吉利德科學 (GILD) 2015 Q4 法說會逐字稿

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

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

(Operator Instructions) And 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 Investor Relations.

Please go ahead.

Thank you, Candace, and good afternoon, everyone.

Just after market closed today, a press release was issued with earnings results for the fourth quarter and full-year 2015.

The press release and detailed slides are available in the Investor Relations section of the Gilead Sciences website.

Joining today's call will be John Martin, Chairman and Chief Executive Officer; John Milligan, President and Chief Operating Officer; Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer; Paul Carter, Executive Vice President of Commercial Operations; and Robin Washington, Executive Vice President and Chief Financial Officer.

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

A description of these risks can be found in the 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.

Non-GAAP financial measures will be used to help you understand the Company's underlying business performance.

The GAAP to non-GAAP reconciliations are provided in the earnings release press release as well as in the Gilead Sciences website.

I will now turn the call over to John Martin.

Thank you, Patrick.

And thank you, everyone, for joining us today.

2015 was an exceptional year for Gilead with progress in a number of therapeutic areas, most notably in the development of task-based therapies for HIV and hepatitis B, and new agents for the treatment of liver disease.

Gilead is entering 2016 from a position of financial strength, a portfolio of 20 marketed products that address significant unmet medical needs, including Genvoya, the most recent product to be introduced, and a growing pipeline with multiple programs for which milestones are expected during the coming year including regulatory decisions on two products for HIV and one each for HCV and HPV.

As you all know, we announced on Friday that John Milligan will be appointed CEO, a role he will assume in a few weeks.

I will be taking on the role of Executive Chairman and will continue to be actively engaged in the Company.

John Milligan has been with Gilead for more than 25 years and over that time has built expertise in every functional area of the Company's operations.

The Board and I are confident that this is the right time for this transition and that John is the right person to lead Gilead in the next few years of evolution.

John, congratulations.

I will now turn the call over to you to make a few remarks.

Thanks, John.

I'm honored and excited by the opportunity to lead this Company and the great team we have.

In my new role I will continue to work hard to help Gilead's business grow beyond antivirals and into new therapeutic areas for the betterment of patients.

I'm also greatly appreciative that John will remain closely involved as the Executive Chairman.

Turning to the business and results of the quarter, Genvoya, the Company's first TAF-based single tablet regimen for the treatment of HIV-1 infections, is now approved in the US and Europe.

Genvoya achieved preferred status in the US Department of Health and Human Services treatment guidelines within the first two weeks after approval, which speaks to the profile of the product and the important need it addresses.

Two other TAF-based regimens are pending regulatory approval in the US and EU.

[Ab/TAF] has been signed a PDUFA date of April 7 and in the EU a CHMP opinion could be adopted in the first quarter of this year.

Our F/TAF has been assigned a PDUFA date of March 1 and a CHMP opinion is expected in the second half of this year.

This means that Gilead could launch new TAF-containing products in the coming months, giving patients a wider range of options for the treatment of their HIV.

During the last quarter four phase 3 studies of GS-9883, Gilead's proprietary integrase inhibitor, combined into a single-tablet regimen with F/TAF, were initiated.

Two studies will evaluate the safety and efficacy of GS9883 E/TAF and HIV 1 infected treatment-naive adults.

One will compare GS-9883 F/TAF to Triumeq and the other will compare GS-9883 F/TAF to dolutegavir plus F/TAF.

Two other studies will evaluate patients that switched from Triumeq or a boosted PI to GS-9883 F/TAF.

Phase 2 data on GS-9883 F/TAF will be presented later this year at a medical conference describing the safety and antiviral activity over 48 weeks of treatment.

Analysis of the data through 24 weeks indicated that an FTR of GS-9883 F/TAF may represent a valuable option for many patients.

Based on current timelines the US [NDA] and EU MAA could be filed in the second half of next year.

Last month, Gilead submitted a new drug application in the US and a marketing authorization application in the EU for TAF as a treatment for chronic hepatitis B. Regulatory submissions are also expected in Japan, Korea, Taiwan and India this year and China in the first half of 2017.

Phase 3 study results reflect high efficacy and improved renal and bowel safety parameters similar to those seen in the clinical studies evaluating TAF-based regimens for HIV.

Beyond TAF for HPV, several ongoing research programs are focused on therapies with the finite duration of dosing that achieve long-term viral suppression.

The first is an immunomodulatory approach where multiple programs are evaluating different ways to activate the immune system to eliminate infected hepatocytes.

The most advanced is our TLR-7 agonist, GS-9620, which is currently in two phase 2 studies.

Other approaches include the combination of novel direct acting antivirals and agents that modulate CCC DNA transcription.

Two of these new programs may enter into clinical trials in the first half of 2016.

In hepatitis C, Gilead's focus remains on advancing care of people with the disease, regardless of genotype or disease severity.

Since the launch of Sovaldi in December 2013 and Harvoni in October 2014, more than 770,000 individuals around the world have been treated with sofosbuvir-based regimen.

In November, FDA approved Harvoni for expanded use in patients with genotype 4, 5 and 6 for chronic HCV infection and in patients co-infected with HIV.

In addition, Harvoni plus ribavirin for 12 weeks was approved as an alternate therapy to 24 weeks of Harvoni for treatment-experienced genotype 1 patients with cirrhosis.

Sofosbuvir and Velpatasvir is an investigational once-daily pangenotypic combination study for the treatment of genotype 1 through 6 chronic HCV infection including patients with compensated and decompensated cirrhosis.

FDA granted priority review and has set a PDUFA date of June 28, 2016.

Additionally, sofosbuvir and Velpatasvir has been granted accelerated assessment in the EU.

If approved, sofosbuvir and Velpatasvir will represent a significant step forward, particularly for genotype 3 patients.

It would also become the first and only regimen offering high SVR rates with 12 weeks of treatment, for patients with all HCV genotypes.

The advances in treatment of HCV with Sovaldi and Harvoni over the past two years have allowed Gilead to work with governments and public health experts on eradication strategies among specific populations and geographies.

Programs such as those ongoing with the Republic of Georgia and Iceland could serve as examples for other governments around the world seeking to eradicate HCV.

Public health programs to prevent HIV transmission are also underway, including efforts to raise awareness about the use of Truvada for prep.

Today more than 40,000 patients in the US are receiving Truvada for a preventative indication.

Yesterday the MAA was validated for Gilead's type 2 variation of Truvada for prep and it is now under evaluation by the EMA.

Gilead continues its R&D efforts in NASH or nonalcoholic steatohepatitis.

Phase 2 studies of simtuzumab, a LOXL2 targeting antibody, are ongoing in patients with NASH and also primary sclerosing cholingitis.

The data monitoring committee for these studies recently met and recommended the continuation of the studies, which have a 96-weekend point.

Additionally, clinical studies of the FXR agonist GS-9674 have been initiated, with the first patients receiving treatment in Q4 of last year.

Moving to oncology, Gilead continues to study Zydelig in several hematological disorders.

Phase 3 study results show adding Zydelig to vendamustine and rituximab provides statistically significant and clinically meaningful improvement in progression-free and overall survival compared to vendamustine and rituximab alone.

Supplemental regulatory filings are planned in the US and Europe for early this year to include these important new data.

Beyond Zydelig, Gilead also is exploring novel combinations of investigational therapies for a range of cancers including four classes of kinase inhibitors, PI3K, 6JAK, and BTK, that each target different signaling pathways.

Progress has been made in inflammation as well.

Gilead entered into a global partnership with Galapagos late last year for the development and commercialization of filgotinib, a JAK-1 for rheumatoid arthritis and other inflammatory diseases.

Phase 2 trial data show that filgotinib has the potential to be an effective and well tolerated oral therapy for patients with RA and Crohn's disease.

Phase 3 studies of filgotinib in RA and Crohn's are planned to start later this year.

In summary, Gilead's substantial pipeline offers numerous opportunities for continued growth both in the short and longer term, and the financial strength of the Company allows us to be thoughtful and opportunistic in pursuing partnerships or acquisitions that will further expand the future portfolio of products.

2015 will (technical difficulty) transition after their continued hard work and dedication.

Paul Carter will now provide a commercial update.

Thanks, John, and good afternoon, everyone.

Gilead achieved $8.2 billion in net product revenue in the fourth quarter, representing 16% year-over-year growth.

US product revenue reached $4.8 billion in the fourth quarter, which is down 14% from the third quarter and down 12% on a year-over-year basis, largely due to a decrease of HCV revenue.

European product revenue reached $1.7 billion in the quarter, which was in line with the prior quarter and up 22% on a year-over-year basis despite a negative 11% foreign exchange impact.

For the rest of the world product revenues were $1.9 billion for the fourth quarter and $3.8 billion for the full year, driven largely by HCV launches in Japan.

Beginning with hepatitis C, total HCV product revenue reached $4.9 billion in the fourth quarter.

In the next few minutes, I'll describe the results for quarter 4 by region and also describe how we are thinking about the year ahead.

In the United states HCV product revenue totaled $2.4 billion, which is down 27% from the third quarter.

This decline was impacted by substantially lower VA sales in the fourth quarter.

In quarter 3 Congress allocated an additional $500 million to the VA for HCV treatments, and this was fully utilized in quarter 3. New patient starts in the VA were very limited during quarter 4 due to the uncertainty of future funding at that time.

Congress has since allocated substantial funding of $1.5 billion for the fiscal year, which will allow treatment in the VA to resume this quarter.

In terms of patient numbers in 2015, nearly 250,000 US HCV patients started treatment with more than 90% of these patients receiving Gilead HCV therapy.

As I commented last quarter, there were an unusually large number of patient starts in the US in the first quarter of last year, indicative of the rapid initiation of treatment for many warehouse patients followed by a flattening of patients in the remaining quarters of the year.

Looking to the future, even with nearly 400,000 patients treated since the launch of Sovaldi, there remain more than 3 million HCV-infected individuals in the US who have yet to be treated, approximately half of whom are diagnosed, according to recent CDC data.

Long-term education and awareness efforts to increase rates of diagnosis and the flow of HCV-infected patients into treated care are important and will play out over many years, as we know from our experience in HIV.

Turning to Europe, hepatitis C revenue was $846 million in the fourth quarter, and we estimate that more than 110,000 patients were treated with sofosbuvir regimens in 2015.

Following the normal summer seasonality in quarter 3, there was an increase of patient starts throughout Europe in quarter 4, including in the UK following the final appraisal determination for Harvoni from NICE.

A number of countries in Europe have volume-based incentives for Sovaldi and Harvoni, which serves to encourage a higher number of patients being treated.

In quarter 4, the growth in revenues did not match the growth in patient starts because of the impact of certain volume-based agreements combined with adverse foreign-exchange movements.

In Japan, hepatitis C revenues for the fourth quarter were $1.4 billion.

Since the launch of Sovaldi in May and the launch of Harvoni in September, sales of $1.9 billion have been generated in Japan with Harvoni representing more than $1 billion of that number.

In late December, pricing and reimbursement negotiations for Sovaldi and Harvoni in Australia were finalized.

There are a number of variables to consider when thinking about HCV patient numbers and revenues for 2016.

Patient starts in the US will likely be similar to 2015 levels [both] observed in the second half and extrapolated for the full year, while the Europe numbers will continue to grow as early launched markets stabilize and new markets ramp up treatment.

In Japan, patient numbers are difficult to predict because launches are still in the early stages, and to some extent we are likely seeing the impact of warehoused patients.

In the rest of the world, we are excited to reach new patients in several new markets, notably in Asia-Pacific and in Latin America.

As we think about revenue, we anticipate that variables to consider include potential shorter durations of treatment, the full-year effect of payer contracts in the US and by price/volume deals in some European markets which may allow more patients to be treated at a lower per-patient cost.

We also anticipate that payer mix in the US may shift slightly towards public payers, while in Japan new legislation will likely result in lower pricing for Sovaldi and Harvoni.

We are confident in the long-term sustainability of HCV markets worldwide.

Despite the number of patients treated today, there are still millions of HCV-infected individuals who have yet to be treated and many that have yet to be diagnosed.

There are significant efforts underway by industry, governments and patient organizations to increase rates of diagnosis and linkage to care.

We are also confident in our competitive position as we enter 2016.

Sovaldi and Harvoni are breakthrough therapies that set the bar with cure rates of up to 99%.

Data presented at AASLD in November showed real world cure rates with Harvoni that meant or exceeded what was predicted by clinical trials, including the eight-week duration of therapy.

We also look forward to launching our next HCV products, sofosbuvir and Velpatasvir, in due course around the world, starting later this year.

Turning to HIV, HIV product revenue reached $3 billion in the fourth quarter.

In the US revenues were $2 billion, a 3% increase from the third quarter and up 5% on a year-over-year basis, driven by the continued demand for Stribild, Complera, Truvada and the recent launch of Genvoya.

Stribild and Complera have a strong underlying subscription demand with year on year growth of 40% and 12%, respectively.

Seven out of 10 HIV patients in the US initiate therapy with a Gilead product and nearly six in 10 receive a Gilead single-tablet regimen.

Genvoya sales have been very encouraging in the first few weeks of launch.

Revenues for the quarter were $44 million with early product uptake well ahead of the launch of Stribild at the same time point.

Access and reimbursement have been consistent with historical norms in HIV, and the rapid addition of Genvoya to the DHS treatment guidelines as a preferred first-line treatment (technical difficulty).

Genvoya was launched in Europe in November.

Similar to the US, we are seeing encouraging early product uptake in the six countries launched during the fourth quarter.

A final comment on HIV is that the commercial organization is getting ready to execute the launches of RF/TAF and F/T AF in the next month.

Turning to other therapy areas, total revenue for products outside of HIV and HCV, which include Zydelig, AmBisome, Cayston, Letairis and Ranexa, totaled $1.9 billion in 2015 and grew 16% year over year.

Over the last quarter, progress has been made in the area of cardiovascular disease.

Since the inclusion of the AMBITION data in the Letairis label, we have seen a great deal of interest and engagement from the medical community.

Revenue for the full year for Letairis reached $700 million in market share for the products among patients initiating therapy is nearly 50%.

In closing, Iliad had a remarkable 2015.

The commercial organization is excited about the opportunities across all of Gilead's therapeutic areas, both in the near term and over the longer term, to help many more patients around the world.

And I will now turn the call over to Robin.

Thank you, Paul.

And good afternoon, everyone.

We are pleased to share full-year and fourth-quarter 2015 financial results and provide 2015 guidance.

For the fourth quarter total revenues were $8.5 billion, up 16% compared to the fourth quarter of 2014.

Net income for the quarter was $4.7 million or $3.18 per diluted share compared to $3.5 billion or $2.18 per diluted share for the fourth quarter of 2014.

Non-GAAP diluted EPS for the fourth quarter was $3.32 per share, up 37% compared to the fourth quarter of 2014.

Turning to fiscal year 2015, full-year total revenues were $32.6 billion, up 31% year over year.

Net income for the year was $18.1 billion or $11.91 per diluted share compared to [$12.1] (technical difficulty) billion or $7.35 per diluted share for 2014.

Non-GAAP diluted EPS was $12.61 per share for the year, up 56% year over year.

Product sales during the year were $32.2 billion, up 31% year over year.

HCV product sales increased year over year to $19.1 billion, up 54%.

And non-HCV product sales increased year over year to $13 billion, up 8%.

The increase in HCV product sales for the year was primarily driven by sales of Harvoni, which launched in October 2014.

Further, the annualized HCV gross-to-net estimate that was shared with you during the Q4 earnings call a year ago is on target and reflected in our 2015 results.

Non-HCV product sales growth for the year was primarily driven by Stribild and Complera/Eviplera, partially offset by Atripla.

Turning to expenses, for the full year 2015, non-GAAP R&D expenses were $2.8 billion, up 10% compared to the prior year, reflecting the continued progression of our product pipeline.

Non-GAAP SG&A expenses were $3.2 billion, up 17% compared to the prior year, driven by expenses to support our growth and geographic expansion.

The non-GAAP effective tax rate for the full year was 16.2%, which was lower compared to guidance due to the permanent extension of the federal R&D credit that was passed in December.

If you recall, the permanent extension of the credit was not included in 2015 guidance.

Cash flows from operations were $20.3 billion for the full year 2015 and $4.9 billion for the fourth quarter.

With respect to shareholder return, $3.1 billion in cash was utilized to repurchase 29 million shares during the quarter, bringing total 2015 share repurchases to $10 billion and 95 million shares.

Including the Q2 2015 warrant settlement of $3.9 billion, dividends and share repurchases, Gilead has returned more than $15 billion in cash to shareholders in 2015.

Earlier today we announced an increase of the quarterly dividend from $0.43 per share to $0.47 per share.

This will become effective in the second quarter of 2016, subject to a declaration by the Board of Directors.

Additionally, the Board authorized a new $12 billion share repurchase program to be initiated after the completion of the current $15 billion program, which, as of December 31, had $8 billion remaining.

Also announced was the utilization of $5 billion of the current program to enter into an accelerated share repurchase agreement, which is expected to be completed in the next three months.

This is in addition to the ongoing open market share repurchases that have continued under the current share repurchase program since January of this year.

The increase in the dividend and increased level of share repurchases underscored the confidence of the Board and management in the strength of the business and future cash flows.

Since 2010, in addition to financing ongoing R&D programs and business development activities, more than 75% of free cash flows were returned to shareholders and share count was reduced in excess of 20% while maintaining and improving investment-grade credit ratings, which Gilead values.

Looking forward, the plan is to continue to return a significant component of free cash flow to shareholders via share repurchases and increases to our dividend over time.

As in the past, there could be future periods of time when share repurchases are reduced due to acquisitions and other pipeline investments that are prioritized to drive future long-term growth.

This strategy provides agility and financial flexibility to support R&D investments as well as any future acquisitions or partnership opportunities we may consider.

Finally, I would like to cover full year 2016 non-GAAP financial guidance, summarized on slide 51 in the earnings presentation available on the Gilead website.

Product sales are expected to be in the range of $30 billion to $31 billion.

Guidance for product sales is subject to a number of uncertainties, including an uncertain global macroeconomic environment, adoption of additional pricing measures to reduce HCV spending, volatility in foreign currency exchange rates and accuracy in HCV patients start estimates, additional competitive launches in HCV, an increase in discounts, chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers, and a larger-than-anticipated shift in payer mix to more highly discounted payer segments such as PHS, FSS, Medicaid and the VA.

Non-GAAP product gross margins are expected to be in the range of 88% to 90%.

Non-GAAP R&D expenses are expected to be in the range of $3.2 billion to $3.5 billion as a result of the continued investment in our product pipeline.

This includes the financial impact of the Galapagos calibration or collaboration which closed in January.

Non-GAAP SG&A expenses are expected to be in the range of $3.3 billion to $3.6 billion.

This reflects an estimated $200 million increase for the US branded subscription drug fee.

Please note that 2015 included a favorable adjustment of approximately $100 million based on the receipt of the 2015 invoice from the IRS.

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

This includes the impact of the federal R&D tax credit, which was permanently extended at the end of 2015, and the increase for the US branded prescription drug fee, which is not tax-deductible.

Full-year diluted EPS impact of acquisition-related restructuring and stock-based compensation expenses is expected to be in the range of $1.10 to $1.16 per share.

In closing, we are pleased with 2015 accomplishments across the organization.

Thank you and we look forward to updating you on our progress.

Let's now open the call for questions.

Operator?

(Operator Instructions) Geoff Meacham, Barclays.

This is Carter Gould on for Geoff.

Congrats on the quarter.

With regard to 2016 guidance, how should we think about the topline guidance and what that implies for any loosening of restrictions in the lower fibrosis score groups or any changes in that pricing?

And if maybe that's a little more detail than you are ready to go into, maybe you can just frame how we should think about these levers in 2016 relative to 2015.

Thank you.

Okay.

So I think I said in the script that we should anticipate in the United States that 2016 revenues should be more or less based on second half of 2015 extrapolated for the year.

I also mentioned that we had some lumpiness in the second half of the year due to the purchasing profile of the VA.

And we anticipate that that will smooth out during the course of this year.

I've also said numerous times before that in quarter 1 last year we had a very large bolus of warehoused patients being treated, which of course we are unlikely to see again.

But to some extent that gets substituted as the commercial payers that are well-known are beginning to loosen restrictions.

So there's a few dynamics in the US, but I think the way that I would look at it is a fairly flat, stable and perhaps marginally growing number of patients flowing into treatment.

If we see public payer stepping up like Medicaid and perhaps the correctional facilities start treating more patients, then patient numbers could go higher than that in 2016.

There's a few other factors which I also mentioned.

As we think about the revenue aspect as opposed to just patient numbers, the less sick patients, GT-1 patients, are qualified, are more likely to be using the eight-week hard bony treatment duration.

And of course, therefore revenue per patient would come down proportionately.

Having said that, the offset is that budgets for treating patients go up, and we would like to think that more patients could be treated.

So I think that's the main thing.

I think from the competitive point of view, we feel very confident that our label is very strong and that we are very much supported by the real-world data we've seen since the launch of Harvoni with very high SVR rates and a very strong safety profile, at least as good if not better than the one that was used in our registrational trials.

So, I think we feel good about the year.

The US is fairly steady and possibly could even grow, as I said, if some restrictions are loosened and public payers step up.

Around the world, as I mentioned, we expect patient numbers to grow in Europe.

They've started to stabilize in the major markets now again, following more or less the shape of the curve in the US, where there was a large lump because of warehoused patients being treated initially.

That is smoothing out now and many of the smaller markets now are beginning to come on stream.

And so we should see a higher number of patients in Europe.

But the same thing -- we're likely to see more patients being treated with shorter durations.

And as I also mentioned, we do have a number of price/volume agreements in place which are deliberately incentivized to encourage higher volumes of patients being treated but at a lower revenue per patient, if you like.

So, we should think about that.

And then round the rest of the world, Japan, I mentioned very early days.

We are still in that warehousing fees, I think, in Japan, although we are very pleased with the launch there so far.

And then there are various other smaller markets around the world and medium-sized markets, Australia being one of the medium-sized markets that are yet to launch yet.

So we have plenty of patients around the world but there are some other dynamics, as I said, around shorter treatment and, of course, the competitive situation.

Thank you.

Mark Schoenebaum, Evercore ISI.

It's actually [Vlad Nikolempke], on behalf of Mark Schoenebaum.

I have a question about filgotinib, specifically JAK-1 inhibitor, the one that you got from Galapagos.

Just curious, your thoughts about particular thoughts, concerns on filgotinib as well as whether your base case will be a 200-milligram daily dose going forward in the US.

And somewhat related questions, what exactly are impacting your 2016 guidance of R&D expenses from Galapagos collaboration?

So maybe I could answer the first few questions.

So we were very excited about filgotinib because of the clinical profile.

As you know, they have now data.

Galapagos has generated data in RA and also in Crohn's.

Both of those have fairly remarkable efficacy.

And also, importantly, we think that filgotinib [can] be distinguished from competitors because of its safety profile, in particular, the lack of hemoglobin decreases and very low infection rates.

The other thing you asked about, the dose, that still needs to be negotiated with the FDA.

We actually have a meeting coming up in the next couple of months where we will talk about in detail the Phase 3 program design, including the doses.

So it's really, at this point, too early to say what the dose will be.

To answer the second part of your question, we really have included, relative to the collaboration, some of the upfront milestone payments as well as the costs associated with some of the phase 3 JAK trials that Norbert just spoke about.

So we don't break it out in detail, but I would assume a couple of hundred million incremental to 2015 included in our guidance, to support those projects.

Thank you.

Matt Roden, UBS.

Congrats to John Martin for an amazing 20 years at the helm here.

So, I have a big-picture question.

It seemed like a good time to ask it, I guess, with the transition --.

Over the last two years you have tripled your revenues, you have increased your earnings by about six fold over that period.

The market seems to be discounting your ability to grow the business from here.

Just wanted to see if you could maybe lay out a vision of the development of the various franchises that you have.

You have lots going on in cancer.

You have added to the inflammation franchise.

You have TAF and 983 in HIV.

Just wondering if you could maybe shine a light on how you visualize the growth out to, say, 2020, something like that.

It would be really helpful to hear your thoughts.

I assume the question is for me, not the congratulatory one to John Martin.

So it's a very good question (multiple speakers).

Whoever will take it.

I'll take it, I'll be happy to.

So it's a really good question.

So you are right; we faced an extraordinary time, when we have been able to triple revenue over the last couple of years, which is a very unusual thing for an organization to be able to do.

And we are moving our pipeline along as fast as we can.

And as we mentioned, there are some very interesting opportunities for us.

So we do see very good opportunities in organic growth.

I have great confidence in the HIV portfolio with the three STRs we talked about on the call today and the other STR being developed by our partner, Janssen, that will have very meaningful continued growth of both patients and revenues in the future.

And HIV, I think that's a very important thing for us.

We are continuing to accelerate HCV to bring [soft] Velpatasvir to market in more countries than we ever have before.

So those are important initiatives on things that are current to market.

We are very excited about filgotinib.

I think there's great opportunities for us in inflammatory diseases.

We hadn't spoken about it very much in the past.

And quietly we have been investigating our MMP-9 antibody, 5745, which we didn't talk about on this call, which now has positive data in three of the four indications we've looked at in inflammatory diseases with a fourth under investigation.

And so, not only do we have filgotinib, potentially, for RA and inflammatory diseases, but we have an antibody which has a mechanism, which is very refractory to current care and could be a very good beginning to an inflammatory disease franchise.

Of course, we mentioned the kinase inhibitors that we have for oncology.

There's always the potential that those could be useful in various diseases in combination with filgotinib as well, and we will explore that, although I still think the best value of it is the fact that it's a very good-looking drug and some very positive data in Crohn's disease.

So, we are going down the pathway of inflammatory diseases by virtue of the successes we've had in our pipeline and successes in licensing.

In oncology, Zydelig has been a good start for us.

We really need to continue to try to ramp up in our efforts in this area and to continue to broaden the areas we want to work in.

It's pretty clear we have to do additional partnerships or find other avenues to broaden the revenue stream there for the future.

As Robin mentioned, with our balance sheet we have a great flexibility of doing partnerships or acquisitions that could get us there.

And so that would be an important consideration for us.

That may not be the only avenue.

We also look at other areas where we could bring in different programs, potentially accelerating to revenue as soon as possible in some of those areas, when those things are available.

And I'd say the environment has shifted dramatically in our favor for doing those sorts of partnerships and what not.

So that's a good -- 2016, I believe, will be a good year for us because of the strength of the underlying business and economic uncertainty that's driving the market today.

John, can I add something, maybe?

Please.

I would like to reiterate what Robin said in her script.

If you look back at the last six years, it has been remarkable.

We have done many, many deals in OSI, Arresto, Calistoga, Pharmasset, Galapagos.

And yet we were able to return 70% of the free cash flow to shareholders.

So I think that is a good way to think about the future, to in license those collaborative efforts while at the same time returning money to shareholders.

Thanks very much.

Michael Yee, RBC Capital Markets.

Thanks and my congrats to John Milligan as well.

Looking forward to a new era.

I wanted to ask a bit of a two-part question.

One was you gave some guidance here.

And remarkably like the last question, it actually looks like you are a little bit flattish or what not this year.

Do you expect qualitatively to be growing over the next year and do you expect that this is a bit of trough revenue here?

I just wanted to get your view on that.

And importantly, when you look at managed care, the second part of the question, when you look at managed care, given that there's a new competitor on board, do you expect minimal to no changes, or minimal changes in terms of access, thanks like that?

Just given the new competition, can you talk a little bit about that?

And there's a little bit of nervousness on how that may change things on the payer front.

Thank you for the congratulations.

Second of all, unfortunately, we can't tell you about revenue growth beyond.

We have a lot of opportunities, but obviously we don't give 2017 or beyond guidance.

In this business you almost have to take things one year at a time, especially in hepatitis C, as we understand the rate of diagnosis and patients coming to care, which is -- there's a great opportunity out there with 1.5 million patients, as Paul mentioned, still being diagnosed but not yet under care, so really good opportunities for us.

With regard to the competition coming to market, we have a very, very strong position.

But I'm going to turn this over to Paul because he'd like to give you some of his thoughts on what the competitive landscape looks like versus Harvoni.

Thanks, John.

I think we've cast our minds back 12 months, we have the first competitor coming into the hepatitis C space.

And I think the managed care view at that time was that these products were interchangeable and could be treated like commodities, to some extent, which really triggered off the pricing negotiations we saw in the early part of last year.

That has been proven to be a totally incorrect view of the hepatitis C products.

And what we've seen, fortunately, with Harvoni, in particular, is the real world data has really strengthened its position and people's understanding of what that product is.

It cures people with an incredibly high SVR rate, and the safety profile has been extremely good and in line, if not better, than its label.

That hasn't been the case of competitive product so far.

In fact we've seen safety warnings added to labels and we've seen a differentiation.

And that has played out in the market.

So I think as we see a new competitor coming into the market now, payers are really thinking this through.

There isn't any instinctive reactions.

People are being very thoughtful and we know this because we have very close discussions with the managed care main players and we are working with them as they think through this.

And I think we feel pretty confident that we will maintain a strong position as we enter 2016.

Thank you.

Matthew Harrison, Morgan Stanley.

I want to extend my congratulations to both Johns.

I thought if I could just ask two related specific questions -- first, Paul, I just want to make sure I understand what you are trying to say with respect to the US HCV volumes.

If you look at the two volumes, the numbers you have given us in the third and fourth quarter, it's about 105,000 patients together, which is about 210,000 on a full-year basis, which is below the $236,000 you guys report.

And if I take the low end of the 47,000, which it sounds like you are saying is too low because of the VA, from the fourth quarter that's 188,000 annualized.

So if you can just give us some direction -- I'm sure you're not going to tell us a number -- around those numbers just so we are clear on exactly what you are trying to say?

And then, maybe related to that, can you just specifically address where you think access is going to go for Medicaid in prisons this year?

Sure.

So if you've got your pencil ready, these are the numbers that I think happened last year.

And I'll take you back even into quarter 4, 2014, where we think 46,000 HCV starts were in the market.

This is total starts, by the way.

In quarter 1 2015 there were 72,000.

And that really was the peak of this warehoused patient part of the curve.

Then dropped down into quarter 2 of 65,000.

There was still some of those warehoused patients coming through.

And then quarter 3 was 62,000 and quarter 4 was 50,000.

We know that in quarter 3 a lot of patients were treated by the VA, who, by the way, seem to be incredibly efficient at getting patients into treatment.

And we know that in quarter 4 very few patients were initiated by the VA.

So, I think if you do the basic math on that, you would get out to about 230,000-something, forecasting that forward into 2016 if you assume the VA picks up.

Then I think it merges into the second part of your question, which is what happens with Medicaids and other public payers who, to date, have really treated very, very few people.

So, our assumption is they are still not going to treat that many more patients this year is the way we are thinking forward.

But we are hopeful that that will be a trend that improves over time as people start to see how effective these drugs are and particularly eight-week usage of Harvoni, which, as I mentioned, in the real world seem to be incredibly effective and offers very good value.

So that's how we are thinking about it.

I hope that's clear.

Cory Kasimov, JPMorgan.

Thanks for taking the questions and also my congrats to both John and John on a great run and a great opportunity.

So I wanted to ask about longer term trends, the evolution of the HCV market.

I know it's hard for everyone to get their hands around.

But you indicated again there are about 3 million HCV patients in the US that have yet to be treated.

About half of those are diagnosed.

In terms of new patients that are entering the system, how similar or different are they from the existing patients or those that have already been cured in terms of, I guess, the overall motivation to be treated, fibrosis score, insurance coverage?

We get a lot of questions on are these future patients actually legitimate candidates in terms of being under the care of a doc, not IV drug users, etc.

So if you can just comment, try to give us a little bit more comfort and how we can be thinking about this longer term evolution in the US.

Thanks.

I've mentioned before that we have some proprietary research that we do to try and monitor the flow of patients into treated care.

And that means who are diagnosed with hepatitis C and are registered with the hepatitis C prescriber.

And that number has been remarkably consistent at around -- we have actually three different sources of data.

And it's around high 20s to 30,000 patients a month have been falling into that category.

So they are diagnosed with HCV and they are registered with the treater.

So if we do the math on that, clearly, that's 360,000 patients coming into treatment a year.

And we are seeing treatment levels a lot lower than that.

And what that speaks to is the types of patients are different amongst that 360,000 group and their pathway to actual treatment varies considerably.

But there does appear -- again doing the math and assuming the research is correct -- that there is a line at the door of patients that still need to be treated and are accessible.

I don't think those are the people that are, let's say, out of society or -- these are people that are accessible, and for one reason or another reason they haven't started treatment yet.

But there's a strong flow of patients still out there.

I don't think we are anywhere near getting to the point where we are dealing with patients that are extremely difficult, let's say, to manage.

Okay, great.

Thank you.

Phil Nadeau, Cowen and Company.

Thanks for taking my question.

Let me add my congratulations to John Martin and John Milligan.

John Milligan, a question for you -- I found it interesting that in your prepared remarks right after you are introduced you mentioned that you wanted to take Gilead into therapeutic areas outside of antivirals.

And I know in answer to a prior question you went through the assets you have in other areas.

I'm curious whether you are signaling a need for even more assets in those areas and, in particular, if you had a shopping list, which areas would be on the top of your list.

So, it's pretty clear we've done some great things in HIV and HCV.

But for the Company to grow we have to work in other areas.

That doesn't mean we are not going to continue to work in hepatitis B, which is important to us and there is the potential to cure that disease.

We all recognize that as a hard thing to do, as well as curing HIV, which is an equally or harder thing to do, perhaps.

So that does imply that we have to go outside of antivirals for continued growth.

And we are interested in doing that as we have been hiring and growing with new things in our portfolio over a number of years.

I think we have some good core teams that can help us grow into those areas.

And so, the answer is, yes, we are very interested in acquiring assets through partnerships or potentially acquisitions that can help us grow in those areas.

And with the tripling of our revenue over the last few years the need to do so sooner rather than later is heightened.

That being said, we want to get the right assets at the right price.

And so we have the flexibility, certainly, with our balance sheet in the current business to be patient, to get things done, be forced into doing something before we want to.

So, we are looking in the area of oncology.

We are looking at additional things in inflammatory diseases and things that are adjacent to there, to see what opportunities might fit within our portfolio so that we can create a really strong franchise like we have in HIV and HCV with multiple options for success in those areas.

Some of it will depend on what happens in our portfolio this year as we make progress with our MMP-9 antibody or not.

Obviously, we are looking heavily at NASH with the FXR agonist.

We are very interested in liver diseases, so that's a very important area for us.

And we will continue to try to bolster those to make sure that the Company has the assets necessary to have the progress for the future.

Is there a shopping list?

There's always a list that you have in your mind or sometimes on paper.

That's probably dangerous, so mine is in my mind -- in which I think about things that would be important for us and things that could have the right opportunity at the right price.

Whether or not those things ever come to fruition depends on a lot of factors but clearly we are going to be very interested in taking a look this year.

And with the assets having sold off pretty aggressively in the public markets over the last several months, does that make things more attractive to you?

Or is it really about getting the right assets de-risked, and prices secondary?

Well, it makes it more attractive.

There's no question.

Great.

Thanks for taking my questions.

Ying Huang, Bank of America Merrill Lynch.

Thanks for taking the question.

First one, on maybe pricing trend -- if my math is right, if you take about $5.6 billion you booked in second half divided by about 112,000 patients starting treatment, you are looking at roughly $50,000 per patient revenue in the US in the second half of 2015.

So now, with Merck's new drug launching in HCV, how should we think about pricing trend in the market in [2016]?

And then I also have a question about diagnosis rate.

Based on experiences you have in the field, can you provide a little bit more color on the rate of newly diagnosed patients in HCV?

Thanks.

Maybe I'll talk about pricing first of all.

I think everyone knows this, but it's really net prices that are the important number here for payers in the US and, indeed, in Europe.

So there seems to be, over the last few days, somewhat of misinformation or confusion around the WAC price and discounts.

So we feel that our pricing is extremely competitive and offers very, very good value, given the competitive set.

And, as I said earlier, payers in the US this time around are taking a very much more thoughtful look at the labels and trying to make sure they do the right thing for their clients.

And so, we feel pretty strong and pretty confident in the solid basis, let's say, of our price in the US market.

And the second question was about HCV percentage of newly diagnosed patients?

I think that's a hard thing to get at.

We still see about 30,000 patients coming into care every month.

So that will be an interesting metric for us because more patients are coming into care than are being treated.

We don't know how many are newly diagnosed and how many are coming out of the bucket of diagnosed patients.

But it is interesting to note that our most recent data still suggests there's about 1.5 million patients undiagnosed in America, which means that -- and that was about 1.6 million when we launched Sovaldi.

So that implies that there has been a refilling of that bucket, a replenishment, if you will.

I don't know if buckets are the right way to take it, but of this category of patient, as more patients are being diagnosed and working their way through the system.

So, we don't have a firm handle on the exact number, so that's the closest approximation I can give you.

But it does suggest that there's a pretty good flow of patients who are now becoming aware and coming into at least be diagnosed.

We don't know the characterization of those patients.

There was an earlier question about whether those are patients eligible for treatment, since many of the Medicaids are not treating many patients.

And that's something we are trying to figure out right now.

And Ying, I may want to add that there was the CDC recommendation about general diagnosis.

We have a number of projects in a number of American cities to look at subpopulations that we test and we demonstrate that you can actually have fairly high diagnosis rates, up to 20% in some of these populations.

And I think as people become aware of these things, I think the diagnosis will increase.

That's how I believe.

Thanks, Norbert.

[Alesia Young], Credit Suisse.

To both Johns, congrats on a great history and great future.

Two questions, they are sort of -- one is quick.

In Japan can you just help us understand, like think about this, whether it's a 12% or maybe perhaps the larger 50% range of discounts when it comes to what kind of the pricing discount will happen?

And then also just on Genvoya, I saw Stribild was down a little bit in new start in total share.

So I just wanted to understand if you think the total lion's share is coming from Stribild or you do you think there's like some maybe Atripla new starts or maybe switch is coming in with the Genvoya launch.

Thanks.

Okay, maybe I'll comment on Japan.

We are fully aware of the new pricing regulation that has just been introduced in Japan.

We are, let's say, highly confident that that will affect Harvoni and Sovaldi in Japan.

We are not totally certain yet on the number or the timing of that likely price cut.

But we have factored that into our guidance.

And the second question was on Stribild --

And switches from Genvoya.

Yes.

But Genvoya has got off to a really good start.

We think that about [18%] of the Genvoya business today is from switches, and we think that the majority of those switches are actually from Stribild, so far.

So that may account for the Stribild share number.

We think, of the switches to Genvoya, about 10% of the switches so far have come from non-Gilead products.

So we are pleased with the pace of switching and we are pleased that we are also getting some incremental growth.

Great, thanks.

Brian Abrahams, Jefferies.

My congratulations to John Martin on all your accomplishments as CEO and to John Milligan on your well-deserved new role.

I just have a question related to the inflammatory franchise.

Historically, you guys have had a lot of success developing and commercializing products with best-in-class features along efficacy, safety and dosing that enable you to really dominate a space such as an HIV and HCV.

RA and inflammatory bowel diseases are a little bit different.

They are a lot more crowded.

I wonder if you could talk a little bit about some of the ways you are thinking about conducting the development paths for drugs like filgotinib and 5745 to maximize differentiation.

Perhaps you could talk about competition opportunities there and how this ties into your long-term commercial strategy as you enter these new therapeutic areas.

As I said before, we believe filgotinib by itself if you compare it with other JAK inhibitors is a very valuable franchise, it has good efficacy and it could have safety advantages.

And I'm saying it could have because I am making cross-study comparisons.

So until we do a large Phase 3 program we don't really know that for certain.

But then, as you pointed out, where we have to work fairly quickly want to go with filgotinib is in combination therapy.

We believe that in inflammatory bowel disease and also RA, there's a huge unmet need still.

If we look at some of the ACR-20 responses they are up to 80%.

But ACR-70s are only in the teens or 20% at most.

So that means there's a huge improvement left to be done.

And that, we believe, could be done with combination therapies.

We are going to go ahead and combine our JAK inhibitor with our MMP-9.

That's going to be the first thing.

And afterwards also possibly with the [SNK] compounds and the BTK inhibitor.

So that's where we think we could have a big impact on the future of the treatment of inflammatory conditions.

Thanks, Norbert.

Brian Skorney, Robert W. Baird.

My congratulations to John and John.

Just two, I guess.

I guess the first question is, in terms of Japanese sales I understand there's a government-mandated price cut, given the revenue that Sovaldi and Harvoni are generating.

Could you just walk us through how that flows as of January 1 and can you give us a scale that you would expect for the price cut?

And then just to dig down a little more on Merck's pricing and how it impacts you guys, I think we were all surprised by the quickness and the gross-to-net discounts that you had applied for the initial launches.

I guess the question is Merck clearly is going to take a pretty substantial discount versus what you guys have out.

Are you at a point where you are comfortable enough in the profile that you are drawing a line in the sand to say you are essentially not going to be discounting any more?

Let me start by talking about Japan.

We are not going to say what our assumption is around the tax outcome.

I think I've already said before if we understand the rules it's pretty clear what the range is, and we are going to be somewhere in that range.

We are also not sure exactly the timing of that.

But we have -- we built an assumption into our guidance that we've given, and I can't really comment further on that at this point.

Then, on the gross to net, I think your question is, are we confident enough to walk away.

And I think the answer is yes, we are.

But we are hopeful that our close discussions with payers and the strength of our label and the strength of the -- the relative strength of our labels compared to the competitors and, of course, this enormous wealth of real-world data that we've got gives us a position where we sincerely hope the right thing is done for patients and patients get access to our medicines.

So I think that's the way we think about it.

Other than the cost of drug you should also consider, of course, the cost of treatment.

There is a genotype required for genotype 1A.

The resistance test will cost about $700 and incur some time delay.

There is a test for ALTs at eight weeks and at 12 weeks, if you have to dose for 16 weeks.

And also it's possible that the fairly significant number of them genotype 1A patients, and those are 50% in the US, they will require 16 weeks with ribavirin.

So that's not -- it's more than 12.

It increases the treatment cost proportionally compared to 12 weeks or eight weeks, in our case, with our [bone].

But I think the good news, just to reemphasize, is that the payers across the United states are being very cognizant of this and thinking carefully the full implications and not being dazzled by the headlines of a low WAC price.

Got you.

Thank you, guys.

Terence Flynn, Goldman Sachs.

Thanks for taking the question.

I have two because I'm guessing now you might not want to answer the first one.

But just for Robin on capital allocation, you mentioned 77% of free cash flow return from 2010 through 2015.

As you look forward, do you guys have a target payout ratio in mind?

And then the second one was just on EU hep C patient volumes in 2016.

Paul, you gave us a lot of context for US.

But maybe just if you could be a little more specific in terms of actually thinking about volumes in Europe?

Thanks.

Sure, Terence.

I'll take the first one.

You are right; I'm not going to give a specific number.

And as I mentioned on the call, it varies based on the other investments we are making.

And numbers we gave you were on average.

There have been periods where we have been higher and periods we have been lower.

But by using the word substantial I think you can assume it's to remain significant but could vary from year to year.

That's how I look at it.

On the EU volumes we estimate that, in the EU, I should say, so the 28 countries in the EU where the product has been launched so far, in 2015 around about 140 patients in total were treated.

We have a slightly lower market share in Europe than we do in the US, and that's because of payer type arrangements that our competitor got in place.

The range of market shares ranges from 70% to 90%.

But I would say the average would be about 80% or about 140.

All of the main countries, the big countries in Europe have now gone through their warehouse points of the launch trajectory or the patient flow and are getting into more stable patient flows but are growing.

So I think that's my main point.

We anticipate higher numbers of patients in 2016.

Over 15 countries like the UK really didn't treat very many patients at all so far, but they are now beginning to ramp up.

And then some of the smaller countries -- Netherlands, Austria -- are beginning to grow patient numbers.

Having said that, I also mentioned earlier price/volume agreements.

These are set up to try and encourage more patients being treated.

But obviously, the flipside to those arrangements is that the price per patient comes down and there's better value to treat more patients.

The other thing, I think, is the real-world data with eight weeks of Harvoni treatment look stronger and stronger and is more convincing to European payers.

And therefore, they will also use that opportunity to try and treat more patients but, of course, at a lower revenue per patient.

Great, thanks.

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 our future progress.

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

This does conclude the program and you may all disconnect.

Have a great day, everyone.