla -- 55% began on a single-tablet regimen.

So as John Milligan said, single-tablets have been transformational.

They are not a nice-to-have, they are part and parcel of delivering HIV care.

I think Edurant, rilpivirine, with its profile, with its kind of specific profile as Norbert pointed out, it is just probably going to be modest as a divided dose drug.

And honestly, we have not been shocked.

We have not been sideswiped by what has happened.

It is entirely explainable.

And we have always known that it would be all about the single tablet.

And I think Tibotec always knew it would be about the single tablet, hence, their reasons for coming to produce the fixed-dose combination in the first place.

So I think it is what we expected.

The pricing reimbursement has gone well.

But they are still working through that process.

With Medicare programs, with Medicare Part D, there is a 90-day window that they have got to react to that is 90 days.

So there is always a little bit of a drag on uptake of products.

But I think it is really the profile and the need for having rilpivirine in a single tablet, that is what this is all about.

Joel Sendek, Lazard Capital Markets.

As you prepare to launch these new drugs in the next coming months and years, I am just wondering what your long-term philosophy is on pricing?

Because as I see it, you could price higher to reflect the new agents and the combinations or you could price on the lower end to maintain your market-leading share and create a value your better value proposition versus generics and other companies with new drugs coming out.

I am wondering if you can -- I know you can't tell us what the pricing will be, but just general philosophy on that.

Thanks.

It is John Milligan.

You're right.

It is very difficult to talk about these things.

I do want to remind you of a couple of things.

So, contractually, for example, with rilpivirine Truvada combination, Johnson & Johnson, Tibotec is responsible in all jurisdictions for the pricing of rilpivirine, and we simply follow that with the addition of the price of Truvada.

So we have no flexibility in that pricing.

Obviously, with regard to the Quad we have choices to make in how we are going to price that for the future.

I think that will depend somewhat on how the data sets turn out, and someone how we feel the environment will be in the future.

But I think it is too early to speculate, and I certainly -- until we have further work done on our own and to figure out exactly where we are going to come out on the pricing, I think it is just not right to speculate on a call.

Okay, thank you.

Michael Yee, RBC Capital Markets.

A macro themes question.

What in the US does your work in Washington suggest could d happen with dual eligibles?

And remind me your exposure impact there for dual eligibles.

And then in Europe, macro question.

With regards to pricing, specifically in Germany and other nations we have heard about a lot of price concessions, so can you just comment on European pricing trends, either last quarter or first half of this year?

Thanks.

So, I will take a couple and John Milligan does an awful lot of work in Washington, so I will let John talk about the landscape as he sees it.

FYI in terms of dual eligible, the slide that had been previously in our deck, if you remember, 9% by volume of our payer mix is the Medicare Part D dual eligibles.

So that is as per the previous slides we had for Q1.

As you know, there were significant price decreases that were administered by governments in Spain and Germany.

Spain was 7.5% and Germany was 10%.

That is as a rebate that were given out in 2010.

To be honest, Michael, I don't think you can make any bets on what governments might do coming forward.

We all know that there are still companies countries in difficulties.

We continue to watch the situation very carefully.

I think that tends to be the Portugal's Islands, Greece, Spain.

There's also been significant in the past 18 months price actions also in Turkey.

So we just have to be like the rest of the pharmaceutical industry and see what we can do to influence and to try and keep our prices there.

I have to say I think HIV can do well.

Number one, we are a hospital product.

And, of course, we are a very specialist product.

We had some discussions in Portugal over the last year where I actually think they were very attracted to Atripla because it is much more economical than a [disty] protease.

So there are advantages that sometimes come out of these very difficult situations.

John, on Washington?

So as you know, there are certain members of Congress who are still upset with what happened when Medicare Part D was put in.

As you may recall in years past, when those patients went from Medicaid to Medicare, Gilead and other companies got a change in the net price that was favorable to the industry.

And there are still certain members of Congress who are quite sore about that.

But it was really a legal issue.

There is no way to discount into that segment legally for a company like Gilead.

So they are agitating for a return to the Medicaid-type rebate, which would be about 23% of those products.

And as Kevin mentioned, it is about 9% of our volume overall.

But clearly some of the higher priced patients who would come down.

So that is as far as I can quantitate it for you here today.

Okay, thanks.

Robyn Karnauskas, Deutsche Bank.

Thanks for taking my question.

So I was just wondering maybe if you can comment a little bit about how you see the PI market evolving?

And how important is it for you to capture some of this market with new STRs and maybe the potential for the Quad in your new darunavir STR with their ability to capture this bucket of patients?

Thanks.

I will chip in to start with.

The regimens number two and number three after Atripla, a long way back that has to be said, is Truvada plus boosted Reyataz, and Truvada plus boosted Prezista.

So you've got Atripla -- 37% of all treated patients, and you drop down quite significantly, where you drop down to Truvada plus Reyataz has a 12% and Truvada plus Prezista about 8%.

So it was about 20% of all treated patients.

And if you then add in Truvada plus Kaletra that is another 5%.

So you've got 25% of patients currently on a protease inhibitor, most of which are in a boosted situation.

So that opens up a very nice, I think, opportunity for us, which we have never been able to do because of just the bulk of a potential tablet of Truvada plus Prezista.

So I think we could have a very nice small tablet, and we give the option where there are strong supporters in some quarters of physicians who like protease inhibitors that are third agent.

And, of course, I should also say that in European countries, like France and Italy, they have always been protease inhibitor markets.

Phil Nadeau, Cowen and Company.

Thanks for sneaking in my question.

My question is actually on generic Epivir.

Coming into 2011 there seemed to be chatter that generic Epivir could be launched in the first half of the year.

I don't believe that has happened, so I was wondering If you could -- want to give us an update on when that could come?

And then, second, let us know if you have had any conversations with payers, particularly ADAPs, to see how they would use generic Epivir, should it come, to reduce their budgetary constraints.

It is Kevin.

No, we have not seen any sight or a sound of generic 3TC in the United States, nothing whatsoever.

I think we were always considering that the impact would be very, very small indeed.

Bear in mind there is only 11,000 patients on branded Epivir today, and only 39,000 on Combivir.

So you -- due to our success and the preference in guidelines, preference in clinical practice to Truvada-based regimens, either Truvada plus something or, of course, with our very great success with Atripla, as a result of that other products have contracted.

So really the attractiveness of introducing a single generic compound just to exchange with the branded is, well, less than modest.

So I don't think it is something that a generic company is going to chase.

I think going forward, perhaps sometime in 2012, we may see -- we may well see a Combivir come to market.

But we have always said that is probably, again, impact limited to the high control areas such as corrections in the United States.

I guess on the generic Epivir what I was wondering, some of our physicians have speculated that ADAPs may try to force therapeutic substitution onto Epivir in order to save basically one-third of the price of an HIV regimen.

Is that something that you have heard in any of your discussions with the ADAPs, and is that even possible or practical?

No, not at all.

Categorically not at all.

We don't hear that from ADAPs, and I certainly don't hear it from managed care.

Don't forget that ADAP is still in the business of access.

They want to try to keep the clinical choice in the hands of the physician.

And KTC in the United States is not part of preferred regimens.

So physicians want to use the preferred regimens.

Obviously, they want to have their patients on-drug.

And whilst waiting lists in some areas go up, we have our Patient Assistance Programs, and we have extremely good coverage elsewhere in managed care.

So that is not a pressure point that ADAPs, to our knowledge, in any shape or form are bringing to bear.

Okay, great, thank you.

Ms.

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

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

We appreciate your continued interest in Gilead and look forward to providing you with updates on our future progress.

We will be available for your follow-up calls, so please don't hesitate to give us a ring.

Thanks so much.

Bye-bye.

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

This does conclude your presentation.

You may now disconnect and have a great day.