吉利德科學 (GILD) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences fourth-quarter 2012 earnings conference call.

My name is Darcell and I will be your conference operator today.

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

And, as a reminder, this conference call is being recorded.

I would not like to turn the call over to Patrick O'Brien, Vice President of Investor Relations.

Please go ahead.

Thank you, and good afternoon, everyone.

We issued a press release this afternoon providing earnings results for the fourth quarter, which is available on our website, where you can also find detailed slides that supports today's call.

For our prepared remarks and Q&A, I'm joined by our Chairman and CEO, John Martin; our President and Chief Operating Officer, John Milligan; our Vice President and Research and Development, Norbert Bischofberger; our Executive Vice President of Commercial Operations, Kevin Young; and our Chief Financial Officer, Robin Washington.

Before we begin with our formal remarks, we want to remind you that we'll be making forward-looking statements, including plans and expectations with respect to our product candidates and financial projections, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements.

A description of these risks can be found in our latest SEC disclosure documents and recent press releases.

In addition, Gilead does not undertake any obligation to update any forward-looking statements made during this call.

We will also be using non-GAAP financial measures to help you understand our underlying business performance.

The GAAP to non-GAAP reconciliations are provided in our press release as well as on our website.

I will now turn the call over to John Martin.

Thank you, Patrick, and thank you all for joining us today.

Last year was marked by great productivity and an unprecedented pace of progress.

Revenues increased to record levels and numerous R&D programs were advanced.

This is true for all therapeutic areas -- HIV, liver disease, cardiovascular, respiratory and oncology; although, today, I will limit my brief comments to liver disease, HIV and oncology.

As you are aware, the clinical development program of Sofosbuvir for the treatment of hepatitis C infection is supported by four Phase III studies.

Results from the first study, POSITRON, reevaluating Sofosbuvir and ribavirin in interferon-intolerant or ineligible genotype 2 and 3 infected patients were previously disclosed in a press release in November.

This morning we issued another press release with topline data from the second and third Phase III studies -- FISSION and NEUTRINO.

Both of these studies met their primary endpoints.

FISSION compared a 12-week course of Sofosbuvir and ribavirin in genotype 2 and 3 infected treatment-naive patients to a 20-week standard of care regimen of pegylated interferon ribavirin.

The SVR-12 rates for the Sofosbuvir/ribavirin arm was 67%, compared to 67% in the control arm.

The other study, NEUTRINO, evaluated a 12-week treatment course of Sofosbuvir, ribavirin and peginterferon in treatment-naive genotype 1, 4, 5 and 6 infected patients.

In this study, 90% of patients achieved an SVR-12.

In both FISSION and NEUTRINO, Sofosbuvir was safe and well-tolerated, and the adverse events were consistent with the known safety profile of ribavirin and peginterferon.

The results from the fourth Phase III study, FUSION, evaluating Sofosbuvir in treatment-experienced genotype 2 and 3 infected patients, will become available later this quarter.

These four Phase III studies, along with a number of additional studies in special populations, will support the marketing authorization applications of Sofosbuvir, which are planned for submission in the second quarter of this year.

Results from all Phase III studies will be presented at future scientific meetings.

We are also developing the fixed dose combination of Sofosbuvir and the NS5A inhibitor, ledipasvir, previously known as GS-5885.

This one-pill once-daily FDC is being developed as an all-oral, interferon-free regimen for genotype 1 infected patients.

The first Phase III study evaluating the FDC with and without ribavirin was initiated last November.

Earlier this year, we announced initiation of the second Phase III study in genotype 1 treatment-experienced patients.

If successful, these studies would support regulatory filings in the first half of 2014.

Now, turning to HIV, our vision to simplify HIV treatment with single-tablet regimens is proving to be a robust strategy.

With Atripla, Complera and Stribild, there are now three STRs available.

Continued innovation with STRs creates opportunities to improve upon current regimens.

A recent example of this is TAF, formerly GS-7340, which was evaluated last year in a Phase II study.

This Phase II study showed that TAF is efficacious at one-tenth the dose of Viread, and provides potential safety advantages.

Based on these findings, a TAF-containing STR was advanced into Phase III development last month.

There are two identical Phase III studies which compare elvitegravir, cobicistat, emtricitabine and TAF co-formulated into an STR to a control of Stribild.

Importantly, these studies will allow for the inclusion of renally impaired patients with GFRs as slow as 50 mils per minute.

Turning to oncology, over the last five years we have built the beginnings of a solid franchise.

Idelalisib, a PI3k delta inhibitor, was advanced into five Phase III studies in refractory CLL and iNHL.

Simtuzumab, the anti-LOXL2 antibody, is being evaluated in various Phase II studies of pancreatic and colorectal cancer; and in myelofibrosis, liver fibrosis and pulmonary fibrosis.

Earlier this year, we announced the acquisition of YM BioSciences, which is expected to close this week.

This acquisition brings to us CYT378, a JAK1-2 inhibitor which has been studied in Phase II for the treatment of myelofibrosis.

The data indicate that CYT378 has potential advantages over existing agents, and we plan on advancing the compound into Phase III studies later this year.

Overall, 2012 was a very successful year, with demonstrated productivity across all parts of our organization.

2013 will also be an exciting year, with numerous upcoming milestones.

We look forward to sharing our progress with you.

I'll now turn the call over to Kevin Young.

Thank you, John.

In the fourth quarter of 2012, we achieved record worldwide product sales of $2.5 billion, a growth of 18% over the fourth quarter of 2011.

Thanks to this very strong performance, product sales for the whole of 2012 totaled $9.4 billion, a growth of 16% over 2011.

Sales in the US were especially strong in the fourth quarter, exceeding $1.5 billion for the first time, a growth of 22% over the fourth quarter of 2011.

US antiviral sales posted a robust 20% increase over the same quarter a year ago, but particularly notable increases of 31% were seen in our cardiopulmonary business.

Underlying US demand drivers were healthy throughout the fourth quarter.

However, it is important to highlight a number of purchasing events which positively influenced sales in the run-up to the year end.

First, antiviral product orders from the VA were above historical norms.

This was particularly apparent at the regional mail order pharmacy level.

Second, inventory levels for Letairis rose by approximately 4 days, over and above the third quarter of 2012.

As a reminder, we do not administer inventory management agreements with specialty pharmacy.

Third, ADAP purchases during the fourth quarter were strong, similar to the levels seen in the second quarter of 2012.

Finally, and by our estimates, the biggest impact on the quarter we saw strong [souk] wholesale or retail purchases.

We believe this was in anticipation of price increases we took at the beginning of 2013.

In total for the US, we estimate that $80 million to $100 million of fourth-quarter sales were as a result of strategic purchases beyond our control.

We cannot predict whether these purchaser activities will be repeated in 2013, or whether there might be others of a similar nature.

The fourth quarter of 2012 was our first full quarter of Stribild sales.

I'd like to provide some color on initial uptake dynamics, which I believe are very encouraging for our HIV franchise overall; but, more importantly, the continued adoption of STRs, single-tablet regimens.

First and foremost, payor acceptance of Stribild has been excellent; beyond that of Complera at a similar time point.

All state Medicaid plans and all ACE drug assistance programs now have Stribild on formulary.

Moreover, most managed care organizations now cover Stribild at the same level as our other HIV drugs, with little or no restrictions.

Cumulative prescriptions to Stribild are running approximately 90% higher than Complera at a similar point in launch.

Particularly active prescribers are infectious disease physicians with large clinical workloads, many of whom were involved in the Phase III registrational studies of Stribild.

Whilst very early, we are seeing a different patient profile for and Stribild and Complera; more naive patients are receiving Stribild; fewer patients are switching from an NNRTI third agent to Stribild; and, encouragingly, more patients are switching from protease inhibitor third agents to Stribild.

Please note that Gilead only details according to the naive label in our package insert.

Nevertheless, having a single-tablet integrase regimen available for the first time is proving attractive to physicians who have historically preferred the protease inhibitor class.

Finally on Stribild, as we did with Complera, we have secured an advanced look at the naive patient breakdown for the fourth quarter, highlighted in slide 32 of our earnings presentation.

Recall that at this time in the Complera launch, STR share of naive patients rose from 50% to 60%.

We now see a similar step-change driven by Stribild.

Essentially, seven of 10 naive patients now start on a single-tablet regimen.

This increase is associated with a decline in third agents, for which Gilead does not receive economics.

Turning to Europe -- whilst economic conditions remain difficult, and healthcare expenditures are the continued target of government cuts, we are delighted with the growth in our business.

Excluding the impact of foreign exchange, European sales grew by 7% in the fourth quarter versus one year ago.

Eviplera is now on the market in 17 countries across Europe; and, encouragingly, we have completed price negotiations in Spain and Italy, and will be supplying patients in these countries during the quarter.

Eviplera uptake has been very strong in France, Germany and the UK.

We are particularly pleased with France, the largest HIV market outside the US, and one that is dominated by the protease inhibitor third agent class.

As of the first full quarter of launch, 42% of all Eviplera patients are switching from a protease inhibitor.

So, in summary, we exited 2012 with great momentum across all our therapeutic areas, and across all our expanding territories.

In addition to helping patients and meeting our Company goals with today's best-in-class drugs for HIV, HBV, pulmonary hypertension, angina, and cystic fibrosis, we have the very exciting prospect of launching a major medical innovation in 2014 -- Sofosbuvir for hepatitis C.

Commensurate with launch timelines of quarter-one 2014 in the US and quarter-two 2014 in Europe, we have started a progressive ramp-up of commercial activities from the start of 2013.

Subject to regulatory approval, we believe Sofosbuvir has the potential, in combination with other drugs, to cure significant numbers of HCV-infected people.

Our goal is to educate physicians in the hepatology, gastroenterology, and infectious disease settings with highly-trained, dedicated sales, marketing and medical affairs staff.

As has been the case in HIV, step-changes in therapy change the face of the disease.

We believe the same will hold true in hepatitis C. Gilead will direct considerable resources to position itself as the commercial leader in this space.

With this in mind, we recently established our own company identity in Japan, with a goal of developing, registering and supplying the many patients with advanced liver disease caused by hepatitis C.

To conclude, 2012 was a year full of new commercial milestones.

In 2013, we believe that whilst there may be some market challenges, the need for Gilead's portfolio of specialty medicines gives us the opportunity to have another successful year.

I will now turn the call over to Robin Washington.

Thank you, Kevin.

Good afternoon, everyone.

We completed 2012 with strong financial performance.

Our continued commercial execution enabled us to generate total revenues of $9.7 billion in 2012, representing a 16% increase from 2011.

Net product revenues exceeded the upper end of our guidance, driven in part by $80 million to $100 million of purchasing that exceeded prescription growth, as Kevin highlighted.

Our operating expenses were within our guidance ranges provided for 2012.

Non-GAAP R&D expenses increased to $1.5 billion, up 34%, reflecting the progression and expansion of our Phase III studies, particularly in liver disease and oncology.

Non-GAAP SG&A expenses increased to $1.2 billion, up 12% year-over-year, driven by higher pharmaceutical excise tax and ongoing costs to support the growth of our expanding business.

During 2012, we generated operating cash flow of $3.2 billion, which includes $533 million in cash collections from southern Europe for the payment of past due accounts receivables.

We repaid a total of $1.6 billion in debt, resulting in a non-GAAP debt to EBITDA ratio of 1.8 as of December 31; and remain on track to reach our targeted non-GAAP debt to EBITDA ratio of 1.5 by mid-2013.

With recent business development activity, and the upcoming maturity of the May 2013 convertible notes, we will be suspending our share repurchase activity until this target is met.

The last financial highlights that I would like to share is our full-year 2013 financial guidance, which is detailed on slide 41 in the earnings presentation available on our corporate website.

Please note that this guidance is inclusive of the YM BioSciences acquisition.

For the full-year 2013, we are projecting product sales of $10 billion to $10.2 billion, reflecting a 6% to 9% increase over 2012 product sales.

This range assumes the continued growth of Complera and Stribild in the US and Europe, as well as the continued growth of our cardiovascular franchise.

We also assume the continuation of a challenging economic environment in Europe, and the potential for continued volatility in foreign currency exchange rates.

Our non-GAAP product gross margin for 2013 is expected to be in the range of 74% to 76%.

We expect our full-year non-GAAP R&D expenses to be in the range of $1.8 billion to $1.9 billion as we continue to invest in our product pipeline.

We expect non-GAAP SG&A expenses to be in the range of $1.55 billion to $1.65 billion, which includes increased sales and marketing expenses in preparation for the launch of Sofosbuvir in 2014.

Our non-GAAP effective tax rate for the full-year 2013 is expected to be in the range of 26% to 28%.

This includes the benefit of the federal R&D tax credit extension, which was passed by Congress in January and is retroactive to 2012.

As a result, our income tax provision for 2013 will include a discrete tax benefit which will reduce our effective tax rate for the first quarter; and, to a lesser extent, the full year.

As detailed on slide 42, we are anticipating the full-year 2013 diluted EPS impact of an acquisition-related restructuring and stock-based compensation expenses to be in the range of $0.21 to $0.24 per share.

In closing, we are pleased with our performance across the organization during 2012.

And as John indicated, we believe we have laid the groundwork for future success.

We want to thank our employees for their continued dedication and hard work.

I'll now turn the call over for Q&A.

(Operator Instructions).

Geoffrey Meacham, JPMorgan.

Hey, guys.

Good afternoon.

Congrats on the quarter, and thanks for taking the question.

A couple related clinical questions.

Can you help us with how you are thinking about that genotype 3 market?

Based on the data so far, is the 5886, 5816, 7977 the combo you're looking for?

And what are the gating factors there to start the Phase II?

And then, finally, on study 104 in HIV, is 48 weeks enough, do you think, to see an impact on bone and other points of differentiation with respect to Stribild?

Thanks.

Hi, Jeff.

It's Norbert.

Regarding genotype 3, I would say immediately we're doing two things.

We could think of longer treatment durations to get the response rates up, and that's ongoing in FUSION.

And we could also think about -- or, we are initiating a study to look at the NEUTRINO regimens of pegylated interferon, ribavirin, and Sofosbuvir for genotype 3. That would be a very interactive option, I think.

And I'm assuming the response rate with that regimen would mimic what we've seen in NEUTRINO, genotype 1, 4, 5, 6.

More intermediate-term, we are actually looking in ELECTRON in two cohorts, with our fixed-dose combination of Sofosbuvir and 5885 for genotype 2 and 3. I have to tell you, my expectation is that that regimen should not be excellent, because -- simply, the antiviral activity of 5885 against certain polymorphs in genotype 3a is suboptimal.

And then, lastly, as you pointed out, we're certainly looking at 5816.

I think that compound, in combination of with Sofosbuvir, as the top opportunity to make this whole issue disappear.

And we are looking at that.

Hopefully we can initiate the Phase II study sometime in the middle of this year.

Studies in genotype 2 and 3 are currently ongoing.

And as soon as those are finished, and as we have some inkling about the dose, we'll initiate Phase II.

And then you asked about study 104.

You correctly -- so the 48-week is the primary regulatory endpoint at which we would analyze this study and submit it for marketing authorization application.

But as you know, we always carry these studies out to longer duration in a [guided] fashion.

And this study currently is planned to go for 96 weeks.

But we are confident that we're going to see differences in BMD at week 48.

I want to remind you, we have seen those same differences with a much smaller sample size in the Phase II study at week 24.

So I'm convinced we are going to see the same thing in the Phase III study.

And, Geoff, I'd just like to chip in and say that the GT3 market size in the US is 7% of the population.

It's different in Europe; it's different in the rest of the world.

But it's only 7%, so the market here is very much GT1 and GT2.

And I'd also like to point out that those 11% of patients from FISSION who had to discontinue -- and that's in a clinical trial setting -- so, clearly, the current stand standard of peg-riba is difficult to take, even over a 24-week period.

So, we can do better.

We want to do better for the GT3 patient, but that current standard is certainly less than optimal.

Okay.

Thanks.

Rachel McMinn, Bank of America.

Yes.

It's kind of a high-class problem -- but Norbert, I am just curious what you do with your short duration studies with LONESTAR and ELECTRON show that six or eight weeks treatment duration is positive, with really strong SVRs.

Obviously this has an impact on potential pricing decisions.

So can you expand into multicenter Phase III to really try and get more data?

Or is it something that sits on the sideline, and you price it as a shorter treatment regimen?

Thanks.

Yes, hi, Rachel.

It is a high-class problem, you're right, but it's certainly not going to sit on the sidelines.

So what we're currently thinking is this of course needs to be discussed with regulatory authorities to do a non-fail inferiority study.

So we would do another Phase III type study, non-inferiority of 12 versus 8; potentially versus 6 weeks, depending on the outcome of the Phase II studies.

And we would like to get that into the label.

We feel it's very important to have that information available for promotional purposes.

And maybe Kevin could comment on that, as well.

So that's our thinking, Rachel.

Again, this has not been discussed with regulatory authorities yet.

We still have yet to do that.

Yes, Rachel, our preference always in Gilead to have these things in the label.

Not only does that enable our field forces, sales representatives, our medical scientists, but it's obviously key for the payor.

And we would definitely want it for that, subject to that being an appropriate profile for 7977 plus 5885.

And just squeezing in, from a timeline perspective, would that delay your combination fixed-dose regimen filing?

Or do you think you can get all this stuff done in time?

Yes, Rachel, we think we can get all of it done in time.

The rate limiting step right now seems to be ION-I.

So the study that started first -- as you know, we stopped enrollment at the first 200 patients; and the other 600 would be enrolled following an interim analysis sometime in the second quarter.

So that would be the rate limiting study.

Another thing I might add, Rachel, is that the sample size for noninferiority studies is fairly reasonable.

You don't need a large number of patients.

The further away you are from 50%, the easier it is to show noninferiority.

Thank you so much.

Matt Roden, UBS.

Great.

Thanks for taking my question.

First, Norbert, can you give us the actual SVR-12 for the NEUTRINO genotype 1 non-cirrhotic patients?

And then, secondly, by the time you file for FDA approval, can you talk about whether or not -- or to what extent you have data on decompensated cirrhotics and transplant patients?

And if so, whether or not you could get claims for those populations based on the data?

And lastly, how many patients do you think fit that description as of today?

Thanks a lot.

Yes, hi, Matt.

I don't have the -- so, what we put in the press release, the response rate in NEUTRINO was 90%, and 80% in cirrhotics.

So in non-cirrhotics, you can calculate what that will be if the overall population of cirrhotics is 17%.

I don't have the number right here, but it's obviously something north of 90%.

You asked a second question at about how many transplants and decompensated would be in the label.

So, needless to say, we're going to put in the filing whatever we have at that time.

We have had a moment, if I'm not mistaken, about 25 to 30 patients enrolled in our pre-transplant study.

We have a post-transplant study that has about a similar amount.

And then we just started a decompensated study, those that have portal hypertension.

And I don't have the number here.

Whether this is enough to actually get in the label, of course, has to be determined by FDA.

I don't know.

It also -- what they think about 25 patients.

It's all of course depends on what the results are.

If we see something spectacular, then FDA will be more amenable, I think, to put the lower number of patients in the label.

But I think we have a very good, broad package that includes decompensated, pre-transplant, post-transplant, and HIV co-infection that we will be in the initial label.

Yes, Matt, I don't have the transplant numbers at my fingertips, so I can get back to you in terms of the proportion of patients who are being transplanted specifically for HCV.

So we can get that to you.

Kevin, strategically, how important is it to get these special populations in the label to start off with?

(Multiple speakers).

It's always nice to have high need populations.

And, clearly, a transplant patient -- because they all re-infect with HCV -- is a very, very high-need population.

But I think what we're seeing from our data to today, and having a label for GT1, GT2 and GT3, is clearly the core part of our approval.

I think it's a nice to have, but I don't see it as very, very big, and a big swing factor in our launch at all.

Thanks very much, and congrats on all the progress.

I'd just like to remind everybody, please keep it to one question, please.

Mark Schoenebaum, ISI Group.

Thanks.

It's Mark Schoenebaum.

Hey, Pat, I've got eight questions, if I may (laughter).

No, I was actually wondering -- hey, Kevin, I know you were talking to JPMorgan; at some point you might be willing to give out a number that I think we'd all find pretty helpful in our modeling.

I just wanted to ask if you've got the number ready -- and that is the number of diagnosed hepatitis C patients treated by a specialist in the US and in Europe.

And if you won't answer that, maybe I can ask Robin -- Robin, where is the IP for 7977 domiciled?

Is there any opportunity to take your tax rate down, once you start selling that drug?

That is, could the cash flows be taxed at a lower rate for that drug than the corporate average right now?

Thank you.

Mark, it's Kevin.

Yes, if you don't mind, Mark -- well, you probably do mind -- I'm going to hold those numbers for a little while longer.

We're obviously in a highly competitive market here.

But I think once we get through regulatory filing and get into the middle of the year, and we really start to take up the commercial activities, then I think we'd be able to share some quite interesting information we're starting to gather on the whole dynamics of HCV.

Not just in the US; we're doing some really good work in Europe as well.

So, we'll start to share that with you as we get into the middle of the year.

Okay, I understand.

Thank you.

Maybe the tax question?

Yes, so Mark, the IP for 7977 is domiciled in Ireland.

So as we commercialize that, there is opportunity for our tax rate to decline over time.

Thank you.

Matt Andrews, Wells Fargo.

Good afternoon.

This is Matthew Anders calling in for Brian Abrahams.

Thanks for taking the question.

On your 2013 guidance, Robin, can you talk about your expectations for peak-year expenses as it relates to R&D, considering the large number of Phase IIIs you currently have ongoing?

Thanks.

Sure, Matt.

I can't necessarily talk about peak year.

I can talk about 2013.

I do think if you look at it on an absolute basis, and as a percentage of net product revenue, we do -- and we guided to it being higher.

And that's driven by the progression of our Phase III studies and HCV oncology.

I don't necessarily -- I see that trend probably continuing somewhat beyond that, but we'll get to that at the appropriate time.

Okay.

Thank you.

Michael Yee, RBC Capital Markets.

Thanks for the question.

On LONESTAR, can you clarify when you think you might actually get data on that study?

Have you completed screening, et cetera?

And just to clarify, if you were to run a noninferiority study of 12 versus 8 and whatnot, wouldn't you not be able to do that until you had that data?

So, can you walk through the timeline for LONESTAR -- when you get that data, running a potential noninferiority study, how that all gets done by the mid-2014?

Thanks.

Yes, Michael, so the data from LONESTAR in -- and, by the way, also from ELECTRON; the 6-week arm is in ELECTRON -- we should be able to get those early second quarter.

And then and only then can we make a decision to do a larger study to compare it 12 to 8 to maybe 6 weeks.

But keep in mind, ION-1 has a 24-week treatment arm in it.

That's going to be the rate limiting step?

So if we compare 12 to 6 to -- 12 to 8 to 6, we'll get it done before the 24-week treatment arm, and ION-1 will finish.

So it all works out for the NDA filing.

Okay, thank you.

Marshall Uris, Morgan Stanley.

Hey, guys.

Thanks for taking the question.

Just to Robin on spending -- I know you're not going to talk about peak year.

But should we be thinking about -- should I think about how the business and new products, that this is a good level of R&D that you guys are comfortable spending at over the next few years, as we think about the model?

And then maybe also on gross margin; it looks like you're thinking about that flattish year-over-year.

So, Robin, if you maybe talk through how we can think about the mix benefits of some of the new products rolling through and when we might see some more of that benefit.

Thanks.

Sure, Marshall.

As it relates to R&D spending, again, I mentioned for 2013 on an absolute and a percentage of revenue, it would be higher.

2014 is still, I'd say, similar level, particularly given our focus on oncology; as we continue to build out that franchise.

With the successful launch of the percentage of revenue, obviously that would go down, more towards traditional levels.

But the absolute spend I'd see probably remaining at the 2013 levels for a while.

Yes, Marshall, if I may, I want to add something from a clinical perspective.

Clearly in the second quarter of this year, we'll hit the peak of clinical studies.

We have, depending on how you count, eight Phase III studies just in hepatitis C. And all of those should finish this year.

They are fairly short-duration treatments, so next year we should see fewer clinical studies, not more.

And, Marshall, as it relates to gross margin, as we have a larger component of our net product revenue coming from Stribild and Complera, we would expect to see a more favorable impact of gross margin.

And, clearly, in 2014 with the launch of 7977, we expect that to even be greater going forward.

Great.

Thanks a lot.

Yaron Werber, Citigroup.

Great.

Thanks.

Norbert, I just have a couple of questions -- it's one question in two parts, if you don't mind.

ION-1, give us a little bit of a sense -- it sounds like, come April or so, you could do the interim analysis in 200 patients.

How fast can you get the other 600 in?

Have they been pre-screened?

And then you really didn't say much about 9669.

Where's that product going?

Yaron, how fast could we re-open the enrollment?

One challenge we had with these studies that involve oral regimens is that we have to slow down the sites because enrollment is too fast.

In this case, it's even somewhat better or more accelerated because all the sites are identified.

All of the patients are ready; they are pre-screened.

So we just have to say go, and then we would enroll that study very, very quickly.

I'm sorry, what was the second question?

Second one was about 9669.

9669, where's that going?

Our plan right now is the following -- we're going to have to first answer the question, what is the limit of 7977 5885.

It 12 weeks and without ribavirin the limit?

Is it eight weeks?

Is it six weeks with ribavirin?

Once we have found the point where the response wears off, then we would do the next experiment and see whether, if we add a third drug or if we replace ribavirin with 9669, whether we get a better response rate.

So, in other words, if you can think about six weeks may not be enough with 7977 5885, so add to that 9669, again you would have a once-daily, potentially single-tablet regimen for six weeks.

That is what we're looking at right now.

Of course, then we have to ask the question, is three drugs for 6 weeks worth doing, versus two drugs for 8 weeks or 12 weeks?

That's still a debate we're having internal, but meanwhile in Phase II we're answering these questions.

Robyn Karnauskas, Deutsche Bank.

Hi, guys.

Just one question on HIV.

Cobicistat -- maybe you could talk a little bit about -- is it included in your guidance?

And how do we think about that product, given it could launch this year?

Hey, Robin, it's Kevin.

Yes, it is included in our guidance.

It's probably going to be a very small product.

We'll be hopefully launching simultaneous to Elvitegravir.

I think as John Milligan had said in the past, I think the main driver of Cobicistat as a boosting agent will come from the combination products that will be launched in due time by our partners, with Reyataz and with Prezista.

I think our expectations are for a fairly modestly sized product.

And our concentration for the sales representatives will be first and foremost weighted to Stribild, followed by Complera.

Geoff Porges, Sanford Bernstein.

Thank you, that was remarkably good.

Robin, I just would like to focus in on what you've been saying about margins, so we understand that.

First, on the gross margin front, as the mix shifts towards Sofosbuvir, should we assume that that product will contribute gross margins that are at least as good or better than the profitability of the core HIV business, ex- the Sustiva component?

And then also on the operating margins, you've had a very negative trend over the last two years.

And you seem to be guiding that operating margins will be negative again in 2013.

Should we expect that they could get back to the level of 2010 in the future, at some point, if things go well with the HCV franchise?

Or is that something that we should forget about?

Thanks.

Thanks, Geoff, for your question.

The quick answer is, yes and yes to both.

Clearly, we would expect gross margins with Sofosbuvir to be equal to or better.

It would be dependent on final pricing.

But, directionally, as we think about our plans, yes, we would expect them to be at the higher end, relative to the our current margins for HIV.

As is it relates to operating margin, as we've discussed, the last two years, both the acquisition has been investment period for us without the following revenues.

And so the launch of 7977 and 2014, we would definitely expect to return to operating margins traditional for Gilead and hopefully improved.

Terrific.

Thank you very much.

Ian Somaiya, Piper Jaffray.

Thanks.

Just a question on the pipeline.

First on TAF, how should we think about your decision to start Phase III studies with TAF prior to the release of the second Phase II data?

And on Simtuzumab, there seems to be more discussion today on its evaluation in multiple Phase II studies.

You mentioned pancreatic cancer, colorectal.

I was hoping to get your thoughts on IPF.

What, if anything, you've seen from the early clinical work, since you are running a 500-patient Phase II study in that setting?

Ian, with regard to the TAF, I assume they're thinking about the second Phase III study, the results of which will come out I think in the second quarter, if I'm not mistaken.

We're still debating that internally, whether we should do the second fixed dose combination actually with a protease inhibitor or whether it should be something else.

And that is -- we have to -- we will announce a decision on that as soon as we're there.

And then you ask about IPF, that study was a very small study.

I think it was something like 25 patients that weren't dosed for long enough.

So I think even if Simtuzumab has had a fairly dramatic effect in IPF, I don't think we would have seen it.

So, what we're doing right now in the Phase II study, it's going to be a Phase II that leads to a Phase III, which is an event-driven study that is doing a number of interim analyses for futility.

In other words, if we see a trend early on, we would of course continue.

If we don't see much after a certain point we would discontinue the study.

So it's a risk managed approach to a large Phase III study, which starts out as a Phase II.

Can you give us some sense of the timelines and when the interim analysis will be conducted?

I feel reluctant to do that, because the enrollment rate is an unknown.

If this was hepatitis C, I would feel no fear to give you a date; but in IPF it's a little bit slower.

And I don't know how the community is going to react to -- it's an injectable, it's not -- it's something that we just have to see how enrollment goes.

I don't know, Ian.

Okay.

Thanks, Norbert.

Phil Nadeau, Cowen and Company.

Good afternoon.

Thanks for taking my question.

My question is actually on the side effect profile of Sofosbuvir.

The press releases that you've issued so far have written pretty sparse in the details around that side effect profile.

Wondering if you could give us a bit more information on how the Phase III side effect profile is different from Phase II?

In particular, you have a lot more experience now in cirrhotics than you had in Phase II; so how does the side effect profile in cirrhotics differ from patients who have fully functioning livers?

Thank you.

Phil, I wouldn't say it was sparse, what we put in the press release.

But we did make a statement that the -- if you look at adverse events and laboratory abnormalities, they were always greater in the control arm.

Even in POSITRON, which utilized a placebo control, there were more laboratory abnormalities in the placebo arm compared to the 7977 arm.

So, to this date, I have to say we have not seen anything that we could point to that's a signal in either adverse events or laboratory abnormalities that is due to Sofosbuvir.

I don't know the exact size of the database, but it's something like 1000 patients treated beyond 12 weeks of maybe about 2000 total, so that's the extent of our safety database.

And lastly, the safety profile in cirrhotics doesn't seem sufficiently different from non-cirrhotics.

So it's, to this point, a very well-tolerated and well-behaved drug.

And we are very happy with it.

Great.

Thank you.

Brian Skorney, R. W. Baird.

Good afternoon, guys.

Thanks for fitting me in.

I've got a lot of questions, but given one, maybe I'll ask Robin a question about what your thoughts on are regarding cost of capital, and what you're internally thinking of as the cost of equity versus the cost of debt.

And why in particular the goal is to get to 1.5 times non-GAAP EBITDA on the debt, as opposed to -- interest rates being where they are, maybe staying a little higher than that.

So, Brian, part and parcel, if you recall, probably about 8 or 10 months before we did the acquisition, we had just recently been rated.

So when we took on the amount of the debt when we said what we did with the transaction, we actually proactively reviewed it with the rating agency.

And given our maturity of our capital structure, where it was in terms of being rated, it's something that is important to us.

We chose to be, which I don't disagree, it's very conservative, relative to the GAAP to EBITDA ratio.

Going forward, I think there are different ways to look at that.

But, I think, relative to the commitment that we made when we did the transaction, our goal is to be sure that we need that, as we guided to when we initially closed the deal.

If I can ask a follow-up to that, what would the implications be on cost of that, to take a downgrade?

I don't think it would be significant, Brian.

It would really depend on what we do by taking that downgrade.

I think relative to other companies our size of our balance sheet, we could take on more debt.

But you are right, the cost of capital is doing, and given current interest rates, would probably not be that significant.

Got you.

Thanks.

Thomas Wei, Jefferies & Company.

Hi.

Thanks.

I wanted to ask a question about the hep C data.

When we're all doing these calculations of the SVR rates in cirrhotics versus non-cirrhotics, those numbers in the delta has varied quite a bit from study to study.

So, if I'm doing all this math right, it looks like there is a 12% delta in NEUTRINO; 20% in POSITRON; 25% in FISSION.

And I guess I'm wondering what should we take away from all that?

Is the 12% delta in NEUTRINO smaller, potentially misleading because there is peg-riba in the backbone?

Or is there something about genotypes when you look at the more detailed data that makes cirrhotics with certain genotypes particularly harder to treat?

Yes, hey Thomas, it's Norbert.

You were kind of reading my mind because both John McHutchison and I looked at this over the weekend, and we went back and forth over the numbers.

I can tell you -- I don't have an answer for you, other than to tell you that the numbers are small, so you have to be careful with percentages.

I'm not sure whether some of these percentages would still be the same when the numbers are much larger.

The next study, by the way, FUSION, will shed some light on this.

It has more cirrhotics actually, 35%, and so I hope we're going to learn something more there.

But you know what is known from a large number of interferon ribavirin studies, there was recently a paper in December of 2012 in Hepatology, first author [Marcella].

And he actually showed that over a large number of patients, 7000 patients in all genotypes, cirrhotics are about 15% to 10% lower in their response rates than non-cirrhotics.

And somehow I feel like what we're seeing here looks like the same thing.

Ravi Mehrotra, Credit Suisse.

A question for Kevin on patient populations for hep C. I'm going to ask Mark's question in a slightly different way with a much broader context.

For your initial Stage I approval of 7977 in early 2014, what population proportion do you think you can address with that label versus when you get to Stage II, as it were, when you get to fixed-dose ION-1, 2 added to it?

And, linked to that, what's the size of your sales force initially versus Stage II?

Thank you.

Hey, Ravi, it's Kevin.

I'll reverse the order of your questions.

Can't, right now, peg you the specific number for our HCV field force.

Again, as I said with Mark's question, we are in a very, very competitive world.

I did say today that we would have a dedicated HCV field force.

I think it's important for us not only to do well in hepatitis C, but continue our success in HIV?

So we will separate the field forces.

So we'll continue to have a dedicated HIV sales force, and we will have a dedicated HCV field force.

Actually, we will also have a dedicated HBV field force, so I hope that's someone helpful.

In terms of our genotypes and the way we are viewing our launch, it's certainly not going to be some sort of low key entry into the market, because we've got 7977 plus 5885 a year down the road.

If you look at today's results, I think in all genotypes we are a step improvement; certainly, significant improvements in the GT1 and GT2 patients, and that's the majority of patients in the US.

So we will be in high gear, and we will have a significant, high-energy launch behind all three genotypes, subject to getting everything that we'd like into the label from the FDA.

So, we aren't going to somehow low-key our genotype 1 launch and, if you like, heighten our GT2 launch.

We'll be putting a common emphasis on all three genotypes.

Thank you.

Terence Flynn, Goldman Sachs.

Hi.

Thanks for taking the question.

I noticed you had a very low discontinuation rate in FISSION and NEUTRINO, but was wondering if there were any patients that received less than 12 weeks of therapy?

And if you could give us any details on the outcome in those patients regarding cure rates?

Thanks.

Yes, hi, Terence.

No, we actually don't have any data -- at least I don't have any -- the discontinuation rates were very small.

And I don't have any information on what the response rate in those people were that received less than 12 weeks of the regimen.

I have to go back to our data set and look.

Sorry.

Operator, next question.

Howard Liang, Leerink.

For Sofosbuvir-ribavirin combination, what do you think and what will you propose to the regulators on how long the duration should be for genotype 3 patients in the label?

It seems like 12 weeks would be too short, as you mentioned earlier, and the patient should keep going after 12 weeks.

So, if longer dosing is a consideration, how big is your safety database for 24 weeks and 16 weeks for Sofosbuvir?

Hi, Howard.

It all really depends on what we see in the next study, FUSION.

As you know, that was a blinded study that compared 12 to 16 weeks of therapy in genotype 2, 3. Actually, the genotype 3 population is 63%, so we should get a very good feel from that whether extending the duration of treatment will have any benefit.

And based on those results, we then have to make up our own minds and also talk to FDA about they would think the ultimate recommendation would be.

But, Howard, I want to say something -- because it comes up, this genotype 3 -- the response rates that we're seeing are actually are very, very good.

They are comparable to what you get with interferon ribavirin.

In the FISSION study, it was 56% versus 63%; 63% of interferon, 56% with Sofosbuvir riba.

It's a little bit lower numerically, but that confidence interval crosses 0, so it's not significantly worse.

And, secondly, as we have shown in the POSITRON study, these are patients that actually don't have any other options.

And we cure 61% of them in genotype 3. So it's a good, well-tolerated regimen.

We just need to -- we know we can do better.

And that's what we're going to do next, as I said, with extending the treatment duration; or having interferon-containing regimen; or adding -- replacing ribavirin, or adding another drug like 5885 or 5816.

It's a side for the safety database, and the issue for longer dose?

The safety database -- Howard, I have to look it up.

Honestly, I don't want to give you a number that I don't know -- I do know that we have about 1000 patients exposed for 12 weeks or longer.

How many more we have longer, I'm not sure.

FUSION has about 100 patients for 16 weeks.

Thank you very much.

So, it's a few hundred patients probably that have been exposed for longer than 12 weeks.

Joel Sendek, Stifel.

Hi.

Thanks a lot.

I have a question about the Stribild source of business.

I was confused by something you said.

But first of all, if I look at that slide -- it's slide 32 -- 32% of Stribild comes from naive patients, relative to 30% for Complera.

I would have expected a greater percentage coming from naive.

I think you mentioned something about a 70% number.

Can you repeat that again?

Thanks.

Joel, it's Kevin.

No; basically, it does seem, if you look at the slide 33, which is Eviplera as a contrast there.

It does seem that as we go into a market with these single tablets, something -- about one-third of the patients seem to be coming from naive, which is our label, and that's what we promote on.

But physicians do make switches within HIV, and are looking to upgrade; or when they have a resistance; or they want to improve a side effect profile for patients; the patients will make the switch.

That's not what we're promoting, but that seems to happen.

We'll just have to see how we progress with Stribild.

I think what is the most encouraging part of slide 32 is seeing that physicians have seen that Stribild is an alternative to the protease inhibitors.

And if you look at the naive market share, as you can see how there is a drop-off in Prezista, drop-off in Reyataz, with both -- with the entry of Complera and with Stribild.

But I think Stribild is seen for those doctors who have not been great fans of [ephabrins], are seen as both a starting drug and as an alternative drug, where they have not been particular advocates of Atripla or, indeed, Complera, as NNRTI third agents, prior to getting Stribild.

Okay, thank you.

Alan Carr, Needham & Company.

Thanks for fitting me in.

One, can you give us an update on that early-stage HCV compound inventory of yours?

You mentioned 5816, but wondering if you -- I believe you have a couple of other classes in there as well, the [PRN] nuc.

And then, also, can you give us your thoughts on expectations for austerity measures in Europe in 2013?

So, Alan, in terms of pipeline for hepatitis C, as you know we started off this whole effort with the belief that we needed multiple drugs.

And we actually were thinking as of three years ago, if you had asked me I would have said three, four, five drugs, probably.

And that's the reason why we pursue broadly a large class, that we have two PIs now in Phase II -- 9256, 9451 -- with another PI in pre-clinical.

We have two NS5As.

We also have a cyclophilin inhibitor in pre-clinical.

And we're working on another nuc.

And we have another NS5B, non-nucleoside.

So, a fairly broad stable of agents.

And the way it looks right now, we may not need that many.

It may actually turn out that two are enough.

But if we need three, we will have three.

And, Kevin, do you want to answer the other question?

Robin?

Alan, I'll take that one, Norbert.

Alan, I would say consistent with prior years as we modeled out 2013, we thought about 2% to 3% or so being European price impact relative to our revenues.

Other -- additional pricing pressure that we could see could come out of southern Europe.

One of the things that we are seeing in addition to just pricing, there are other tactics being taken such as reductions in inventory, delayed treatment, protracted pricing and reimbursement negotiations that we also see occurring.

So, while not directly price related, we do think they all have to do with the current environment in Europe.

Thanks.

That's helpful.

Great.

Thank you, Darcell.

And thank you all for joining us today.

We appreciate your continued interest in Gilead.

And we look forward to providing you with updates on our future progress.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.