吉利德科學 (GILD) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Science's fourth-quarter 2014 earnings conference call.

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

(Operator Instructions)

As a reminder this conference call is being recorded.

I would now like to turn the call over to Patrick O'Brien, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Jamie.

Good afternoon, everyone.

As you will have seen, we issued a press release earlier this afternoon and our earnings results for the fourth quarter in FY14.

The press release, along with detailed slides, is available on the Investor Relations section of our website.

Speaking on the call today will be John Martin, our Chairman and Chief Executive Officer; Paul Carter, our Executive Vice President of Commercial Operations; and Robin Washington, Executive Vice President and Chief Financial Officer.

Also in the room with us for Q&A our John Milligan, President and Chief Operating Officer, and Norbert Bischofberger, Executive Vice President of Research and Development.

Before we begin our formal remarks, let me remind you that we will be making forward-looking statements, including plans and expectations with respect to our product candidates, estimates for the number of HCV patients we believe the US medical system will treat in 2015, estimates of the blended rebate percentage for government and private payers in our HCV franchise, 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 the recent press release.

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 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.

Thank you, all, for joining us today.

I will mention a few highlights of the past quarter and then make brief remarks about the year ahead before turning the call over to Paul.

2014 was marked by the launch of our first oncology product, Zydelig, our second hepatitis C product, Harvoni, regulatory filings with the next generation HIV medicine, E/C/F/TAF and a doubling of product revenues relative to 2013.

We are entering 2015 with financial strength, a portfolio of 19 marketed products that address significant unmet medical needs and a pipeline for which we expect a number of milestones and data readouts during the coming year.

Regarding HCV, since the launch of Sovaldi in December 2013 and Harvoni in October 2014, more than 170,000 individuals around the world have been treated with the sofosbuvir-based regimen.

Harvoni has become the most widely used hepatitis C regimen since its approval in October 2014, and prescription data at year end indicate that for each Sovaldi patients, three patients started therapy with Harvoni.

Gilead continues to investigate the use of Harvoni in different patient groups, including non-genotype 1 infected patients, in HIV co-infection and in patients with advanced liver disease.

Data from these studies support the utility of Harvoni in these patient populations and the results will be presented at upcoming scientific conferences.

In addition, to sofosbuvir we are exploring other potent pan-genotypic agents.

A single tablet of sofosbuvir and GS-5816 is currently being evaluated in four Phase 3 studies and top line data from all these studies will be available in the third quarter of this year.

Moreover, we are exploring GS-9857, a pan-genotypic protease inhibitor in combination with sofosbuvir and GS-5816 to potentially further reduce treatment duration from eight to 12 weeks to four to six weeks.

Even though great progress has been made in the treatment of HCV worldwide, only a fraction of the people infected, the large majority who live in lower income and middle income countries, have been diagnosed and treated.

Progress has been made to expand access in less-developed countries.

Data presented at the Paris Hepatitis Conference last month showed that in Egypt, since initiation of a national program in October 2014, 738,000 patients have been registered, 40,000 have been selected for treatment and 15,000 have started Sovaldi therapy.

Sovaldi has been approved in India and Marketing Authorization Applications have been filed in 12 additional emerging and developing market countries.

In HIV, regulatory submissions for our first TAF containing product, the single-tablet regimen of elvitegravir, cobicistat, emtricitabine and TAF, abbreviated E/C/F/TAF, have been submitted in the EU and the US.

The application was validated in the EU, and in the US it will undergo a standard review with an anticipated FDA action date of November 5. The E/C/F/TAF, NDA, was one of our largest HIV submissions and included data from two large Phase 3 studies and treatment by these individuals, one study in which fully suppressed patients were switched to E/C/F/TAF, a study in renal impaired patients and a study in adolescents.

Detailed data from these studies will be presented at an upcoming scientific conference this quarter.

Our agreement with Janssen R&D Ireland was expanded to include the development of a single-tablet regimen of rilpivirine, emtricitabin, and TAF.

In addition, we are pursuing the development of a fixed-dose combination of emtricitabine and TAF.

We expect to file for approval of both products before the end of the year.

Progress also continues in oncology and inflammation.

In the year since John McHutchison's role was expanded, he has recruited Phillipe Bishop to lead Oncology/Hematology and also John Sundy to head up the Inflammation/Respiratory therapeutic area.

A number of additional hires have been made to strengthen these teams.

Our oncology pipeline is expanding.

We recently entered an exclusive license agreement with Ono Pharmaceuticals for the development and commercialization of what is now called GS-4059, a BTK inhibitor, for B-cell malignancies and other diseases.

With this agreement, Gilead now has compounds targeting four signaling pathways associated with B-cell malignancies, PI3K delta, Syk, JAK and BTK.

The use of this BTK inhibitor will be studied in combination with Gilead's other kinase inhibitors with the goal of achieving more pronounced and more durable response rates.

GS-5745, the anti-MMP9 antibody, is undergoing evaluation in ulcerative colitis and gastric and pancreatic cancer.

Based on promising safety and efficacy data, we anticipate moving the compound forward in clinical development for ulcerative colitis and gastric cancer in 2015.

In addition, Phase 2 studies are planned in Crohn's disease.

Simtuzumab, the anti LOXL2 antibody, has been in valuation for mono fibrosis, pancreatic cancer and colorectal cancer.

In these three indications, there was no evidence of efficacy, although simtuzumab was safe and well tolerated.

Simtuzumab is undergoing evaluation in NASH, PFC and IPF, with the Phase 2 NASH and PFC clinical studies fully enrolled and the Phase 2 IPF study approximately 80% enrolled.

Also for NASH, an ASK-1 inhibitor and FXR agonist will be advanced into clinical development.

Rights to FXR agonist were acquired through an agreement with Phenex that we announced in January.

The ASK-1 inhibitor is currently in Phase 2 studies for diabetic neuropathy and pulmonary arterial hypertensive.

We will begin a Phase 2 study in NASH in the first half of this year.

Finally, the Board has approved the quarterly cash dividend program to commence in the second quarter of this year and a new $15 billion five-year repurchase program.

Robin will provide more details on these items in a few minutes.

The year ahead is expected to be as busy as 2014.

All of us across the organization and in collaboration with our many partners are working toward a shared goal of developing new treatments and providing access to Gilead's medicine for patients in need.

I am pleased with the progress we have made and look forward to updating you as the year progresses.

I will now turn the call over to Paul Carter to provide a commercial update.

Thanks, John.

Good afternoon, everyone.

Gilead achieved $7.2 billion of net product revenue in the fourth quarter, representing 137% year-over-year growth.

Net product revenue for the quarter consisted of $5.5 billion US sales, $1.4 billion of European sales and more than $300 million sales from the rest of the world.

The primary drivers of the Company's strong performance during the fourth quarter where the continued uptake of sofosbuvir containing HCV regimens and the continued healthy demand in our HIV business.

I'll start with some commentary around our HCV business.

Hepatitis C revenue increased to $3.8 billion in the fourth quarter, in the US, revenues were $3.2 billion with $1.2 billion from Sovaldi and $2 billion from Harvoni.

We estimate that 43,000 patients started treatment on sofosbuvir-based regimen in the quarter with 31,000 of those starting on Harvoni following its launch in October.

To date, approximately 140,000 patients have started HCV therapy on a Gilead product in the United States.

Harvoni's launch in the US is going well with filled prescriptions tracking above Sovaldi's at the same time point.

The base of treated is expanding with more than 10,000 physicians now having prescribed a sofosbuvir-based regimen, about 1,100 of who began prescribing after launch of Harvoni.

Indeed, seven out of 10 HCV patients initiating treatment in the fourth quarter started on Harvoni, the remainder on a Sovaldi containing regimen.

Across our franchise about three-quarters of patients treated with genotype 1, 16% were genotype 2, 7% were genotype 3 and 3% were other genotypes.

As in prior quarters, we saw prescriptions written for all stages of fibrosis.

Although, after the launch of Harvoni, we saw payer restrictions increasingly in place across all patient types and especially for those with lower fibrosis scores.

As expected, that was a net inventory build in our HCV business in the fourth quarter following the launch of Harvoni.

This was partly offset by the decrease in Sovaldi inventory.

We believe that, in total HCV inventory ended the year at the higher end of the normal range necessary to support demand.

As we've seen in years past, we think that inventory could draw down in the first quarter and then track more normally with demand through the rest of 2015.

In the fourth quarter, price volume negotiations for Sovaldi were finalized with a number of countries including France, Italy and Spain, and the product is now being sold in the majority of countries in Europe.

Overall, Sovaldi contributed more than $1.5 billion to European sales during 2014.

Harvoni was improved in the EU in November and the product is now available in Austria, Sweden, Finland and Germany.

In France and the UK it is available under early access program.

Across the EU, 32,000 individuals have started treatment with a Gilead HCV regimen, approximately 26,000 of those are in the EU big five countries and of these 4,000 have initiated treatment with Harvoni.

We are in the process of securing reimbursement for Harvoni across numerous countries in the EU, and we expect this to be completed at least as quickly as we experienced for Sovaldi.

We expect both sofosbuvir-based for therapies to continue to perform strongly in 2015.

We are confident in the differentiated clinical profile of our products.

Harvoni offers an unparalleled combination of efficacy, safety and regimen simplicity for hepatitis C, genotype 1 patients, including treatment naive and treatment experienced patients and patients with and without cirrhosis.

Our new arrangements with the majority of national pharmacy benefit managers, or PBMs, will insure that Gilead's drugs are readily available for patients within these systems.

We anticipate far fewer restrictions on reimbursements and that updated professional guidelines will likely open up treatment to many more individuals.

This should reduce hurtles and the time it takes for medical staff to navigate the reimbursement process, particularly for patients with earlier stage disease.

There has been, as you are all aware, a substantial amount of public discussion about the payer landscape.

As a company, we believe that treatment decisions are best made by doctors and their patients.

We will, however, continue taking the steps necessary to ensure as many patients as possible have access to our best-in-class hepatitis C treatments.

We expect our 2015 gross-to-net adjustments for our HCV product in the United States to be approximately 46%, or a little more than double of that where we ended 2014, which was around 22%.

This increase is the result of the recent and ongoing round of negotiations with payers and PBMs and includes the shift towards a higher proportion of public payers and higher prescribing of Harvoni amongst those payers with rebates to payers such as the Medicaid's and the VA's exceeding 50%.

Again, these higher levels of rebates our tied directly to opening up access and streamlining the process of starting a patient on therapy.

Overall, with these new arrangements in place, we are confident that a substantially higher number of patients will be treated in the United States in 2015.

We think that there is capacity to treat at least 250,000 patience across all genotypes.

Before I move on, I wanted to mention that we are well prepared for launch of Sovaldi and Harvoni in Japan in anticipation of their expected approvals during 2015.

As you know, a significant number of patients are suffering from HCV in Japan and the country has one of the highest rates of liver cancer of any industrialized country.

Moving on to HIV.

In 2014, Gilead continued its commercial and clinical success.

In the US, our HIV business generated $1.9 billion of revenue in the fourth quarter and $6.3 billion for the full year.

While underlying demand was strong, HIV inventories ended the quarter at the high end of the inventory management agreement range.

Full-year growth of 17% was driven by our Truvada based, single-tablet regimens Complera and Stribild.

In particular, volume for Stribild doubled year over year and the product passed through $1 billion of revenue in 2014.

More than 80% of new patients initiated therapy on a Gilead product, with nearly 70% on one of our Truvada based single-tablet regimens.

Stribild remained the number one, most prescribed regimen in treatment naive patients, Complera number two, and each of the top five regimens across treated patients included the Gilead Truvada backbone.

In Europe, our HIV business generated $3.2 billion sales for the year, with Eviplera and Stribild more than doubling versus 2015.

Eviplera remained the most prescribed regimen for treatment naive patients.

And our very latest information shows that Stribild, in fact, has moved up from fourth to second position.

As a reminder, the data shown in the slides we provide on our web reflect the one-quarter lag.

Eviplera and Stribild also remained the most prescribed regimen for switch patients.

I also wanted to mention the approval of two new fixed-base combinations that combined Gilead's cobicistat, our boosting agent, with protease inhibitors.

Cobicistat is, of course, part of Stribild and a component of E/C/F/TAF.

Bristol-Meyers Squibb announced approval last week of Evotaz, a once-daily pill combining atazanavir with cobicistat.

Johnson & Johnson announced approval of Prezcobix, a combination of darunavir and cobicistat.

FDA approved both products for use in combination with other antivirals for the treatment of HIV in adults.

We're very pleased to expand the use of cobicistat with these new options for patients.

With regard to our cardiovascular portfolio, Ranexa and Letairis together represented more than $1.1 billion of revenue during 2014.

We submitted a supplemental NDA with the data from the Letairis AMBITION study in mid-December and anticipate inclusion of these data in the US label during 2015.

In summary, I am very pleased with the efforts of our team and our results in 2014 and excited about the progress we will make in 2015 across Gilead's areas of therapeutic focus.

With that, I'll now turn it over to Robin.

Thank you, Paul.

Good afternoon, everyone.

For the first time, we have announced the initiation of a quarterly dividend of $0.43 per share that will begin in the second quarter of 2015 subject to a declaration by our Board of Directors.

The quarterly dividend is equivalent to $1.72 per share on an annual basis and approximates an annual yield of 1.6% based on yesterday's closing stock price.

Also, the Board of Directors authorized a new $15 billion five-year share repurchase program, which we will initiate in 2015 on completion of our currently authorized $5 billion program.

The initiation of a dividend and our increased level of share repurchases underscore our belief in the strength of our future cash flow.

Consistent with prior communication, we also believe our future cash flow will provide us with adequate financial flexibility to support our pipeline growth and any future M&A opportunities or collaborations that we might consider.

Turning to the financial results.

Total revenues were $24.9 billion for the year, up 122% year over year, and $7.3 billion for the fourth quarter, up 21% sequentially.

Non-GAAP diluted EPS was $8.09 per share for the year.

Net product sales for the year were $24.5 billion, ahead of our 2014 revised guidance.

Our product sales of 2014, excluding HCV products, were $12.1 billion, an increase of 13% compared to the prior year, driven by continued uptake of our HIV single-tablet regimen across geographies.

During 2014, Complera, Eviplera and Stribild product sales each exceeded the $1 billion mark for the first time.

Our HCV product sales were $12.4 billion for 2014 and $3.8 billion for the fourth quarter, an increase of 36% sequentially, driven by continued launches of Sovaldi across geographies and the launch uptake of Harvoni following US and European approvals during the fourth quarter.

Turning to expenses for the full-year 2014.

Non-GAAP R&D expenses were $2.6 billion, up 33% compared to the prior year and reflecting the continued progression of our product pipeline, in particular in oncology and liver disease, and supportive geographic expansion, as well as one-time item such as our collaboration with Ono Pharmaceuticals and the purchase of an FDA priority review voucher during the fourth quarter.

Absent these one-time items, R&D expenses would have been within our guidance range.

Non-GAAP SG&A expenses were $2.8 billion, up 77% compared to the prior year, driven by the commercial launch of our HCV and oncology products.

And as discussed last quarter, an increase in the planned prescription drug fee of $481 million for the full year, resulting from the issuance of final regulations by the IRS, which require manufacturers to recognize an additional year of expense in 2014.

Our non-GAAP effective tax rate for the fourth quarter decreased to 17.3% primarily due to the extension of the Federal Research Tax Credit in the fourth quarter reducing the full-year 2014 non-GAAP effective tax rate to 17.9%.

We generated $12.8 billion in cash from operations for the full-year 2014.

During the fourth quarter, we raised $4 billion in debt financing for general corporate purposes, including share repurchases, repayment of debt and working capital needs.

We also repaid $1 billion in previously outstanding debt during the fourth quarter.

We utilized $5.3 billion in cash to repurchase 59 million shares at an average price of $90.29 per share in 2014.

In the fourth quarter, we utilized $2 billion of the May 2014 $5 billion share repurchase plan.

Finally, I would like to cover are full-year 2015 non-GAAP financial guidance summarized on slide 56 in the earnings presentation available on our corporate website.

We expect product sales to be in the range of $26 billion to $27 billion an increase of 6% to 10% over 2014.

Our guidance for product revenue is subject to a number of uncertainties, including: the continuation of a challenging macroeconomic environment in Europe, inclusive of the potential adoption of additional pricing measures to reduce HCV spending; the potential for continued volatility in foreign currency exchange rate; inaccuracy in our HCV patient estimates; an increase in discount, chargebacks and rebates into the ongoing commercial payer contract negotiations; an a larger than anticipated shift in payer mix [for] a more highly discounted payer segment such as PHF, FFS, Medicaid and the VA and the commercial launches of Sovaldi and Harvoni in Japan.

Our non-GAAP product gross margin is expected to be in the range of 87% to 90%.

We expect our non-GAAP R&D expenses to be in the range of $3 billion to $3.3 billion as we continue to invest in our product pipeline.

We expect our non-GAAP SG& A expenses to be in the range of $3 billion to $3.3 billion, which assumes the continued build out and expansion of our commercial infrastructure in Europe and Asia to support Sovaldi and Harvoni.

For the full year, our non-GAAP effective tax rate is expected to be in the range of 18% to 20%.

This excludes any impact from the 2015 Federal R&D tax credit, which if extended this year would lower are overall effective tax rate.

We anticipate the full-year diluted EPS impact of acquisition related restructuring and stock-based compensation expenses to be in the range of $0.82 to $0.87 per share.

In closing, we are pleased with our 2014 results and our ability to provide additional clarity around our capital allocation strategy.

We look forward to the opportunities ahead in 2015.

We would now like to open the call for questions.

Operator?

(Operator Instructions)

Geoffrey Porges from Sanford Bernstein.

Congratulations on the remarkable progress this year.

Many items to ask questions about but, first, could you just quickly give us a comment on your intentions with the dividend?

Is this something that we should expect you to continue to grow in the future, or is it static as it is?

Secondly, is your guidance assuming 250,000 patients treated at a greater than 40% gross to net, or is it assuming something different to that?

Thanks very much.

Hi, Geoff, it's Robin.

I will answer the first part of the question and I'll turn the second part over to Paul.

It is our intention to grow the dividend over time, but I would say at the moment we still view share repurchases as the component that will be the larger percentage of our share return strategy.

It will be larger than dividends for the foreseeable future.

Thanks very much.

Geoff, in terms of our guidance, we have still some variables ahead of us here, but mainly the number of patients that are coming through.

We believe that the system has the capacity to treat, as I said in my script, in excess of 250,000 patients.

The agreements that we have entered into are designed to open up access, and we're confident that were going to see a large increase in the number of patients across the US.

So, yes, our guidance does consider the patient numbers that we think, plus the gross to net that we just described.

Thanks very much.

I will get back in the queue.

Geoff Meacham from Barclays.

Big congrats on the quarter, as well as dividends, policy and buybacks.

Just want to know, what you guys have learned from the field in Hep C, in the US and in Europe, that supports a market that is different from older stats?

Some of the stats that we've seen out there are pretty tired and maybe decades old.

Then, how does this speak to the sustainability of patient inflows?

I guess for that part of the question, maybe consider the volume increases that you may expect to see for the next several years from the launch?

Thanks.

Geoff, it's John Milligan.

Just to be clear, you said the stats are getting a little tired.

Are you meaning about the number of patients who are available for treatment?

Correct.

Yes, some of the prevalence and the incident stats are, I think, are pretty dated.

I know you guys have them updated on one of your slides, but I wanted to get your view from the field, John, and maybe some of the sources of some of the stats that you guys have collated?

Thanks for clarifying that.

It's pretty clear, based on our field-based research and the comments from the doctors, that there are a lot of people continuing to seek therapy who were denied therapy.

It was getting pretty difficult through the last part of last year for patients, even as high as [eff thirty] scores, to get through treatment.

We believe, based on this and, trying to triangulate with the numbers that are in the public domain, that there is a very considerable number of patients who will seek therapy for 2015.

Thus, the numbers that we are talking about in terms of the potential patients who could seek care.

Looking beyond that, we still feel that the number that's pretty strong is the 1.6 million people who are currently diagnosed and have been under care at least at some point in the past.

We see there is great opportunity for Gilead, in future years, to drive those patients into care, and so there are number of programs that we'll be embarking upon this year, educational campaigns with things like primary care, not with the intent of them treating but with referring and identifying the disease, all the way through advertising campaigns that in 2016, 2017 and 2018 and beyond, can't go to [the] number of years, but beyond that, will continue to drive those patients into care.

I think, additionally, as these therapies have gotten both more affordable for the system and better, because of the simplicity of use, we will see those other patients, that roughly 3 to 4 million people who are out there.

The additional 2-plus million who are out there, above the 1.6, will also have an opportunity to seek care, and we do see a great opportunity to drive those patients.

We do see this as a long-term sustainable business based on what we've seen to date, despite the rapid influx that we saw in 2014 and the continued influx that we anticipate in 2015.

Same situation, John, in Europe?

In Europe, the situation is actually quite sustainable, I think, for a number of years.

What we're seeing our commitments from the public sectors to treat a certain number of patients and, in most of those cases, it's a considerably higher number of patients than had historically been treated.

But when we look at the denominator, the total number of patients who could be treated, this is something that plays out roughly 10 to 15 years or, in the case of high prevalence countries like Italy, even beyond that.

We do think it is quite a sustainable market through Europe.

Thank you.

Mark Schoenebaum from ISI.

Just a clarification on the Geoff Porges question.

I'm not sure you answered, if you did, I apologize.

Within your guidance, rather than [capacing] the system, what actually is your patient estimate?

AbbVie, of course on their call, mentioned they thought 175,000 roughly to 215,000 [a] US, G1 patients would be treated, would actually be treated in 2015.

I was wondering if you would be willing to tell us what you're actually -- how many patients you're actually assuming will be treated?

Then, what was your government-to-private mix in 2014, and what do expect it to be in 2015?

Thanks.

Mark, let's just start with the first part of that question in terms of what would our guidance provides.

There isn't a specific patient number that I'm going to give to you.

What we have in there is a range of different prices, depending on the mix of private to public, and there are a range of different discounts offered across all those areas.

There's a range of market share assumptions that we've put in there.

Then of course, there is a range of patient numbers in there.

I thought the AbbVie general range of patients was a reasonable one.

We think there could be capacity to go up, as Paul said, up to 250,000, but our assumption on total patient numbers isn't actually 250,000 patients, it's less than that.

It's fair to say that there's a range of things that will come into play and that will determine how we do on a quarterly and then a yearly basis, as we hit that different mix of patients across those segments.

Your second question was about last year, and about 70% of our patients last year came from the private sector.

And this year?

This year we're not actually sure, because there's a number of -- so, I can't tell you that number, because there's too many factors at flux right now, including the different contracts that we and AbbVie are competing for in the Medicaid sectors.

We do anticipate that these contracts will get signed earlier than they have historically.

In fact, some are being signed now.

You will see -- historically, if you think about Gilead, it starts very private with our launches and then it eventually becomes to a steady-state with the public and private mix.

We'll get to that mix much more quickly this year because of the acceleration of the negotiations.

We should have a better handle on that as we get into Q2, but I don't know exactly where it's going to shake out right now because there are so many contracts in flux right now.

Thank you.

Matt Roden from UBS.

Congrats for amazing progress this past year.

Also, thanks for the increased clarity on the gross to net.

That's obviously been a major issue for people.

You obviously felt confident enough about that number to disclose it, but you mentioned contracting is one of the uncertainties reflected in your guidance, the range of payer mix, et cetera.

How confident are you that you can hold that level for this year?

Then, what would you expect when additional entrants come to market next year and years to come?

Thanks.

Matt, we think that as of today, and some of these negotiations are ongoing, but about 60% of the covered lives across the US have now been negotiated and signed off.

Of that 60%, Gilead, we think, has access or patients have access, around 80% of that 60% we'll have access to Harvoni.

The rest of the 40% is still in play, but I can say for the 60% part of covered lives, that we are very confident that the terms that have been negotiated will last through the rest of this year.

As I already said, those terms have been designed to increase access.

We do expect to see a significant number of patients increasing through those PBMs and payers compared with 2014.

Okay.

For the coming years, when there is additional entrants to the market?

I think the real-life data, first of all, on our products, is going to be a key piece here.

I should say, I would like to emphasize that in our negotiations already with payers, most of those payers have really taken into consideration the highly differentiated product that we offer compared to competition and have made a full assessment of that.

So, I think we have to wait until we see the profile, the real-world profile of our existing competition and, of course, the data with the future competitors before we start.

We are very, very confident in Harvoni with its one pill, once-a-day and the ability to treat perhaps 60% of GT1 patients in the US with just eight weeks with no need for Ribavirin issues, no need for drug-drug interaction issues with Ritonavir and, for most classes of patients, absolutely fine to take Harvoni unlike our competitor.

I think time will tell a little bit before we can see what happens.

Got it.

Thanks very much.

Michael Yee from RBC Capital Markets.

One question is, you were talking about government versus non-government or commercial versus non-commercial, versus in the patients treated in 2015, what do you think that breakout is between those two buckets?

30,35 versus 65, [pushing] 50/50, how should we think about those two buckets, which obviously have different rebates?

As John said, in 2014, the proportion of private to public was about 70/30.

We expect that during 2015, it might be a little bit more public, but I suspect it will be more in that type of proportion.

How does that differ in Europe?

Because, we're thinking about a one-payer system.

What -- there's obviously competition and should we be thinking about similar negotiations where they're thinking about exclusives?

Or, we should be thinking about equal parity and they are offering both the drugs?

Just so we understand [it is the stuff] to come across the table over the course of your negotiations [with] countries getting deals.

We have negotiated for Sovaldi with most of the countries in Europe and these have not been on an exclusive basis, but the nature of the arrangements tied directly to increasing access to patients.

We have volume-type incentives to try and encourage a much higher number of patients treated going forward than has ever been seen in the past.

I think our competition, it will be doing similar kinds of arrangements.

Again, we're very, very confident in the clinical profile of our drug and we hope that we'll be very successful in Europe as we have been so far.

Thank you.

Brian Abrahams from Wells Fargo.

Thanks again for all the clarity on Hep C metrics.

Just curious, of the plans that allow access to both Harvoni and the competitive drug, Procera, what proportion of patients are you seeing go on to Harvoni?

Do you have any sense yet of the relative use of the 8- or 12-week Harvoni regimen?

Thanks.

It's just too early.

The launch of the Viekira Pak is less than a month old, so we don't really have any good data to suggest how our competition is faring versus how we're faring.

It's too early to say, in terms of how these parity deals are working out for either of us.

Many of these things have just been put in place, so it's very early days, so please be patient with us.

You had mentioned, also, what is the 8-week versus 12-week?

It was our expectation, our continued expectation, that in the initial launch of Harvoni, far more patients would go on the 12-week than the 8-week because they would be more severely ill patients.

That, in fact, is what we've seen.

It's a very small percentage of patients, perhaps this year it was 20% of patients going on the 8-weeks versus the 12-weeks.

We do anticipate that will increase over time as restrictions go down and as less severely ill patients come onboard, and those patients could benefit from the 8-week therapy.

Thank you.

Yaron Werber from Citigroup.

If you don't mind, I just have a follow up and a new question.

If I listen to what you are saying, and I'm backing into the commercial discounts, I'm still getting about 40% range, assuming just a slight year-over-year increase in the component of public over private.

Am I in the right ball park?

Secondly, when you look at Europe, Europe grew about 10% quarter over quarter.

How fast should we think about volume increasing in Europe, now that you have reimbursement?

Thanks.

Let me just talk about the European piece and then I will hand back to John.

The European part was seeing -- most of these agreements have only really been finalized in the last quarter of 2014.

I would characterize Europe as really just beginning access to the majority of patients.

What we have tried to do, though, is, with each our agreements is, work with the governments to assess their budgetary constraints, the prevalence of patients in the country, and then try to come to an arrangement, which, as John alluded to earlier, probably is a longer-term approach to addressing their HCV challenge.

A lower proportion of the total diagnosed patients will be treated each year, but we do think there's going to be a significant increase in patients treated across Europe.

We're starting to see the first signs of that as we exit 2014.

Yaron, we're just not going to be able to give you any greater confirmation of any specific discount.

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

This is a blended discount that is across both Sovaldi and Harvoni.

It includes both public and private.

I want to remind you, as Paul said, in a lot of these private negotiations, it's related to certain relaxation of restrictions so that more patients could get access.

That was factored into this, as well.

Other than that, I can't give any more color on what the exact specific discount would be.

Ian Somaiya from Nomura Securities.

Trying to get a better handle on how we should model -- [what other estimates will be a] cost of cure?

I know you mentioned that the duration of treatment, the therapy is roughly 20%, 8 weeks; 80%, 12 weeks.

How should we think about that going forward?

Given the more moderate pace of patients being treated in Europe, how will that differ, relative to the US?

Ian, I think we've given you all the things that you need to model this.

We've given you the specific gross to net.

We've talked a little bit about where this 8-week versus 12-week can come out.

We think it could grow to close to half of US patients.

I can't tell you how that's going to play out during the course of this year, as some doctors still prefer 12-week.

We don't know what the percentage of patients with different underlying fibrosis scores would be that would preclude them from the 8-weeks.

It's challenging for us, as it is for you, but I think we've given you as many details as we can to build out a model to get to where we are in our guidance, as well.

Phil Nadeau from Cowen and Company.

Just a couple follow ups.

First, on the gross to net.

That seems to be taking everyone by surprise.

Can you qualitatively discuss whether this gross to net is about where you thought it would eventually get to?

Or, because of the things that you are doing to open up access, is the gross side of it a bit bigger than you would have anticipated?

Secondly, in Europe, it sounds like you have a lot of information on budgets and whatnot.

Can you give us a sense of, over time, what proportion of your HCV revenues in any given year do you think will come out of Europe?

Thank you.

Phil, I'm trying to think about how to answer this question about what my expectations were.

It was my expectation that over time prices in this field would go down based on two things.

One would be, increased competition, and the other would be decreasing time of therapy, and both of those things are occurring.

I guess my expectation is that it came down a little bit more than we thought but, at the end of the day, we felt that it would come down to a level of about this for the treatment of HCV.

I think we are at about what we thought we would be in this area.

The Europe parts, I think was just proportionately where we are going to head.

I think over time, we'll see Europe as a bigger proportion relative to the US.

That's partly because of the time lag on the regulatory process and agreeing pricing, and really Europe getting into its swing.

I would caveat that by just repeating that there are the clear budget caps across European countries, which will slow things down there.

I think that, probably, our HCV business will be proportionately the same to the US as it is an HIV over time, when we get to that steady-state.

Just to emphasize, again, we do see Europe as having a long-time tail to it.

We should see our business continue to grow there for many years.

That's helpful.

Thank you.

Robyn Karnauskas from Deutsche Bank.

I promise not to ask the one about gross to net.

I'm just trying to think about -- the discounts, I think, are ahead of what the [street] was thinking as a blended rate.

We know that other competitors are coming on in the market.

How aggressive, how low can we go?

Can you give us any comfort that these gross to net can't erode significantly over the next year or two?

A question on the volume side.

If I'm looking at what you are saying, the 250,000 range you've mentioned before as being a really great year.

How high -- how much do you think the system can handle?

Is 250,000 like what these payers have said they actually can handle, so they will control volumes to keep it that way?

Or, do think eventually we could go higher and they'd be willing to go higher if prices remained relatively stable?

Thanks.

Robyn, on the first one, as I looked at our products and I look at the future competition that we're going to have and I looked at our emerging, really remarkable profile of Harvoni, its proving to be useful in a far greater range of patients than we thought.

I look at our next generation opportunities and I think we have by far the most competitive portfolio out there.

That gives me great confidence that we will be able to continue to have good product pricing throughout our segments.

I'm not at all concerned about future competition that people seem to be concerned about.

I think it is a very strong category for us with our profile.

This first decrease in gross to net is getting everybody to about where they want to be for the industry and for the patients, as well.

I've already forgotten the second question.

Sorry, Paul.

Can you remember what it was?

The volume.

You've mentioned 250,000 being a good year.

The question is, can the system handle more at the same price, over time?

Or would they keep it in that range managing it by fibrosis score?

Do you think that that's what they can handle over time?

Right now, that number is not a number that's being managed.

Paul had mentioned some things in Europe where there are caps.

This is not a specific number that a managed care is working towards.

This is our estimation of what the capacity of the system would be and an estimation of what we think the patient inflows could be for us for 2015.

The capacity of the system will depend on, quite frankly on, how well these products perform, how many patients are cured and how many of the restrictions are really taken away for the physician and patient to get on the therapy.

There are commitments that we've seen to remove those restrictions.

We will have to wait to see how that plays out and whether those restrictions will happen at a certain level or not in the future.

I don't know beyond 2015 what are expectation is yet, because I have to see how things perform in 2015.

It's pretty difficult for us to predict.

I would add our sales team has been spending a lot of their time focused on securing access during 2014.

We do see them being able to shift to really driving demand for the product and differentiating our product benefits going forward.

It's a good thing.

Cory Kasimov from JPMorgan.

I'll get off the HCV market dynamic questions for a minute and go back to the dividend.

I don't think many people were expecting you to start paying one just yet.

I'm curious if anything changed with your thinking on this front?

Does this imply anything about the acquisition opportunities that you currently see in this market?

Thanks.

Cory, not at all.

This is Robin, and maybe John will chime in as well.

Really, the timing of our dividend really reflected the confidence that we have in out business and our robust balance sheet, as well as just the strength of our future cash flows as we look at it.

Again, as we said all along, there are multiple vehicles that we can use to return free cash flow.

This gives us a disciplined approach of having a portion of it regular and something that people can count on or bake into their models and the rest will allow us to be flexible.

Also as I mentioned, it doesn't in any way prevent us from investing in our business, our pipeline or M&A.

Between our free cash flow, as well as our access to borrowing capacity, we don't feel constrained in any way by issuing a dividend.

Robin, I think you said that all very well.

I agree with that.

Thank you.

Matthew Harrison from Morgan Stanley.

I just wanted to ask specifically about access restrictions.

We saw, in the Express Scripts release, where they talked about specifically lowering the fibrosis status.

We haven't seen that [out of] a lot of the releases that have gone for a Gilead product.

Can you just maybe specifically state what access restrictions you have gained with the discounts?

What do you see as the ability of patients to access?

Are we talking all the way up to F0, or are we talking only F1s?

Help categorize that a little bit?

Thanks.

Matt, we've, as I said, negotiated with the aim of increasing access.

We've submitted, during those negotiations, what I describe as a bid matrix in order to secure those agreements.

Those bid matrices encourage wider access based on fibrosis scores amongst other things.

The agreements we've signed, and I'm not going into any specific ones, do go as far as opening up to F0.

If actions don't meet words, than those rebates wouldn't be given.

That's how we're looking at it.

I can confirm that in some agreements we've got full access signed up, in terms of fibrosis scores.

Maybe just a follow up, the 46% gross to net you talked about, what kind of access on that matrix are you assuming?

We can't go into any detail on that, Matt.

As John said earlier, it's a whole mix of product mix, of payer mix, of timing.

It's a calculation we've done, but I wouldn't want to equate that to any kind of access criteria.

Thanks.

Howard Liang from Leerink.

Maybe I'll ask an R&D question.

Could your three DAA [HD] regimen, the 9857 Sovaldi and 5816, could the four-week and six-week data be available earlier than second half of 2015, and so it started in the fourth quarter?

Could you start a phase 3 this year?

Howard, this is Norbert.

Thanks for asking a non gross-to-net, non-capitalization question.

I greatly appreciate it.

Yes, we're looking at the three direct combinations: pain, genotypic and [where coke and nocan as], four weeks, six weeks, [Solvaldis months are all these] treatment experienced, treatment naive.

You should see some of those data, in EASL, in April in Vienna.

Based on the emerging data, and it's really just emerging, we will then make a decision to go into Phase 3. That could happen sometime in the second half of this year.

And to follow up is that -- have you made it into a single tablet?

Yes.

That will be -- it goes without saying that all the combinations, we will be doing a single-tablet regimen, yes.

Thank you very much.

Brian Skorney from Robert W. Baird.

Two real quick ones.

On the 250,000 patient number that you've been talking about for this year, if we look back last year at IMS and some of health data, NRx is actually a really good surrogates for the numbers you've been giving us for new patients.

But, if I look back at the last couple of weeks of total NRxs, it would indicate that it's annualizing to actually see somewhere around 300,000 patients in 2015.

It looks, still on pretty early growth curve trajectory, and that's assuming that Viekira is not being underreported, which AbbVie, at least, says that it is.

Where is the disconnect there?

Are what we are seeing in IMS data not actually a reflection of what you're seeing in terms new patients coming on anymore?

Brian, you're putting a lot of faith in a couple of data points, and so that would be my big concern there is that you are taking two points and drawing a line out for the future.

There's a lot more variability than that, since we're just getting into the early part of a launch.

So, we'll continue to monitor, as will you, and come up with some better idea of what the long term, sustainable rate of patients inflow is for the year.

All right.

If I could just ask on Sovaldi, can you give us any indication in terms of the breakout of usage over the last couple of months, say, are we still seeing genotype 1 new patients, or has this become now a non-genotype 1 market here?

Brian, there are a few genotype 1. I would say that Sovaldi, according to the latest research we have, which is maybe around quarter four, would say that about 30% of Sovaldi use is in genotype 1. We would imagine that would disappear fairly quickly during quarter one and quarter two.

Great.

Thanks, guys.

Ying Huang from Bank of America.

Really appreciate all the transparency and the clarity around gross to net.

First question, how should we think about European pricing?

We know that Sovaldi is priced at about 20% to 40% discount from the lab pricing for US pricing.

Should we think about Harvoni pricing in Europe and that range of discount, on top of the 46% gross to net already?

Second question is, exactly, in terms of the patients taking Harvoni today, what is the percentage of patients that are F0 to F2?

How much more relaxation do think you will get from the payers, if you already have seen a significant amount of patients who are early-stage?

I was [congratulating] for three questions, I think you got in there.

(laughter) The European prices, we are not going into any detail of any of our arrangements between countries.

What I can't say is that we have public prices, list prices, in several of the countries which are in the public domain.

Most of those underpinned by the positive endorsement that [knight's] gave in the UK, which shows Sovaldi to be highly cost effective at that price.

We do have, and I alluded to this, some rebate arrangements in place, which encourage significant increase of volumes in those countries.

I think that's all I can really say about the European arrangements.

F0 to F6, we don't have very good data on this.

What we do have data on is the intentions [at the scribe], rather than the descriptions that are actually filled.

I can say F0 to F2, the intention to prescribe, as defined by prescriptions written in the US, is actually around, a surprisingly high, around 50%.

We believe that the actual prescriptions filled for those fibrosis types is significantly lower, historically because of all these restrictions that were put in place.

We would anticipate that number would increase during the first couple of quarters this year, in line with the arrangements we've signed up.

Thank you.

Terence Flynn from Goldman Sachs.

Just wondering if you guys have thought about a target payout ratio with respect to the buybacks and dividends over time?

Then, second question is just regarding -- you gave us some pretty detailed data on US capacity, but what about EU capacity?

Any color there long term?

Thanks.

Hi, Terence.

I'll start with the first part.

We don't really want to set a target.

Again as I mentioned earlier, our focus will still be primarily payer repurchases for shareholder returns and that the level and aggressiveness with which we do them will really be based on how we feel about our valuation.

If you look over the past several years, we've returned about 50%, a little over 50% of our free cash flow.

Based on our valuation, that's an area that we're comfortable with, but we reserve the right to ratchet that down over time.

Particularly as you think about a dividend for the second half, you'd expect us to lower share repurchases a bit.

The European capacity, I said in my script that, so far, up until the end of 2014, with just Sovaldi, really, in the EU, we treated, we think, around 32,000 patients last year.

Now, we've only really signed up several of the governments on Sovaldi towards the end of last year, and we're moving fast with Harvoni.

We would anticipate Harvoni being a far more attractive product because of its simplicity and all the other very clear benefits it has.

It's hard to say.

We've got a substantial number of patients in Europe that could and should be treated.

It will depend somewhat on the budget caps, as I've already alluded to, how strictly those are enforced.

I think we have a large and healthy, growing and sustainable market in Europe for many years.

Can you give us directionally versus the US, the 250,000, same magnitude, lower, higher?

I think it's just a really hard question to answer.

I'm sorry, I can't answer that, but I think that if you thought of a number north of 100,000, that would seem logical.

Okay.

Thank you.

Thomas Wei from Jefferies.

Just wanted to ask about the waterfall plot for Hep C and the bar that's missing on the diagnosed patients that are under the care of a physician?

Also, wanted to ask about simtuzumab.

I thought I heard you say no activity in myelofibrosis.

I thought you were looking at bone marrow biopsies there?

Does that mean you did not see any effect, like any anti-fibrotic effect?

What do you think of that in terms of NASH?

Thanks.

Thomas, I'll answer the last question first, quickly.

We're looking at in myelofibrosis, pancreatic and colorectal cancer.

In all of those three indications there was no activity.

You are right, in myelofibrosis we looked at histology at the end point and the other two indications it was PFS.

I would like to point out that myelofibrosis is biologically different from liver and pulmonary fibrosis.

I do not think you can extrapolate to those two diseases.

We still have hope and, somewhat, confidence that it's different and we'll see [if] in Phase 2 for NASH, for PFC and for IPF.

Thomas, your first question was about the missing bar on the waterfall, and we just didn't have any confidence in what number to put in for patients who are under care.

We're confident in the 1.6 million people who have been diagnosed.

We do recognize that a number of those have sought care directly from that bar, if you will, and many have been cured over the course this year, and sort of bypassed that middle part of the waterfall.

Because it's such a fast moving field and because our data is a quarter in arrears, we felt it was no longer representative and so we stopped using the graph all together last quarter, but brought back the diagnosed bar and the overall bar because we are more confident that those two numbers are reasonably accurate.

We just can't tell you who is into care right now because it's moving so quickly.

Mr. O'Brien, we have time for one more question.

Our final question comes from Josh Schimmer from Piper Jaffray.

Given that you've experienced rapid acceleration and then deceleration in earnings growth, is it a priority to find a more stable sustainable case of EPS growth?

If so, when do you think you'll become -- you'll move on to a more stable trajectory?

Do you believe that, over the long term, you can continue to deliver double-digit earnings growth despite some of the mid, long-term headwinds?

Thanks.

Josh, there's a lot of pronouncements in there.

(laughter) We certainly made great progress over the last year.

I think we continue to make progress and have a very reasonable stable base of business.

As always, we going invest in Norbert's pipeline and continuing to bring products out.

We have some really interesting things going on.

As we announced today, the MMP9 antibody is moving ahead, because it shows activity in two different kinds of very interesting long-term diseases.

We'll continue to invest in products by licensing.

I feel we have, as Robin said, the capability financially to buyback shares, to pay dividends and to invest heavily in the pipeline for the future.

I, frankly, never felt like the Company has been in better shape in terms of our stable base of business and our way forward, so we'll continue to focus on that.

Okay.

Thanks.

Thank you, Jamie.

Thank you, all, for joining us today.

We appreciate your continued interest in Gilead.

The team here looked forward to providing you with updates on future progress.

Many thanks.

Ladies and gentlemen, that does conclude the conference for today.

Again, thank you for your participation.

You may all disconnect.

Have a good day.