吉利德科學 (GILD) 0 Q0 法說會逐字稿

Welcome to the Gilead Sciences second quarter 2013 earnings conference call.

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

At this time, all participants are in a listen-only mode 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.

Good afternoon, everyone.

We issued a press release this afternoon providing earnings results for the second quarter, which is available on our website, where you can also find detailed slides that support today's call.

For our prepared remarks and Q&A, I am joined by our Chairman and Chief Executive Officer, John Martin; our President and Chief Operating Officer, John Milligan; our Executive Vice President of Research and Development, Norbert Bischofberger; our Executive Vice President of Commercial Operations, Kevin Young, and our Chief Financial Officer, Robin Washington.

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

A description of these risks can be found in our latest SEC disclosure documents and recent press releases.

In addition, Gilead does not undertake any obligation to update any forward-looking statements made during this call.

We will also be using non-GAAP financial measures to help you understand our underlying business performance.

The GAAP-to-non-GAAP reconciliations are provided in our press release, as well as on our website.

I will now turn the call over to Robin Washington.

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

We are very pleased with our strong operating results for the second quarter, delivering product sales of $2.7 billion, an increase of 14% year-over-year and 11% sequentially, and non-GAAP EPS of $0.50 per share.

The US contributed $1.6 billion to product sales, up 20% year-over-year, driven by strong underlying demand across all therapeutic areas, including the continued uptake of Complera and Stribild, where combined sales grew 11% over the previous quarter.

The launch of Stribild continues to go well.

Strong prescription demand was partially offset by a reduction in wholesaler inventory levels as Stribild was added to our existing inventory management agreements during the second quarter.

Atripla, Complera and Stribild were the number one, two and three most prescribed HIV regimens for treatment-naive patients in the US.

Overall, major wholesaler inventory levels remain consistent quarter-over-quarter while sub-wholesaler inventories rebounded after a strong -- after a draw down in the first quarter.

ADAP purchasing was robust in the second quarter, and we are encouraged by the recent communication to states of their remaining funding allocations for the 2013 ADAP fiscal year.

However, we anticipate a moderating of ADAP purchasing during the second half of 2013, given sequestration and strong purchasing during the first half of the year.

Turning to Europe, we executed solidly, with product sales of $818 million, up 7% year-over-year, excluding the effects of FX, driven by increased demand and purchasing in advance of the summer holidays.

One-quarter following the launch in all big five EU markets, Eviplera uptake continues to expand and is now the second most prescribed regimen for treatment-naive patients.

On May 28, the European Commission approved Stribild and we were able to launch in the UK and Germany in the following weeks.

Turning briefly to operating expenses, our combined R&D and SG&A spending were up approximately $70 million quarter-over-quarter.

R&D spending in the first half of the year was driven predominantly by progression of clinical development activities in liver disease and oncology.

We anticipate this level of spending to continue in the second half of the year.

Additionally, we expect a ramp in SG&A expenses in the second half of the year, as we prepare for the anticipated commercial launch of sofosbuvir.

Finally, we are reiterating full-year guidance for 2013 as we remain confident in our core business and ability to continue to execute.

I will now turn the call over to Norbert.

Thank you, Robin.

I am pleased with the rapid progress across all our R&D programs and high level of productivity.

A large number of clinical of development candidates are now being advanced on R&D through Phase 1, 2 and 3 clinical development.

First, a quick update on HIV.

The two Phase 3 studies evaluating TAF, Gilead's novel product of tenofovir, are approximately 50% enrolled.

These two studies are identical in design, evaluating Stribild to a single tablet regimen of elvitegravir, cobicistat, emtricitabine and TAF in treatment-naive HIV-infected patients.

We expect to complete enrollment of these two studies by the end of this year.

In our cardiovascular clinical development program, a number of data sets from various Phase 3 clinical trials will mature over the next 12 months, including three studies evaluating the efficacy and safety of ranolazine in type II diabetes.

A study evaluating the use of ranolazine to decrease the rate of re-vascularization and hospital readmission following percutaneous coronary intervention.

And the AmBisome study, which evaluates the utility of up-front combination therapy for PAH, when [Nataris] and Tadalafil, compared to monotherapy with [Nataris] or Tadalafil alone.

We look forward to sharing these data for you as they become available.

I will focus my remaining remarks about hematology and hepatitis C development activities.

Starting with hepatitis C. New drug applications for sofosbuvir have now been filed in the United States, Canada, the European Union, Switzerland, Turkey and Australia.

We received notification from US FDA that the sofosbuvir application has been assigned priority review with the PDUFA date of December 8. More recently, we were also informed that sofosbuvir would be discussed at the antiviral drugs advisory committee meeting scheduled for October 25.

Following approximately one year behind the sofosbuvir single agent is the sofosbuvir/ledipasvir fixed dose combination, which was granted breakthrough designation by the US Food and Drug Administration.

Phase 2 results from the Lone Star study, reported in a press release on May 2, 2013, showed that the fixed dose combination resulted in 100% and 95% SVRs when used for eight weeks with and without ribavirin, respectively.

And it resulted in 95% cure rates when dosed for 12 weeks in difficult to treat previous protease inhibitor failure patients, half of who had cirrhosis.

The three pivotal studies that will support the marketing authorization applications of the fixed dose combinations in genotype I patients Ion 1, Ion 2, and Ion 3, are now fully enrolled.

As a reminder, both Ion 1 and Ion 2 are identical in design, with four arms, comparing 24 weeks of the fixed dose combination to 12 weeks, each with and without ribavirin.

Ion 1 is conducted in treatment-naive patients and Ion 2 in treatment-experienced patients.

Ion 3 is a three-arm study in treatment-naive patients comparing 12 weeks of the fixed dose combination to 8 weeks of the fixed dose combination with and without ribavirin.

The primary efficacy endpoint in these three studies is SVR 12, and the results from Ion 2 and Ion 3 should be available in the fourth quarter of this year.

The SVR 12 data from Ion 1 is expected to become available in the first quarter of 2014, and thus, we are on track to file for regulatory approvals in the second quarter of 2014.

At the last earnings call, we provided an update on our Japan sofosbuvir development strategy for genotype 2 patients, which represent about 25% of the ACV infected patients in Japan.

This registrational program entails a single-arm 12 week interferon free study of sofosbuvir in combination with ribavirin, and the first patient in this study was dosed just last week.

We now also have agreement with the Japanese regulatory authority on a strategy in genotype 1 patients.

The pivotal study would be the two-armed study of the fixed dose combination with and without ribavirin for 12 weeks, and we plan to enroll the first patient in this study in the fourth quarter of this year.

We have also recently established our Japan office in Tokyo.

Gilead Sciences KK will be led by our newly appointed President, Mr. [Yuji Urihawa].

Yuji has over 30 years' experience in the Japanese pharmaceutical industry, previously holding general management positions at [Emjum] and Teva.

We anticipate adding additional staff over the coming months, especially in the clinical development area, as we execute the Phase 3 studies.

GS-5816, our pan-genotypic NS5A inhibitor, is advancing in two phase 2 studies.

One study evaluates 12 weeks of treatment of GS-5816 and sofosbuvir in genotype one through genotype six treatment-naive patients.

And the other study evaluates 12 weeks of treatment of GS-5816 and sofosbuvir with and without ribavirin in genotype three treatment-experienced, of whom 50% have cirrhosis.

Initial data from these two phase 2 studies are anticipated later this year, and based on those results, we will make a decision about moving the fixed dose combination of GS-5816 and sofosbuvir into phase 3 clinical development.

AASLD will be held on November 1-5 in Washington, DC.

Close to 60 abstracts were submitted to this meeting by Gilead or Gilead collaborators.

The title of the abstract will be published in a few weeks from now on the AASLD website.

These submissions cover clinical, neurology, pharmacodynamic, pharmaco-economic and health outcomes of sofosbuvir to sofosbuvir/ledipasvir fixed dose combination.

And GS-5816, as well as updates on Viread and TAF for hepatitis B. In particular, abstract on the safety and efficacy of sofosbuvir and ribavirin in pre-liver transplant, post-liver transplant, and HIV co-infected patients are included.

Turning now to oncology.

A number of presentations and posters at ASCO further defined the profile of idelalisib in B-cell malignancies.

One presentation, which was highlighted at an ASCO press briefing, described the efficacy and safety of our idelalisib monotherapy in patients with relapsed or refractory CLM.

In this study, treatment with idelalisib resulted in deep and durable lymph node responses, with a median progression-free survival of 17.1 months.

Another presentation was on the combination use of idelalisib and rituximab in elderly treatment-naive, CLL, SLL patients.

In the study, the overall response rate was 97%, and the capital meyer estimate of progression-free survival at 24 months was 93%.

Importantly, patients of the 17P with the (inaudible) mutation all responded.

In both studies, grade three or higher treatment-emergent adverse events or laboratory abnormalities were diarrhea, pneumonia, transaminase elevations and neutropenia.

At the international conference for malignant lymphoma meeting in Lugano last month, the results from study 101-09 in 125 indolent NHL patients were presented.

The patients in the study were present a significant unmet need with few, if any, treatment options.

They were doubly refractory to both rituximab and an alkylating agent.

The median number of prior therapies was four, and the majority of patients were refractory to the standard regimens and to the last therapeutic regimen.

Treatment with idelalisib resulted in an overall response rate of 54%, a median duration of response of 11.9 months and a progression-free survival of 11.4 months.

Responses of broadly similar magnitude were seen across all subgroups, including follicular lymphoma, small cell lymphocytic lymphoma, bowel (inaudible) macro globulinemina, and marginal zone lymphoma.

The main toxicities were diarrhea and transaminase elevations.

Five Phase 3 studies of idelalisib in indolent NHL and CLL are ongoing.

One of these studies study 116 comparing rituximab plus idelalisib to rituximab A-plus placebo in relapsed CLL, is now close to screening.

It will be fully enrolled in August, and an event-driven interim analysis is anticipated to be conducted in the fourth quarter of this year.

Based on the very encouraging phase 2 data in CLL and indolent NHL, particularly study 101-09 in doubly refractory indolent NHL patients, discussions have been initiated with US FDA and a number of European regulatory agencies.

As a result of the feedback received, we intend to file marketing authorization applications for idelalisib as a trademark for indolent NHL in both the US and European Union in the fourth quarter of 2013.

The outcome of the interim analysis of study 116 will guide our strategy for pursuing near-term filing for CLL also.

In addition to the clinical studies evaluating idelalisib in indolent NHL and CLL, GS-9973, a specific inhibital sink, is being studied for safety and efficacy in patients with relapsed or refractory B cell malignancies by itself and in combination with idelalisib.

GS 9820, a BACA PO3T delta inhibitor, is in phase 1 testing in B cell malignancies, and our recently acquired JAK 1-2 inhibitor, momelotinib, has been successfully reformulated and we are currently in discussions with regulatory authorities regarding the specifics of the myelofibrosis Phase 3 program.

In summary, as we move into the second half of the year, we are delighted with the progress on all fronts across Gilead.

Our key development programs are making significant progress, marketing authorization applications for sofosbuvir have been submitted, and we will have a US advisory committee meeting on October 25 and a PDUFA date of December 8. In addition, we are planning on two additional NDA/MAA filings over the next ten months, one on idelalisib for indolent NHL in the fourth quarter of this year and one on sofosbuvir/ledipasvir fixed dose combination in the second quarter of next year.

We will now open the call to questions.

Operator?

(Operator Instructions)

Geoff Meacham, JPMorgan.

Related on the Japan agreement, does the agreement for hep C speaks to the review speed or the pace of reimbursement?

And then related to that, I notice you guys are doing a similar study in India.

So just checking to see what other regions you expect to do?

If you expect other regions to have a country-specific study?

Geoff, your first question, as to whether the agreement has anything to do with the review times?

Was that the question?

The answer is no.

We simply got agreement on a (inaudible) strategy, as I said, this (inaudible) strategy of genotype one is a single-arm study of 12 weeks' duration.

Sofosbuvir/ribavirin agreement on genotype one.

Two-arm study of the fixed dose combination both with and without ribavirin for 12 weeks.

We are looking at another -- a number of other geographies that require clinical studies, two of -- one of which we are actively enrolling, that is Russia, and the other country we are looking at is China.

Those are the only two in China we have not made the final decision as to what to do.

And, Kevin, you had a question about reimbursement in Japan?

Yes.

Geoff, right now, any of the timelines don't include any reference to what we do from a reimbursement point of view.

So all of Norbert's comments were relating to very healthy and positive discussions we've had with PMDA.

And we're now starting to build out our own organization in Japan.

Our intention would be to launch sofosbuvir as Gilead with our own team and not requiring a partnership there.

Got you.

Okay.

Mark Schoenebaum, ISI Group.

Maybe I'll ask Kevin a question I've asked before, if I might.

And that is, how many patients -- and I have not been able to get an answer yet, which is why I am re-asking it.

But how many patients in the US and Europe do you estimate -- hep C patients -- are under the active care of a hepatitis C specialist right now?

And then if I could just get latest -- if you won't answer that, perhaps I could get comments from Robin or John on your perspective on use of cash right now?

I know your balance sheet continues to improve post-Pharmasset deal.

There's a lot of movement and press reports in the biotech landscape right now of M&A.

I think it would be a nice time to get your updated thoughts on how Gilead plans to use its cash and your view on larger deals.

Hey, Mark.

Kevin.

Yes, we're still essentially fine tuning the number that you are looking for.

We are building a (inaudible) -like HIV database.

It is based on a much smaller number of charts than we normally get per quarter relative to HIV.

But we think, once we have seen a couple of quarters, and it looks solid, and it looks reproducible, that we will be able to share that number.

I think we are getting there.

We won't have something that is not chopping and changing every quarter.

There wasn't a database there.

Don't forget that it has taken us 10 years really to get something as good as what we have got in HIV, so we wanted to start this in the right way and try to give you a solid number that is going to be -- that is going to have credibility.

Later in the year I think, and 'round about the launch of the product, I think we will be able to say that with some conviction.

Okay, and Mark, I will go ahead and answer your second question.

As you saw we reported, we're very close on a rounded basis to our 1.5 debt to EBITDA ratio.

So as a result of that, we will be resuming during the second half of 2013 our share repurchase program.

Again focused primarily on dilution.

Regarding our overall capital strategy, there has really been no change to that.

We talked about focusing on debt, and we will continue to invest in our pipeline, and we will be selective relative to licensing and M&A opportunities focused on phase 2, phase 3 assets as appropriate.

And as mentioned, we will be returning cash back to shareholders via share buybacks at this point in time.

Geoff Porges, Sanford Bernstein.

I suppose I inevitably have to ask, have you seen any LFT elevations in any of the patient experiences with sofosbuvir?

Given what is happened with what might have been your looming competitor.

And then presuming that the answer to that is no, could I just get a comment on the -- Norbert, what is the real role of 5816, given how quickly and broadly you're going with ledipasvir?

Geoff, I can't say that we have not seen any LFT elevations simply because, as you know, they are part of the hepatitis C disease.

But what I can say is that there's no evidence right now that we are seeing anything that is related to either sofosbuvir or the sofosbuvir/ledipasvir fixed dose combination that could be ascribed to either an adverse event or a laboratory abnormality.

The second question is 5816.

We are currently, as you might know, doing this study of the fixed dose combination that contains 5885 in genotype three patients, and we don't really know whether 5885 would not work in genotype three, but based on the virology that we have looked at, I would expect it should not be optimal.

So at the least, the 5816 compound will be a fixed dose combination non-ribavirin containing for genotype three.

But our intent is to really launch it more broadly as just a fixed dose combination for anybody or everybody regardless of genotype.

I am sure you also know that the genotype assay is fairly straightforward to come by, but it is an expert test that, if I remember correctly, costs $400.

So if you could get rid of that and simply say, you don't have to really worry about which genotype you are, we have one combination that works for all genotypes.

That would be our strategy, and that's what we're going to do if the phase 2 data look supportive of that.

Matthew Roden, UBS Securities.

Congrats on all the recent progress, especially the early filing in NHL and CLL.

The question here, I think maybe it is for Kevin.

Last month, the US preventive services task force took a more positive stance on screening in hep C with a grade of B in all patients in the birth cohort.

Obviously that is a positive step, but the analysis is still based on the current triple therapy standard of care.

So is it reasonable to expect that once the next waves of products come out in hep C, that that analysis would be revisited and improved up to an A?

And, if so, can you maybe draw on any of your inferences from your experience in HIV as to what the implications could be in terms of finding the patients' diagnosis rates and over what time frame would you expect it to manifest?

Great question, Mark.

I have absolutely no doubt that as our new treatments come through, that we're going to see more and more calls for screening of HCV and treatment of HCV.

Very interesting this week, in another part of the world in Germany, you saw one of their leading opinion leaders on national news talking about how much hepatitis C there was in Germany and the need to be screening patients and treating particularly in that baby boomer age bracket.

Actually, I think we did quite well to move from the original C category to B. So I have to say, Matt, I don't think we have an expectation it's going to be raised to an A in the immediate future.

The good news was, I think, a lot of opinion leaders mounted a challenge and lobbied that it should go from the C to the B. We've had some recent advisory boards in this area.

And I think they were strongly of the opinion that the hepatitis C test should get reimbursed and that is why a B category helps that.

So I have no doubt that, as we bring sofosbuvir and eventually all oral to the market, that there is going to be a drive to be screening the older population and potentially treating hepatitis C.

Would it be a reach to infer anything from your experience in HIV in terms of the extent to which this can help capture or identify patients, and over what time frame?

It tents with a longer time frame.

I think we have done well in hepatitis C, but it's a progressive -- HIV, but it's a progressive thing, Matt.

These things all help and they all build up.

Obviously, we've got to go and be talking to the payers, we've got to be talking to, perhaps, some of the companies that are supplying the hepatitis C tests.

It is work that we have good experience from HIV, and I think we will be launching into that in and around the launch of sofosbuvir.

Congrats.

Rachel McMinn, Bank of America Merrill Lynch.

I wanted to ask about oncology, and I know you highlighted -- you are going to be filing for idelalisib and maybe even in CLL after the initial NHL filing.

How do you view the big picture competitive landscape with Ibrutinib filed before you, and obviously there's very strong clinical data out there.

Do you think you need to have positive sit compo data for this franchise to really take off?

Or do think idelalisib on its own can be competitive?

Rachel, I'm actually a little bit surprised that the public doesn't seem to be appreciating the data that we have on idelalisib as much as they should.

So first of all, let me say some about Ibrutinib.

It's a very good drug and they have excellent data in (inaudible).

But if I look at the data in CLL, the NHAM paper that was just published, it is not too different from what we get in CLL from the study that Jennifer Brown presented at ASCO.

And the other thing -- let me just point something else out to you.

The other study that Susan O'Brian presented at ASCO, so the upfront treatment-naive and elderly with 97% response rate and the progression-free survival estimated at 24 weeks of 93%, let me just make a comparison.

GA 101, which as you know there was a press release yesterday by Roche.

Very nice improved efficacy over rituximab, but if you look at their study, was GA 101 with chlorambucil.

Ours was rituximab plus idelalisib.

They had a median progression-free survival of 23 months.

At 23 months, half of the patients that progressed in our study, at 24 months, 93% had not progressed.

I think -- and in addition, we have now the -- this is a non-chemotherapy, non-alkylating therapy.

This is huge progress, and I think there is going to be a big role for this compound in the CLL market, even in treatment-naive patients.

That has to wait, of course, until we have done the phase 3 studies.

The initial indication will be for relapsed refractory.

And the other -- let me make another comment if I may.

The other thing -- I don't think in the TCs like CLL or NHL you can look at market share.

Because patients will live longer and longer with more therapies coming along and I think over time the model should more be that all of them will circle through most of the drugs.

So it's not so much a question of a fixed view of, this is the percentage of market share, but more as people live longer, that more and more of these drugs will be used.

That's what happened in multiple myeloma, as you know, the survival was two years.

Now it is more like 10 years.

And so more and more patients circle through the drugs.

I am sorry for my long-winded answer, but I had to say this.

(multiple speakers) And Rachel, just to say that we are going to be very committed commercially to this launch.

We will build a business unit for oncology.

We already have a very nice group of people here at Gilead who have got good experience in sales and marketing oncology.

We are now running analysis on the right sides of field force.

We want to be ready obviously by the middle of next year.

That's about the right timeline, based on the fourth-quarter NHL submission.

And we see this as a strong long-term commitment to the world of oncology.

Great.

Yaron Werber, Citigroup.

If you don't mind, I just wanted to sneak in a couple of questions.

One, both have (inaudible) related.

One, just Norbert, help us understand a little bit, the -- increasingly, there is a correlation that SVR 4 is correlated with SVR 12.

Is there any chance you can start enrolling [NDA] based on SVR 4, and maybe file at some point in Q1?

And, then, Kevin, a question for you.

About a third of the hep C patients are sitting in potentially some kind of a prison.

There is not really good reimbursement right now for those patients.

Is there anything that Gilead can do to help access these patients?

I want to take the first question.

I think that thought, I don't even want to entertain.

Because I think the FDA gave the world a big gift when they said, you can file with SVR 12s instead of SVR 24.

That was a big step forward.

And remember, the other thing is that you can't necessarily conclude from one drug to the other.

So if you see -- if we see a high correlation of SVR 4 with SVR 12 with sofosbuvir/ribavirin, or sofosbuvir (inaudible) interferon ribavirin, you can't necessarily conclude from that that the same correlation would hold with our fixed dose combination.

So no, our regulatory endpoint is SVR 12.

That is what we are working towards, and we have not even had any conversations with any regulatory agencies of potentially filing with SVR 4. So I think that would be -- ask for too much.

It is Kevin.

We've had a lot of conversations -- advisory boards with payers and providers, private, Medicaid, Medicare, VA, corrections.

So we have gone across the board from the point of view of the opportunities and the need for sofosbuvir.

Certainly, in the correctional setting, long-term interferon is very, very difficult.

Just because of people with multiple other co-morbidities and psychological problems, and obviously transition potentially from the correctional setting back into society.

So we have had productive discussions.

I think we're going to see some uptick.

However, I do think it's going to be a little bit slower than, obviously, we will see a very healthy uptick we believe in the private commercial market and the other target, really, for us, which is the VA setting.

In terms of prioritization, we are looking at the opportunity to really run programs with the VA as a higher priority than the correctional setting.

But we have a correctional team.

It's something that we are going to be working on.

We've had success with HIV and it is certainly in our plans.

Brian Abrahams, Wells Fargo Securities.

I was wondering if you could give us a little bit more granularity on the idelalisib regulatory discussions in terms of how the views on the bar for potential filing and approval on phase 2 data may differ, if at all, between the US and Europe.

What kind of initial label you plan to seek?

And then what your feedback has been from clinicians since the delta data were reported in terms of how they are expecting to use the drug initially?

Yes, so Brian, the discussions were actually -- so we talked to four European regulatory agencies and the US FDA, and actually, to my surprise, the feedback was very uniform.

All the agencies said, absolutely, you have enough data to file for the INHL indication.

And the label, there would almost certainly read that would represent the study population, which is doubly refractory to both rituximab and an alkylating agent.

The discussions that we had where opinions were divided a little bit is on CLL and Sharon still had to do, Brian, the study that Susan O'Brian presented at ASCO, the end was 64.

But this was also a dose, it was a number of different doses.

And so at the dose, which we are seeking to register, which is 151 milligrams BID, we actually only had 11 patients on that experience.

And just like FDA developed, 11 patients is really not enough.

And I have to, in a way, agree with them.

But again, the discussion then became moved to study 116; that's what I said today.

There will be an interim analysis done that certainly has enough patients.

And if that interim analysis turns out positive, then we would use those data either to file a new NDA in the US or to update the file during the review in Europe.

That is the current plan.

And, Kevin, did you -- was there another question?

No, I think I answered your questions, right, Brian?

Yes.

Michael Yee, RBC Capital Markets.

A philosophical question on how we are thinking about the commercial launch of 7977, which is obviously somewhat around the corner.

A lot of people are looking at what Vertex and Merck did in their opening quarters, and it was $500 million combined or so per quarter, which is a pretty big annual run rate.

But presumably, you would do at least that, and there is a difference in price and then certainly you have a different efficacy and safety profile.

So how should we be thinking about that, relative to what the competitors are doing a couple years ago?

Is there something that we should be thinking about both positively or negatively there?

I think you can take some insights and some proxies from the launch of the protease inhibitors, but other things you can't.

Let's not forget that there was a quite a lot of pent-up demand for the PIs, whatever their profile has turned out to be.

There was a lot of pent-up demand over the years until they came out.

Clearly, I think physicians have been underwhelmed and have had their challenges with the protease inhibitors.

If you look at the, now, annualized treatment rates, it is coming down, and we expect it to be back at the pre-protease inhibitor levels for the launch of sofosbuvir.

But there is likely to be some patients waiting.

But it probably isn't at the levels that were waiting at the time of the protease inhibitors, because there hasn't been that cumulative number of years.

Having said that, we have a very, very exciting profile and our expectation is that, over a two to three year time frame, that the levels of treatment can go back to, if not exceed, the levels in the heyday of the pegylated interferons, which was a treatment rate of approximately 150,000 patients per year.

So I certainly think we can get back to those type of levels because of the very strong profile that we have.

So those would be the comments that I would have on the comparisons with the protease inhibitors.

Okay.

Very helpful.

Robin Karnauskas, Deutsche Bank.

For a while I thought I was Michael Yee for a moment.

But, quick question on the panel.

What you think we should really be thinking about as far as the discussion points for the panel?

What do you think the key issues will be that the FDA will ask the panel to vet?

And then I just wanted to make sure -- I may have missed this.

What is triggering an intern for 116?

At what point would you have the interim analysis?

Robyn, I will answer the second question first, because it is a very straightforward.

It's event driven.

As you know, the endpoint is PFS and once we have the requisite number of either progressions or deaths, we will do an interim analysis and then look at where the -- is it -- on the placebo arm, on the idelalisib arm.

And if there is a highly statistically significant P value, then the protocol would call for stopping the study, because we have answered the question.

By the way, this is not dissimilar to what was disclosed yesterday with -- by Roche with the tiered 101 program.

And then the other question you ask is a good one, because we had the same question internally.

The only thing I could think of, the unanswered question in the NDA submission was really what is the optimal treatment for genotype three?

As you know, we had done the study with 12 and 16 week duration.

12 was okay, 16-week was better.

And so the question becomes, would 24 be even better than 16?

Obviously we don't have data in the NDA.

And the other question, also, would genotype three be easier treated with the neutrino regimen, which is 12 weeks of taking it as interferon ribavirin with sofosbuvir.

And actually, FDA asked us to answer this question and do a randomized study, so we are initiating a study where randomizing patients either sofosbuvir -- 16 weeks of sofosbuvir.

And sofosbuvir/ribavirin 24.

And sofosbuvir (inaudible) interferon ribavirin 12.

That will answer the question.

But again, the panel would have the challenge of dealing with the existing data that was submitted and make a recommendation as to what should show up in the label.

That is the only thing I can think of that's substantive.

Great.

Ian Somaiya, Piper Jaffray.

Just wanted to follow up on Brian's question on the regulatory view on phase 2 approvals.

Would your approval on NHL and potentially Pharmacyclics' approval for Ibrutinib in CLL.

Would that preclude another company from coming in and filing and potentially getting approval on phase 2 data on either of these indications?

Was that even a consideration?

Ian, I'm trying to understand what you're getting at.

Because -- no, if another Company has another agent that shows efficacy in some unmet need population, I don't think it would preclude them from getting approval.

Yes, the question is more specific to a similar patient population.

If another company were to come in and file for the same patient population that you are seeking approval, different drug, potentially slightly different data, and would the regulatory body be accepting of that application or willing to review it?

The devil is in the details here.

It depends, but I would, on the one hand, say yes; on the other hand, no.

Since there are new agents now going to be available, maybe, if everything works out.

Ibrutinib and idelalisib, those are going to be players and you will probably have to show that dose -- that the patient population is refractory to dose as well.

That's what I would think would happen.

Okay.

And just if I can ask (multiple speakers) --

Ian, the population that we study, the indolent NHL refractory to rituximab, refractory to an alkylating agent, refractory to the last regimen, refractory to the most common regimens, and they were 64 years old on the average.

There is really nothing left for them.

Normally, you would say bone marrow transplantation, but you don't do bone marrow transplantation.

There is too much morbidity in that older population.

There is really nothing now available currently on the market.

So that is the rationale for FDA to accept the file and review the data and hopefully approve it.

Okay.

And just a housekeeping question, Robin or Kevin, I don't know which one it is more appropriate for.

Stribild was a little bit light this quarter.

I might have missed some of the earlier comments you made related to it.

Can you tell us if there is a one-off event or one-time event?

It is Kevin.

Thanks for the question.

Basically, with a new product, tends to float outside our inventory managing agreements.

Our major wholesalers liked having enough supply, never quite know how a drug is being taken up.

Same with Complera as it was with Stribild.

It will be the same with sofosbuvir.

So typically after about nine months, we agree that it is time for the drug to go within the [bench] and [margin] agreements because there is a clear trend and we were able to discuss that with the major wholesaler.

And that is what has happened.

There was little burn off of major wholesaler inventory and that is what clicked Stribild down.

I would say, Ian, that we are really pleased with the uptick of Stribild.

If you look at some of the prescription volumes, quarter-for-quarter, Q2 grew by 52% over Q1.

The actual dollars for Stribild were 50% higher than Complera at the equivalent quarter post-launch.

So we're pretty satisfied that the underlying trend for Stribild is very, very sound.

So we think things are going very well.

Phil Nadeau, Cowen and Company.

Kevin, it is for you.

You briefly mentioned some of the work you are doing in advance of the sofosbuvir launch.

Could you provide us more details?

What work you are doing with insurance companies and physicians to prepare them for sofosbuvir today?

And also in regards to the VA, what work are you doing there?

That is a market we have seen to be price sensitive in the past.

Is there some way that you could make them be less price-sensitive and stick with sofosbuvir, even if lower-priced competitors are launched after you?

Great questions, Phil.

Let me try and just give you a little bit of color on where we are with readiness.

First answer, Phil, is that we have hired now all our field-based teams, so that's our medical scientists, national account managers, and we have hired our new HCV sales team.

We have sized that team in a very robust way that is for today's treaters.

For treaters that have dropped off, but we believe can come back to treat HCV, and we sized it for future HCV treaters.

We believe we have got the sizing right.

That team of sales representatives are beginning sales training.

And that will be a very rigorous and very intensive three months of sales training.

Our medical scientists and national account managers are actually currently involved in disease awareness education.

And as I said earlier, we have been conducting quite a number of advisory boards across all our customer segments, physician, nurse practitioner, managed care areas, the VA, and corrections.

And the last thing before I talk a little bit more about the payer.

We have now settled on what will be our supply chain, what wholesalers and what specialty pharmacists will be involved in the distribution and supply of sofosbuvir.

We did a lot of work on the payer front.

Clear insights that the payer was really quite dissatisfied and upset with the introduction of the protease inhibitors.

I don't think they were expecting the cost and certainly they were not expecting the poor value in and around inability for the patient to take the therapy or finish the course of therapy.

The payer clearly is looking at efficacy as their number one criteria, the SVR rates.

But really want products that are very assured in terms of getting patients through therapy and curing patients, so -- around value.

We certainly expect that the current prior authorization to the label for HCV treatments will remain in place with sofosbuvir.

The good news is that the offices are very familiar with the prior authorization step and they can easily do it via computer or via the phone.

We are expecting that there will be very good payer coverage, and that the profile of sofosbuvir certainly will get very good support from a payer point of view.

In terms of the VA, we think sofosbuvir, whether it be for the GT 2 or the shortened duration of interferon for GT 1, will be a nice profile for VA.

And as we are going in with that profile, we think that will be very supportive of a healthy pricing position.

We obviously want to leave as much of the decision around using sofosbuvir in the hands of the prescriber, and on occasions, that does require some discounting with selected payers, but we will be ready for that.

So I am very positive about the possibilities of healthy uptick in the VA setting.

Great, thanks for that color.

Brian Skorney, Robert Baird.

Congratulations on a really great quarter.

I have two quick ones if I can.

Just want to -- assuming that the PI3K sic phase 2 combo progresses, wondering if you could give us an idea of your general thoughts on how you view pivotal combination development.

It strikes me that, given the efficacy you see with idelalisib as a single agent, it could be very difficult to show a benefit by the combination rule on something like PFS or OS when you add the sic inhibitor.

Particularly in earlier lines of therapy, where you could probably argue that's theoretically where this type of regimen could be most useful.

Have you started thinking about that or discussing with regulators what sort of flexibility they have around the phase 3 trial designs or any idea what we can think about in terms of a pivotal design for the combo?

No, so we have not got any conversation with regulators, and, obviously, really depends on what we are seeing in the phase 2 studies.

But the sic PI3K combination, I am not really familiar with all the data in vitro, there was synergy that actually seeing synergy in humans when you look at braselton activation assay.

So it's a really promising combination, which (inaudible) now see in phase 2 what the combination shows.

And based on that, we will go into phase 3. But to give you some -- one example, for TLBCL, for instance, will be something where it seems like our compound -- we don't have enough data yet.

We have to study it.

But idelalisib may not be completely satisfactory.

And as you know, neither is Ibrutinib, particularly in the larger terminal [sanitary] subset and the MPC subset that seems to be working.

I am sure there will be an immediate place for a combination in one of these subsets of (inaudible) hematological malignancies where the single agents won't work.

But again, that will all be guided by phase 2 data.

To jump quickly to hep C as a follow-up to Geoff's question.

I know you were looking at 5885/7977 in genotype three patients and on an arm an electron.

Have you got data from that yet?

You didn't mention in response to his question about 5885.

Brian, those data will probably be at AASLD, assuming the abstract gets accepted.

But to make a long story short, the numbers, particularly in genotype three, were too small to make any definitive conclusions, and that's why we have now expanded and enrolled another cohort in genotype three that's 50 patients.

So those 50 patients will then really give us the answer what the response rate is.

The thing with small numbers -- we had a total of eight genotype three patients and the confidence intervals with whatever we saw to get the dose from perfect to miserable.

The answer is one of those or something in between.

We can only answer it if we have larger numbers.

We should get those data towards -- in the fourth quarter of this year.

(Operator Instructions)

Howard Liang, Leerink Swann.

Is your filing for idelalisib for indolent NHL in the fourth quarter -- would that be for accelerated approval or for approval?

Howard, that has been a debate and the answer is, we don't know.

You could make an argument, we should get full approval because there is no -- it is a progression -- there's an ORR and the PFA, same point.

And those are not surrogate endpoints.

So it should not be accelerated appropriately, it should be fully approved.

But that is obviously a review issue and ultimately an FDA decision.

Terence Flynn from Goldman Sachs.

Two for me.

Was just wondering if you can update us on plans for TAF protease inhibitor combo and when we might hear about plans to go forward there?

And then anything on the arbitration front with Roche regarding 7977?

In terms of the TAF [theronovir] combination is still in phase 2. As you may remember, the response rates that you typically get with protease inhibitors are not as fast as they are with NNRTIs and they are certainly not as fast as integrase inhibitors.

If you look at the proportion up to (inaudible) over time, at week 24, it is not the maximum yet, so we really have to go to 48 weeks to ascertain what the real endpoint is.

And we should get those data sometime in the third quarter of this year.

John, do you want to --

It's John Milligan.

The question about the Roche arbitration, there's really nothing to report.

It's going along fairly much as scheduled, and we really don't expect anything to happen this year, as we go through the process of discovery and getting -- moving along the process as defined in the contract.

So there is nothing new to report here today.

Joel Sendek, Stifel Nicolaus.

I know it might be a little bit premature to ask this question, but just as you think about pricing, pretty much all your new drugs, whether it is sofosbuvir or idelalisib.

Is there any thought to maybe thinking differently in pricing per cure, as opposed to the traditional way of pricing just individually per patient?

As it becomes more difficult to get the full reimbursement?

Joel, it is Kevin.

I think we look at it always.

Obviously, with something like, for example, genotype one, HCV.

You've got -- today you've got Telaprevir and then you've got varying time periods for your paid [riva].

So you've got the individual PI, you've got the complete therapy and you've got cost per cure.

So I think we look at it, in all those different directions, and we are going through all of those deliberations right now for sofosbuvir.

Ultimately, Joel, honestly, I'm a bit of a traditionalist, and you can look at all those ways.

And often companies use -- I would say elaborate ways of pricing because of challenges around the profile of the drug.

I think ultimately you do come down to a wack list price, and I think that's where we will be solidly and very clearly when we come to the launch of sofosbuvir.

So I think you will see a very clear and a very straightforward way of pricing sofosbuvir.

Joel, I would like to add something.

Ultimately, as we optimize the treatment modality, particularly the fixed dose combination of 5816 that comes behind it, price per cure and price per treatment should actually be the same, because each treatment equals a cure.

As I have stated in the Lone Star study, in difficult to treat PI failures, half of which were [sivotid], we had 95% cure rate.

So that is ultimately -- I hope it won't be an issue.

Great point, Norbert.

Mr. O'Brien, we have time for one more question.

Jason Kolbert, Maxim Group.

Just want to ask you same type of question, only about Japan and pricing.

What is the cost for the standard of care in Japan today, and how do the Japanese look at pricing versus how the Americans look at pricing?

Can you give us a feel for where the value of a patient cure is in Japan?

Jason, it is Kevin.

Yes, actually, it is a very simple question you've asked, but actually it's a quite a difficult answer, because of the age of the patients.

43% of Japanese patients are over the age of 65.

And the advanced state of their disease, they've had it for a long time.

A lot of them are in significant cirrhosis moving to carcinoma.

They just are ineligible to the current standard.

So pegylated interferon ribavirin is extremely difficult, and that is why the Japanese opinion leaders and the Japanese patients are very much looking forward to, for example, entry with GT 2 with just having sofosbuvir and ribavirin.

So I think in terms of pricing, in some ways, you wipe the slate clean.

And you're going with these new therapies and the traditional approach is not a great pegging of price.

Typically, the Japanese markets do have a discount to the US market, so I think that will be still applicable with sofosbuvir.

But I think we're really starting fresh with these new treatments, and the very high need of the typical -- and the profile that the Japanese patient has.

Thanks, Phil, and thank everyone for joining us today on the call.

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

Cheers.