吉利德科學 (GILD) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences First Quarter 2017 Earnings Conference Call.

My name is Candice, and I'll be your conference operator today.

(Operator Instructions) As a reminder, this conference call is being recording.

I would now like to turn the call over to Sung Lee, Vice President of Investor Relations.

Please go ahead.

Great.

Thank you, Candice, and good afternoon, everyone.

Just after market closed today, we issued a press release with earnings results for the first quarter of 2017.

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

In addition, this year, we have combined our annual and corporate social responsibility reports into a single publication titled 2016 Year-End Review to share essential information about the company's financial, social, environmental and governance performance.

This report can be found on the Investor Relations section of our website.

The speakers on today's call will be John Milligan, President and Chief Executive Officer; Robin Washington, Executive Vice President and Chief Financial Officer; Jim Meyers, Executive Vice President, Commercial Operations.

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

Before we begin formal remarks, let me 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 the 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 Robin.

Thank you, Sung, and good afternoon, everyone.

We are pleased to provide you with an update on our first quarter.

I'll review our financial results, Jim will elaborate on our commercial performance, and then, John will make a few comments.

There were a number of positive trends from our non-HCV business in the first quarter that Jim will describe in a few minutes.

Overall, earnings per share and the total revenues were down year-over-year, due primarily to dynamics in the HCV marketplace that we described during our last earnings call.

Total revenues for the first quarter were $6.5 billion, with non-GAAP diluted earnings per share of $2.23.

This compares to revenues of $7.8 billion and non-GAAP earnings per share of $3.03 for the same period last year.

Product sales for the first quarter were $6.4 billion, down 17% year-over-year and down 12% sequentially.

The year-over-year decline was due to lower HCV sales, partially offset by increased sales in HIV and other therapeutic areas.

Sequentially, the decline was due to lower HCV sales and sub-wholesaler inventory decreases in the U.S., associated with our non-HCV franchises, reflective of the seasonal inventory pattern from the fourth quarter to the first quarter.

Turning to the U.S. Product sales for the first quarter were $4.5 billion, up 2% year-over-year and down 10% sequentially.

Jim will provide more color for the U.S. as well as the other regions.

Turning to Europe.

Product sales for the first quarter were $1.3 billion, down 23% year-over-year and down 11% sequentially, primarily due to competitive dynamics in HCV and unfavorable currency movements.

Now turning to expenses.

Non-GAAP research and development expenses were $889 million for the first quarter, up 16% compared to the same period last year, due primarily to the purchase of a $125 million U.S. FDA priority review voucher in March.

Non-GAAP SG&A expenses were $807 million for the first quarter compared to $638 million in the same period last year.

These expenses increased primarily due to a higher net Branded Prescription Drug fee for the first quarter of 2017 compared to the first quarter of 2016, which included a $191 million favorable adjustment, as referenced on Slide 11.

Without this onetime adjustment, non-GAAP SG&A expenses for the quarter would have been slightly lower compared to the first quarter of 2016.

We continue to focus our efforts on operating in a highly efficient manner by proactively managing expenses and investing in areas of strategic importance to retain our industry-leading operating margins, significant cash flows and healthy balance sheet.

During the quarter, we generated cash flows from operations of $2.9 billion and ended the quarter with $34 billion in cash and investments.

As part of our plan to return capital to our shareholders, in the first quarter, we paid cash dividends of $687 million and repurchased 7.9 million shares of stock for $565 million.

The timing and amount of share repurchases was aligned to our stock compensation awards, which are largely granted in the first quarter.

As noted in our last earnings call, we are prioritizing the use of capital for investing in the long-term growth of our business, including partnerships and acquisitions.

The year is progressing consistent with our expectations.

As such, we are reiterating our full year 2017 guidance provided to you on February 7 and summarized on Slide 7 in the earnings results presentation available on our corporate website.

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

Well, thank you, Robin, and good afternoon, everyone.

I'm pleased to provide an update on our commercial performance for the first quarter, and I'll start with a few comments on HCV.

Starting with the U.S. Approximately 700,000 people have initiated HCV therapies since the launch of Sovaldi in December 2013, with 90% receiving a sofosbuvir-based regimen.

Total U.S. revenue from Gilead's HCV therapies for the quarter was $1.7 billion, down 18% year-over-year and 17% sequentially.

The decrease in sequential revenue was driven by the declining sales of Epclusa, resulting in lower inventory, as well as some loss of market share as a result of increased competition.

For the remainder of 2017, while increased competition will have some level of impact on patient share and pricing, we expect that the continued decline in HCV patient starts will be the primary driver of the year-over-year decrease in revenue.

This decline in starts is driven by the evolving profile of patients that are in care.

62% of patients initiating therapy in the first quarter had fibrosis scores of F0 to F2.

That's the highest we've seen for this metric and indicative of the fact that patients are coming into care with earlier-stage disease, a trend that is illustrated on Slide 26.

Over the last 6 months, we've introduced 2 new direct-to-consumer campaigns.

The first launched in late 2016 with the goal of increasing screening among baby boomers.

We are pleased to see that this campaign, along with the efforts of organizations like the CDC, had an immediate effect, with a 24% increase in HCV antibody testing among undiagnosed baby boomers over the first 2 months of implementation.

The second campaign launched in March and is directed towards diagnosed patients with a goal of encouraging them to seek treatment with Harvoni.

We hope these campaigns will continue to have an impact and will help more individuals seek testing, linkage to care and treatment.

It's important to remember that while the time line for a patient to go from entering care to initiating therapy has lengthened and is more variable, there are still nearly 3 million people with HCV infection in the U.S. Only half of them are diagnosed.

Turning to Europe.

HCV revenues were down 42% year-over-year and 22% sequentially.

Quarterly revenues of $487 million were negatively impacted by lower market share as a result of increased competition.

During the quarter, we negotiated new agreements with France and Italy to expand access to HCV patients, regardless of fibrosis score.

This means that there are now 14 European countries, including 4 of the 5 major markets, that allow patient access, regardless of disease severity.

In addition, Epclusa has now been launched in all 5 of the major markets in Europe, and will be an important treatment option, as some countries have a high percentage of genotype 2 and 3 patients.

These patients and their health care providers have been waiting for an effective therapy that does not require coadministration of ribavirin or extended treatment durations.

In Japan, HCV product sales for the first quarter were $205 million, down 81% year-over-year and down 35% sequentially, due to a decrease in patient starts and increased competition.

In the Japanese market, nearly 130,000 patients have been treated with a sofosbuvir-based regimen since the launch of Sovaldi in May 2015.

Because there remain many untreated patients, we continue to implement our direct-to-consumer education campaign to broaden the awareness of HCV in Japan.

Worldwide, 1.4 million patients have now initiated HCV therapy with a Gilead regimen in less than 4 years.

With SOF/VEL/VOX, our investigational pan-genotypic single-tablet regimen for salvage therapy, under regulatory review, we expect to complete our portfolio of HCV therapies later this year.

Now turning to HIV.

We are pleased with the rapid adoption and acceptance of our TAF-based regimens by patients and physicians in the U.S. and Europe.

In the U.S., HIV and HBV revenues were $2.3 billion in the first quarter, up 20% year-over-year and down 3% sequentially.

As Robin stated earlier, the quarter-on-quarter decline is consistent with the typical seasonality that we see in sub-wholesaler inventory.

Importantly, first quarter revenue from our TAF portfolio exceeded $1 billion for the first time, which translates to a quarter-on-quarter growth of 47%.

The launch of our TAF portfolio continues to drive the year-on-year growth of the Gilead HIV franchise.

Genvoya represents nothing less than the most successful launch in U.S. HIV history, as measured by cumulative total prescriptions over the first 5 quarters of launch, following launch.

By the end of 2016, Genvoya remained the most prescribed regimen for treatment-naïve patients, accounting for nearly 1 in 3 patients.

More broadly, our TAF-based regimens now represent 42% of total Gilead HIV prescription volume just 17 months after the launch of Genvoya and less than a year after the launches of Odefsey and Descovy.

Truvada for PrEP also continues to be an important growth driver for Gilead.

We've seen a significant uptick in PrEP usage in 2017, with an estimated 125,000 patients using Truvada as we exited the quarter.

This is encouraging, given the important role that PrEP plays in preventing HIV transmission.

Turning to Europe.

HIV and HBV revenues were $697 million in the first quarter, down 3% year-over-year and down 1% sequentially.

Year-over-year, volume growth, driven by TAF portfolio launches, was offset primarily by FX.

Notably, the TAF portfolio revenue grew by 24% quarter-on-quarter.

I'm pleased to report that Genvoya launched in France and Italy during the quarter.

Genvoya is now available in 23 European countries, including all major markets.

In France, the second largest HIV market in the world, Genvoya is off to a particularly strong start.

And in early launch markets like Germany, TAF-based regimens already account for up to 60% of Gilead's total HIV prescription volume.

This demonstrates the rapid acceptance of TAF by national health systems and the importance of an optimized safety profile for people living longer with HIV.

The TAF portfolio has achieved preferred status in treatment guidelines in 4 of the 5 major EU markets, as well as the EACS guidelines, with preferred status anticipated in France in the third quarter this year.

Shifting away from HIV and HCV.

Our U.S. cardiovascular team continues to deliver impressive results.

Letairis remains the market leader in TAH, with a naïve patient share greater than the top 2 ERA competitors combined, while Ranexa is ranked in the top 5 cardiovascular-branded products in terms of revenue for each of the past 2 years.

In closing, we were pleased with our first quarter results.

For the remainder of the year, we will continue to ensure that as many people as possible can benefit from Gilead products around the world.

I would now like to call -- turn the call over to John.

Thank you, Jim.

As you've heard, product revenues for the first quarter of 2017 were down 12% from the fourth quarter of 2016.

While any decrease in revenue is disappointing, of course, this decline is a result of the natural challenge of the HCV cure market where, in each country, there was a rapid increase in the number of patients who are treated and cured, followed by a decline in the number of patients seeking care and being able to access HCV treatment.

The ongoing reduction in patient starts continues to be the major factor impacting our revenues.

However, 2017 is progressing as we expected and communicated to you on our last earnings call.

On a positive note, we continue to see strong uptake of our TAF-based regimens in HIV, pointing to the valuable role these therapies play in the long-term treatment of patients with this disease.

Genvoya is now our #1 selling HIV product, surpassing both Truvada and Atripla since the last quarter of 2016.

During the first quarter, I had an opportunity to attend CROI, the Conference on Retroviruses and Opportunistic Infections.

This was a good scientific forum with much progress described across the spectrum of HIV research from prevention, to novel targets and treatment, to cure.

Gilead's work featured prominently in the conference, including Phase II data for bictegravir used in combinations with F/TAF, long-term data supporting use of Genvoya, and preclinical data describing the potential of our novel capsid inhibitor as a long-acting treatment.

During CROI, there was great enthusiasm for the emerging profile of B/F/TAF, as this is the first time we're able to present the full 48-week data set from our Phase II study.

As many of you know, we initiated Phase III studies last year based on our interim look at the 24-week data from this study.

These 4 Phase III studies include more than 2,400 patients, and enrollment was completed in the third quarter of last year.

We look forward to sharing data from these studies in the coming months and anticipate that we will begin submitting regulatory filings for approval in the third quarter of this year.

The progress we made in providing new options to patients with HIV is remarkable, and I'm proud of Gilead's contributions over our 30-year history.

Last month, Gilead research was featured in 85 abstracts at the International Liver Conference, or EASL, as it's often called.

One of the most exciting stories emerging from the conference involved NASH, or nonalcoholic steatohepatitis.

This is a disease that garnered relatively little attention at medical meetings a few years ago but is increasingly understood as a serious health issue for patients, particularly those presenting with the later stages of fibrosis.

These are the patients facing the greatest risk of complications and those with the most urgent need for new treatment options.

We shared proof-of-concept data for GS-0976, our inhibitor of Acetyl-CoA carboxylase, or ACC, in an oral late-breaker presentation.

ACC catalyzes the rate-limiting step in de novo lipogenesis, which means the formation of new fat.

Inhibition of ACC with GS-0976 leads to significant reductions in both liver fat content and stiffness, with decreases in markers of liver fibrosis seen after 12 weeks of treatment.

We have now progressed GS-0976 to a larger Phase II study.

In addition to 0976, another compound in development is our ASK-1 inhibitor, selonsertib.

We described for you previously the exciting data presented at ASLD last fall showing that inhibition of ASK-1 selonsertib led to decreases in fibrosis and secondary markers of NASH in a dose-dependent manner.

We now have 2 Phase III trials underway, evaluating selonsertib in NASH patients with bridging fibrosis and cirrhosis.

Also, at NASH, GS-9674, a gut-restricted FXR agonist, has progressed into Phase II studies having shown biological activity through up regulation of FGF19 in a Phase I study.

Complete resolution of a NASH may require the inhibition of more than one pathway, and animal studies indicate that combinations of selonsertib, GS-0976 or GS-9674 may be more effective than the individual components alone.

We have initiated a Phase II study in 20 patients evaluating the combination of selonsertib and GS-9674, and we'll initiate additional combination studies this year.

If these combinations prove safe and efficacious, we will move 1 or more into extended Phase II evaluation next year.

In HCV, we had 6 presentations at EASL further characterizing the efficacy and safety of SOF/VEL/VOX, our pan-genotypic single-tablet regimen in more than 1,000 DAA-naïve and DAA-experienced patients across all HCV genotypes.

Most notable is data showing no impact of resistance-associated substitutions on the high efficacy of SOF/VEL/VOX for 12 weeks in DAA-experienced patients.

As Jim mentioned, this regime is currently under regulatory review with a U.S. PDUFA -- FDA PDUFA date of August 8.

Also, in HCV, data from 2 Phase II studies of Harvoni demonstrated HCV cure rates of 99% in children aged 6 to 11, and 100% in adults co-infected with HCV and HBV.

The pediatric data have recently been included in our U.S. label.

And finally, we presented 96-week results from 2 ongoing Phase III studies evaluating the safety and efficacy of daily Vemlidy in HBeAG-positive and negative patients, and 24-week data in patients switching from Viread to Vemlidy.

The results reinforce Vemlidy as an important treatment option for patients living with chronic hepatitis B infection.

In the area of inflammation, Phase III studies of filgotinib, a JAK-1 selective inhibitor, are underway and enrolling in rheumatoid arthritis, ulcerative colitis and Crohn's disease.

This once-daily dosing and approximately 1,700 patient years of experience, we and our partner, Galapagos, have now started or announced the intention to start 6 additional Phase II studies across a range of different inflammatory diseases for JAK-1 activities implicated.

Before we wrap up our prepared remarks, I want to mention another recent and important event at Gilead -- which Gilead's work was highlighted, and that's in Neglected Tropical Disease Summit that took last -- place last month in Geneva.

At this meeting, which brought together the industry, the World Health Organization, public health and government officials and many NGOs working to deliver medicines in the developing world, we reaffirmed our commitment to the London declaration on neglected tropical diseases.

This declaration, signed 5 years ago, outlined the WHO's ongoing efforts to control, eliminate or eradicate 10 key neglected tropical diseases.

In Gilead's case, and related to this declaration, we have partnered with WHO for many years to provide AmBisome for use in several developing countries as a treatment for visceral leishmaniasis, a deadly parasitic infection.

This is a very important application for AmBisome, which is better known for use in cases of systemic fungal infections.

We are pleased that the use of AmBisome, along with other mitigation strategies, has resulted in a marked decrease in the number of visceral leishmaniasis cases in India, Nepal and Bangladesh.

In addition to this visceral leishmaniasis, we have research ongoing to address other neglected or emerging tropical diseases that pose significant public health threats in resource-limited parts of the world, for example, our work on GS-5734 for the treatment of Ebola and potentially other deadly viruses such as those that cause SARS and MERS.

In 30 years, we've learned that the value of partnerships in developing innovative new therapies and have demonstrated a willingness to make bold moves.

That hasn't changed, and we're committed to building on our success in HIV and HCV by leveraging our own scientific expertise as well as the knowledge of others through collaborations and partnerships to work towards the next generation of life-saving therapies.

I'd like to conclude by thanking you for your interest in Gilead and thanking our nearly 9,000 employees for the hard work that is well-represented in our results this quarter.

So let's now open the call for questions.

Operator?

(Operator Instructions) And our first question comes from Geoff Porges of Leerink Partners.

I appreciate all the color on the dynamics in HCV and HIV.

Perhaps we could talk a little bit about the HIV category.

And, Jim or John, give us a sense of what percentage of your HIV revenue in the U.S. today is Medicaid-funded.

And then, what percentage is covered, or at least patients, are covered by insurance provided by ADAPs?

And then, lastly, what do you expect to happen to pricing as you get into generic Viread being available, both outside the U.S. and then in the U.S. at the end of the year?

Should we anticipate Atripla's price coming down to some of the components or staying at the branded price?

Sorry, but they're sort of related.

Geoff, it's Kevin here.

Let me have a go at the first couple of parts, and then, Jim can also help out.

So I'll just link the business really between the public side and the private side for HIV, and we got about 55% of our business HIV sales go through the public, and about 45% go through the private.

It's actually almost a direct reverse of HCV.

And of that 55%, 20% or so is ADAP in the U.S. So that's basically the situation that we have.

We're very pleased with the progress with Genvoya.

As we said on the last earnings call, we will see the effects of generics in Europe in the second half of this year.

That will be a country-by-country event.

I think, the most direct effect, of course, will be on Viread and Truvada.

The most important part, as far as we're concerned, is to make sure, as many of our countries convert from TDF-based regimens to TAF-based regimens.

And as you heard from Jim, some of our European markets are doing very, very well on that front.

We've got Germany already at a ratio of 60% TAF to TDF.

So we're trying to control, I think, the most important variable, which is good for patients, which is to see them converted to TAF away from TDF in advance of the change in the TDF landscape.

And, Kevin, just to add on that, and I agree with everything you said, I think HIV is a bit of a different market over the years.

Of all the markets, of all the chronic therapy markets Gilead's ever been in, it's been driven more by increases in patient volume than by changes in price.

And that's -- there's always some element of both in every therapeutic area that you're in.

But disproportionately, in HIV, there's always been a healthy, steady flow of number of treated patients each year.

As I think you're probably aware, and as Kevin just said, we're already in heavily, deeply discounted payer segments in the U.S. market.

What that means is that's already part of the run rate.

So the normal impact of a generic is a big change from where you are.

We're already -- especially for the older products that are going to be coming off patent, the difference between generic pricing and where those prices are right now is much more incremental than you'd see in most markets.

And anyways, that's something that's just very unique with that.

We continue to see, obviously, a strong support for single-tablet regimens and fixed-dose combinations.

And, of course, there will be some level of impact whenever there's generic entry, particularly outside of the U.S. But we still very firmly believe that when we want -- ultimately have the full launch of our entire TAF portfolio, particularly BIC/TAF, B/F/TAF, this remains very much a sustainable franchise going forward.

Again, I would say, we hear sometimes how sustainable is price levels in HIV, that really hasn't been the story of HIV.

It's really -- I mean, particularly in the U.S. market, because of the deeply discounted segments and the CPI-U penalties you have over time, this has been a market that has overwhelmingly been driven by patient volumes.

So we're not as reliant on that.

We have not been historically as reliant on -- if you look at list pricing, for sure, there is -- it's there, but net pricing has deteriorated over time, and that's already in the run rate.

But I'll stop there.

And we feel very confident in this being a sustainable franchise.

Geoff, just 2 last points, Geoff.

We obviously thought about these events as part of our guidance, they're included in our guidance.

And the other point I'd like to make is, I think for the first time, we've really seen a downturn in the number of Atripla patients.

Atripla stayed very strong for 10 years since its launch.

But with Genvoya now and the TAF-based regimens, we've really seen that turn.

And I think that's good for patients, and obviously, it's very encouraging for Gilead.

And our next question comes from Geoff Meacham of Barclays.

Jim, on HIV, PrEP has been a big volume driver.

What's the typical duration of use?

And how would you size the opportunity?

And then, John, you mentioned revenue trends in the quarter.

Just curious if there's a metric, be it cash flow or margins, that -- maybe that best informs your biz dev or deal strategy?

Sure.

So starting with PrEP, what we're seeing, very encouragingly and I think consistent with CDC guidance and data, is that we're starting to see persistency that is very similar to patients taking anti-retroviral therapy for treatment, and that's what you want.

Frankly, 3, 4 years ago, PrEP prescribing was very episodic, and we're not seeing that now.

So that's not just a good thing for Gilead, I think that's a good thing for patients.

That's what the data would say is the way that PrEP should be prescribed.

So we're not seeing very much shade of light between those 2. So -- and because of that, we do see this as a significant continued driver of growth.

I think as we said in the last earnings call, 90% of PrEP prescribing was coming out of 5 cities coming into this year.

And they weren't the cities where a lot of the epidemic is really starting to, unfortunately, increase, areas like New Orleans, D.C., Newark, Oakland, the Bronx.

And part of our efforts, both with the field-based team that we deployed of prevention specialists and also with some of our education that we're doing, is geared towards those markets because, honestly, I think that's where the needle can be moved the most.

So Geoff, I'll give you a shorter answer to your question.

But you asked about metrics.

Certainly, as we think about opportunities, we do look for things which have potential to have a high operating margin.

That's important to us.

And, of course, informs the potential cash flow from the business in the future.

We also first look for things that have scientific and medical needs, such that we can build a sustainable business that would have the top line growth that we desire, along with those up margins and cash flows.

So those things are all informative in terms of how we think about it.

And our next question comes from Matthew Harrison of Morgan Stanley.

I wanted to ask about bictegravir specifically.

And maybe you could just talk about how do you view the potential to being able to achieve superiority with bictegravir over dolutegravir?

And maybe as part of your answer, if you're willing, can you talk about what's the statistical plan and the powering in the head-to-head naïve study?

Matt, I'm happy to answer that.

So the head-to-head studies in naïve patients, remember, one of them is comparing bictegravir to dolutegravir, the other one is comparing our single-tablet regimen to [tri-immune].

Both assume that the comparator arm as a 91% success rate and the lower bound of the 95% confidence interval is 12%.

So the delta is 12%.

Now what the chances of achieving superiority, there is always a possibility.

I don't think I would like to speculate on that.

It really depends.

This would clearly show that these are both large studies and would clearly show if there's a difference between these 2 drugs, we should see it.

Yes, Matt, the only other thing I would add from a kind of commercial point of view is that the success of Genvoya, the success of Descovy is the platform for BIC/F/TAF.

So we see it as a family.

TAF is doing extraordinarily well.

You saw the results of Descovy in the quarter.

So that's just the building block upon which that we'll launch BIC/F/TAF.

So the momentum we really have going now will be taken forward with B/F/TAF.

But we see it all as sort of a collective platform.

Matt, I forgot to add something.

Of course, we will look for superiority, so the primary test would be non-inferiority.

And if we meet that, we will, of course, look for superiority, which is, of course, a possibility.

And our next question comes from Josh Schimmer of Piper Jaffray.

Maybe you can discuss why TAF is so strong in Germany versus U.S. And then, as you think about launching bictegravir into these markets, is that something that's going to sustain the current trajectory of TAF adoption?

Or do you expect it to accelerate the penetration?

And if it's accelerating, what are the patient populations that, that one will specifically unlock?

You said TAF update in Germany versus the U.S.

Yes.

Sorry, Josh, you broke up a little bit, so we're going to try to recreate your question as best we can.

We'll turn it over to Jim for that.

Yes.

So my apologies that I didn't hear all that.

I think I have it now.

But I think what we have seen in Germany is consistent with what we've seen in other early launch markets in Europe, which is, number one, rapid adoption -- or rapid acceptance of the TAF profile and treatment guidelines.

Again, we have it in 4 of the 5 markets right now, in addition to EACS.

But also, a strong desire to, appropriately, depending on the label, move patients to the TAF-based regimens.

And because Genvoya launched earlier there, that's a good example of what we're seeing in some of our earlier markets.

The example we gave with Germany was up to 60%.

We also have some earlier launch markets in the Nordics and some of the Northern European countries that tend to launch earlier that are there or thereabouts, closer to 60%.

So the encouraging thing for us, too, is that as we mentioned, we just launched Genvoya in France this quarter and in Italy literally at the end of the quarter.

So we've got a lot of room to grow there and try to get up to the levels that we've seen in the other countries.

But it's -- I think it's primarily a function of just it was an earlier launch.

People are seeing good results.

They realize that this is a patient population that is aging.

And the attributes of TAF in a 50- to 60-year-old patient are even more important than they are in a 40-year-old patient.

And I think we're seeing that reflected.

Josh, it's Kevin.

I was just out in Australia about 10 days ago.

They've already got a 40% conversion to TAF.

So it's happening around the world, where we've launched in most markets, a lot of markets just over a year.

I would also say that with HIV, as Jim referred to earlier there, this is not a contracting type of market.

This is once you have reimbursement, then generally, physicians have the freedom to operate and will follow guidelines and put patients on advances in therapy.

And clearly, TAF is an advancement on TDF.

I think the one final thing I'd say is there's -- in some quarters, there's some worry that as you get into some of the generic options, that choice will be taken out of physician's hands.

So you do see a lot of physicians wanting to switch to TAF while they have the ability to do that, and that makes a lot of sense.

Got it.

And the bictegravir impact?

I'm sorry, Josh.

We couldn't hear that.

So I said the impact of bictegravir on the adoption curve accelerate or just remain...

Do you think bictegravir is going to accelerate the adoption curve of TAF.

I do.

Yes.

I mean, I've said it, and Norbert's probably -- we've all said it in this room.

I truly believe that it is the first single-tablet regimen we've had without trade-offs.

And I believe that most of our physicians see it that way, too.

And I'm looking at my clinical colleagues in the room here, and that's what we hear from our advisors.

And our next question comes from Alethia Young of Crédit Suisse.

I guess I'll continue the trend of no hep C questions, but thinking about NASH.

In one of your slides, you said less than 1% of patients were diagnosed.

So I'm just curious, kind of what you're doing alongside your Phase II, Phase III work to kind of drive diagnosis, like particular biomarker work or anything to that respect?

So Alethia, I want to answer first, then if, Kevin, or -- if you have any comments.

So we are including in our Phase III studies, of course, the primary endpoint, as you know, is histology.

We think that's a potential hurdle to diagnose patients and get patients into care.

So we're looking at the use of FibroScan with all patients in that study.

And hopefully, we can then show the correlation between FibroScan and histology that, that may be a way to include those data in the label.

Again, we have not discussed this with regulatory authorities.

It's too early for that.

We just have to see what the data looks like.

But clearly, one thing from a clinical point of view is to get away from doing biopsy.

And we're also looking at the usual markers of fibrosis.

We presented at EASL the ELF data and others, like CK-18.

So these are all serum markers that have to do with fibrosis, and we showed a fairly good correlation between these serum markers and MRE, so magnetic resonance elastography.

And if we can do that same thing showing the correlation with histology, then hopefully, this will become the accepted diagnostic avenue.

Yes, Alethia, not much to add.

Yes, we've got to find noninvasive measures, but I would emphasize that we like the focus of going into the F3 and F4 patient.

I mean, they're very defined.

Somebody who's got cirrhosis, it's a very defined patient population.

And I think with -- perhaps different from perhaps some other companies in the area, we like that focus, and that's where we want to begin our entry into NASH and then build upon that.

Alethia, I want to add, we had another presentation at EASL about the study of simtuzumab in bridging fibrosis and cirrhosis, that overall field.

So it didn't show any efficacy.

But it taught us a lot about disease progression endpoints.

And it is clear that fibrosis is the only predictive biomarker, the only predictive diagnostic that predicts clinical outcomes.

And we also got a good sense for what we can experience over a year or 2 years in terms of clinical events.

And based on these data, we are comfortable that with 2-year follow-up, we should have enough clinical events, hepatic decompensation, ascites, et cetera, that would get us potentially full approval, rather than accelerated approval based on histology.

And our next question comes from Cory Kasimov of JP Morgan.

I wanted to ask about business development.

And curious how much of a barrier all the uncertainty in Washington right now regarding tax reform is when it comes to pulling the trigger on potential BD opportunities.

And then, following some of the recent hires you've made over the last 6 or so months, do you think you have the bandwidth now to more fully explore the myriad of assets in companies that are out there?

Thanks for the question, Cory.

So first of all, with regard to Washington, I think that uncertainty in Washington seems to be the norm in my 27 years here.

So I think we've kind of learned to filter that out and focus on the things that are right for the company.

There may be tax reform, there may be repatriation, but you can't count on it and you can't wait for it either.

So we focused our efforts.

I'll return to what you asked last, which is we really focused our efforts in broadening our team, adding some depth, both scientifically and with business development experience, so that we, in fact, have much, much greater capacity to assess things and, in fact, fully engage with our teams assessing a number of different opportunities, which we think could play out over the coming year as we start to make progress in getting partnerships and potential acquisitions together.

So we're going to just focus on what's right for Gilead, try to ignore the noise globally in terms of tax reform and deal with the best thing for the company and for the shareholders in the long term.

And we really have a great team right now.

And our next question comes from Mohit Bansal of Citi.

So can you -- so one question on NASH.

If you could help us understand the futility analysis you have baked in, in your ASK1 program.

And also, like, what is your strategy to -- about data release there?

And when do you think we could see those data?

Yes, there seems to be this rumor in the public that we have a futility analysis.

We do not have an interim analysis planned in our Phase III studies.

This will be 48-week endpoint with histology.

There will be the usual DSMB meetings that mostly look at safety, but there is not a futility or an interim analysis planned.

So we're going to carry this study out to 48 weeks, last patient 48 weeks, biopsy, that would constitute the NDA filing.

But that study will continue blinded after that.

The study will continue blinded because we believe that the histology will get us accelerated approval.

And in order to get full approval, you need to reach clinical endpoints.

And we think they should be at least, as I explained just before, in the 2-year time frame or so.

And our next question comes from Ying Huang of Bank of America Merrill Lynch.

I have a couple of quick ones related to HCV.

First one is you had 44,000 patients starting in U.S., so if you flatline, that trend's actually to the high end of the range you provided in the beginning of the year of 150,000 to 175,000 patient starting this year.

And if you look at your HCV sales, again, if you flatline to times 4, it's actually above your range.

So I was wondering, what do you see in the rest of the year, the next 3 quarters?

What could cause that patient start and also the sales to trend down from 1Q level?

And then, another related question coming from the comments from Merck and AbbVie on HCV.

I think, they had a little bit different opinion.

Merck was saying that they continue to see patients trending down, patient starts.

But then -- I'm sorry, AbbVie was saying that.

But they have different opinion on where the long-term trend is going.

So I was wondering if you can provide any color on that.

Ying, it's Kevin.

Let me try and take a stab at that.

I mean, now, let me say right from the start, HCV continues to be a large opportunity, albeit that it's declining.

And that decline is happening in every market that we look around the world.

In terms of looking at revenues and our performance, we took a very realistic view when we set about our guidance 3 months ago, and really, nothing has changed.

We still think the number of 150,000 to 175,000 patient starts in the U.S. is still a very solid number.

Yes, you are correct that it was 44,000 treated.

But please bear in mind that when you look at revenues, it's a composite that's made up of starts.

It's made up of share.

It's made up of payer mix.

And it's made up of product mix.

So there's a number of components that goes into this.

It's early in the year.

It's just 3 months.

Starts can vary from quarter-to-quarter.

But we don't see anything right now that would change from where we set our guidance back in February.

Yes, and so, I think from what I can see, and it's not for me to comment on other companies in the area, I think pretty much everybody is now seeing this market in a similar fashion.

It's large, and it will go on for a long time.

I don't think anybody really knows when there will be a turning point.

We'll probably only know that turning point when we're 9 to 12 months after that turning point.

But clearly, with 1.5 million people diagnosed in the U.S. -- 3 million infected, but 1.5 million diagnosed, there's still a lot of patients to cure.

And I think ourselves and probably the general noise in the market will encourage people to step forward and be treated.

And as Jim described earlier, our DTC campaigns are really focused on that.

And our next question comes from Phil Nadeau of Cowen.

One for John, kind of a broad, big picture question.

John, last year, there was some talk of Gilead providing a strategic overview early in 2017 and discussing the -- your strategic imperatives in a bit more detail.

It seems like that has obviously not happened.

But I'm curious, is that still something that we can expect?

Is there going to be a time when you will more definitively define your strategy?

Or is it just going to be piecemeal where we'll kind of see things develop as they do?

Well, first of all, Phil, I don't recall ever saying that we're going to have a specific unveiling of a strategy.

And strategies for companies are an ongoing process, not an event.

And so what you have seen in our different areas, I mean, really, think about our strategies over the last few years, we wanted to stabilize and then grow HCV products by the introduction of TAF and additional STRs.

We wanted to round out our HCV portfolio with SOF/VEL/VOX, so we'd have an answer for every patient within our portfolio.

We did that very successfully last year, and then, we brought Vemlidy to market to help stabilize the HBV market and provide a really good foundation for the company.

We're making forays into NASH, as we described, more compounds that we've acquired and are building upon.

We may do more there.

We're building really nicely in filgotinib.

I think we have a really great opportunity with filgotinib to accelerate the clinical development time lines now that baricitinib seems to have a setback, which could provide greater upside for us as well if that is significantly delayed.

So those are 2 different areas where we're continuing to invest.

And you'll see, with filgotinib, we're going to embark upon other studies.

For example, we have a Syk inhibitor that could be also useful in RA, and that may be combinable with filgotinib.

With regard to future legs of the stool, I think it's pretty clear, we're looking for another avenue to increase our opportunity for revenue and also for helping patients with the considerable heft that we have.

And it's clear, we've been focusing on oncology with the question, is there an area where we can use our resources to accelerate products to market and build a meaningful franchise in oncology?

And that was the hiring of Alessandro Riva.

That was the foray we made with our business development people to broaden and then to look at other things that can build this.

And so I feel very good that we've got a number of different ways to accelerate growth for the company in the future so that a decade from now, we're a very different company, having reinvented ourselves beyond antivirals into really a multi-therapeutic area company.

And I feel very good about where we are, and we'll continue to try to enhance that as well.

So that's our strategy.

And our next question comes from Umer Raffat of Evercore ISI.

I just wanted to zoom in a little bit on the TAF patent state.

And some of your prior commentary seems to imply that you're guiding to a 2025 patent expiry for TAF-based regimens.

And we're seeing some patents listed all the way out to 2032.

And just wanted to understand: a, how you think about those patents; and b, in your base case, do you consider using those patents in any possible patent litigation that comes up down the road?

Well, first, I'm not going to comment on future patent litigation of what we will or won't do.

I don't have my attorney with me, so I'd be loath to say anything.

With regard to TAF itself, the TAF patent is out through 2025.

What you're seeing in additional patents is, of course, as we have bictegravir and other products that we're developing, those will have longer product patents, of course.

And so those products and combination products may go out to a much longer date than that.

And as we continue to invent other molecules for HIV, we're not done, we're still looking at, for example, drugs for salvage.

Those will have additionally long patent lives as well.

So it will be somewhat of a laddered portfolio of patent expirations going out well into 2030.

2033 for bictegravir.

Thank you.

2033, Sung has corrected me, for bictegravir.

And our next question comes from Katherine Breedis of Stifel.

As a follow-up to the early exciting data for your NASH portfolio that were featured at EASL, I was wondering if you could provide some thoughts about what you think the time line for potential patient recruitment might be, particularly for selonsertib in Phase III, which, again, looked very compelling, but we've seen from other recent competitors some enrollment delays.

Katherine, honestly, it's a little bit too early to talk about where we are in patient recruitment because I always want to get to 1/4 or 1/3 into the recruitment phase to be able to make intelligent projections.

But clearly, what I can tell you is the STELLAR 4 study, which is the one in cirrhotic patients, is enrolling very, very fast.

And there are 2 obvious reasons: no competition, number one; and unmet need with a population that is very ready to enroll in a study that has the potential to help them and to make their fibrosis better.

So I want to -- the answer was a little bit qualitative.

Again, to quantitatively answer it, it's too early.

But it is also clear that we might have STELLAR 4 enrolled much sooner than STELLAR 3, in which case, we would file with STELLAR 4 only.

Of course, this has to be discussed with regulatory...

Yes, I'd say we have the potential to file early, depending on the data and the safety and risk-benefit.

I think it's also important to say, Norbert, that we know these -- we know many of these sites very, very well from our HCV program.

So...

Yes, these the same -- almost -- many times, the same investigators.

Yes.

And our next question comes from Terence Flynn of Goldman Sachs.

Just a couple of more on hep C. I was wondering if you have data yet on the number of new diagnoses in the U.S. in 2016.

I know you provided that in the past for 2015.

And then, can you tell us the contribution from the VA this quarter?

And then, ex U.S. market share, looks like has been declining on a dollar basis since early '16.

Anything you guys can do to stabilize that?

Terence, this is Kevin.

No, it's just too early.

We haven't got the '16 data yet, so sorry.

It's not that we're holding this back at all.

It's just not available.

We're hoping maybe going into the second quarter or middle of the year that we'd have that data.

But no, we don't have '16.

I'll let Jim take the VA.

Sure.

So yes, the VA, as you know, in the past, has been, at times, 1 in 4 patient starts for us in any given quarter.

The VA is experiencing the same dynamics outside of the VA where we are seeing a steady, gradual decline in the number of treated patients, due largely to the changing profile of patients under care.

We're seeing it actually in a little bit more of an accelerated manner in the VA simply because they were so efficient and so effective in getting their folks into care and getting them treated.

So they actually have been able to treat about 50% of their population.

So we would anticipate that the VA would continue to represent a smaller and smaller percentage of our overall treated patient population.

But it's important to say, Jim, that we don't see -- or we don't hear of any budget restrictions from a VA point of view.

Yes.

And the last one was on Europe...

The market share year-on-year.

Yes.

I'm sorry, the question was?

So as you think about market share across Europe, we had about the same number of patients this quarter as we did last quarter.

But what you're seeing, you're correct, on a dollar basis, it goes down.

And that's somewhat a shift from the patients in the north to the patients in the south, which is sort of a natural, again, evolution because there are more patients in Southern Europe where the prices are lower than there are in Northern Europe where we've had a good run at curing a high percentage of the patients already, so I think that trend will likely continue.

Yes.

And, Terence, as Jim pointed out, we do have the opening of access now in France and Italy.

So we're going to be obviously trying to use that opportunity to treat more patients, so that's a very positive situation that we've got right now.

Particularly in France.

Yes.

Particularly in France.

And that concludes today's question-and-answer session.

I'd like to turn the conference back over to Sung Lee for any further remarks.

Thank you, Candice, 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.

You may all disconnect.

Everyone, have a great day.