吉利德科學 (GILD) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences first-quarter 2015 earnings conference call.

My name is Ashley, and I will be the conference operator today.

(Operator Instructions).

As a reminder, this conference call is being recorded.

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

Please go ahead.

Thank you, Ashley, and good afternoon, everyone.

Just after market close today, we issued a press release with the details of our earnings results for the first quarter of 2015.

The press release, along with the detailed slides, are available on the Investor Relations section of the Gilead Sciences website.

The two speakers on today's call will be Robin Washington, Executive Vice President and Chief Financial Officer, and based on a great deal of interest in Gilead's R&D pipeline, Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer, will provide an update on our R&D progress.

Also in the room with us for a Q&A session are John Martin, Chairman and Chief Executive Officer; John Milligan, President and Chief Operating Officer; and Paul Carter, Executive Vice President of Commercial Operations.

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 and financial projections, all of which involve certain assumptions, risks and uncertainties that are beyond our control and can 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 Robin Washington.

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

The year is off to a great start, and I am pleased to summarize the results of the first quarter of 2015.

Gilead performed well across all therapeutic categories, achieving an all-time high in net product revenues.

We continue to invest in research and development, commercial operations and initiatives to increase access to treatment, and importantly our medicines are now reaching approximately 10 million people around the world.

The Company also continues to execute on our capital allocation strategy.

Earlier today we reported non-GAAP diluted EPS for the first quarter of 2015 of $2.94 per share and total revenue of $7.6 billion, an increase of 99% and 52%, respectively, compared to the first quarter of 2014.

HCV product sales were $4.6 billion for the first quarter, a doubling year over year and an increase of 19% sequentially, driven by continued launches across many geographies.

This quarter alone we estimate that approximately 90,000 patients started on a sofosbuvir-based therapy in the US and Europe.

Product sales excluding HCV of $2.9 billion (technical difficulty).

Okay.

I'm going to continue -- product sales excluding HCV were $2.9 billion, an increase of 10% compared to the first quarter of 2014, driven by continued uptake of our HIV single tablet regimen.

Underlying prescription demand grew for our newest single tablet regimens, Stribild and Complera, compared to the fourth quarter of 2014.

Overall HIV product sales were down 16% sequentially, primarily due to an inventory decrease in the US following an inventory build that occurred in the fourth quarter of 2014, and a higher proportion of sales into Medicaid and ADAP programs, which are more heavily discounted.

Turning to the US in more detail, Q1 2015 net product revenues were $5.2 billion.

HIV net product revenues increased 15% year over year to $1.4 billion.

Growth was driven by our single tablet regimens with Stribild increasing by more than 50% and Complera by 24%.

The recently updated HIV treatment guidelines from the US Department of Health and Human Services reinforce the benefit of improved single tablet regimens like Stribild.

Atripla was appropriately downgraded in the guidelines as we anticipated.

In fact, underlying prescription demand for Atripla declined 8% year over year, and we expect it will continue to decline as it is replaced by better single tablet regimens.

US HIV revenues declined sequentially by 24% due primarily to decreased inventory across the supply chain.

Wholesaler inventory levels declined to the near bottom of established ranges, and we also saw a drawdown by sub wholesalers.

Both of these trends are similar to what we've seen in the first quarter over the past several years.

In addition, HIV sequential revenues were impacted by a one-time favorable accounting accrual in Q4 and a shift in payer mix in Q1, as I previously mentioned.

US HCV revenue increased 8% sequentially to $3.4 billion, as an increase in patient volumes was partially offset by a higher level of rebates for commercial plans that were executed throughout the first quarter of 2015.

Many of these agreements became effective during the quarter, so we expect to see the full gross to net impact in the second quarter of 2015.

In the US, approximately 70,000 patients initiated treatment with a Gilead HCV product in the first quarter, an increase of more than 50% over the prior quarter.

Since the December 2013 approval of Sovaldi, more than 210,000 US patients have started on a sofosbuvir-based therapy.

We estimate that at least 90% of genotype 1 HCV patients beginning treatment in the quarter started therapy on Harvoni and that greater than 80% of genotype 1 patients have direct access to the product through either preferred or parity formulary status.

Turning to Europe, Q1 2015 was a record quarter with $1.8 billion in product revenues, inclusive of currency headwinds.

HIV revenue growth was driven by our single tablet regimen.

Eviplera together with Stribild grew by 55% year over year, and for the first time, combined quarterly sales exceeded sales of Atripla in a quarter.

More than half of new patients initiating therapy started with a Gilead single tablet regimen with Eviplera and Stribild being the first and second most prescribed regimens in Europe.

These two regimens were also the most prescribed for patients switching therapy.

HCV revenues in the EU approximated $1 billion in Q1, which reflects the first quarter where Sovaldi was prescribed in each of the big five countries.

In some countries, most notably the UK, restrictions have resulted in limiting treatment to sicker patients.

Uptake for Sovaldi was particularly strong in Spain, driven by rapid achievement of regional reimbursement.

Harvoni access is progressing at a faster rate than we saw with Sovaldi.

Harvoni reimbursement is already in place in a few smaller countries of the EU, and we expect reimbursement in Italy and Spain to be in place in the second quarter.

In Europe we estimate 21,000 patients started therapy with the Gilead regimen in the first quarter and that the total number of patients treated since the approval of Sovaldi in January 2014 has now surpassed 50,000.

Turning to expenses, non-GAAP R&D expenses for the quarter were $651 million, up 17% compared to the prior year due to the continued progression and expansion of our clinical studies, particularly Phase III studies in the liver disease and oncology areas.

Additionally personnel and infrastructure expenses increased to support ongoing clinical study activities, geographic expansion, and marketed product support.

Sequentially non-GAAP R&D expenses decreased by $248 million, driven by one-time M&A-related costs that occurred in Q4 of 2014.

We expect that our R&D expenses will continue to ramp up during the remainder of 2015 as our level of clinical activity increases.

Non-GAAP SG&A expenses for the quarter were $600 million, up 20% compared to the prior year, driven by the growth in our business and geographic expansions during the past year as we continue to launch Sovaldi and Harvoni.

Sequentially non-GAAP SG&A expenses decreased by approximately $200 million, driven primarily by a favorable cumulative adjustment for the US branded prescription drug fee based on the receipt of the preliminary invoice from the IRS.

Turning to cash flows, during the first quarter of 2015, we generated $5.7 billion in cash from operations.

It is important to note that this figure includes unpaid rebates associated with the launch of Harvoni, and future cash flows will be impacted as these payments are made.

We utilized $3 billion in cash during the quarter to repurchase 29.6 million shares at an average price of $101.38 per share, which completed our May 2014 $5 billion share repurchase program.

As of April 1, we initiated purchases under the recently authorized $15 billion share repurchase program.

Earlier today we announced that our Board of Directors declared a quarterly cash dividend of $0.43 per share of common stock with a payment date of June 29, 2015 to all stockholders of record as of the close of business on the record date of June 16, 2015.

This is the first quarterly dividend declared under our dividend program announced in February of 2015.

Initiating a dividend reflects our continued confidence in our business and financial position.

This dividend complements our share repurchase program and gives us an additional vehicle to return cash to our shareholders in a consistent and predictable manner.

Finally, I would like to update our full-year 2015 financial guidance provided to you on February 3 and summarized on slide 31 in the earnings presentation available on our corporate website.

We now expect 2015 product sales to be in the range of $28 billion to $29 billion, an increase of 14% to 18% over 2014.

Our guidance for product revenue is subject to a number of uncertainties including the full-year impact of our discounts, chargebacks, and rebates associated with pricing negotiations with payers in the United States and Europe.

Market share and full-year effects of competition, potentially incorrect assumptions regarding HCV patient flow, a larger than anticipated shift in payer mix to more highly discounted payer segments such as PHS, FFS, Medicaid and the VA.

The timing and success of our commercial launches of Sovaldi and Harvoni in Japan, the effects of new HIV treatment guidelines downgrading Atripla to an alternative therapy, and the potential for continued volatility in foreign currency exchange rates.

All other components of our 2014 guidance remain unchanged.

I will now turn the call over to Norbert.

Thank you, Robin.

Over the past 25 years at Gilead, I have often been asked about the source of our next phase of growth, and I have never been more confident because of the numerous programs we have to address unmet medical need.

I will spend the next few minutes detailing some of our programs underway across the therapeutic areas of HIV, liver disease, cardiovascular, oncology, and respiratory inflammation.

In HIV we are advancing various tenofovir alafenamide or TAF-containing regimens.

TAF is a nucleotide HIV reverse transcriptase inhibitor, and some of the key clinical data were presented in February at the CROI Conference in Seattle.

In two large Phase III studies, the single tablet regimen of E/C/F/TAF was shown to be non-inferior to Stribild with improved safe renal and bone laboratory parameters, and the data from these two studies were published in the April 16 issue of The Lancet, giving credence to these results.

Another study demonstrated that E/C/F/TAF could be safely administered to patients with mild to moderate renal impairment, and a study in which nearly 1500 patients on various regimens were switched to E/C/F/TAF is currently ongoing, and we will share the final 48-week data from this study at an upcoming conference.

The marketing authorization obligations for E/C/F/TAF have been submitted in a number of countries.

US safety has assigned a PDUFA dates of November 5, 2015.

This application was followed just this month by F/TAF, a fixed dose combination of TAF and emtricitabine, when presenting an improvement over Truvada.

And a third application, R/F/TAF, a new single tablet regimen combining rilpivirine with the F/TAF backbone is on track to be filed in the third quarter of this year.

For the R/F/TAF application, we will be using the priority review voucher which was acquired from Knight Therapeutics in November last year.

If all applications progress successfully to approval, we would be able to launch three new TAF-containing HIV regimens between November 2015 and the middle of 2016.

Based on promising Phase I PK and viral dynamics data, dosing has begun in a Phase II study of GS-9883, a novel once daily integrase inhibitor which does not require boosting in combination with the F/TAF backbone.

If successful, this could yield a third TAF-containing single single tablet regimen to offer to patients.

Also at CROI, we presented data on the ability of a TLR7 agonist to induce viremia in SIV-infected monkeys completely suppressed on antiretroviral therapy.

Based on these encouraging results, we have initiated a clinical study of GS-9620, a potent TLR7 agonist to potentially eliminate (technical difficulty) and achieve a functional cure of HIV.

Now turning to liver disease, the pan-genotypic regimen of sofosbuvir and GS-5816 is currently being evaluated in four separate Phase III studies, all with a 12-week treatment duration.

Based on the data to date and the success of Harvoni, we believe the best medical use of sofosbuvir and GS-5816 would be a non-genotype 1 infected patients where the unmet need is the greatest.

We should be in a position to share the topline results from these four Phase III studies with you in the third quarter and hope to find marketing authorization application towards year end.

Last week at the annual EASL conference in Vienna, a number of presentations confirmed the high efficacy and good safety and tolerability of Sovaldi and Harvoni in different patient populations in non-genotype 1 HCV infection and in real-world use.

Data were also presented on the use of the pan-genotypic triple combination of sofosbuvir, GS-5816 and GS-9857.

GS-5816 is a pan-genotypic NS5A inhibitor, and GS-9857 is a pan-genotypic protease inhibitor.

The data indicate that the shortened treatment duration of less than 12 weeks but more than four weeks could be feasible for all patient populations.

Based on these results, we have initiated two Phase II studies with this triple combination regimen to compare treatment durations of 12, eight, and six weeks.

On March 25, Sovaldi in combination with ribavirin was approved by the Japanese Ministry of Health, Labor and Welfare for the suppression of viremia in patients with genotype 2 hepatitis C infection.

This is the first all-oral Interferon-free treatment for genotype 2 infection in Japan.

This was an expedited review and approval based on the unmet need and lack of alternatives for the more than 200,000 Japanese patients infected with genotype 2.

Also in Japan, Harvoni is under regulatory review, and we expect approval by the middle of this year for the treatment of patients with genotype 1B infection.

For most patients, treatment of chronic hepatitis B infection is lifelong, and we continue to pursue research aimed at identifying finite treatment durations that may lead to a functional cure for hepatitis B/S antigen conversion.

Two approaches -- GS-9620, the TLR7 agonist, and GS-4774, a therapeutic yeast-based vaccine, are currently in Phase II studies in virally suppressed chronic hepatitis B infected patients.

Data from these studies are expected in the second half of this year.

In addition, TAF as a single agent for the treating of chronic hepatitis B in Phase III.

TAF would represent an alternative to Viread for the treatment of hepatitis B, and data from the Phase III studies are expected early 2016.

In nonviral liver diseases, simtuzumab is undergoing evaluation in two studies for liver fibrosis due to NASH and in a study for primary sclerosing cholangitis.

These studies are fully involved, and the 96-week endpoint data should be available in the fourth quarter of next year.

NASH is a disease with a complex biology and one that might require more than one approach for effective treatment or different options at different stages of disease.

So in addition to simtuzumab, two other mechanisms are being explored.

The first, GS-4997, an ASK1 inhibitor, will be evaluated in a Phase II study, both by its self and in combination with simtuzumab, and the second mechanism is GS-9674, an FSR agonist, which we obtained through the acquisition of Phenex and hope to have in the clinic before year end.

In our inflammation respiratory areas, simtuzumab is in Phase II evaluation for IPF.

This randomized, placebo-controlled study has now completed new patient screening, and completion of enrollment is anticipated in the second quarter.

This is an event-driven study, and results are expected in 2016.

As reported on our last quarterly call, the MMP9 antibody, GS-5745, has shown promising efficacy and safety in a Phase IB study in ulcerative colitis.

Based on these findings, we will advance this program into Phase II/III in the second half of this year.

GS-5745 is also in early clinical testing for its potential utility in COPD, rheumatoid arthritis and Crohn's disease.

Many advances are also happening in our cardiovascular area.

The NDA for the use of the combination of Ambrisentan and Tadalafil for frontline treatment of PAH was submitted to FDA in December, and a PDUFA date of October 5 was assigned.

Ranolazine is currently being evaluated in more than 2600 patients as an adjunct to percutaneous coronary intervention to reduce hospitalizations driven by ischemia or the need for revascularization.

This study has met the required number of events, and we hope to be able to unblind this study in the coming weeks.

If the results are positive, a supplemental NDA submission is planned toward the middle of the year.

The late cardiac sodium channel inhibitor, GS-6615, is in clinical development for four indications: Long QT-3 Syndrome, hypertrophic cardiomyopathy, ventricular tachycardia and ventricular fibrillation, and ischemic heart disease.

This is a low dose, once daily compound and may provide options for these patients where none exist today.

In addition, we are exploring the use of GS-6615 for Long QT-2 Syndrome and for drug-induced QT prolongation.

And now moving to oncology.

Oncology is an important area of unmet medical need for which scientific advances allow us to keep explore combination products and novel targets.

We now have a strong oncology program with 30 ongoing and planned clinical studies, of which 10 are Phase III studies.

Idelalisib is being evaluated in a number of Phase II and Phase III study programs in CLL and NHL, both in the frontline setting and in previously treated patients.

We continue to be excited about the profile of idelalisib, including results in relapsed CLL in combination with Ofatumumab, which will be presented next month at the ASCO meeting in Chicago.

Like many experts in the field, we see the future of hematology oncology in the use of chemotherapy free drug combinations to provide deeper and more durable responses and to achieve a cure.

We now have four classes of kinase inhibitors -- PI3K, SIK, JAK, and BTK -- a program which was recently in-licensed from ONO Pharmaceuticals.

With these agents that target multiple signaling pathways, we are in a favorable competitive position, and our programs lend themselves nicely to pursuing combination therapies.

In addition, we are also pursuing collaborative arrangements with other companies.

An agreement was recently signed with AstraZeneca to explore the combination of idelalisib with AstraZeneca's checkpoint inhibitor in defused large B-cell lymphoma and triple negative breast cancer, and we hope to initiate clinical studies in the second half of this year.

There are two additional promising new opportunities for our portfolio of kinase inhibitors.

The first is the use of these in solid tumors, and the second is in the emerging field of immuno-oncology where there is evidence that kinase inhibitors have immunostimulatory effects through inhibition of regulatory T-cells and/or myeloid-derived suppressor cells.

Based on this concept and following preclinical and clinical data, we will initiate a Phase III study in the second half of this year of momelotinib in frontline metastatic pancreatic cancer where patients will be randomized to momelotinib or placebo on the background of gemcitabine and Abraxane.

A Phase I study in second-line pancreatic cancer is currently ongoing.

Additionally momelotinib is undergoing the evaluation in EGFR-mutated first-line non-small cell lung cancer and in combination with a MEK inhibitor in KRAS-mutated non-small cell lung cancer.

We will be initiating additional Phase Ia studies of momelotinib and idelalisib in solid tumors in the future.

We will keep you apprised as we make additional progress with our portfolio of kinase inhibitors.

As indicated to our last earnings call, the anti-MMP9 antibody, GS-5745, has shown promising efficacy and safety in a cohort of gastric cancer patients.

Based on these results, we are proceeding directly into a Phase III study in which 430 patients with gastric cancers would be randomized to the current standard of care or standard of care plus GS-5745.

We hope to initiate this study in the third quarter, and GS-5745 is also undergoing that by evaluation in a Phase Ib study in pancreatic cancer.

In closing, Gilead has a broad discovery and development pipeline.

Moreover, strong financials and cash flow allow us to take advantage of external opportunities as they arise.

As we have stated before, we strategically evaluate opportunities carefully for their scientific merit and commercial potential.

Thus, the depth and breadth of our current programs, together with the myriad external possibilities, give us great confidence in our future.

I would like to take this opportunity to recognize our 7500 employees for their continued hard work and dedication and their willingness to successfully collaborate with external organizations.

With that, I would now like to open the call for questions.

Operator?

(Operator Instructions).

Geoff Meacham, JPMorgan.

Good afternoon, guys.

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

When you guys think about the durability of the hep C market, what have you learned so far about the capacity to treat in the US and the EU and then the queue of patients that are awaiting therapy, also US and Europe?

Thank you.

It's Paul here.

Thanks for the question.

This is something clearly on our mind as well as we assess and think about our guidance going forward during this year.

So the US had 70,000 starts in quarter one, and a large number of those -- the vast majority of those were Harvoni starts in GT1, and we think there are various dynamics here.

There probably were some patients being warehoused at the end of quarter four, waiting for Harvoni.

We then had the impact of all the contract negotiations early in the year, and we had a widening of the pipeline in a sense in terms of fibrosis restrictions by many of the payers that we had made contracts with.

Going forward, we see the prescriptions the same data as you see, and we do see a kind of flattening off at the moment, but we also think that in general we are early days into this launch.

So the run rate would imply that we are somewhere north of the 250,000 patients that we indicated last time we thought was possible in the US this year.

I was at EASL last week myself and spoke to a number of physicians who -- and I asked this question, did I think they would think physician capacity being reached -- and the answer was was not physician capacity per se, but really back office capacity to deal with the bureaucracy and paperwork, and whether that thins out a little bit in the rest of the year is to be seen.

But I think the run rate we are seeing with some of these dynamics of fibrosis restrictions opening up with prior authorization -- sort of patient flow seeming to ease up a little bit, but at the same time, with our physician office capacity sort of challenges, it's kind of somewhere between 250,000 and the high 200,000s, I think, of patients we will probably see being treated in the US this year.

Going to Europe, we are also very happy to see a large number of patients being treated in Europe for the first time -- around 20,000 in the first quarter, the majority of which are in the big five countries.

And what we are seeing in Europe is Sovaldi now approved in the big five countries and Harvoni available in Germany and in France under the French ATU system, and we've signed agreements where we should see Harvoni in both Spain and Italy quite soon.

This is great news.

The capacity constraints in Europe is really the budgets that have been set by the governments, and we worked with the governments in terms of the prevalence, the number of patients that they hope to treat, and we encourage them to really maximize the amount of budget they can put towards hepatitis C. Nevertheless, they are single payers with budgets, and we think that we should get to the sort of top of those budgets this year.

So we previously said we thought in Europe around about 100,000 patients was probable for 2015, and I think that's kind of our thinking at the moment.

Hope that covers it.

Yes.

Thank you.

Mark Schoenebaum, Evercore ISI.

Hi, guys.

I really appreciate your taking my question.

Great hep C number -- congratulations.

I was just wondering, the IMS data that we all watch for the hepatitis C market seemed to indicate a flattening and then a decline in the new prescriptions, which has now translated into an apparent flattening to decline in the total prescriptions.

So I guess I'm wondering, should we -- should the interpretation of that data be that the US hepatitis C market has peaked, or is there something wrong with your IMS data, or alternatively is there reasons that we should think of a reacceleration coming up sometime this year?

Thank you.

Mark, that's a hard question to answer.

I think, again, I would just emphasize it is early days still in the US with some of the contracts that we -- that the payers we contracted with in the first quarter that starts to sort of unfold.

Some of them have very open fibrosis restrictions.

Some of them are still fairly restricted to secure patients.

We have this dynamic of warehousing.

We also have things like the direct to consumer campaign that you may have just noticed starting, and I think all of these things are dynamics that are moving.

So again, the data points that we have seen -- I agree with you -- would imply a slight flattening of the US market, but I would say there is still a possibility for further growth in the rest of the year.

But, again, I just emphasize it is very early days to make a prediction on that.

Great.

Thanks.

Geoff Porges, Bernstein.

Thank you very much, and I'll add my congratulations on a remarkable quarter of progress.

Maybe just to change gears a little bit, Robin, can you update us on where your cash is and where your cash flow is?

And then -- really phenomenal cash flow -- so are you sort of thinking about how else you might use that other than the dividend and the share repurchase?

Obviously it is going to have a massive amount of cash flow.

Related to that, can you raise debt in Europe against that cash flow?

Is that something that you've done or just doing it onshore?

Sure, Geoff.

So just to get the stats out of the way, if you look at our cash, for the full year, we expect our cash balance -- 40% or so that we expect to be onshore.

And relative to cash flow, it's slightly less.

About a third of our cash flow is generated in the US.

We still think we have fairly significant capacity to borrow in the US.

We do discuss borrowing externally.

It's not something we plan to do immediately.

Relative to our overall cash balance, it is very similar to what we've been saying all along, and we are very focused on investing in our pipeline.

We continue to look at strategic opportunities that may make sense for us with a focus on Phase II or earlier stage assets, and the rest is you see that we've been doing is we will be redeploying it or returning it to shareholders via dividends and share repurchases.

Thank you very much.

Yaron Werber, Citigroup.

Great.

Thanks for taking my question.

It's a question, I guess, for whoever wants to pick it up.

Just a little bit of understanding -- where are you in the payer mix and sort of the rebate mix in the US hep C market?

And can you give us a sense what's going on with Medicaid?

It was about $1 billion book of business for you last year.

They are very much mixed geographically around the country.

How is the ramp going there?

Thank you.

So we have negotiated and signed contracts I think now with about 90% of the covered lives in the US.

Of that 90%, 83% have direct access to Harvoni, either through an exclusive arrangement or through a parody arrangement.

I would take this opportunity to say once more that Gilead really believes that prescribing should be in the hands of doctors and their patients, not through these exclusive arrangements.

The payer mix is around 70% what I would call commercial and 30% public, and within that commercial, that includes Medicare Part D at roughly half that amount.

And the reason I made that split is because the rebates associated with those covered lives would be in the same sort of ballpark with clearly higher discounts with the public payers.

Medicaid I'm not going to comment on extensively, except to say that we have ongoing negotiations, and I'm sure you appreciate from a competitive point of view why I can't talk too much about that.

Nevertheless, we are winning some exclusive arrangements, and our competitors are winning some exclusive arrangements, and I think that's all I can say really at this point.

I hope that covers it.

Matt Roden, UBS.

Thanks very much for taking my question, and congrats on the big number this quarter.

At the EASL meeting last week -- nice to see you out there -- thematically one of the things that was emerging is a lot more emphasis on hepatitis B drug development, and you guys have your two programs where I think you are going to see data this year.

Norbert, can you just talk about those programs and what you are looking for as a basis for go or no go in the Phase III decision?

And I guess are you looking for a functional tour in these studies, or are you looking for a basis to find the right combinations to move that forward?

Thanks very much.

Matt, thanks for the question.

So with the TLR7 agonist 9620, we are looking for S reduction.

So it doesn't have to be complete S conversion, but if we would see like or so, something that clearly indicates S antigen goes down, that would be an incentive to go into Phase III.

And with the 4774 -- it's a pretty therapeutic vaccine -- yeast-based vaccine.

We are looking more of immunological parameters.

So when we see a robust antibody or S antigen or anything that would indicate a specific hepatitis B infected -- either anti-body or T-cell immune response.

The other thing I would like to point out, Matt, is the hepatitis B cure, as we call it here, is one of our largest research programs right now.

So we have a fair amount of headcount -- particularly biology -- we are looking at compounds that could inhibit CCC DNA -- that could make CCC DNA go away.

We are looking at epigenetic approaches and a few others that I can't talk about because it's too early and too confidential, but that is a big area of focus for us, and we hope to see some data in the second half of this year.

I would like to point out one last thing.

These two studies, both with the TLR7 agonist and the yeast vaccine, are in virally suppressed patients.

So whether or not we see anything with these virally suppressed patients, we would then go into treatment.

Now these non-virally suppressed -- we have actually initiated already the study with the TLR7 agonist, that's the second follow-up study that's looks at the same compound in -- [biremic] patients because there are reasons to believe why immunologically good work and in biremic patients that it couldn't work in virally suppressed.

So I hope I've answered your question.

Thanks very much, Norbert.

Michael Yee, RBC Capital Markets.

My congrats as well.

Norbert made some comments on BD and whatnot.

I just wanted to ask broadly what you can say to your appetite for deals -- whether small, medium or big.

Specifically John Milligan I'm sure is in the room.

I commented earlier that as a corporation, you are not really ready for a big transaction, and I wonder if anything has changed, and how you should be thinking about your capacity for deals, small, medium or large as we get through hep C?

Hi, Michael.

Thanks for asking me a question.

I appreciate that.

We have talked about this in the past about having constraints on what we could do -- basically the limitations on the kinds of activities we can undertake because of how difficult it was to get Sovaldi and then replace it with Harvoni in such short order.

And as we exited last year, we felt that we have achieved a greater balance across the Company and that we have the capability to do more things and to look at more things than we have in the past.

And as each month and quarter goes on, we actually gain more ability to do those things as we move forward.

Now Norbert highlighted all the very exciting opportunities that we have in our pipeline, so we do feel that we have a very full pipeline.

But I think with our position as a company with the cash flows that we have and with our appetite to continue to do more things with more patients around the world, there are some good opportunities, and it would be a good time for Gilead to consider a wide range of things.

But I can't tell you that we have an appetite for things large or small.

It would have to be kind of the right fit for Gilead.

We typically like things where we can have impact on Phase III and where we can accelerate those products either into the approval process or integrator indications after the approval process, and I tend to think still we are looking for things where we feel we can catalyze the development of those products and have a greater utility of them overall.

So we are open to suggestions.

There have been many mentioned out there, but I would say that I want to stick very closely to the kinds of areas that we are in here today.

Ian Somaiya, Nomura Securities.

Thank you and congratulations on an outstanding quarter.

I was just looking at your slide 22 where you speak to the patient dynamics.

In the US, patient lines are considering sofosbuvir.

I'm wondering how that's going to change or if you could speak to how that could change by the time some of the other companies reached the market, some of the combination of products could reach the market?

And maybe taking it a step further, just thinking about your triple combo, it seems like the goal likely will be limited to an eight-week regimen and how we should think about the competitive implications of that as other companies also pursue a triple combination?

I'll take the first question.

Just around slide 22 is just the type of patients that have been treated in terms of genotype, fibrosis score and whether they are naive or not.

I think there will be some dynamic through this year as the sicker patients get treated.

I think payers that are currently restricting fibrosis scores will start to open up a little bit.

That's something I would imagine will start to happen in 2016, although there are plenty of patients it seems through all scores at the moment.

We have some data on intent to prescribe during the first quarter, which shows that doctors at the physician level in the US where doctors intended to prescribe actually slightly more than half of their patients being fibrosis score 0 through F2.

In reality we know the payers are putting some restrictions on -- not all payers but some of them.

So most likely the actual treatment is going to be biased towards the sicker patients, and that will start to unfold.

We also saw a very -- as you can see from the chart, 82% of patients naive to treatment.

I guess that would stay the same, possibly even increase as the experienced patients get addressed.

You asked about how we would see that change with other competitors in the market.

I think I would just emphasize we are extremely pleased with the clinical profile of Harvoni.

At EASL last week we saw more data showing how Harvoni can deal with really sick patients extremely effectively and some other genotypes, and that clinical profile will only get stronger during the course of this year as we amass an incredible amount of real-world data, and I think that data will be very advantageous for us as other competitors with no real-world data enter the market next year.

So I think the dynamics of type of patients will change a little bit over time, but there's plenty of patients out there, and we are seeing plenty of patients coming from the diagnosis pool into treatment and plenty to keep this market going for a number of years yet.

And Ian, it's John Milligan.

You asked the second part of the question about the triple and the duration of therapy.

I would say I've read some conflicting reports coming out of EASL, but I can tell you from our own interactions with physicians and thinking about the dynamic of the market, we do think it could get down to a shorter duration.

I think certainly, as Norbert said, the 12-, eight-, and six-week durations that we'll be looking at are triple combination.

It's our goal to try to collapse the most number of patients down to the shortest duration possible, and it will be interesting to see how this triple works across the wide range of different kinds of diseases both by genotype and by stage of diseases where still the severely ill patients have fewer options because many of these agents can't be used in severely ill patients, and they don't tend to cure at higher rates.

We have seen that certainly as you get into Child's B and Child C scores.

I think what will happen here is that it will go down to some easy duration to use, but the pushback we've been getting from doctors and from regulators is that a 6 versus 8 really doesn't matter to them.

In fact, I'm not sure 8 versus 12 matters all that much, as long as it's simple, as long as it's safe, and as long as there's a surety that they will get high cure rates.

That's what they are looking for.

So it's the outcome that seems to matter more than the duration.

And we can also tell you from the regulators' point of view, they don't view shortened duration as an important parameter at all.

So that will create even a further barrier on all of us as we try to get to shorter durations.

If we can't provide that simplicity across a wide range of patients, then it will make it more difficult for those products to come to market.

Phil Nadeau, Cowen and Company.

Good afternoon.

Thanks for taking my question.

On simtuzumab, Norbert, it sounded like in your prepared remarks you said we are going to get the 96-week data at the end of 2016.

I think in prior calls, management had suggested that the 48-week data could come out late this year.

So I guess two parts of the question -- one, are we not going to get the 48-week data from simtuzumab?

And two, what's your most recent thinking on the ability of Gilead to file for approval of simtuzumab on this Phase II data?

Thanks.

So there is a 48-week analysis, but it's a futility analysis that is being done by DSMB.

So if the DSMB comes to the conclusion there is absolutely no chance that we'll ever reach the endpoint, then they will make a recommendation to stop the study, and then, of course, the decision is up to us.

If they don't see that, then they will simply tell us continue.

And the real endpoint is 96 weeks, and by the way, this was negotiated and agreed upon with the FDA.

The FDA felt for something like NASH that is chronic potentially lifelong disease.

48 weeks is not enough of a treatment duration.

They would like to see 96 weeks.

But if we can show a convincing reduction in the cirrhotic studies -- so there are two NASH studies -- one is in cirrhotics -- and at the end point, there is a tiny venous pressure upgrade.

And if we see a clinically meaningful reduction at week 48 and week 96 in HVPG, that could get us potentially accelerated approval under the -- I can't remember what it's called for biologics -- it's subpart H for small molecules guidelines.

Would you care to elaborate on what's clinically meaningful?

If the FDA -- to be honest, I'm not completely informed about HVPG, so we have to have another meeting with them to talk with the thought leaders.

But the thought leaders felt 20% reduction would be a huge clinically meaningful benefit.

That's very helpful.

Thank you.

Robyn Karnauskas, Deutsche Bank.

Hi, guys.

Thanks for taking my question.

So I guess as a follow-up to the color you provide on hep C discount, so does your guidance of 46% still hold?

And how do we think about this quarter -- stocking for the quarter?

And then lastly, when you think about hitting that 46%, how do we think about when you'll do that 46%?

Thanks.

So we made a very atypical statement last quarter by describing gross to net.

And by the way, gross to net is not the same as discounts or rebates.

There are other items in there, and we've taken the view that for competitive reasons -- and I hope you appreciate why -- we don't want to discuss gross to net really ever again this year.

Having said that, during the first quarter, some of the contracts -- and Robin said this in her script that we signed -- started to be executed during the first quarter.

So I would say we are in steady-state really from quarter two, and the guidance that we've just given absolutely reflects our assumptions around gross to net in the US hepatitis market.

I hope that answered -- I didn't quite hear your very last part of the question.

(multiple speakers) Oh, sorry, stocking, yes.

There was actually very minimal stock increase during the first quarter.

I would say not material in the hepatitis market.

A very slight increase of Harvoni stocking matched by a slight decrease in Sovaldi stocking.

Matthew Harrison, Morgan Stanley.

Great.

Thanks, guys.

Appreciate it.

Maybe if I can just ask something -- so both you and your competitor AbbVie have indicated that most of the contracts have started to come in but didn't fully come in and that there is potentially an acceleration -- at least AbbVie has -- of their run rate and their market share into April.

I'm wondering if you can just comment on dynamics in April.

I know you said during the quarter you had about a 90% share.

I'm just wondering if that has shifted dramatically as some of these traditional contracts have come on?

And if I can sneak one in for Robin, can you just say what the one-time impact was from the branded prescription fee on SG&A?

Thanks.

So the April share data I actually don't have anything at my fingertips, Matthew, but I am not sensing any dramatic change whatsoever in the dynamics and the share and the prescriptions that we are getting.

Robin?

Sure, Matthew.

To your point, the majority of the SG&A quarter-on-quarter decline was driven by the one-time impact and then a further decline because we got a preliminary invoice from the IRS.

So we took down our accrual a bit -- under $200 million associated with the new estimate that we have gotten.

And I'll reemphasize that it is just an estimate, so we'll see what happens longer-term when we get the final invoice in August.

Cory Kasimov, JPMorgan.

Good afternoon, guys.

Most of my questions were already asked, but for Robin, can you comment more on the impact or magnitude of the unpaid rebates and from the cash flow standpoint that you alluded to in your prepared remarks?

Sure.

So, as you know, we have a significant increase in contracting that occurred in Q1, primarily related to Harvoni.

It usually takes the payers and governments up to about three months to six months -- sometimes even nine months to ultimately come back and charge us for those rebates or chargebacks.

So if you looked at our cash flow, it grew over $2 billion quarter on quarter.

So all we were saying is that just because that cash hasn't actually been paid out.

So our run rate probably is not at the $5.7 billion going forward in further quarters.

Does that make sense?

Yes, that's very helpful.

Thank you.

Howard Liang, Leerink.

Great.

Thanks very much.

Regarding the patients treated, the fibrosis data of patients treated, you gave us the stats in US.

Can you talk about similar information for Europe, and can you also give us a sense of the pricing points that you negotiated in Italy and Spain and the budget cuts?

Sure.

So fibrosis scores in Europe interestingly do vary somewhat between countries.

So, in fact, in Germany, they are fairly open treatment restrictions.

Therefore, this a range of patients from sick to not sick being treated.

And that's different in France and in Italy and Spain in particular where the budget constraints are really ensuring that only the sicker patients are being prioritized at this stage.

So really in Spain and Italy, for example, the majority of the French patients are F3 and F4.

Price points?

I wouldn't comment on the price points, except that the listed price points are between EUR41,000 and EUR45,000 for Sovaldi, and we would anticipate probably a premium of around 15% for Harvoni when those numbers get them out.

Thank you.

Terence Flynn, Goldman Sachs.

Thanks for taking the question.

Just wondering on the HIV franchise, now that you have a very broad strategy with respect to the TAF combos, can you help us think about just the longer-term market share that you think you can retain post the entry of generic Viread and maybe some other generic competitors down the road as you think about the longer-term longevity of that franchise?

Thank you.

Well, that's a really tough question, predicting into the future.

Today, as I think everybody knows, we have a very substantial market share in the HIV world, and even in this quarter, we see in the US about eight out of 10 patients naive to treatments going to a Gilead product.

About six out of 10 are getting a Gilead single tablet regimen with a Truvada backbone.

And we are seeing very good growth of our Truvada-based single tablet regimens like Stribild, which has grown 75% year on year compared with 33% year on year, and you can see both in Europe and in the US that the top three or four regimens remain Gilead single tablet regimens.

So we are in a very kind of strong position today, and we are competing with the GSK products, and we do see their impact.

For example, we were getting seven out of 10 patients in the US on a Gilead single tablet regimen.

We are now getting about six, but I do think that emphasizes the single tablet regimens are the way forward here.

We have very strong data with E/C/F/TAF, and we hope to have switched data at launch.

And as we mentioned earlier, the PDUFA date is 5th of November this year.

We are getting our organization very much tuned up for that launch, and we'll be focusing, of course, on really trying to bring the conversation back to the importance of a great backbone, and we have great confidence that the F/TAF backbone is an innovation over Truvada with very high efficacy and safety benefits, which are really increasingly important for the aging HIV population.

So I think that is all about whether doctors feel that the F/TAF backbone warrants priority, and we are going to make sure our medical organizations and our therapy area specialists out in the field convey that data very clearly.

Ying Huang, Bank of America.

Thanks for taking my questions as well.

Firstly, I was looking at the Sovaldi weekly NRX number, which is about -- stabilizing at about 600.

What are those patients?

Are those just type 2 or genotype 2 and 3 currently being treated with Sovaldi?

And should we use that as a steady rate if we do, GT1 versus GT3 at about a 4 to 1 ratio in the US in a steady-state in the future?

And then the second question here is about the, I guess, payer mix.

So you said that in the first quarter, it's 70/30, but in the next three quarters, what is your assumption for the payer mix for a steady market in the US?

There's two questions in there.

The second question, I think we think that the payer mix will stay relatively steady, and the reason, as I said earlier, the 70/30 was because these are the broad buckets of rebate kind of rates.

So we think that will remain steady.

John, do you want to answer the first question?

The first question was about where is Sovaldi being used, and it is principally used in genotype 2 and genotype 3 patients.

As we exited the quarter, it was clear that there were still some patients on salt plus simeprevir -- probably patients finishing out their regimen from last year.

We don't know if that will continue or not, but I expect there is a smattering of use in certain patient types for that, and I think there's probably still a little bit of use for patients in combination with interferon.

And your question was about the run rate.

I think there seems to be a steady flow of patients for genotype 2 and genotype 3 in the United States, but Harvoni is quickly making Sovaldi obsolete in many areas.

And I suspect as more data rolls out, there will be more and more Harvoni use and less and less Sovaldi use.

There is a little bit more of a different genotype profile in Europe.

Some of the countries have more genotype 2 and genotype 3. UK actually is an example of that.

So we would expect Sovaldi to continue to have some utility and especially in some countries like the UK for example.

Thank you and thank you all for joining us today.

We appreciate your continued interest in Gilead, and the team here look forward to providing you with updates on future progress.

Thanks.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Everyone have a wonderful day.