吉利德科學 (GILD) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences first-quarter 2016 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.

Please go ahead.

Thank you, Candace, and good afternoon, everyone.

Just after market close today, a press release was issued with earnings results for the first quarter of 2016.

The press release and detailed slides are available on the investor relations section of the Gilead website.

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

Before we begin formal remarks, let me remind you that we'll 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 press release as well as on the Gilead website.

I will now turn the call over to John.

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

While we want to keep our remarks relatively brief to allow plenty of time of your questions, I do want to make a few comments about the first few months of 2016 and what I see as the outlook for the rest of the year.

Gilead's HIV franchise is off to a great start with the recent US FDA approvals of Odefsey and Descovy, which followed the approval of Genvoya late last year.

Over the last six months, I've had the opportunity to talk with physicians and patients about the importance of having highly effective and safer options, especially for patients facing a lifetime of therapy.

With the approval of our three new regimens, we are now able to offer a range of options to address the diverse medical requirements of people with HIV, including those new to treatment, those who have been on therapy for a long time and have run short of options, and those who desire to switch medications for a variety of reasons.

Since 2001, Gilead therapies have played a transformative role in changing HIV infection from a fatal and debilitating disease into a chronic and manageable condition.

That is true around the world, as broader access to HIV treatment has helped divert millions of AIDS deaths.

Innovation remains important in the continuing fight against HIV, and we're proud that Descovy is the first new backbone approved by the FDA in more than a decade.

Gilead continues the commitment to helping HIV patients around the globe with our research and development activities, including novel agents for daily treatment, long-acting regimens, and HIV care.

In liver disease, we just wrapped up an exciting week in Barcelona at the International Liver Conference (sic - Congress), or EASL, as it's known.

It was a remarkable meeting, especially considering the significant change in HCV treatment landscape since the conference was held last in Spain four years ago.

The outlook for patients has completely changed, with dramatic improvements in cure rates for a wider range of patients.

Presentations at EASL included results from several Phase 2 and Phase 3 studies evaluating sofosbuvir, velpatasvir, and sofosbuvir/velpatasvir plus GS-9857.

These are two investigational pangenotypic, fixed-dose combination therapies for the treatment of HCV.

The data presented continued to underscore the high cure rates and safety of our sofosbuvir-based therapies and support their utility across all HCV patient genotypes in a wide range of disease stages.

Data were also presented on the use of TAF for patients with chronic hepatitis B infection.

48-week results from two Phase 3 studies demonstrated its potential to advance the treatment of HPV, offering a similar efficacy profile to Viread, with improved bone and renal safety parameters.

Based on these results, we submitted a new drug application for TAF, and FDA has set a PDUFA date of November 11.

We also submitted regulatory applications for TAF in the European Union and Japan last quarter.

I'm particularly encouraged by the work that's going on in NASH, which we've augmented with our agreement to acquire the Nimbus Acetyl-CoA Carboxlyase or ACC program, as was announced last month.

NASH affects up to 15 million people in the US and is expected to become the leading indication for liver transplantation by 2020.

Including the ACC program, Gilead has four investigational compounds that target unique disease pathways, including production of lipids, inflammation, and fibrosis -- each of which are thought to contribute or cause NASH.

Data at EASL were presented supporting the development of Gilead's investigational agents for the treatment of NASH, including simtuzumab, a monoclonal antibody that is selective for LOXL2, which is also being evaluated in primary sclerosing cholangitis; GS-4997, an ASK-1 inhibitor; and GS-9674, an FXR agonist.

Nimbus also presented positive Phase 1 data for the program's lead candidate, NDI-010976, which targets ACC, the key step in lipid biosynthesis pathway.

Overall, I'm enthusiastic about the future of Gilead and excited to have the opportunity to help build on the Company's long history of success.

Over the past few months, I've had conversations with external stakeholders and employees across all parts of our organization.

It's gratifying to see the extent to which Gilead's products and commitment to access have uniquely changed the course of diseases for so many people throughout the world.

We now have the opportunity to do so again in many new areas.

A few things stood out during those conversations.

First, physicians and patients share the excitement that our medical and commercial teams have regarding Gilead's new treatment options for HCV and HIV, particularly the new TAF-based therapies.

Access continues to improve for people with HCV around the world.

And, in fact, we've treated close to 1 million patients with sofosbuvir-based regimens since Sovaldi was first approved in late 2013.

That's a remarkable achievement in just over two years.

With regards to HIV, as many of you are aware, TAF was added to the medicines patent pool and to our various access programs.

The clinical data suggests TAF-based regimens may be the best option in both the developed and developing world.

We will build on the success we've had with the TDF-based regimens, now used by nearly 10 million people every single day, to make TAF regimens successful around the world, providing much-needed new options.

Secondly, I believe we have a rich pipeline, creating opportunities that may allow the transformation of the treatment of many diseases, like NASH, HPV, inflammatory diseases, certain cancers, and cardiovascular conditions for which few, if any, options exist.

We are committed to building on our Company's long history of success, and I am confident that our innovation and hard work will deliver on our shared goal of delivering new treatments and providing broad access to Gilead's medicines for patients in need.

Finally, we continue to look for business development opportunities that add to our core therapeutic areas and are a fit with Gilead's expertise and capabilities.

We are actively assessing options and will make moves when the right opportunities present themselves.

I will now turn the call over to Robin, who will provide an overview of our financial results for the quarter.

Robin will be followed by Paul, who will provide additional color on the Company's performance across products and geographies.

Thanks, John, and good afternoon, everyone.

We are pleased to report our first-quarter results, with non-GAAP diluted earnings per share of $3.03 per share compared to $2.94 for the same period last year.

Total revenues for the quarter was $7.8 billion, up 3% year-over-year and down 8% percent sequentially.

Product sales for the quarter were $7.7 billion, up 4% year-over-year and down 9% sequentially.

Starting with HIV and other antivirals: product sales for the first quarter increased to $2.9 billion, up 19% year-over-year, primarily driven by increased sales in the US.

We continue to see strong uptake of our newer single-tablet regimens, including Genvoya, which was launched in November 2015.

Additionally, year-over-year, Stribild and Complera grew 34% and 19%, respectively.

Sequentially, these sales decreased 4%, primarily driven by sub-wholesaler inventory decreases in the US, reflective of the seasonal inventory pattern from quarter four to quarter one.

HCV product sales for the first quarter decreased 6% year-over-year to $4.3 billion, primarily driven by a decrease in Harvoni sales the US, which was partially offset by the launch of our HCV products in Japan and other international markets.

In the US, the year-over-year Harvoni sales decline was driven by lower patient starts and the full-quarter impact of higher commercial rebates, which were entered into during the first quarter of 2015.

Sequentially, HCV product sales decreased 12%, primarily driven by revenue declines in the US and Japan.

In the US, the decline was due to the increase in discounts required to open up access to patients with lower fibrosis scores and a modest shift in payor mix toward more deeply discounted government payor segments.

In addition, revenue was further impacted by higher-than-expected prior-quarter rebate claims.

Rebate claims come in one to two quarters in arrears and were updated in Q1 to reflect the higher claims received.

In Japan, Sovaldi volumes declined from high early launch levels, similar to other markets.

And channel inventory pricing for Sovaldi and Harvoni was adjusted during March for the mandatory price reduction effected as of April 1.

Turning to our other therapeutic areas, product sales of cardiovascular, respiratory, and other were $498 million, up 19% year-over-year and down 5% sequentially.

Moving to gross margin, non-GAAP product gross margin was 87.2% for the first quarter of 2016 compared to 90.9% for the same period last year.

The decrease reflects a $200 million charge or $0.12 earnings per share related to the jury verdict in the Merck trial in March.

Although the proceedings of the Merck trial are not complete, and the losing party will appeal once the court enters judgment, we booked the charge to comply with accounting rules related to contingencies.

Now, turning to expenses, non-GAAP R&D expenses were $769 million for the first quarter, up 18% compared to the same period last year due to the continued progression of clinical studies, particularly in liver disease and HIV.

Non-GAAP SG&A expenses were $638 million for the first quarter, up 6% compared to the same period last year.

These expenses increased primarily due to higher costs to support the growth of Gilead's business and were offset by favorable adjustments related to the branded prescription drug fee of $191 million following the receipt of the preliminary 2016 IRS invoice.

From a balance sheet perspective, during the first quarter we generated cash flows from operations of $3.9 billion and ended the quarter with $21.3 billion in cash and investments.

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

Earlier this afternoon, we announced that our Board of Directors declared a dividend of $0.47 per share for the second quarter of 2016, an increase of 10% from the prior quarter.

$8 billion in cash was utilized to repurchase shares of our common stock during the quarter, consisting of $3 billion of open-market repurchases or 33.4 million shares and $5 billion under the accelerated share repurchase program, ASR, that we announced in February.

46.1 million shares were repurchased under this program during the quarter.

The final settlement of the ASR program was completed earlier this month, and we received an additional 8.1 million shares.

In total, 54.3 million shares were retired under the ASR program at an average price of $92.09 per share.

As of March 31, the amount of capital returned to shareholders, consisting of dividends and share repurchases, exceeded the total amount of capital returned during the first three quarters of 2015 combined.

During the quarter we completed a $15 billion share repurchase program approved by our Board in January 2015 and as of April 1 have begun repurchasing shares under our $12 billion 2016 share repurchase program approved in January of this year.

Since 2012, we've repurchased over 260 million shares or 17% of shares outstanding.

Finally, we are reiterating our full-year 2016 guidance provided to you on February 2 and summarized on slide 25 in the earnings results presentation available on our corporate website.

As a reminder, 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; an atrophy in HCV patient 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 payors; and a larger-than-anticipated shift in payor mix to more highly-discounted payor segments, such as PHF, FFS, Medicaid and the VA.

I will now turn the call over to Paul to provide more details on our commercial results for the quarter.

Thanks, Robin, and good afternoon, everyone.

Our commercial performance remained strong through the first quarter.

I'd like to start with HIV and Genvoya, the first of our TAF-based single-tablet regimens.

We are pleased with the launch of Genvoya both in the US and European markets, where we've achieved reimbursement.

Starting with the US, through five months post the launch of Genvoya, cumulative prescriptions were twofold more than any HIV product from any company since Atripla, which was the first single-tablet regimen to come to market back in 2006.

As expected, most of Genvoya's initial prescriptions came from switches.

Qualitative feedback from HIV prescribers is very encouraging and indicating a clear intent to switch patients at the earliest opportunity.

Stribild and Complera showed strong year-over-year prescription growth at 18% and 5%, respectively.

And in quarter four 2015, Stribild was the leading product in the US for patients naive to treatment.

With the launches of Genvoya and now, just very recently, Odefsey, we expect switches out of TDF-based single-tablet regimens into the TAF regimens to grow significantly.

In fact, 82% of Genvoya's prescriptions have been switches.

49% of the switches have come from Stribild.

We are seeing an improvement in our ability to retain switch patients, meaning fewer patients who switch from Gilead TDF-containing regimens move to non-Gilead products.

Of all the patients who switched to Genvoya, 91% came from a Gilead regimen and 9% came from a non-Gilead product.

In addition to switches, preliminary quarter-one 2016 data indicate to us that Genvoya may soon be among the most prescribed products of patients new to treatment.

Historically in quarter one, we've seen a decrease sub-wholesaler inventories following a buildup in the prior quarter.

We observed this effect again this year, leading to a sequential decrease in HIV product sales.

Finally, in the US, I'd like to highlight the growing use of Truvada for PrEP, which was more than 20% of Truvada demand last quarter and drove a 17% year-on-year growth in prescriptions.

Turning to Europe, we're also pleased with the way that our HIV business is performing, with successful reimbursement and launches of Genvoya in several countries, including Germany and the Nordics.

In other countries, Stribild and Eviplera continue to replace Atripla.

Stribild remains the most prescribed regimen for patients naive to treatment in the EU, with Eviplera in the third place.

Genvoya was launched in Germany during quarter one, and at the end of the quarter preliminary data indicate that it had the leading market share for both naive and switch patients.

The product was launched and fully reimbursed in Spain just two weeks ago, and we are very excited about the opportunity to offer providers another important option to address the needs of their patients.

It's also been recognized as a preferred regimen in numerous country guidelines, including Germany, Spain, and Italy -- even before reimbursement has been agreed.

This is testament to the favorable clinical profile of Genvoya, a single-tablet regimen that better addresses the needs of patients who require long-term chronic therapy.

We're working hard to negotiate timely reimbursements across the rest of the European markets.

Finally in HIV, we launched Descovy this month in the US and the EU.

We see this launch as a milestone in HIV treatment, as Descovy is the first new NRTI backbone since Truvada 10 years ago.

Given the very high use of Truvada as a preferred backbone with third -- multiple third agents, including Tivicay, we are confident that Descovy will quickly replaced Truvada and become the leading HIV regimen backbone in all our markets.

Now, moving to hepatitis C: we continue to see revenue dynamics around the world, which vary by country.

As Robin noted, our overall HCV product revenue decreased 6% year-over-year and 12% sequentially.

I'll now describe the different dynamics by geographic region.

Starting with the US market, we've seen an increase of new patients in the first quarter, offset by lower revenue per patient, due to several factors that include an increase in our gross to net adjustments as well as a shortening average duration of therapy.

Total market patient starts increased around 10% over Q4 to an estimated 55,000 in Q1.

This was primarily driven by the continued opening of access across payor segments to allow for the treatment of patients with lower fibrosis scores as well as an increase in treatment by the VA during the second half of the quarter as funding made its way to the various VA sites.

The revenue associated with this increase in patient starts was partially offset by an increase in discounts associated with our contract agreement entered into during the first quarter of 2015, which provide for additional discounts if access is provided to a broader patient population.

We also saw a gradual shift to more deeply discounted payor segments such as VA, PHF, and Medicaid compared to the prior quarter.

In addition, revenue was further impacted by a higher-than-expected prior-quarter rebate claim, which come in one to two quarters in arrears and were updated in quarter one to reflect the higher claims received.

The average duration of therapy has shortened as fewer patients require 24 weeks of treatment and a higher proportion of genotype one patients are treated for eight weeks, resulting in slightly lower revenues per patient.

The ability to treat for eight weeks, notably, is a strong competitive differentiation.

In fact, our market share remains strong, with more than 90% of all patients treated in the quarter being prescribed either Harvoni or Sovaldi.

Qualitative feedback suggests that prescribing HCV physicians are encouraged by the fact that real-world outcomes mimic the experience in clinical trials.

Several presentations of real-world data at EASL reinforce what has been seen in clinical practice.

As we think about the rest of the year in the US, patient flow peaked in quarter one 2015, then declined in quarter two and stabilized in quarter three and quarter four of 2015.

In quarter one of 2016, there was an uptick in new patient starts.

Our data show that 25,000 to 30,000 patients a month are entering treater care, which exceeds the number of patients starting therapy on a monthly basis.

That means there are many more people who could benefit from treatment who are already linked to care.

We expect new patient starts to remain consistent through the rest of 2016.

Despite the number of patients treated to date, there are still over 3 million patients in the US who have yet to be treated.

About half of these patients are undiagnosed.

Education and awareness efforts to increase rates of diagnosis are important, and as we well know from public health efforts in the HIV area, these efforts play out over many years.

We are encouraged to see data that screening and diagnosis rates have increased at least twofold over the last five years.

Now turning to Europe: total HCV revenue in Europe was down 13% year over year and down 1% sequentially, while overall Gilead patient starts with increased 5% sequentially to around 31,000 in the quarter.

Average revenue per patient declined due to a shift in geographic mix and shorter average treatment duration.

We also saw a negative foreign exchange movement, which affected HCV revenues by about 8% year on year and 3% sequentially.

The mix of sales in the EU is such that more patients are now being treated in countries which have lower net prices per patient.

European countries continue to vary significantly in terms of patient access, with many still limiting treatment to patients with high fibrosis scores.

We anticipate that as sicker are treated, these restrictions will start to loosen, as healthier patients can be cared for within existing budgets.

Again, as in the US, we treat just a small fraction of patients diagnosed.

We are encouraged by ongoing efforts and commitments by governments to increase diagnosis and treatments across Europe.

Now, moving to Japan, revenue was over $1 billion during the quarter.

We are pleased with the successful launches of Sovaldi and Harvoni, where a strong patient flow and high market shares continue through quarter one.

More than 30,000 patients were treated with Gilead products during the quarter, representing a market share greater than 90%.

Other markets where we recently launched our HCV products include Australia, where nearly 5,000 patients started treatment in Q1.

This reflects a strong commitment by the Australian government to address their HCV burden and the usual warehousing of patients prior to the launch of sofosbuvir-based regimens.

In closing, our underlying HCV business is strong and sustainable.

We've treated around 700,000 patients in the US, Europe, and Japan.

And despite strong competition, Gilead has maintained a high market shares in all regions.

The Gilead commercial organization is focused on executing our numerous HIV and HCV product launches across multiple geographies during the remainder of the year.

In addition to our three TAF-based HIV products, we are preparing to launch our pan-genotypic HCV product as early as next quarter in the US.

Thank you.

And now let's open the call for questions.

Operator?

(Operator Instructions) Geoff Meacham, Barclays.

Seems like lower revenue per patient was one of the bigger contributors to the sequential trends.

So a couple of questions: what was the initial outlook for higher volumes coming from commercial patients, just with respect to broader access for F0 and F1?

And then was the volume contribution this quarter pretty meaningful from the VA system?

I just want to get a sense for the sequential trends there, too.

Thanks.

So, yes -- so several things happened in the quarter in relation to volume and revenue per patient.

So maybe I'll try and deal with all of them.

So the first thing, as you said, we had -- and we expected this, and hoped for it -- that several of the large commercial payors opened up access to patients, regardless of their fibrosis scores, during quarter one.

The consequence of that was that they triggered a discount that had been previously negotiated in order to incentivize that opening up of restrictions.

So that was the first thing.

And then the VA, as you know, treated very few patients in quarter four last year because of lack of funding.

That funding was agreed for a two-year period and focused on HCV medicines and was clarified late December.

Then the VA went through a process of evaluating the clinical evaluation of product available from not just us, but obviously new entrants to the market.

And that process took through till mid-to-late January.

And we had to negotiate with the VA, and we did give the VA some extra discount, which resulted in them putting our products on their formulary and also opening up again access to all patients within the VA.

So there are no restrictions on patients.

And again, we see this as a large positive.

And as those funding got distributed around VA centers, we started to see a very large uptick in VA treatment from about the middle of the quarter.

And we anticipate that that will continue through the year.

The second kind of area that happened, of course, is we had the entrance of Merck into the market.

And so we judiciously exercised our contractual right to preserve access.

And in a few cases, we did increase a little bit of discount to some payors to ensure that Harvoni in particular remained on formularies and with full access.

The third thing I think we've seen, as I indicated in the comments, was a slight and gradual shift of payor mix away from the commercial and Medicare Part D payors towards the more government payors.

And that was probably about a 10% shift from quarter four to quarter one.

And then the final piece, as we indicated, is we did have a catch-up, a true-up of some rebate claims that came in respect to quarter three and quarter four that were a little bit higher than we estimated last quarter, and which we put right during quarter one.

So that really is the dynamic between volumes and revenue per patient.

Okay.

Thanks a lot, Paul.

Mark Schoenebaum, Evercore ISI.

By the way, John, I really enjoyed your opening comments.

Everyone's very focused on what you're going to do with your cash, BD, M&A.

So I have, actually, one simple question, probably for John: would you be willing to go hostile?

And if not, why not?

How do you feel about that?

Because clearly, what we're hearing is that the small companies won't engage right now because they don't like the valuations, but the large companies are very interested.

Thank you.

Hi, Mark.

It's John.

You know, mergers and acquisitions are always a process.

And so the ability to go hostile is limited by how much data or how much corporation you need.

So in each situation, you'd have to kind of think about -- what do I need to know about the pipeline, or about things that are not public about a company in order to be comfortable making sort of a public offer for the company?

But that being said, we've never declared ourselves unwilling to go hostile.

I do prefer a friendly process, but it would just depend on the situation itself.

Thank you very much.

Geoffrey Porges, Leerink Partners.

John, welcome to -- leading your first call completely.

I guess follow-up on that question: you've invested, it looks like, about $19 billion or $20 billion over the last year.

Now producing your share count, and the share count has come down by about 10%; but your EPS is pretty much flat, maybe up low single digits versus last year.

Are you convinced that that's the best use of your capital?

You've got $21 billion in cash and about the same amount of debt.

So are you going to revisit that?

Or is that more or less the path that you believe generates the best returns here?

Geoff, I think that was directed to me, but I'm going to let Robin answer the first part of that question.

Hi, Geoff.

It's Robin.

I think as we said all along, we've looked at how we leverage our cash as not only being share repurchases and dividends, but also we consistently look at investing in our core pipeline as well as M&A where appropriate.

And similar to the amounts that you called out relative to cash, it's actually about 17% reduction in share count, as I mentioned on the call.

We have done a lot of M&A as well, and I think we'll continue to do that, and as John said, when the right opportunities present themselves.

So I think we've always been fairly clear that we are balancing doing all of those things.

And we have purposely focused on share repurchases, because in the absence of M&A, it allows us to be flexible and more opportunistic.

But when does the right M&A opportunities present themselves, it allows us to reduce our share repurchases in order to make those necessary acquisitions and leverage our cash and debt and borrowing if we need to.

Yes, it's just -- for us it's fairly simple.

We have the flexibility to do both things: that is, return shareholder value through stock repurchases and dividends and, of course, continue to be opportunistic in M&A.

How we're deploying it is sort of a reflection of the things we're interested in -- I think, for example, the Nimbus acquisition, while relatively small, could bring a very, very unique product to us and something that we are focused on during the quarter.

We're continuing to look for opportunities like that.

And we will continue to aggressively look for opportunities to deploy our cash in investing in things other than Gilead.

Thanks.

I'll the back in the queue.

Michael Yee, RBC Capital Markets.

I wanted to revisit some questions that was talked about related to price and volume.

You did mention, on the positive, that net new patient starts were up about 10%, which is great.

But then the total revenues in the US declined by 11%.

So someone could do the math and imply that price was down 10% to 20%.

Can you comment on that, or maybe just describe where you think the price/volume equation was in the quarter, and how we should think about net price changing quarter over quarter, and how that should change over the year?

Thanks.

Yes, Michael, I think we are in a much more stable place than we were one year ago at this time.

I think I described it just now.

We've made some contractual moves which have opened up access.

We are very happy about that.

We are happy that some of the government payors are beginning to treat a few people.

We are very happy about the VA in particular ramping up its treatment levels.

I said that, you know, we'd had to compete in the VA; and we did that, but we're enjoying very high market shares wherever physicians have the choice of prescribing.

And that's always been our aim: to make sure that physicians and patients can choose what drug they think is appropriate.

And wherever that's the case, Gilead seems to do pretty well.

So I would say looking forward, we're in a fairly stable place now.

Clearly over time, as competition increases, prices are likely to incrementally move in one direction, I would think.

But I think we're stable.

So on one side we're getting lots of access, but on the other side, my math is not totally off, just to be fair.

Correct.

Okay, got it.

Thank you, guys.

Cory Kasimov, JPMorgan.

Going back to the strategic theme, you've talked in the past about wanting to be a leader in oncology.

But given the issues you've had with Zydelig and the leadership changes you've also had, are you as committed to that space as you once were?

And if so, what's your thought on the potential opportunities you see out there between solid tumors and hem/onc?

Thanks.

Corey, it's John.

That's, of course, a big question.

So if you think about where we are in our oncology portfolio, we have been focused heavily on a number of activities around these kinase inhibitors and have actually behind Zydelig a number of opportunities that are moving into clinic, including our SYK inhibitor, our BTK inhibitor.

I should probably let Norbert go on about this, but I would say we have numerous opportunities that we're continuing to pursue.

You had mentioned we wanted to be a leader in oncology.

We think of oncology as one leg of a future company that could be important to us, along with our investments in NASH and inflammatory diseases.

We do see some good opportunities out there, and we see some good opportunities internally.

So I don't -- the Zydelig setback hasn't changed our appetite for trying to do more transformative things in oncology.

It was never going to be a franchise product like Viread or sofosbuvir but was a good beginning for us.

And I really haven't changed my thought process around it as a result of the setback because of the toxicities we've seen.

Norbert, do want to add anything to that?

No.

As John said, Zydelig has not only not decreased our appetite; it has increased our appetite to do more in oncology.

And you know, we are now at a point where a number of programs are coming to fruition -- for instance, momelotinib we're intending to file early next year.

The Phase 3 studies are fully enrolled.

We should get the results at the end of this year.

The MMP9 antibody is in Phase 3 for gastric cancer.

We are at the end of dose ranging with combinations of PI3K SYK and SYK BTK, and that will move into front-line treatment.

So we have a number of interesting things ongoing internally.

And, of course, as John said, we are continuously looking externally at finding suitable opportunities.

And if the right opportunity comes along, then we will take advantage of it.

Great.

Thank you.

Brian Abrahams, Jefferies.

I was wondering if you can talk a little bit about hep C diagnostic initiatives and maybe some of the pullthroughs that you're seeing or might expect to see on patient identification.

And I'm particularly curious if you have a sense, among the growing number of new patients starts, who may have been identified last year and are now getting access with fewer restrictions versus patients who are getting identified this year and coming onto treat or care concurrently?

Thanks.

So it's actually very hard to tell when people are being diagnosed, and who is being treated when.

Anecdotally, I can tell you -- I was out visiting some doctors in California just last week.

Patients are -- there are plenty of patients there.

There's many people who are linked to care now.

And with the fibrosis restrictions being dropped now, most physicians can treat -- certainly in the commercial area and Medicare area -- can treat whoever they want.

One thing is clear, though, that there are still prior authorizations in place.

And there's still a fair amount of office paperwork and bureaucracy that have to be put in place for each patient.

Then there's the patients themselves, many of whom just simply aren't quite mentally ready or psychologically ready to commit to their disciplined eight-week or 12-week treatment.

And with these products, of course, insurance companies aren't keen to do it twice.

You know, they want to try and get it right first time.

The doctors want to get it right first time, and the patients want to get it right the first time.

So we're seeing that some of the sort of delays in patient starting are to do with the patient just being ready to commit to a sort of disciplined 8 or 12 weeks of patients.

On the diagnosis side, again anecdotally, we just know that there's a lot of activities going on.

A lot of people are telling us what was going on around the countryside, and we do see diagnosis rates increasing significantly.

So I think there are plenty of patients being diagnosed, and there are plenty of patients coming into treatment.

And there's a waiting list of patients at most offices.

By the way, our estimate on diagnosis is about 200,000 new diagnoses happened in the US last year.

Brian, I might want to add to that we have a number of demonstration projects ongoing in the United States to look for places, institutions, populations and figure out what the diagnosis positivity would be.

And it's surprising; we've identified some places, like ER rooms, that have seropositivity rates of greater than 10%.

We hope that those demonstration projects will then lead to a broader recognition of the value of diagnosis and identification of hepatitis C infected individuals.

Thanks very much.

Brian Skorney, Robert Baird.

I guess two quick ones: I know we talked a little bit about this at EASL, John, but just refresh us on the timeline in terms of when you think you can get sofosbuvir-based regimens approved in China; how you think about pricing that there to kind of capture share of patients who are looking at a branded drug versus potentially penetrating further in.

And then just on the US, have you guys heard anything in terms of a warehouse build in genotype 3 ahead of a SOF/VEL launch?

Should we be expecting a small bolus of patients upon that approval?

Brian, I will start with the China question.

So in terms of timing for China, there is a fairly fixed process.

And according to the recent processes, we could possibly have sofosbuvir the market in 2017.

As you may have seen, there are new -- the Chinese government is working hard to try to accelerate review and approval of HCV drugs, because currently none are on the market of the direct-acting antivirals.

And that could help us accelerate the timelines into China.

We are working on that.

Particularly of interest to us would be accelerating the timeline for SOF/daclatasvir, because there's so many different genotypes in China.

Genotyping is not common in China, and this could provide a very good option for the people of China.

So that would -- there's hope.

But we can't guarantee, of course, that we could accelerate that approval beyond its current timeline, which is 2019.

The Chinese market is fairly large.

Between 10 million and 20 million people are thought to have HCV.

I don't want to get into public discussions of pricing, but I do think there's a price/volume relationship that would work for us and for the Chinese health system that could be very, very good for us both.

And so that's what we're working towards is access in China.

Your second question was on warehousing for genotype 3 patients.

Currently, a lot of genotype 3 patients are being treated with SOF in combination with the daclatasvir.

And so that seems -- there seems to be fairly decent access for that.

So I'm looking at Paul.

I don't think there's any real warehousing going on, but maybe you're more aware of it than I am?

Well, you know there is -- about 7% or 8% of the US HCV epidemiology is genotype 3. We don't have any data on it, but certainly we get -- I'm getting the impression from my team anecdotally there is a little bit of warehousing.

Not least because sofosbuvir/daclatasvir is obviously a very expensive regimen.

And the hope is that the cost of genotype 3 treatment will come down somewhat after SOF/VEL comes onto the market, which -- the PDUFA date is June 28.

So people are thinking about that.

So we're optimistic.

Great.

Thanks, guys.

Phil Nadeau, Cowen and Company.

A few questions on Japan.

I know you said that there was some change in pricing because of the April 1 price declines during the quarter.

What other dynamics were going on in Japan during this quarter?

Where do you think you are [entering] the bolus in Japan?

How much longer could that go?

And then, separately, I believe that there were price discounts that come in with a certain volume being reached.

Are we right to assume that those could be hit in July?

And what kind of dynamics do you expect to see in the Japanese market going forward?

So we're very, very pleased with the execution of our launches in Japan.

In terms of patient flow, the genotype 2 patients, which represent about 20% of the Japanese epidemiology in HCV, are beginning to stabilize now.

So those are the patients being treated with Sovaldi.

Those numbers -- we launched on May 25 last year.

We initially had a bolus, and then those numbers came down through quarter four.

And quarter one is at a lower level than quarter four.

But we are seeing a stable flow of patients now in genotype 2, and we would anticipate that to be stable through the rest of the year.

Genotype 1 is treated by Harvoni.

We've treated an enormous number of patients initially.

We're not quite sure if the curve in Japan is identical to the sort of curves we've seen in the US or other major markets.

And that's because there was a DAA in the market before Harvoni which did treat quite a few people.

So there might not have been quite such a large amount of warehousing.

In any case, we're seeing the Harvoni patient numbers coming down gradually.

Not quite as steep as some other markets, and that yet to stabilize.

But I'm pretty sure -- in fact, I know it will stabilize sometime in the next quarter or two.

So that's how we're seeing -- we treated about 30,000 patients during the quarter.

So that number -- it will be there or thereabouts, I think, for the rest of the year.

And what about the volume discounts?

Are those going to come later in the year?

And what kind of dynamics --?

I'm sorry -- we're not anticipating any further price movements in this year in Japan.

Great.

Thanks for taking my question.

Matthew Harrison, Morgan Stanley.

I had one follow-up on Phil's question on Japan.

Can you just be clear with us?

The pricing that you talked about in March -- was that the full extent of the 30% price cut, or will there be more in April?

Just so we can understand how much was reflected in this quarter.

And then on the rebates that you talked about, the true-up that happened -- would you expect that to swing again through the rest of year?

Or do you think that that is now at a level that expresses what your forward-looking expectations are for the level of rebates?

Thanks.

I'll do the first part, and Robin will talk about the second part.

So the pricing in Japan -- the official price reduction was just under 32% and officially from April 1.

We actually reduced our prices into wholesalers early in March.

And the reason for that was because the price cut was announced much earlier, and therefore we wanted to just kind of smooth out the inventory situation.

So that's why we reduced our price into wholesalers a little bit earlier.

And by the end of the quarter inventory levels were up to, I would say, reasonable levels relative to demand.

And actually a little bit -- those inventory levels are little bit down from where we ended quarter four, because overall demand was slightly down because of Harvoni.

Robin?

Sure.

And so, Matthew, to answer second part of your question relative to the rebate accruals that both Paul and I mentioned: we regularly have to adjust our accruals to reflect the trends in the timing of rebates.

And I would say still the trends and the dynamics and the complexity around reimbursement in these markets still make them somewhat difficult to predict.

So I wouldn't say they were all one-time in nature.

There may be a small component that you could say, when we were trying to look at the level of inventory, that maybe was one-time in nature.

But these dynamics, I think, we may see continue into the future.

And the honest answer is: we don't necessarily know.

Ying Huang, Bank of America Merrill Lynch.

First of all, I want to probe a little bit about the rebate.

Can you clarify whether it's actually access based or volume based?

Because we can see from the scripts apparently the volume is not really picking up after those big insurers opened up the access, regardless of F scores.

So I wondered what happens there.

And then secondly, I think, Paul, you mentioned that the payor mix is getting a little bit worse this quarter.

But can you talk about your thoughts on payor mix going forward?

Is it going to be continuing shift to the public payors or, I guess, the lower-price environment or not?

Thank you.

So the first question was about patient volumes coming in and relative to the opening up of the fibrosis scores.

So I'm not sure whether you look at this data or not, but we get new-to-brand data, which is really the leading indicator of new starts in the quarter.

So we've seen -- and this is just retail scripts, by the way; so that doesn't include the VA; it doesn't include scripts that go through ESI and various other groups.

So it's partly representative.

And what we've seen amongst those scripts is new starts in the quarter have gone up.

And that's gone up exactly in line with our expectations with the fibrosis scores being released.

Total scripts have remained relatively flat.

And part of that is because in quarter four, of course, the patient numbers -- well, throughout really 2015 quarter on quarter the new starts were coming down.

And therefore the refills associated with those new starts falling into quarter one were somewhat down.

So the aggregate of that makes the numbers of total prescriptions in the quarter look relatively flat and slightly disengaged from the fibrosis piece.

So I think that hopefully covers that part.

And then, of course, the VA, as I said, isn't included in that group.

And that was a large number of patients coming into the system.

And then the payor mix?

The payor mix, I think, directionally -- I mean, this is not a dramatic move.

I think directionally we anticipate that Medicaid will start.

There's a lot of pressure on Medicaid to treat patients.

And we anticipate that the public payor sector will start proportionately getting a little bit bigger in our mix.

I mean, just as an example, around 77% of our payor mix at the end of quarter four, during quarter four, was really commercial and Medicaid Part D. That number has dropped down now to about 64% as a proportion.

So we're seeing a shift, and I would imagine that that will continue gradually.

And then would you guys ever talk about the relative magnitude compared to 46% you flagged last year?

No, we're not going to give guidance on our guidance.

We gave the gross net number once.

We've built that into our guidance for the rest of the year.

So we're not planning on breaking that out at all.

Thank you, Paul.

Robyn Karnauskas, Citi.

Just thinking about the moving parts over the course of the year and the color you gave on fibrosis scores -- so with so many people getting rejected early on based on fibrosis score, how might they flow into the system during the year?

Because there's a lot of patients; do you see them coming on evenly?

Or could they come in a bolus, and we could see some choppiness in the quarters?

And then the second question I had was: how comfortable are you that you can -- that some of the pricing negotiations will -- have been done, and we won't see further pricing negotiations coming with the new nuc-based regimens coming next year?

Do you think there's going to be another round of surprises in 2017 for discounting?

Or do you think we've reached a little bit lower of a steady-state?

Thanks.

You know, I think it's hard to tell on the flow of patients, first of all.

What we do know is there's plenty, plenty patients out there.

As I said, we have -- our data, we've got three different sources of data which shows that 25,000 to 30,000 patients are coming into treatment.

Obviously, a lot less than that are actually being treated.

And anecdotally, as I said, I think it's because there's bureaucracy still in the physicians' offices, which give a kind of -- you know, I guess that's sort of gating in a sense, the number of patients that can be treated.

And also, it's from the patient's side, you know, people are actually ready to be treated.

I think they want to be teed up, if you like, for treatment; but they might not want to actually start tomorrow morning.

So I think we should expect patient flow to be fairly stable through this year.

And then on the negotiation side, I mean, I think with real-world data, payors are tending now to really take a lot more time and put a lot more thought into evaluating the clinical profiles of the product.

And you know, until we see the clinical profiles of the new products, it's very hard to predict how competitive they are.

I mean, if they are competitive, I think we have to anticipate prices will come down, and we'll negotiate.

Because we certainly don't want to lose any access to patients for our product.

And we'll defend our market share vigorously.

So it's hard to predict.

I think directionally, competition equals lower prices.

But we are going to be focusing on looking at differentiating our product.

We've got great products out there now, and our pipeline looks really exciting.

So I think we're in good shape for a long and sustainable and healthy HCV business in the US.

Thanks.

Alethia Young, Credit Suisse.

Just one -- like, if we go back to the beginning of this year and think about, like, the $30 billion to $31 billion you put out there, has the mix between hep C and HIV changed?

It seems like HIV is going little bit better on the new launch, and Hep C has more pricing pressure.

And then just also can you confirm, maybe, if we are seeing any competition in the big five from, like, kind of new competitors like Merck coming to the market?

Maybe, Alethia, I could take the first part of your question.

This is Robin.

We gave guidance for the full year.

I would say, yes, this quarter we had a slightly uptick relative to our HIV expectations and slightly down relative to HCV.

But I think we have still got three quarters to play things out.

And as Paul said, we continue to be optimistic relative to patient starts and a more stable, predictable environment going forward.

But it's still very early to tell.

Yes.

And in Europe, I've got to say, the payors are treating the products generally with less consideration to the clinical differences than we are seeing in the US.

And there are some payors who are treating the products a bit more like commodities.

And we are working hard to make sure that we educate them as best as possible.

And I think the real-world data, much of which originates from Europe, is really supporting us in that.

But we have seen some instances of, for example, tenders in the Nordics which have a very binary outcome.

And there are certain times that, you know, we've decided that those tenders' prices don't warrant the value of our product.

So our market shares have been a little bit less than Europe.

And specifically, to answer your question, I think all three players are out there in Europe trying to get business.

But at the end of the day, we hope that people will recognize that the Gilead products are highly effective, very simple, very tolerable.

And the real-world data, which is now -- you know, there's vast amounts of it -- really does support us when physicians make their choices.

And as I said earlier, where physicians have the freedom of prescription, we've tended to have very, very strong market shares, in the 90%-plus.

Ian Somaiya, BMO Capital.

Thanks.

Maybe just change the topic a little bit -- a question for Norbert.

I was hoping you could just speak to the three oral candidates you have for NASH now, just how they would -- how you are planning to develop them; how they might then play potential combination strategies.

And as you kind of think about the larger BD question that keeps being asked, do you have enough data on your internal programs to make decisions in terms of what additional products that might benefit your internal efforts in NASH and also in hep B?

So, Ian, actually it's four products that we have currently in early clinical studies, if you include the Nimbus compounds.

That deal, by the way, has not closed yet.

But it should close in the next week.

So we have the ASK inhibitor, the ACC 1/2 inhibitor, the simtuzumab, and then the FXR agonist.

And we could by the end of this year be in four Phase 2 studies, really, you know, in NASH, to look at the effect of any one of these agents by themselves.

And then we would also at the same time look at our star combination studies to see -- you know, too, we always have said we believe in the three points of [PET] disease pathogenesis.

There's fibrosis, inflammation, and metabolic.

And we now have agents that address all of them.

And we're absolutely -- our hypothesis is that ultimately it's a complex biological disease and probably more than one agent will be needed.

And we're looking forward -- maybe sometime next year we will then go to Phase 3.

With regards to BD, we're of course looking.

At the moment there is nothing out there that I would say we have to get -- as I said, we have four components.

We are going to look at those individually and then, as the results come in, make decisions what else we would need.

And then what about hep B?

It's a similar question.

Just with the assets you do have -- I know that you have provided very little information or shared very little information with us.

But just as you think about your internal portfolio, do you feel like you have the assets you need to move forward with them and, obviously, capture the market?

I would say, Ian, so we have, as you know, 4774 -- 4779, that's the GlobeImmune vaccine.

We presented data at last AASLD showing that at least in virally-suppressed patients, it did not lead to a reduction in its antigen.

We are currently doing a study in treatment-naive patients.

We then have 9620 to [deal our seven] agonists in Phase 2 as well or Phase 2a.

And then we have two other internal programs that we haven't disclosed yet.

They are pre-IND, but we have identified with two different mechanisms, molecules that we want to develop or evaluate in human clinical studies.

But having that said, it's early -- I mean as a general statement -- in hepatitis B cure.

And we are really having a very open mind and looking outside: what else is there potentially that would fit our portfolio?

Terence Flynn, Goldman Sachs.

I was just wondering -- you mentioned this 25,000 to 30,000 per month number of patients coming into treatment and then gave us the new diagnosis last year in the US.

So that equates to about 17,000 per month.

So is it safe to assume that of the new patients coming out of treatment, half are newly diagnosed and half are coming from the currently diagnosed pool?

Am I thinking about that the right way?

And then the second question was just -- can you tell us the percentage of patients that are getting 8 weeks of therapy this quarter?

Thank you.

I think, broadly speaking, your math is correct on that.

It's hard to tell exactly where the patients are coming from.

But I think mathematically that sounds about right.

Sorry, what was the second question?

Oh, yes, sorry.

Eight weeks -- yes.

We've drifted slowly but surely upwards on the eight weeks.

I think were about 43% now.

I've got to emphasize: the data we have is called intent to treat rather than actual prescriptions.

So the intent to treat in the US is about 43%.

The epidemiology, as we previously said, we probably suggest about half genotype 1 patients would fall into the criteria that would trigger off eight-week treatment.

Jim Birchenough, Wells Fargo.

A bit of a maintenance question and then a more meaningful question.

On the maintenance side, you referred to a bit of a shift from 24 weeks to 8 weeks.

Could you break down the 8-, 12-, and 24-week treatment numbers in HCV and where you see that heading?

And the more meaningful question is: NASH is obviously an important part of your future growth strategy.

FXR is in that category.

How confident are you that you can separate out the metabolic effects of FXR agonism versus the beneficial effects?

What's the basis for that (technical difficulty) and when will we see that data?

Thanks.

We're not going to break down the weeks of therapy.

I mean, I just said what we think the eight-week amount is.

But the rest of you'll have to just model yourself.

And I'll hand it over to Norbert for the second question.

So, Jim, as you know, steroids FXR agonists do many, many things, not only in the liver but in also other target organs.

So our philosophy is that we have an FXR agonist that purely acts at the level of the G.I. So it does not get totally absorbed to any meaningful degree.

And then what it does -- at the level of the G.I., it releases FGF 19.

And we believe that FGF 19 does everything that it needs to do in order to impact on NASH.

That's our hypothesis, and we are testing that.

And we should have data available in the fourth quarter of this year.

So that's a fairly easy experiment to do.

You simply look at bioavailability, which is below, but the FGF -- might increase the FGF 19 levels with some of the consequent metabolic effects.

That way we also think we can prevent pruritus.

We can prevent the cholesterol effects.

We can prevent alkaline phosphatase elevations, et cetera.

And so if this all is true, it should be a much safer and cleaner FXR agonist.

And Norbert, what is the forum for that data release?

And what are the next steps for that program?

How far behind are you from things that are in Phase 3 right now as FXR agonists?

We could probably have some of the preliminary data at AASLD, and we would then move into Phase 3 soon after that.

So we're not that far behind other companies.

Great.

thanks for taking the questions.

Alan Carr, Needham & Company.

I'm wondering if you can talk a bit more about the new diagnoses in 2015 that you mentioned?

You said there was around 200,000.

Do you have any other details around that -- about where they were found, or I guess the trend over the course of the year?

Is it increasing?

Thanks.

I don't have a lot of details at my fingertips, actually, Alan.

I would say, just to build on what Norbert was saying earlier, the interactions we are having with many people working on diagnosis projects around the country are that there's a lot of -- a surprisingly high level of positive diagnosis in some of the urban centers, and in the ER rooms in particular in those urban centers, where diagnosis rates have been double at least what even the local investigators have anticipated.

Why that is, I'm not sure.

But this has been consistent throughout the country.

So I would say that diagnosis rates, the 200,000, would grow rather than shrink, certainly for the next few years.

And there's great efforts, of course, now to encourage diagnosis, because people know that at the end of it, they're going to be treated and have a high probability of being cured.

Great.

Thanks very much.

Tony Butler, Guggenheim.

Norbert, very quickly, if you could -- recognizing that Nimbus closes next week, have there not been other ACC inhibitors which have actually failed?

And if that's true, what might be unique about the Nimbus program?

I understand it may attack a different part of the molecule, which would be interesting for you to elaborate on, if that isn't the case.

Thanks.

Yes, so Tony, you're exactly right; there have been previous ACC programs at Merck and Pfizer.

They have not been successful, and the reason had to do with the specificity.

This compound is really unique.

It's a low nanomolar inhibitor of both ACC-1 and ACC-2.

It then inhibits not only the pathway that goes to the [nova like progenesis], so no coenzyme A production; but it also inhibits at the level of the mitochondrion.

It stimulates, I might say, lipid acid beta oxidation.

So it does really two things.

It inhibits the formation of lipids, palmitate mostly, and at the same time it stimulates the beta oxidation of lipids.

And so there has been some anecdotal reports from the Pfizer compound that inhibition of ACC-1 and 2 results in a decrease in liver fat.

That's, by the way, something we would do as one of the next experiments.

We would look by MRI on reduction of -- we have already shown at the EASL presentation that it inhibits lipogenesis.

Now we have to show also that it inhibits lipids fat content of the liver.

It's a very straightforward and easy experiment to do.

And I think once we have shown that we have pretty high confidence, that there will be a meaningful clinical benefit of the compound.

Great, thank you.

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

We appreciate your continued interest in Gilead.

And the team here look forward to providing you with updates on 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.