吉利德科學 (GILD) 2015 Q3 法說會逐字稿

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

My name is Candace and I'll 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, Candace.

And good afternoon, everyone.

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

Th e press release and detailed slides are available on the investors relations section of the Gilead Sciences website.

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

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

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 products, product candidates and financial projections, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements.

A description of these risk 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 would now like to turn the call over to John Martin.

Thank you, Patrick.

And thank you, everyone, for joining us today.

Paul and Robin will address commercial and financial highlights in just a moment.

I would like to first comment on some of the significant progress we have made on our drug development programs during the quarter.

First, as you are aware, three NDAs and marketing authorization applications for TAF-based regimens for the treatment of HIV are currently under review by FDA and European Medicines Agency, which could lead to approval of three new products in the next six months.

The PDUFA date for the first TAF-based regimen, FTC/TAF, or Genvoya, is next week on November 5. In September the European, the CHMP, adopted a positive opinion on the marketing authorization application from Genvoya.

And the final regulatory decision is expected by the European Commission by the end of this year.

Our second TAF-containing product, F/TAF, has been assigned a PDUFA date of April 7, 2016.

And in the EU a CHMP opinion could be adopted in the first quarter of 2016.

F/TAF met its primary 48-week objective in an ongoing Phase 3 study conducted among 663 HIV-infected virologically suppressed adults who were randomized to either maintain their Truvada-based regimen or switch to an F/TAF-based regimen.

At week 48 the F/TAF-based regimen and the Truvada-based regimens achieved similar rates of by virologic suppression based on the proportion of patients with HIV RNA of less than 50 copies per mL.

The safety profile of F/TAF was consistent with that observed in previous TAF studies, including improvements in bone and renal laboratory parameters.

Marketing authorization applications for RF/TAF were submitted in the US and the EU in July.

FDA assigned a PDUFA date of March 1, 2016, and a European Commission decision is expected in the second half of 2016.

The application is supported by data on that use of RF/TAF for the treatment of HIV infection in adults and pediatric patients 12 years and older.

Finally, we are investigating two additional TAF-based single-tablet regimens.

TAF emtricitabine and GS-9883, Gilead's proprietary integrase inhibitor, for which we will initiate Phase 3 studies this quarter, and TAF emtricitabine cobicistat and Janssen's darunavir, DCF/TAF, which is being developed and will be commercialized by Janssen.

HIV patients are living longer, thus facing additional health challenges to those experienced by newly-diagnosed patients a decade ago.

Our teams at Gilead and the healthcare community overall are motivated to continue improving on existing treatment options.

The need for efficacy, together with improved long-term safety, has driven Gilead development programs and the design of the studies we have completed and those that are planned.

We look forward to introducing this new generation of TAF single-tab tablet regimens that we have created to address the evolving needs of people living with HIV.

TAF is also being evaluated for the treatment of chronic hepatitis B. Data from two Phase 3 trials may be available before the end of the year with regulatory submissions expected in the first quarter of 2016.

Moving to prevention of HIV infection, there is a clear and growing enthusiasm for PrEP.

WHO issued new guidelines that will significantly increase the number of people who are eligible to receive Truvada for PrEP.

We continue to work across multiple fronts to help ensure that Truvada for PrEP is used safely and appropriately as part of a comprehensive strategy to prevent HIV transmission and preserve health.

Turning to HCV, one of the biggest achievements we have made as a Company relates to the manufacturing of our NS5A inhibitors, ledipasvir and velpatasvir.

API production is complex and involves multiple novel steps.

Both molecules are high molecular weight compounds that need to be spray dried in order to be approve their oral absorption.

We have increased production capacity around the world to meet the unprecedented demand for HCV therapies.

And this continues to be a focus as we bring forward the next generation of pan-genotypic fixed-dose combinations to patients around the world.

Last month we announced positive top-line results from four international Phase 3 ASTRAL studies evaluating our fixed-dose combination of sofosbuvir and velpatasvir, or GS-5816, for the treatment of chronic hepatitis C across genotypes 1 through 6. The ASTRAL study results demonstrate that a 12-week course of therapy, with the first fixed-dose combination of two pan-genotypic compounds can provide high cure rates for patients across HCF genotypes 1 through 6.

Sofosbuvir and velpatasvir have been granted accelerated assessment in the EUD, potentially shortened the review period by four months.

We expect to file for regulatory approval in the United States in the coming weeks.

The detailed results from these Phase 3 ASTRAL studies and other data will be presented at the annual AASLD meeting, which will commence on November 13 in San Francisco.

More than 70 Gilead program-related abstracts have been accepted, highlighting the scientific progress across our liver disease pipeline including HCV, HPV, NASH, and PSC.

Finally, we received European approval on several supplemental new drug applications for Harvoni that expand the indicated use to include HCV-HIV co-infected patients, advanced liver disease and post liver transplant recipients, and patients who have previously failed treatment on a sofosbuvir-based regimen.

In the US we are waiting FDA action on application to expand the indicated use of Harvoni to include HCV-HIV coinfected patients, patients with genotype 4, 5 or 6, and treatment experienced and cirrhotic patients.

A decision from FDA for each of these sNDAs is expected by November 13.

Another sNDA was filed on August 28 to expand the indicated use of Harvoni in the US to include advanced liver disease and post liver transplant patients.

In the area of cardiovascular disease, on October 2, FDA approved the use of Letairis in combination with Tadalafil for the treatment of pulmonary arterial hypertension to reduce the risk of disease progression and hospitalization for worsening PAH and to improve exercise ability.

The new labeling is supported by data from the AMBITION study.

In this clinical trial, first-line treatment of pulmonary arterial hypertension, with a combination of Letairis and Tadalafil, reduced the risk of disease progression by nearly 50% compared to either therapy individually.

This combination represents a new treatment strategy for patients living with this debilitating and life-threatening disease.

Our partner GlaxoSmithKline, which commercializes Letairis outside the United States, announced on Friday that the CHMP granted a positive opinion to expand the indication for Volibris, as ambrisentan is known in Europe in combination treatment for PAH.

Lastly, I wanted to mention our work on Ebola.

In the summer of 2014 news of an Ebola consumed the world, with the virus infecting approximately 30,000 and killing almost half of those individuals.

Commerce, travel and healthcare systems around the world were impacted.

At that time our scientists had engaged in an extensive evaluation of nucleotides with activity against RNA viruses.

We were able to quickly select GS-5734 as a candidate for development.

All necessary IND-enabling studies were completed and we initiated a clinical trial on healthy volunteers in August of this year to assess the safety and pharmacokinetics of the drug.

In parallel, convincing efficacy data obtained from studies in Ebola-infected animals were presented at the ID Week meeting earlier this month in San Diego, showing full protection of animals treated up to three days after infection with a lethal dose of the Ebola virus.

As you may know, Royal Free Hospital in the UK announced last week that they dosed a relapsing Ebola-infected patient with GS-5734 following a request to Gilead for compassionate access.

This is another example of how individuals at Gilead take initiative to address unmet medical needs.

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

Thank you, John.

I'm very pleased to provide an update on our commercial performance, which in the third quarter generated $8.2 billion in worldwide net product sales.

US product revenue reached $5.6 billion, which was in line with the prior quarter and up 33% compared to $4.2 billion for the same period in 2014.

European product revenue reached $1.7 billion, which is down 15% sequentially from the second quarter, mainly reflecting expected summer seasonality, but up 17% on a year over year basis despite absorbing a negative 11% foreign exchange movement.

For the rest of the world, which includes Japan, product revenues were $958 million.

Beginning with hepatitis C, we continue to be pleased with the number of patients we are reaching with Sovaldi and Harvoni which are now approved in 57 and 44 countries, respectively.

Total HCV revenue for the third quarter was $4.8 billion, a 2% decrease over the second quarter and a 70% increase year over year.

In the US HCV product revenue totaled $3.2 billion, with Harvoni representing more than $2.5 billion of that amount.

We saw a gradual downward trend in demand for the retail market during the third quarter but less so in the non-retail sector, largely due to increased spending by the VA.

Since the beginning of the year approximately 190,000 US HCV patients started on treatment on a Gilead product.

This represents a Gilead market share of more than 90% of HCV patients, reflecting the positively differentiated profile of Harvoni in particular.

In fact, Harvoni and Sovaldi continue to perform well in real-world settings with safety, tolerability and cure rates comparing favorably to those observed in our clinical studies.

Several of these real-world data sets will be presented at the upcoming AASLD conference in San Francisco.

That being said, payer restrictions, including eligibility criteria based on fibrosis score or other patient characteristics, still remains to varying degrees.

We expect those restrictions could lessen over time as patient volume become more predictable and payers recognize the benefits of treating less sick patients earlier, and further benefiting from the value of just eight weeks treatment for many GT1 patients.

As I commented last quarter, we saw an unusually large number of patients starts in the US in the first quarter of this year, which reflected the rapid access to treatment for many warehoused patients.

It is clear that the number of warehoused patients is now diminished.

We anticipate that the rate at which new patients start treatments at the end of this year may be more indicative of the pace of new patient starts in 2016.

Turning to Europe, HCV revenue was approximately $870 million this quarter, with around 80,000 patients beginning treatment with Harvoni or Sovaldi since the start of the year.

We saw strong demand for Harvoni, particularly in recently launched markets like Spain and Italy.

In early launch markets like Germany, which, as in the US, saw an initial large spike in warehouse treatments in the first few months after launch, we are now seeing a lower but more predictable and consistent level of patient starts.

In the UK we are delighted that NICE, the government's health technology assessment agency, issued its final appraisal determination for Harvoni.

NICE has found Harvoni to be cost-effective and recommends that the National Health Service fund Harvoni to treat the majority of adult patients with HCV genotype 1 and 4 in England and Wales.

On the reimbursement front, we have recently received expanded approvals in Austria and Sweden.

We also received broad approval in the Netherlands and Poland during the quarter and will launch Sovaldi and Harvoni in both countries next month.

Looking ahead in Europe, we anticipate that our HCV revenues will be constrained by country-specific budgets rather than the number of patients in need of treatment.

We will continue to work hard to educate governments and other groups about the benefit of diagnosing and treating HCV-infected people as early as possible.

Turning to Japan, we are very pleased with the execution of the launches of our two HCV products.

HCV revenues for the third quarter were $454 million.

Since the launch of Sovaldi in May and Harvoni in September, through the end of the quarter we have generated sales of approximately $515 million in Japan.

The Japanese Society of Hepatology has recently updated HCV treatment guidelines to reflect Harvoni, as well as Sovaldi in combination with ribavirin, as first choice in treatment for patients with genotypes 1 and 2, respectively.

To conclude my comments on HCV, we recognize that there remains a huge unmet medical need around the world, and that just a small fraction of diagnosed patients have been treated so far, even in the early lunch markets.

A key objective for Gilead moving forward is to bring diagnosed and undiagnosed patients into care.

It's clear that governments, healthcare, systems, policymakers, payers, patients and healthcare advocacy groups recognize the opportunity to treat many more people now that we have simple, safe and highly effective medicines for HCV.

We are working together with them on a number of fronts with the aim of bringing all diagnosed yet untreated patients into care over time, while recognizing capacity and budget constraints.

We are also working on programs to encourage more screening and increase the level of diagnosis and subsequent linkage to care.

This is akin to the work we have done over the years with HIV in both the most developed and the poorest countries where step-by-step we have seen great progress.

Today we have Gilead teams around the world focused on collaborating with these diverse groups and supporting their efforts towards a long-term ambitious goal of controlling and possibly eliminating HCV.

Indeed, we have several collaborations in different countries and different settings that aim to demonstrate that upscaled HCV intervention and treatment can be highly impactful to individuals and public health care systems.

In conclusion, we see progress, encouraging trends and remain highly confident in the long-term sustainability of the HCV market in the United States, Europe, Japan and many other countries around the world.

Now turning to HIV, this course of revenues increased 7% year on year to $2.9 billion as our Truvada-based franchise continued to hold its market leadership position.

In the US revenues were more than $1.9 billion for the third quarter, a 16% increase from a year ago.

Underlying prescription demand remains strong for both Stribild and Complera, with year-on-year growth of 44% and 14%, respectively.

During the course, 7 out of 10 patients initiated treatment with a Gilead regimen.

HIV revenue growth also benefited from renewed purchasing from the VA and a slight increase in wholesaler inventory.

In Europe HIV revenues were $715 million for the quarter, down 4% from Q2 and 12% year over year due to foreign exchange impacts and mandatory price cuts.

However, prescription volume growth remains strong.

Eviplera and Stribild are the number one and number two treatments, respectively, for treatment-naive patients in the five largest markets in Europe.

These single-tablet regimens are maintaining a strong franchise share in the face of competition.

Looking to the future of HIV, John already gave a detailed account of where we stand on the regulatory front in bringing our TAF-based treatments to market.

And I can say that the Gilead commercial organization is focused on ensuring a successful launch.

We are excited about it and prepared for the launch of Genvoya or ECF/TAF as early as next week.

In closing, we are very pleased with the commercial results of the third quarter.

And I'll now turn call over to Robin.

Thanks, Paul, and good afternoon, everyone.

We are pleased to report third-quarter results with non-GAAP diluted EPS of $3.22 per share for the third quarter, up 75% year over year.

Total revenues were $8.3 billion, up 37% year over year.

Net product sales for the third quarter were $8.2 billion up 38% year over year, driven by the launch of Harvoni across various geographies, continued growth of Sovaldi outside the US, driven primarily by Japan, and increased sales of our newer HIV single-tablet regimen.

US net product revenues during the quarter have benefited from strong VA purchases following allocation by Congress of $500 million in additional funds for HCV treatment.

Non-GAAP product gross margin was 90% for the third quarter of 2015 compared to 87% for the same quarter of 2014.

Gross margin benefited from changes in product mix including a year-over-year decline Atripla sales which have a lower margin and an increase in HCV product sales.

Turning to expenses, non-GAAP R&D expenses were $713 million for the third quarter, up 22% compared to the prior year due to the continued progression of our clinical studies, particularly our HIV TAF-based program.

Non-GAAP SG&A expenses were $850 million for the third quarter, down 4% compared to the prior year, primarily due to a cumulative catch-up of the branded prescription drug fee in the same quarter last year, partially offset by higher expenses associated with the growth of our business, including our commercial expansion to support our HCV products.

Turning to our balance sheet, we ended the third quarter with $25.1 billion in cash and investments, a sequential increase of $10.4 billion.

During the third quarter we issued $10 billion of senior unsecured notes and generated cash flow from operations of $4.1 billion.

The approximately $1.6 billion sequential decline in operating cash flow is due to the timing of cash payments related to current liabilities, which include rebates associated with Harvoni sales.

Recall that during our Q1 earnings call I mentioned that unpaid rebates associated with the launch of Harvoni may impact future cash flows as they are paid out.

We continue returning capital to our shareholders through share repurchases and dividends.

During the quarter we repurchased 28 million shares for $3.1 billion.

As of September 30, we have $11.1 billion remaining under our current share repurchase plan and remain active in purchasing shares.

Through our purchase program we have reduced our diluted shares outstanding to 1.5 billion.

Shareholders received a cash dividend of $626 million in September.

And this afternoon we announced our Q4 2015 quarterly cash dividend of $0.43 per share.

In total, in the first nine months of 2015, we have return more than $8 billion in cash to shareholders in the forms of dividends and share repurchases.

Including our Q2 2015 warrant settlement of $3.9 billion total cash returns to shareholders have exceeded $12 billion year to date.

Finally, in regards to full-year 2015 guidance, which is outlined on slide 45 of the earnings deck, we are increasing our net product revenue guidance and now expect product sales to be in the range of $30 billion to $31 billion.

All other components of our 2015 guidance remain unchanged.

In summary, Gilead had another successful quarter.

We believe our strong financial position and our future cash flows provide us with financial flexibility and support our pipeline growth and take advantage of external opportunities as they may arise.

Thank you.

And we would look forward to updating you on our progress during our next call.

We would now like to open the call for questions.

Operator?

Mark Schoenebaum, Evercore.

Hey, guys, thanks a lot for letting me have the first question.

I really appreciate it.

And John Martin, it was nice to see you a couple weeks ago in California.

I wanted to ask about GS-9883.

Maybe you talked a little about this in the prepared.

I had to hop on and off.

But it looked like that has been accelerated.

This is the unboosted integrase inhibitor.

It looks like that's been accelerated.

I looked back at your slide deck from last quarter and you were just talking about viewing the Phase 2 data around the end of the year.

So, I was wondering if you could talk about that product and what gave you the confidence to move into Phase 3?

Because this is obviously transformative to the HIV business once you combine it with TAF.

What is the IP on 9883?

When should we model a loss of exclusivity for 9883.

Thank you.

Mark, I will answer the first question.

We have Phase 2 data.

W had discussions with FDA.

They've accepted our plan so it will be two studies.

One will be, as we call it, a single variable experiment where we compare 9883 to dolutegravir in the background of F/TAF.

And the other one will be a double variable experiment.

We'll compare the two single tablet regimens, Triumeq versus 9883 F/TAF single-tablet regimen.

We hope to enroll the study by the end of this year -- start enrollment -- so it's all fast-forward.

And the IP?

Mark, it's a good question.

We're scrambling right now because I don't have that one in front of me.

It's a fairly recent invention from Gilead.

So, I think it is pretty far out there.

But we will get that number out for you as soon as we can.

And the plan is to combine this with TAF and whatever you would have.

You would have a single-tablet regimen unposted with the most desirable new TAF through, presumably, 3030 or so.

Correct -- well, 2030.

Okay.

I'll let everybody else ask about HCV.

But you're correct, it is going to be an STR because of the amount of API, the active pharmaceutical ingredient, in that table is, in fact, going to be one of the smaller StRs available.

Mari, it's small, a single tablet regimen.

And does this compound have any known advantages over the current umboosted integrase out there that you're willing to talk?

And then I'll stop.

Mark, I'm not sure clinically it will have any advantages.

It had some slight advantages in vitro with systems.

Okay, thank you.

Geoff Meacham, Barclays.

Good afternoon, guys.

Good quarter and thanks for taking the question.

I've asked this before in hep C but is there anything you guys can do to further incentivize payers to cure more F0-F1?

I look at the fibrosis data on slide 25 and it looks to be going the wrong way when you compare that to Q1 or Q2.

And a related question, just from last week given label changes from your competitor, you guys anticipate going back to payers where formerly your status for Harvoni or Sovaldi wasn't as favorable.

Thanks.

On the first question, we still see, as you recognized in the chart, very high levels of restrictions still through F0 and F1 patients.

And we see this in a formal way in the contracts that we're working with.

But we also see it qualitatively when we talk to doctors where, dependent on insurance company, doctors, I think in some case, don't even bother to write prescriptions because they know they're going to be rejected.

And we do see the rejection rates and some of them are quite high.

But I think we just need to keep encouraging our partners to try and treat earlier and consider treating less sick patients.

And I think as we see these patient flows -- and this is pretty much the same answer I gave last time, as well, I'm afraid -- but as we see patients flows begin to stabilize and become more predictable, that does work better with the payers and the PBMs' models.

Again, I hope that will encourage them to consider treating people early.

And, of course, finally, they do get much better value, especially for the less sick GT1 patients if they treat for eight weeks.

So we hope all of that will continue to encourage them.

But it is a bit frustrating, I agree with you.

Geoff, the second part of your question is would the label update from our competitor allow us to go back in the contract.

And I would say that's really not the philosophy here.

I think people who are choosing between us and the competitor have to make decisions on behalf of the plans, their ability to pay and the patients that they want to treat.

And it would really be up to them to look at the level of access that they want to give because, frankly, the 2016 contracts are all in place.

Those have been negotiated and the payers, we've left it up to them to determine the level of access that they would want to give to us versus them, and, as Paul pointed out, also the level of access they are willing to give to patients with lower fibrosis scores.

I'm sure every new data set that comes out allows them to rethink a position, but from where we are right now I don't see any major changes occurring.

Maybe I could just add, John, we are very happy, as I mentioned in the script, there's plenty of real world data sets coming out, and really do, I think, hopefully, give payers the confidence that investing in relatively expensive medicines is worthwhile because of the cure rates and the tolerability and safety profile.

The more real-world data sets that come out, I hope that will be encouraging.

And, finally, yet again I'd say the opportunity to say that Gilead believes in making sure that prescriptions are in the hands of physicians and their patients and not forced upon them by exclusive contracts.

So, all of that we hope will encourage perhaps a rethink.

Got you.

Thanks, guys.

Matt Roden, UBS.

Great, thanks very much for taking the question.

Congrats on a nice quarter here.

Paul, you mentioned bringing the undiagnosed into care.

We've seen some data showing pilot screening projects by various public and private parties has increased the identification of undiagnosed patients and the linkage to care.

The question is, how is the screening effort going to be handled going forward?

How is it going to be scaled up?

And do you see any tangible evidence that the screening has brought more patients into care over the past year?

And then, lastly, I think the Department of Health and Human Services wants to get to 66% of the US hep C population diagnosed by 2020.

Do you think that's achievable?

Thanks.

We are very busy behind the scenes.

In fact, we just had a conference here locally last week with a number of partners that we're working with.

We have a program called Focus.

We have partners with about 100 different external organizations across, I think, 18 cities so far across the US.

And the objective here is increasing diagnosis with various programs around screening and then, importantly, linkage to care.

There's a whole list of programs that we've been hearing about their initial work.

One of the things that is quite surprising, I think, to everyone is that the levels of prevalence, albeit in fairly high targeted areas, have been way higher than people anticipated.

Roughly double, in fact, the numbers that people have expected.

As for the DHSS question, I can't really comment on that.

But there is a lot of work going on out there.

And because, I think, of the simplicity of the treatments and the very high levels of SVRs we are seeing, people are getting more encouraged to address the problem.

Thanks very much.

Michael Yee, RBC Capital.

Hi, thanks.

Following up on some hep C, on slide 25 where you nicely break out the scripts which had been written, can you take that a little bit further and maybe quantify what you think are the breakdown of fibrosis for scripts filled?

Is that primarily all F3-4?

And to further move beyond that, what are the one or two or three things you are trying to work with the payers and trying to understand?

John said that you didn't really expect it to change anytime soon.

So, should we expect to continue the current trends we're seeing with US scripts as they are?

And where do you think that bottoms out to?

Thanks.

The slide you're looking at the top right-hand corner, is the fibrosis scores.

I just want to emphasize the title on the top here.

This is intent to treat, so essentially this is prescriptions that are written but not necessarily filled.

And what we do know is that, although it suggests that half the scripts are F0 through F2, we know that a lot, probably the majority, of those F0 through F1, at least, are not being filled, certainly by some of the payers who are easy to identify.

In the F2 area, it's a borderline situation.

We know this quantitatively.

But, again, we also know it qualitatively through our sales force and our interactions with physicians where it's still quite hard work to get F2 patients through the prior authorization process, and time-consuming and bureaucratic.

So, so it's a situation that's frustrating for everyone.

As I said in my comment just a couple minutes ago, I think that as we see treatment flows becoming more predictable, as we see more real-world data with the products building a higher level of confidence that SVR rates and safety profiles are good, that we hope that payers will start to relax criteria around fibrosis scores and other patient characteristics that we've seen acting as barriers to treatment.

We will continue, as we have done and will do, to talk closely with our payer partners, and try and encourage them to treat more people and reduce these barriers to treatment.

Brian Abrahams, Jefferies.

Hi, thanks for taking my question and congrats on the nice quarter.

You recently reported some promising data for the [sofbel] regimen, including in genotypes 2 and 3. I'm wondering how should we be viewing this as a potential revenue expander in those genotypes?

Should we think about that regimen as potentially increasing market share because of its better convenience?

You guys potentially having better pricing power because you're eliminating the ribavirin component?

Or is it more likely to be positioned as really a defense against competitive entrants going forward.

Thanks.

Thanks, Brian, it's John Milligan.

Just to be clear, when we thought about this product, we thought about it being a better alternative medically for patients of genotypes 2 through 6. And that includes some patients in the United States but a vast majority of patients who fall in that category are, of course, outside the United States, with Harvoni maintaining as place in genotype 1, particularly because, as Paul is alluding to, we have such a very strong safety data set now on Harvoni, including over 600,000 patients who've been treated with sofosbuvir now in various forms, the fact that we have the eight-week option for patients which provides quite a savings for the appropriate patient, and, as we've seen very high cure rates in real-world settings of that eight-week regimen.

So, I do think there's going to be some patients who would benefit from the shortening of duration, not having to go to 24 weeks, in some cases, not having to have ribavirin in other cases, and allowing us to then have a very good option for those patients 2 through 6. I don't think there's a big warehouse effect of patients waiting for that but I do think this provides a very important option for patients who would want a pan-genotypic option, and for doctors who may not be able to genotype as effectively.

So, I think it's a very important breakthrough for us and will allow us to continue the longevity of the franchise, more so than provide any sort of bolus effect upfront.

That helps, thanks.

Cory Kasimov, JPMorgan.

Good afternoon.

Thanks for taking the question.

Obviously M&A has been and continues to be a big topic of conversation.

However, given the volatility in the markets since your last quarterly call, I'm wondering if you've detected a shift in the receptivity from other companies with the valuation resets many have seen.

Basically curious whether or not you think this kind of market makes it harder to get a deal done.

Thanks.

I guess there's an implication that we've been out making offers.

I don't think the market really changes all that much dynamically in terms of M&A activity.

So, I cant tell you if people's expectations have changed based on valuation changes.

But I've seen these cycles go up and down over the years, and when there's a deal to be put together and it's timely, it can be done.

So, I don't think it changes the overall outlook for M&A at all.

I think, from my perspective, it's about the same as it was at the beginning of the year.

Okay, thank you.

Phil Nadeau, Cowen and Company.

Good afternoon.

Thanks for taking my question.

Paul, in your prepared remarks you suggested that the volumes that we see at the end of this year will be more indicative of what to expect in the US in 2016.

That kind of suggests that we probably will see a stabilization of script trends.

I'm curious why you think that?

What data points do you have that suggest that's likely to happen?

And also, what makes you think that what we see at the end of this year is going to be extrapolatable through the end of next year?

Hi, Phil, thanks.

First of all, I'd say you see the same data that I see with the weekly scripts.

What you don't see is the non-retail sector, perhaps.

And you may not see what we call NV Rx which is the new to brand, which is essentially the new starts data.

I think that we're fairly confident we've now seen a flattening out of the trend of patient new starts in the US.

As I said earlier, I said a couple times now, we saw a very strong first quarter which really was reflecting the warehousing of patients waiting for Harvoni in the US.

And Harvoni was such a step change for GT1 patients.

But we've had a fairly flat two quarters in terms of patients starting on sofosbuvir products.

In quarter four last year, just to put it in perspective -- and Harvoni was already launched then, by the way -- we saw about 45,000 patients being treated.

Then we had this big bolus in quarter one, about 70,000 patients.

In quarter two we saw about 62,000 and in quarter three we've estimated about just around 60,000.

So, it's flattening.

And when you add the retail and the non-retail together.

And as I said, as we go into quarter four, I think we can expect that to be fairly stable as we go into next year.

Having said that -- and again, from my prepared remarks -- I emphasize that we are doing a lot of work across the country and around the world to work with governments and other stakeholders to really try and encourage earlier treatments, more screening, and so on, so that we can extend this hepatitis C business for many years.

And we think that's going to be the case because even now we've treated just a tiny fraction of the diagnosed patients and hardly touched the undiagnosed area in terms of volume and potential.

So, we are very confident of the future.

But 2016 I think will be a more stable year in the US.

And just so I'm clear, does your comments about 2016 rely in any on an opening of restrictions in who gets reimbursed in the US?

Or is this simply restrictions stay the same and patients start working through the system?

I think it is going to be patients working through the system.

But I think we're fairly optimistic that over time, and it may take a little bit longer time than shorter time based on what we've seen so far, those fibrosis scores another patient characteristics which would represent barriers to start treatment will be relaxed somewhat.

And it's self-fulfilling, in a sense, that predictable and stable patient flow works with the business models of the payers.

I think they will start to feel more comfortable about relaxing constraints.

So, gradually we should start to see more patients coming through.

Just one last followup -- in Europe you said that the volumes are more dependent upon the reimbursement levels of governments.

Can you give us some sense of where we are in comparison to the reimbursement limits that have been set by governments?

Are we bumping up against those constraints or is there still a ways to go?

We have to be fairly specific by country.

Looking at Europe in aggregate doesn't necessarily paint the picture.

So, let me just talk you through quarter three what's been happening I think in Europe.

We've seen early launch markets like Germany begin to stabilize at lower levels but more consistent levels.

And that's a parallel somewhat to what we saw in the US.

So, that would be Germany and France, being the early launch markets.

We're then seeing markets which have high prevalence and ambitions to treat a lot of patients, like Spain and Italy, really starting to address their warehoused patients in quarter two, and starting to go into quarter three.

And we've seen, I would suggest, somewhat of a spike in those countries.

And we would expect those going forward to come down to lower levels but more consistent levels.

And then we started to see new markets like the UK coming on stream during quarter three.

A confusing aspect in quarter three in Europe is because there's a very high level of vacations in July and August, not just for patients but for treaters and wholesalers and so on.

So, there's assumed moving parts there.

Going forward I would expect Europe to start to flatten out and stabilize somewhat.

But, of course, as I said, there's different dynamics country by country.

And I mentioned in the script a couple of the smaller countries who haven't even launched yet but we will be launching in the next quarter.

That's very helpful, thank you.

(Operator Instructions)

Wendy Lam of Oppenheimer.

Hi, guys, thanks for taking my question.

I may have missed this earlier in the call but I was wondering what percentage of patients on Harvoni were on the 8-week versus 12 week regimen.

I believe last quarter you said it was around 40%.

I was wondering if that's changed much this quarter.

And just one quick question on simtuzumab.

For the 48-week interim utility analysis this quarter, will there being any announcement of the results, whether negative or positive?

Or do we have to wait for the 96-week results?

Thanks.

I'll answer the first question, which is the 8-week regimen.

Our estimate is about 40% of GT1 patients in the US, which is similar to last quarter, have been on the 8-weeks regimen.

That hasn't changed too much.

If you look at just the epidemiology and look at the GT1 patients who would qualify for 8 weeks, that's more like 70% of those.

So, I hope that answers that part, and I'll hand you over to Norbert.

Wendy, I would say the answer to the 48-week is there won't ben an announcement.

The FDA -- we have agreement with FDA.

The endpoint in that study is [HVP3] hepatic venous pressure gradient.

And FDA felt that the 48-week data would really not suffice for approval but we needed 96-week data.

Now, of course, there could be the possibility of some spectacular result like prevention of SEAs or something like that.

Or the opposite, also.

There could be surprise about harm, in which case the DSMB could make the recommendation to either stop the study or unblind it.

But I think that's unlikely.

Okay, thanks, guys.

Ying Huang, Bank of America Merrill Lynch.

Thank you for taking my question, as well.

First of all, I think John was saying that the 2016 contracts with the payers are pretty much in place and there's major change in access.

I was wondering what would prompt a payer to actually provide wider access?

Would the lower pricing give you guys more access?

And in relation to that, there's a third payer coming to the market for HCV in January.

What's your view of the pricing trends in the market in 2016?

This is John Milligan.

As I said earlier, the contracts have been finalized for 2016.

That always happens earlier in the year.

In fact, we're already starting to talk a little bit about 2017 with the payers.

And they have a range of options.

Much like they had in the past, they can choose what level of rebate they would want to have based on their ability to open up access.

I think 2015 was a bit of a shock to the system with the warehoused patients and, as Paul implied, next year we think will be a much smoother base from which we can then try to impact the growth of the overall market.

So, they will have options based on how they negotiate with their clients to open up access or not for next year.

That will be an ongoing discussion with them and within their internal groups, as well, as the data emerge on this.

So, we feel very positive about this in the long term and it sometimes just takes data and time for these things to work themselves out.

Just quickly, I know you guys made a 46% gross to net announcement.

Probably you cannot give us a quantitative answer but qualitatively speaking can you talk about the gross to net adjustment trend in Q3 versus Q2 and Q1?

No, we're not putting that number out there for the gross to net.

I think one thing, to focus on what Paul had said earlier, what we are seeing is a trend toward shorter therapy.

So, a lot fewer use of the 24-week option for patients and then a lot of the 48-week option for those patients.

That is a real benefit driving the costs down by bringing in shorter care to the patients, as well.

So, that's what you would expect as the more sick patients in those categories work themselves through.

You also had a question about competitors coming to market.

We feel very strongly about our position in the market.

We feel very strongly about the value that we've been able to bring and, importantly, the safety database that we have that will give us a very strong position in the market regardless of who comes in in the future.

Thank you.

Matthew Harrison, Morgan Stanley.

Great, thanks for taking the question.

I wanted to ask, I saw on your milestone chart you have that you're going to start a Phase 3 studies for the triple HCV regimen, you said in the fourth quarter of this year.

So, I'm wondering what you hope to achieve there.

I know you've looked at 6, 8 and 12 weeks, and what duration you think you're going to being going forward with, and what impact you think that could have on the market.

And then, separately, if you're willing, could you quantify for us how big the VA tailwind was to you?

Thanks.

Matthew, our thoughts for the triple combination HCV regimen is two-fold.

First of all, we're going to do one study -- and we still have to talk about all the details -- that will explore the utility of the triple combination regimen to be a universal salvage regimen.

So, whatever you have failed before, whether it's [non-nukes, PIs or NS5As].

There's triple combination nation regimen, will provide a universal salvage possibility.

And the second thing we're exploring is eight weeks duration of therapy in various patient populations.

And, again, we're working with the FDA for all the details of that.

We haven't decided, the final decision has not been made, but those are our two-pronged approach.

And then the other question?

Matt, you asked about the VA tailwind and unfortunately we're not able to share any details about prescribing habits or business in the VA, so I can't help you.

Okay, thanks very much.

Brian Skorney, Robert W. Baird.

Good afternoon, guys.

Thanks for taking the questions.

Just on the hep c triple combo data, I know you said you have top-line data out.

The ASLD abstract only has data for six-week duration for the genotype 3 patients.

Can you just remind us if you're still exploring six-week duration of treatment with this triple combo in other genotypes?

And if so, what context we should think about a shorter duration when we might see some data.

And then just on the safety data that we heard about with Viekira this week, if Express Scripts national formulary committee makes a determination to add Sovaldi and Harvoni due to these issues, will you insist that they pay gross price?

Brian, I'll answer the first question.

We are not exploring a six-week duration regimen anymore.

And the reason is simply that our experience has been that it works for a subset of patients but not for broader patient populations.

If you look at [seervodics] or treatment-experienced patients, then the response rate (inaudible) are not as high as they should be.

And I want to remind you, you'll notice that the response rate, if you just get 90%, people won't accept that anymore.

It really has to be 95% or more and we're not seeing that across a broad patient population with six weeks of therapy

Does that mean that you're no longer pursuing the pan-genotypic protease inhibitor anymore, too?

That was the previous question, Brian.

Changing genotypic PI together with velpatasvir, together with sofosbuvir, the triple, is going to be a universal salvage regimen and potential universal eight-week duration therapy.

That's what we're thinking.

But not six weeks

Brian, I think your second question was about what Express Scripts might do.

Obviously it's up to Express Scripts to figure out what they want to do, given where they are.

The national formulary where there's exclusivity for the Viekira Pak, of course, is about 15% of the covered lives of Express Scripts.

Obviously we're open to discussions any time they want to call us.

But I have no idea what their thoughts would be, I have no idea how the label would impact their business at all.

That's up for them to decide medically what's the right thing to do for their patients, of course.

Brian, I would like to add something.

The six-week duration treatment would still be two prescriptions.

It's not possible to package 42 tablets into a bottle and have that be one prescription.

That's another reason why six weeks is not as appealing.

Eight weeks is also two prescriptions.

All right, thanks, guys.

Alan Carr, Needham & Company.

Thanks very much.

I wonder if you can come back to HIV and talk a bit about your thoughts on how well the HIV franchise is doing relative to [Viv's] regimens, better or worse than you expected.

And then also come back to 9883, what are your time lines therefore wrapping up the Phase 3 and submitting the NDA?

Thanks.

Let me just talk a little bit about the HIV franchise.

Actually, one of the encouraging pieces of news in the US is that 8 out of 10 patients now are receiving a single tablet regimen, which I think demonstrates that the concept of single-tablet regimens is really very well-established now.

Triumeq has been doing well on its launch, and has been taking some market share from Gilead, although 7 out of 10 patients new to treatment are receiving a Gilead product and 6 out of 10, roughly, are receiving a Gilead single-tablet regimen.

The conversation in HIV, having been focused somewhat on third agents over the last few years, we feel now is going to come strongly back to the backbone of these HIV single-tablet regimens.

Really up until next week Truvada has been well-established as the standard of care backbone in these single-tablet regimens.

But as of the 5th of November, our PDUFA for TAF, or F/TAF-based regimens, that changes, and F/TAF will be the standard of care backbone for single-tablet regimens going forward.

With the launch of Genvoya next week, we are very confident that we will see a major milestone in the upgrading of HIV treatment.

And, as John said earlier, because patients are living longer with HIV, have a lifetime of therapy, this is a major improvement for patients and a compelling data set that we are launching both for patients naive to treatment and for switched patients.

And with switched patients it takes time to get patients to switch and it won't happen by itself, but the commercial organization and the medical affairs organization and Gilead are very well-prepared and very motivated and very excited about the launch.

So, we are very confident.

All right, thanks.

And then around 9883 time line?

We start enrollment at the end of this year.

Assume six-month enrollment, 48-week endpoint.

That's middle of 2017.

6, 2 months to write it up and submit, and then another 12, 10 months for review.

So, that gets us roughly into mid 2018 timeframe

Great, thanks very much.

Thank you, Candace.

And thank you all for joining us today.

We appreciate your continued interest in Gilead.

And the team here looks forward to providing you with updates on future progress in future earnings calls.

Thanks.

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

This does conclude the program.

You may all disconnect.

Have a good day, everyone.