Gilead Sciences, Inc. (NASDAQ:GILD)
Q1 2009 Earnings Call
April 21, 2009 2:30 pm ET
Dr. John C. Martin - Chairman and Chief Executive Officer
Dr. John F. Milligan - President and Chief Operating Officer
Kevin Young - Executive Vice President of Commercial Operations
Dr. Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer
Ms. Robin L. Washington - Senior Vice President and Chief Financial Officer
Susan Hubbard - Vice President, Investor Relations
Sapna Srivastava - Morgan Stanley
Jason Kantor - RBC Capital Markets
Philip Nadeau - Cowen & Co.
Ian Somaiya - Thomas Weisel Partners
Maged Shenouda - UBS
Joel Sendek - Lazard Capital Markets
Aaron Weber – Citigroup
Thomas Wei - Piper Jaffray
Michael Aberman - Credit Suisse
[Jeffrey Bourgess – Bernstein]
Geoffrey Meacham - J.P. Morgan
May-Kin Ho - Goldman Sachs
Thomas Russo - Robert W. Baird & Co.
Mark Schoenebaum - Deutsche Bank
Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences first quarter 2009 earnings conference call. (Operator Instructions). I would now like to turn the call over to Susan Hubbard, Vice President of Investor Relations.
Good afternoon and welcome to Gilead’s first quarter 2009 earnings conference call. We’re pleased you could join us today. We issued a press release this afternoon providing results for the first quarter ended March 31, 2009. This press release is available on our website at www.gilead.com. We have also posted slides that outline the topics discussed on today’s call.
Joining me today to discuss our results are Dr. John Martin, Chairman and Chief Executive Officer, Dr. John Milligan, President and Chief Operating Officer, Kevin Young, Executive Vice President of Commercial Operations, Dr. Norbert Bischofberger, Executive Vice President, Research and Development and Chief Scientific Officer, and Robin Washington, Senior Vice President and Chief Financial Officer. We will keep prepared comments brief to allow more time for Q&A.
I would like to note that since the CV Therapeutics acquisition was not yet complete in the first quarter, the results we will be reporting today do not include any impact of their business on Gilead.
I would also like to remind you that we will be making statements related to future events, expectations, trends, objectives, and financial results that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on certain assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statement. I refer you to our Form 10-K for the year ended December 31, 2008, subsequent press releases, and other publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business. In addition, please note that we undertake no obligation to update or revise these forward-looking statements.
We will also be making certain references to financial measures that are on a non-GAAP basis. We provide reconciliation between GAAP and non-GAAP numbers on our website.
I will now turn the call over to Dr. John Martin.
Dr. John C. Martin
Good afternoon and thank you for joining us today. The first quarter of 2009 was another very strong and productive quarter for Gilead, one in which we continued to deliver on our financial goals across geographies, achieve multiple key R&D milestones, and significantly augmented Gilead’s cardiovascular efforts through the acquisition of CV Therapeutics.
For the quarter product revenues were $1.45 billion, up 27% over the same period in 2008, with non-GAAP earnings per share of $0.66, up 25% over the first quarter of 2008. As Kevin will describe later in the call, our HIV franchise continued its momentum and gained share across all our commercial markets reaching a new revenue high of $1.34 billion.
During the first quarter three important data sets were presented at the Conference on Retrovirus and Opportunistic Infections in Montreal that we believe will augment the growth of our HIV franchise into the foreseeable future.
First, expanding on a presentation I did last year, new data were presented from the ACCORD study which is a retrospective analysis of more than 17,000 patients designed to determine the optimal time for initiation of anti-retroviral therapy for HIV infected individuals. The results will be published and featured in an editorial in the April 30th edition of the New England Journal of Medicine, and the conclusion is that those who deferred therapy to when their CD4 counts fell below 500 had a 94% increased risk of death compared to those who started anti-retroviral therapy when their CD4 cell counts were above 500. These results seem to be already affecting prescribing patterns with HIV opinion leaders, but if and when current guidelines change remains to be seen.
Second, the results from the DAD Study were presented at the CROI Conference and these data reconfirmed that the use of Abacavir is associated with a 90%, almost two-fold increase in the risk of myocardial infarction or MI. Importantly, tenofovir the active molecule in Viread, Truvada, and Atripla, is not associated with increased risk for MI.
The DAD or the Data Collection on Adverse events of Anti-HIV Drugs study is one that includes 11 cohorts of more than 33,000 HIV infected patients in 21 countries including many in Europe, Australia, and United Studies. It was established to follow HIV patients over the long-term and assess cardiovascular related morbidity and mortality outcomes.
In addition, two other studies presented at CROI including a French hospital database study of 115,000 patients using a different methodology also confirmed the increased risk of cardiovascular events associated with Abacavir use.
Third, the first human clinical results from our novel boosting agent GS 9350 were presented. These data demonstrated that GS 9350 has significant and selective pharmaco-enhancing ability, no anti-viral activity against HIV, and differentiated biological properties in vitro compared to retonovir, the drug that is currently commonly used to boost protease inhibitors. Study results show that GS 9350 effectively boosts elvitegravir when both drugs are dosed as part of a single-tablet complete fixed dose regimen with Truvada. Norbert will provide a more in-depth update on these promising product candidates later in the call.
As you know, Last Friday we announced that we completed the acquisition of CV Therapeutics. We believe the merger of CV Therapeutics and Gilead represents a strong strategic fit scientifically and commercially that will broaden and strengthen our growing cardiovascular portfolio, provide us with a proven organization capable of advancing an extensive pipeline, an accomplished and experienced management team under the leadership of Lou Lange. Lou will be responsible for overseeing the collective R&D efforts of both our Colorado and Palo Alto teams.
This acquisition immediately delivers two marketed products; Ranexa and Lexiscan to our franchise, as well as a pipeline that includes several interesting candidates in clinical development. Ranexa’s revised labeling achieved last November provides an important opportunity to accelerate the adoption of this product, and we believe the knowledge of the Ranexa cardiology sales force paired with our commercial operations resources, discipline, and expertise will allow us to have a significant impact on expanding the usage of Ranexa for patient in need.
We’re now at the point that we can begin to integrate the CVT organization into ours and we will be doing so in a thoughtful manner, but as quickly and efficiently as possible. The addition of the talented pool of employees from CVT comes at a very important time as we have recently unblinded positive data from the first of two pivotal phase III studies of Darusentan in resistant hypertension. Norbert will discuss these strong results in more detail later in the call.
In closing, it was a very busy but rewarding quarter. I am very pleased with the progress we are making in research and in clinical development and look forward to updating you on developments over the course of this year.
Next, Robin will review the financial results for the quarter.
Robin L. Washington
As you’ve all seen in the press release we just issued, the first quarter of 2009 was another very successful quarter for Gilead. Total revenues which include product sales and royalty contract and other revenues for the first quarter of 2009 were $1.53 billion, a 22% increase year over year. Our first quarter net income was $589 million or $0.63 per share on a fully diluted basis. Our non-GAAP net income for the first quarter of 2009 which excludes the impact of after-tax stock-based compensation expense was $619 million or $0.66 per share on a fully diluted basis which represents a year-over-year increase in net income and EPS of 20% and 24% respectively. In the first quarter of 2009 we generated $641 million in operating cash flow.
Our first quarter 2009 product sales were $1.45 billion marking our sixth consecutive quarter of surpassing $1 billion in total product sales and more than five consecutive quarters of quarterly product sales growth. Anti-viral product sales grew to $1.34 billion for the first quarter of 2009 from $1.05 billion in the first quarter of 2008, up 28% year over year and 5% sequentially.
Truvada sales contributed $590 million or 44% to our first quarter 2009 anti-viral product sale, up 23% year over year and 5% sequentially due primarily to sales volume growth in both the US and Europe. Atripla contributed $510 million or 38% to our first quarter 2009 anti-viral product sale. Atripla sales increased 57% year over year and increased 10% sequentially resulting from the continued uptake of this product in the US and Europe. The severance portion of Atripla which is purchased from BMS at its estimated market price and reflected in cost of goods sold was approximately $187 million.
Viread sales were $161 million for the first quarter of 2009 representing a year-over-year increase of 5% and a sequential decrease of 1%. Hepsera generated sales of $73 million in the first quarter of 2009, a decrease of 12% on a year-over-year basis and 5% sequentially. Finally, Letairis sales were $40 million for the first quarter of 2009, an almost twofold increase year-over-year and an increase of 9% on a sequential basis, driven primarily by sales volume growth in the US.
Foreign currency had a net unfavorable impact of $22 million on our first quarter 2009 revenue when compared to the same period last year. On a sequential basis, the foreign currency exchange impact on our first quarter 2009 revenues was an unfavorable $7 million.
Royalty, contract, and other revenues for the first quarter of 2009 were $83 million, a decrease of 29% year over year and a twofold increase sequentially. The decrease year over year was due primarily to the decrease in royalty revenues recognized from Tamiflu sale. The sequential increase in royalty, contract, and other revenues was primarily driven by seasonality and Tamiflu sales as well as the recognition of $24 million of previously deferred collaboration payment from a corporate partner with which we will no longer have substantive ongoing performance obligations.
Royalties received from Roche and recognized in our revenue in the first quarter of 2009 were $33 million. These royalties which are paid one quarter in the rear reflect a royalty rate of approximately 22% as applied to Roche’s net sales of Tamiflu during its fourth quarter of 2008. As you may have seen, Roche reported their first quarter 2009 earnings on Thursday of last week with $401 Swiss francs or approximately $350 million reported in Tamiflu sale. We therefore expect that the Tamiflu royalty revenue that we will report in the second quarter of 2009 will be approximately $50 million.
Turning to product gross margins; as a reminder, my discussions of all margin and expense related items are on a non-GAAP basis which excludes the effect of stock-based compensation expense. Non-GAAP product gross margin was 77.6% compared to non-GAAP product gross margin of 79.1% for the same quarter of last year and 77.4% for the fourth quarter of 2008. The slight year-over-year decrease was due primarily to the higher proportion of Atripla sale in the first quarter of 2009 which includes a severance component at 0 gross margn.
Non-GAAP operating margin was 55.5% for the first quarter of 2009 compared to 56% for the same quarter last year and 52.5% for the fourth quarter of 2008. On a year-over-year basis a net decrease in royalty, contract, and other revenues driven by lower Tamiflu royalties was largely offset by strong product sales growth as well as temperate growth in SG&A expenses. Sequentially the increase in non-GAAP operating margin compared to the fourth quarter of 2008 was due primarily to lower R&D expenses and a net increase in royalty, contract, and other revenues.
As you are aware, our non-GAAP operating margin is impacted by the severance component of a growing Atripla revenue strain and trends in Tamiflu royalty. Excluding these factors, our core non-GAAP operating margins continue to improve as we focus on profitably managing the growth of our business.
Non-GAAP R&D expenses were $172 million for the first quarter of 2009, an increase of 24% on a year-over-year basis, due primarily to increased compensation and benefit from high headcount and increased clinical study activity driven by the growth in our business. On a sequential basis, non-GAAP R&D expenses decreased 7% primarily due to a net decrease in payments incurred for or related to our collaborations, partially offset by increased compensation and benefit from higher headcount.
Non-GAAP SG&A expenses were $183 million for the first quarter of 2009, an increase of 3% year over year and an increase of 5% sequentially, due primarily to increased compensation and benefits from higher headcount.
Other income and expense reflected a net expense of $13 million for the first quarter of 2009, a decrease of $19 million from the first quarter of 2008 and a decrease of $15 million sequentially. The year over year and sequential decreases were due primarily to higher hedging expenses and a reduction in the average yield in our investment portfolio as a result of lower interest rates. The timing of expensing of our hedging costs is driven by the change in interest rate spreads between the foreign currencies that we hedge in the US dollar. As the spreads change, the level of hedging cost expense during a particular period increase or decrease. The significant reductions in global interest rates and increased volatility in the foreign currency exchange environment resulted in an increase of $15 million in hedging expenses compared to the first quarter of 2008 and an increase of $14 million in hedging expenses sequentially.
As we discussed on our last earnings call, effective January 1st of this year, we adopted FSP APB 14-1 which impacts the accounting for convertible debt instruments such as our 2011 and 2013 convertible senior notes. This accounting pronouncement requires us to bifurcate the conversion option embedded in our convertible notes and to record this conversion option in equity. The bifurcation of the conversion option creates a debt discount on the convertible note which are now amortizing to interest expense over the terms of the convertible notes.
Since FSP APB 14-1 requires retrospective application, prior periods now also reflect additional interest expense. This retrospective application caused both our historical GAAP and non-GAAP net income and EPS to be adjusted from that which was previously reported. Our website includes a slide summarizing the impact of FSP APB 14-1 hosted along with our 2009 guidance. Both GAAP and non-GAAP net income for the first quarters of 2009 and 2008 have been adjusted to reflect additional after-tax interest expense of $8 million for each period.
Our effective tax rate for the first quarter of 2009 was 26.3% compared to 27.9% for the same quarter last year and 21.9% for the fourth quarter of 2008. The year-over-year decrease was primarily due to the extension of the Federal R&D tax credit and increased earnings in lower tax jurisdiction. The sequential increase was primarily driven by various fourth quarter 2008 items including the resolution of certain tax audits with taxing authorities and the extension of the Federal R&D tax credit.
Next, I would like to turn to our cash position and our operating cash flow performance for the quarter. Our balance sheet continues to be strong with cash, cash equivalents, and marketable securities of $3.6 billion as of March 31, 2009, an increase of $369 million when compared to our $3.2 billion balance at December 31, 2008. In the first quarter of 2009 we generated $641 million in operating cash flow. This compares to $606 million for the first quarter of 2008 which has been adjusted for a retrospective application of FAS 160 on January 1, 2009, and the resulting reclassification of the change in non-controlling interests in operating cash flow to financing cash flow.
We repurchased approximately 5 million shares of our common stock at a total cost of $230 million under our 3 billion share repurchase program which our Board of Directors authorized in October 2007. In addition, the $750 million accelerated share repurchase program that we entered into in October 2008 was completed during the quarter when we received an additional 1.4 million shares of our common stock bringing the total shares retired under this program to 16.2 million shares at an average purchase price of $46.21 per share. As of March 31, 2009, we had approximately $758 million remaining for share repurchase program which expires at the end of 2010. We continue with our commitment to review opportunities to leverage our cash position to expand our business as well as to return value to shareholders as appropriate.
As John mentioned earlier, the CV Therapeutics acquisition was completed on April 17, 2009. Given the historically low short-term interest rates in April, we borrowed $400 million under our $1.25 billion revolving credit facility to fund a portion of the acquisition instead of liquidating a greater portion of our short-term or long-term marketable securities. We expect to repay the borrowing through cash flow generated from operation by the end of 2009.
Given that we closed the CV Therapeutics transaction last Friday, we are not yet in a position to revise our guidance to reflect the impact of their business either from a revenue or expense perspective on Gilead’s current business. Therefore, all guidance metrics we will discuss today are for Gilead as a standalone company prior to the CV Therapeutics acquisition. We expect to provide guidance on the combined company during our second quarter 2009 earnings call. As a reminder, you can locate all of our guidance for 2009 on our corporate web site.
At this time, we are reiterating our previously provided guidance for the full year of 2009. Our net product revenue guidance for the full year 2009 is a range of $5.9 to $6.0 billion which reflects a 16% to 18% increase over 2008 product revenues. As we stated on the fourth quarter 2008 earnings call, there are many factors outside of our control that may have an impact on our business. These include but are not limited to the potential for continued volatility in foreign current exchange rates, US and international government pricing pressures, and changes in the financial health and practices of our business partners and customers.
As a reminder, our non-GAAP product gross margin and operating expense guidance excludes the impact of stock-based compensation expense. Non-GAAP product gross margin guidance for 2009 is a range of 76% to 78%. For expenses, we expect non-GAAP R&D expenses to be in the range of $800 to $820 million. We expect non-GAAP SG&A expenses to be in the range of $720 to $740 million. Our effective tax rate guidance for the full year 2009 is expected to be in the range of 26-27%.
Regarding after-tax stock based compensation expense, we anticipate for 2009 fully diluted EPS impact to be in the range of $0.14 to $0.16 per share. In conclusion, our solid operating performance continues to be a validation of the significant efforts made by Gilead’s employees to improve the lives of patients around the world.
At this point, I would like to turn the call over to Kevin who will discuss our commercial highlights for the quarter.
The first quarter of 2009 was a successful quarter for Gilead’s commercial operations with multiple milestones and achievements across therapeutic areas and geographical regions. Before turning to our performance for the quarter, I would like to remind you that for the analysis of market share in the US and Europe we rely on the most up to date third party data available to us in each market.
I would like to begin by discussing the performance of our anti-viral franchise, and to set that stage, it is important to address the economic dynamics that have impacted other companies across our industry and how those factors have affected our overall operating performance during the first quarter. For Gilead’s HIV business, I would like to concentrate first on inventory, second on non-retail ADAP purchases, and third on patient’s ability to retain their prescription coverage.
Turning to inventory, our total wholesale inventory levels during the first quarter of 2009 remained relatively flat in absolute terms from the fourth quarter of 2008. Moreover, demand from retail chains was consistent with prescription demand during the quarter. Thus, we saw relatively stable supply chain in the first quarter of this year.
Second, non-retail ADAP purchases. As a reminder, there are several AIDS drug assistance programs that have inventory management capabilities, most notably Florida and Texas. This capability along with normal cycles has in the past added to sales fluctuations in non-retail supply chains for our HIV products. In the first quarter of 2009, we did not see the large surge in purchasing that we experienced in the first quarter of 2008 relative to the prior year’s four quarters. Essentially, it was a much smoother quarter on quarter pattern for this year’s ADAP buying.
Finally, I would like to say that we have not seen a pronounced increase in patients seeking and receiving assistance. We believe this reflects the extensive payer support that HIV patients have available as well as Gilead’s innovative pricing and patient support programs, both of which recognize the clinical importance of keeping HIV patients on therapy.
Turning now to our performance, during the first quarter, US HIV revenues performed strongly, led by Atripla at $374 million, up 22% year over year, and Truvada at $281 million, up 16% year over year. Sequentially, US sales of Truvada were up an impressive 10% and Atripla were up 6% quarter over quarter. In the fourth quarter of 2008, the number of patients being treated with antiretroviral therapy grew 7% on a moving annual total basis to approximately 565,000 patients. Truvada maintained its position as the backbone of choice for anti-retroviral therapy in the US, with 195,000 patients on therapy or approximately 34% of all treated patients.
Importantly, as new antivirals such as darunavir begin to gain third agent market share, Truvada is the most frequently prescribed combination partner for the delivery of heart therapy. Atripla remained the most prescribed regimen in HIV with 31% of patients. Atripla together with Truvada continue to account for greater than 4 out of 5 treatment-naïve HIV patients. Atripla once again was used in approximately 50% of treatment-naïve patients. Additionally, in the treatment-naïve setting, we continue to see changes in prescriber behavior based on the changes in the DHHS treatment guidelines. Epzicom share continued to decline falling from 12% in the first quarter of 2008 to 6% in the fourth quarter of 2008. The solid performance we saw in our US HIV market in the first quarter should continue throughout 2009 driven by testing and screening initiatives and as John Martin alluded to earlier in the call recent publications on when to start antiretroviral therapy.
Turning now to our HIV performance in Europe, comparable to the US, the big five countries in Europe continue to demonstrate robust growth. At the end of the fourth quarter of 2008, 273,000 patients were being treated with anti-retrovirals representing a growth rate of 7% on a moving annual total basis. We are very pleased with the performance of all our HIV products in Europe, where Atripla contributed $125 million in European product sales, up 21% sequentially. Of the patients receiving Atripla in the first quarter of 2009, approximately 26% converted from Truvada to Sustiva while 29% was switches from other regimens. 45% of patients starting Atripla were treatment-naïve patients. Truvada continued to build on its solid base throughout the EU and remains the number one brand in all big five markets. During the first quarter of 2009, Truvada contributed $278 million in revenues, up 28% from the same period in 2008. Atripla together with Truvada increased its share to approximately 73% of treatment-naïve patients, while Kivexa share dropped to 13% at the end of the first quarter of 2009, down from approximately 20% in the first quarter of 2008.
In total Truvada achieved new highs in the NRTI market, outperforming Kivexa with a prescription ratio of 3 to 1 in January 2009, up from 2.3 to 1 in January 2008, and finally some very exciting breaking news. I am delighted to report that at the end of last week, Gilead finalized a national reimbursement of Atripla in France, and we are currently gearing up to begin selling the product as of June. As a reminder, France is the largest HIV market outside the US, comprising approximately 28% of the treated patients within the big five, and this launch will complete the major market availability of the only one tablet, once a day complete HIV regimen. Sales representatives from Gilead and Bristol Myers Squibb are now sharing news of the Atripla price approval with the French HIV community.
Now turning to Viread and our hepatitis franchise, since the US launch of Viread in August 2008, our hepatitis sales and medical affairs teams have concentrated solely on Viread. That effort is now being seen as we make significant inroads into the HPV market. Using the most up to date third party data available, as of April 2009, or 8 months post launch, Viread has achieved 26% share of new prescriptions in the HPV market, just 7% behind the current market leader, Entecavir. Importantly, new prescription share of Gilead’s HPV products, Viread and Hepsera, has increased from 43% to 51% since the launch of Viread. In an effort to continue to build awareness and bring patients into therapy, we will continue to support Viread with a broad platform of educational activities concentrated in Asian American communities highlighting the need to screen, diagnose, and link patients to care.
In Europe, we now have Viread launched for HPV in 16 countries. In Germany just 9 months after market launch, Viread has already achieved approximately 21% market share and is very close to surpassing Entecavir. In Turkey in just 7 months post launch, Viread has achieved 15% market share. In the UK, we anticipate receiving a positive recommendation for Viread from the National Institute for Health and Clinical Excellence (NASDAQ:NICE). NICE is the independent organization responsible for providing national guidance on the promotion of good health and the prevention and treatment of ill health. At the European level, the 2008 EASL guidelines have endorsed Viread as the only preferred antiviral drug for both treatment-naïve and lamivudine resistant HPV patients.
Now turning to our cardiovascular franchise and Letairis for the treatment of PAH, consistent with prior quarters, we conducted our proprietary PAH survey. According to our latest data, as we exited the first quarter, approximately one in three patients receiving an ERA were taking Letairis, a near doubling over the last 12 months. Of all patients taking Letairis, just over 30% have switched. The Letairis prescribing base has significantly grown over the past 12 months and now more than 2500 physicians have prescribed Letairis, up by 85% from the first quarter of 2008. With the addition of Ranexa to our product portfolio, we will strengthen our company presence in cardiovascular and cardiopulmonary medicine. Approximately one third of PAH specialists are from a cardiology background. Thus, we are very committed to the growth of Letairis. In this respect, we anticipate a strong showing at the up and coming ATS Conference in San Diego with five abstracts accepted including the first presentation of the Letairis ARIES-3 study.
Finally, I would like to take a minute to talk about our acquisition of CV Therapeutics. As John Martin stated earlier in the call, we have just completed the transaction as of last Friday. On the commercial front, we can now turn our focus towards a successful integration of CVT and execution upon the opportunity before us to grow Ranexa for angina in the US and determine our EU strategy for Lexiscan. In the days prior to the close of the transaction, CVT provided us with the sales figure they would have reported for Ranexa for the first quarter, which was approximately $26 million. Please note that this number has not been prepared by Gilead or analyzed in the same fashion as our own product portfolio revenues. Over the coming quarter and in line with the presentation of our Q2 earnings, we will be working diligently to fill out the complete picture of the Q1 Ranexa performance including a rigorous analysis of the dynamics of prescription demand, inventory, and pricing.
In closing, the first quarter of 2009 was a very solid quarter and lays the foundation for another good year of commercial results. I will now turn the call over to Norbert who will discuss our research and development progress.
I am very pleased to share with you the solid progress made in our pipeline programs during the first quarter of this year. First on the HIV front, as John Martin discussed, at the conference on retroviruses and opportunistic infections in February of this year, we presented positive data from the TS9350 and integrase fixed dose regimen BK studies in healthy volunteers. We also obtained FDA’s agreement on our proposed plan for simultaneous development of Elvitegravir, our once daily integrase inhibitor, protease 9350, our PK enhancer, and for our fixed dose regimen of Truvada, Elvitegravir, and 9350 which would allow us to support three separate marketing obligations with four phase III studies.
We have also recently received agreement from select European regulatory authorities on our development plan as well. So pending positive clinical data, we will target simultaneous filings for all three drugs in both the US and the European Union. Just last Friday, we announced a key milestone that the first patient was dosed in a phase II study, study 104, comparing the integrase fixed dose regimen to Atripla. This study is a randomized double-blind 48-week clinical trial that will evaluate the safety and efficacy of the integrase fixed dose regimen versus Atripla in treatment-naïve patients. The study will enroll 75 patients in total with 50 randomized to receive the integrase fixed dose tablet and 25 randomized to the Atripla arm. The primary endpoint is the proportion of patients with viral load less than 50 copies/mL at week 24 of treatment. Secondary endpoints will include the proportion of patients will viral load less than 50 copies/mL as well the safety and tolerability of the two treatment regimens through 48 weeks.
Based on the significant interest from physicians to participate in this study, we are pleased to report that we have already stopped screening patients and would anticipate the study to be fully enrolled by the end of May. This would allow us to complete 24 weeks of dosing by year end.
The second phase II study, study 105, which will evaluate the boosting effects and safety of the two once daily regimens of 9350 boosted atazanavir compared to retonovir boosted atazanavir each in combination with Truvada in treatment-naïve patients has received sign-off from FDA and is expected to begin before the end of this quarter. This study is similar in design to the previous described phase II study.
The Elvitegravir phase III study, 145, which is a pivotal non-inferiority study evaluating Elvitegravir versus Merck’s Raltegavir in treatment-experienced patients is approximately 50% enrolled. We expect to complete enrolment in that study in the fourth quarter of this year.
On the HCV front, which as you know represents our most focused research effort here at Gilead, we have completed enrolment of 200 patients in the GS-9190 phase IIb study. This is a randomized double-blind placebo-controlled study comparing 24 or 48 weeks of 9190 dosed at 400 mg b.i.d. in combination with PEG interferon and Ribavirin to standard of care of 48 weeks of PEG interferon and Ribavirin in patients with genotype 1 chronic HCV infection. The co-primary objectives of this study are to compare the early and sustained virological response rates of the GS-9190 versus placebo. We hope to be able to share data from this study with you before the end of this year.
With regard to 9450, the caspase inhibitor in-licensed from LG Life Sciences in late 2007, we’ve recently completed a phase IIa study in HCV infected individuals evaluating the drug’s ability to reduce seromarkers of liver inflammation. Based on the positive results, we are preparing to initiate the phase IIb study later this quarter to evaluate the longer term safety and ability of GS-9450 to improve liver inflammation and/or fibrosis as assessed by histology.
With regard to our phase IIa study of 9450 in patients with NASH, or non-alcoholic steatohepatitis, we’re currently more than 60% enrolled. We believe we can complete enrolment and have data available from this study before the end of the year. In addition to the aforementioned development programs, other HCV research efforts, either in house or through our collaborations with companies such as Achillion are focused on 7 different approaches including viral and cellular targets, and we hope to be able to share more information on these programs as they advance through clinical development.
On the respiratory front, starting with aztreonam for inhalation solution for cystic fibrosis, we were disappointed that the FDA did not agree with our position put forth in our dispute resolute, and further that the Committee for Medicinal Products for Human Use, the scientific committee of the European Medicines Agency, adopted a negative opinion on our European marketing application. We are continuing our discussions with regulatory agencies to obtain agreement on requirements for approval. In the interim, we will continue making aztreonam for inhalation available to patients with CS in need through our expanded access program, which has currently more than 400 patients enrolled.
We have now completed enrolment in the MILE study and are more than 40% enrolled in the head to head versus TOBI study in Europe. We still can’t confirm if either of these studies will meet the requirements of regulators to support approval and will update you when we know more.
In addition to cystic fibrosis, we are continuing to enroll patients with non-CS bronchiectasis in a phase II study evaluating the safety and efficacy of aztreonam lysine for this indication. We’re targeting completing enrolment in the third quarter and presenting data from this study before the end of this year. The phase III study for Letairis for etiopathic pulmonary fibrosis called ARTEMIS which opened screening at the end of last year is now enrolling patients. We’re early in the process and look forward to providing further updates and timelines during the year, and as our partner Parion announced in December of last year, a phase I study was initiated evaluating the safety and tolerability of GS-9411 in epithelial sodium channel blocker in healthy volunteers. GS-9411 is designed to increase airway hydration for the treatment for various pulmonary diseases. We anticipate data from this study could be available later this year. In the interim, preclinical data on this compound will be the subject of a poster presentation at the upcoming American Thoracic Society Conference taking place in San Diego in May.
Finally, on the cardiovascular front, earlier this month we released top line from the first phase III study, DAR-311, of darusentan in resistant hypertension. This to our knowledge is the only phase III study in resistant hypertension where a new agent is added on top of three anti-hypertensive medications, one of which is a diuretic. The study met its co-primary efficacy endpoints of change from baseline to week 14 in trough sitting systolic and diastolic blood pressure, with a P-value for all darusentan groups of less than 0.001. The placebo adjusted reduction of systolic blood pressure was an impressive 9 mmHg, and the percent of subjects achieving goal systolic blood pressure doubled in the darusentan arms compared to placebo. The most common treatment in emergent adverse event was peripheral edema or fluid retention, in most cases mild to moderate in severity, and led to a small dose-related rate of discontinuation across treatment arms. Decreases in hemoglobin and hematocrit were also observed. Importantly, liver function test results were comparable between treatment groups.
We’re very pleased with both the efficacy and safety from this study and look forward to presentation of these data on Friday, May 8th, at the American Society of Hypertension Conference taking place in San Francisco. The DAR-312 study which is the larger of the two studies targeted at enrolling 770 patients is now more than 90% enrolled. We believe we are on track to complete this study before the end of 2009 with data available likely in the early part of next year. We’re also preparing to initiate a phase III study of Letairis in patients with pulmonary hypertension in IPF during this quarter.
Lastly, we have also begun enrolling patients in a phase II study of cicletanine in 160 patients with PAH. Patients will be randomized across three doses of cicletanine or placebo. The primary endpoints will be change in 6-minute walk distance following 12 weeks of treatment.
In summary, we have made significant progress with our R&D pipeline during the first quarter of 2009, and we look forward to keeping you posted on the many pipeline milestones we anticipate over the course of this year. I will now turn the call over to John Milligan for closing remarks.
I’m very pleased with our continued high level of productivity and consistent financial performance in the first quarter of 2009. We have multiple catalysts over the remainder of the year, including presentation of important data at medical conferences and an expanding pipeline of promising compounds in the clinic. We are looking forward to the upcoming European Association for the Study of the Liver, or EASL conference, which will be taking place Copenhagen later this week. We anticipate the presentation of numerous important data sets including the presentation of the 96-week data from both of the pivotal studies of Viread for HPV and a poster presentation of the phase I data of GS-9450, our caspase inhibitor, in healthy volunteers. In addition, we have the American Society for Hypertension Conference coming up in San Francisco where, as Norbert mentioned, we will have the presentation of the darusentan data from study 311, our first phase III study, in a late breaker session on Friday, May 8th. This will be an important conference for Gilead as we build relationships with the physicians’ whose practices treat patients with resistant hypertension.
Finally, on the conference front, the American Thoracic Society Conference will be taking place in San Diego, May 15-20, where we will have 5 presentations on Letairis including the first presentation of the data from the ARIES-3 study which is evaluating Letairis therapy in a diverse population of patients with PAH. Also, the data from Dr. Aaron Waxman’s compassionate use study of cicletanine in patients with PAH will be presented at this meeting.
I’d like to use this time as an opportunity to welcome the CV Therapeutics organization to Gilead. I firmly believe that we now have the products, pipeline, and talent to ensure the continued growth of our cardiovascular franchise, returning value to shareholders into the next decade and beyond. With regard to Ranexa, we look forward to our second quarter earnings call to provide you with a thorough update on the product’s performance and more importantly the commercial strategy we will be putting in place in the near future to fully realize the potential of this innovative product. We will also provide you with updated guidance for the combined organization at that time. We appreciate your patience on this front, and would ask that you keep this in mind as we head into the question and answer portion of the call.
I’d like to close by thanking our employees for their focus and dedication during an unusually busy and challenging quarter. In each of our franchises, HIV, liver disease, respiratory, and cardiovascular disease, we now have the team and the infrastructure from discovery to commercialization. We will focus our attention on executing on the plans we have in place, and I look forward to updating you over the course of 2009. I will now turn the call over to the operator.
Question and Answer Session
(Operator Instructions). Our first question comes from the line of Mark Schoenebaum - Deutsche Bank.
Mark Schoenebaum - Deutsche Bank
Was the French reimbursement approval embedded into your prior product sales guidance and can you repeat what percent of EU that is?
Yes, Mark it was embedded into our guidance. We did hope to have it planned for the middle of the year. It looks like we’re going to get the publication in June. We can’t fully sell until we get the publication in the official government gazette and of the big five European countries, the French market is about 28% of the HIV business of those markets. So, obviously it’s incredibly important; it’s the number two market outside the US. It is somewhat biased towards the protease inhibitors, but bearing in mind how cost conscious Europe has become and it did take us a long time to get there with this pricing in France, we think Atripla will be very appealing as a single-tablet regimen in that marketplace because of its cost efficiency. So, we’re really fired up for this. We’ve been waiting for this and already representatives are able to actually communicate that we’ve got the price approval. So, in actual front, they are preparing for that June availability of the product.
Mark Schoenebaum - Deutsche Bank
And should we assume pricing as the same and that there is no material use now in France, on a name patient basis, and I’ll jump back in the queue.
No, there is no name patient availability of Atripla at this time.
Our next question comes from the line of May-Kin Ho - Goldman Sachs.
May-Kin Ho - Goldman Sachs
I know that you discussed the ADAP program a little bit, but in view of a lot of concerns of investors about the potential impact of the economy on usage of drugs in general, can you talk a little bit more about the percentage of people who might be under various reimbursement and also in some states they are facing some problems with Medicaid; how do you think that might affect the usage of Atripla and related products?
I’ll try to cover as much as I can, May-Kin, and maybe John can chip in with what I miss. Basically, of our US business about 35% go through Federal payers, 23% is through the ADAP program, and approximately 12% is the FSS, that’s the Federal Supply Schedule like VA and the public health systems. As a reminder we have frozen our pricing to about 35% of our US business. We felt that was the right thing to do to ensure that patients are able to receive their HIV therapies. We’ve always been very leading in our efforts with the HIV community. In terms of non-retail purchases a reminder that the financial year for ADAP is basically April 1 through April 1. We didn’t see the big bolus in the first quarter this year that we saw last year. It was a much smoother fourth quarter to first quarter. That’s because that is supplemental funds in addition to the federal; largely they receive their money at a federal level, but in certain states they get a top-up from the state. They came much earlier last year, they actually came in April, and so I think that encouraged the ADAP programs to be purchasing more in the third and fourth quarters than in the first quarter this year, and as a reminder, in 2007 those supplementals came very late in September which made them do the large orders. So, right now we see I think a fairly consistent situation. There was no difference in the ADAP total ordering for the year of 2008 versus 2007, and our intelligence says that the ADAP programs are continuing to support putting patients on therapy, both using the federal as well as the state funds. I think the key question for us will be of course the reauthorization of the Ryan White Tax which comes along in September of this year.
May-Kin Ho - Goldman Sachs
So approximately how much of the programs that you expected in the first quarter actually shifted to the end of last year?
Basically we put the full year through to April for both years together, it’s almost the same in total quantity of products. So, in general terms if you put fourth quarter and first quarter together, they evenly figure out. So, in totality that 6-month period was about the same in the two financial years.
Our next question comes from the line of Thomas Russo - Robert W. Baird & Co.
Thomas Russo - Robert W. Baird & Co.
I was hoping if you could comment; if the DAR-312 trial performed similarly to DAR-311 with regard to safety, what would be your current expectations with regard to monitoring requirements and maybe warning language for edema in hemoglobin and liver enzymes?
Norbert W. Bischofberger
Of course we have to have a conversation with the agency about this, but if I look at the current data that we have from DAR-311, clearly there is no evidence that Darusentan is associated with any LFT elevations, and by the way, that same evidence also exists for ambersentan, and there’s of course evidence that there is dose related incidence of edema and also hematocrit and hemoglobin decreases, those would certainly be mentioned in the label. The only thing that we’re really left with is the teratogenicity and that clearly will have some implications on the label. We nevertheless hope that as long as it’s operationally simple is really not an impediment and either way. It only becomes an impediment if it inhibits the prescribing and discourages the prescribing, so we again are looking at the current data, and I do not think that there’s justification for doing that and we’re going to have discussions with the agency about that and I’m very hopeful we will be able to come up with a pretty clean label.
Thomas Russo - Robert W. Baird & Co., Inc.
And then if you’re able to say were there any cases in DAR-311 or that you heard from DAR-312 of elevated bilirubin or (inaudible) in either arms?
Dr. Norbert W. Bischofberger
No, there were no cases of (inaudible), and by the way we also did some supplementary analyses, and if you look at the mean decrease in hemoglobin was something of the order of 0.8 g/mL which is very little and there were also no big outliers. So, if you look at people that had greater toxicity, there were very few and they were not different between placebo and active. You will see more of those analyses when we present the data at the hypertension meeting in San Francisco in two weeks.
Our next question comes from the line of Geoffrey Meacham - J.P. Morgan.
Geoffrey Meacham - J.P. Morgan
A question for Kevin, lots of anxiety about IMS data for this quarter, you talked directionally about inventories of the wholesaler and the retail level which did impact you last quarter, just wondering what that read-through was for this quarter, and I have a followup on France.
Well, first of all, I’m not able to comment on the IMS data. We take (inaudible) and that did show growth in the first quarter over the fourth quarter, and that weekly data aligned very nicely with their monthly data. So, everything seemed to square away from the point of view of the database that we took. Our absolute inventory levels at the wholesale level remained consistent from the fourth quarter. It is important to say that in terms of days on hand, our inventory did come down several days, and that’s possible in terms of maintaining your absolute inventory level. Because of cost, we have a large high-growth product, so clearly there were some changes affected by the three major wholesalers. From the point of view of the retail level, the Walgreens and the CVS of this world, we didn’t see any hold back on their ordering patterns, and it did square away very nicely with the prescription demand data.
Jeff, forgive me for breaking in, but I’m just going to remind you all if you please just ask one question. We are obviously running long on the call, and we want to allow as many of you to get a question in before we need to wrap.
Geoffrey Meacham - J.P. Morgan
Just with respect to France, other companies are offering discounts at launch right now, what can you tell us about the pricing in France at launch, and how has pricing held up in OUS countries?
Well, the additional time really in France was that we had to go through both this thing called a transparency committee which basically grade your drug from a health technology point of view, and then you move on to the French pricing committee. We have achieved a one plus one price with France, and that’s what we have got largely across our whole European markets.
Your next question comes from the line of Joel Sendek with Lazard.
Joel Sendek – Lazard
Pfizer and Glaxo recently announced an HIV alliance. I’m wondering what your thoughts are there. Is it a real threat or is it an admission of defeat?
I don’t know the motivation for putting those two organizations together the way that they did. I view it as an opportunity for more products from those two pipelines, especially the early products to have chance to be developed more fully, so I think that’s good thing for patients in need here. If you look at the portfolio though, I don’t think there is anything really competitive with what we have over the coming years, so it would be something for the longer term investment as I see it.
Your next question comes from the line of Aaron Weber with Citigroup.
Aaron Weber – Citigroup
Let me actually ask you maybe a tough question on Ranexa. The bills for the quarter were $26 million, which were about $11 million light of where I was from Ranexa based on the coverage and CV, and the sales are actually lower than they were pre the label expansion, so I don’t know if you can help us out understand this a little bit, but was it an inventory destocking or what’s your sense as to what happened?
You know Aaron we said that we are not going to comment on any of those numbers because we frankly don’t have insight into why that number this quarter is lower than it was previously, so your observation is correct. We don’t know the metrics behind that yet, so we just can’t comment.
Your next question comes from the line of Thomas Wei with Piper Jaffray.
Thomas Wei – Piper Jaffray
A question on the revenue guidance, especially given the quarter that was just reported on the HIV front. It looks pretty conservative. If you were just to continue with that pace of growth, which Kevin I think you mentioned you expected that to be the case through 2009, you’d already be above the highs of the guidance range, at least the product sales guidance range. I just wanted to understand a little bit better about some of these other factors that you had mentioned that give you uncertainty on that business outlook going forward. I was confused about the statements on the business environment in light of what you said on the HIV dynamics, and also a little bit confused about pricing pressure and how that might really manifest itself in the market. Are there fights that you are having on pricing, especially internationally?
I think it’s just two simple principles that came down to the reason why we didn’t change guidance, especially on the revenue side. One, it’s just very early in the year, and we are very reluctant to do so until we have a couple of quarters under our belt and really understand what’s going on especially with foreign currency fluctuations. That’s one of the areas that we are obviously watching very closely, and then second of course is with the acquisition of CV Therapeutics, at the next conference call, we’ll issue new guidance across most of the different areas where we are going to be, of course, because we will have additional revenues and additional expenses, and it didn’t feel like it was a good time to change guidance only to reconfigure things later on, and that was really the two principles that drove what we are guiding you to today.
I think two of factors that we mentioned are the same factors that we mentioned on the call, so we are continuing to monitor it.
These are just general business factors that we put in because you never what’s going to happen in this world, but as Kevin said, the first quarter, the strength was exactly the way we would expect it to be for the business.
Your next question comes from the line of Michael Aberman with Credit Suisse.
Michael Aberman – Credit Suisse
I wanted to go to the pipeline in 9450. Can you give us an idea what you meant by positive, and when we are going to see the data for hepatitis C? Did you also see fewer selling days this quarter over fourth quarter and might that reverse in second quarter?
The answer to your first question, so 9450, the study was a 14-day dose ranging study in HVC infected individuals, and the two efficacy endpoints that we looked at was ALT normalizations and changes in CK18. Based on those data, we have initiated a phase IIb study, and obviously the data were positive. We wouldn’t have initiated a phase IIb study if it had been negative. We are now looking at whether we also can see efficacy as defined by histology. We will probably present the data some time later this year.
So likely scenario would obviously be ASLD.
On the selling days, we actually use the term shipping days here. We did have two less shipping days for Gilead products in the US in the first quarter.
Your next question comes from the line of [Jeffery Bourgess with Bernstein].
Jeffery Bourgess – Bernstein
Kevin, I wonder if you could talk a little bit about recommendations. I know you said who knows about recommendations, but could you give us a sense of what the penetration according your data of HIV therapy as in the 200s to 350, then 350 to 500, and greater than 500 range, and then what you think that might get to if we saw recommendations change?
You’re really talking Jeff about guidelines, for example, European guidelines, or perhaps the American DHHS guidelines. We had a lot of discussion with our advisors about that. It remains to be seen whether the publications that have now come out on any accord either supporting cohort studies will convince guidelines committee to make that change. The one that’s being pointed out to us is that if you look at the guidelines today, there are significant group of patients who should be treated according to the guidelines above 350 and below 500. Those are patients for example with high viral loads with co-infection HCV, etc., so I think certainly at the opinion leader level, and John Martin pointed this out, I think the opinion leaders are already there with treating patients up to that 500 CD4 count because it’s in the best interest of longevity of life as well as potential to infect others. We think in that 350 to 500, there is something in the order about 100,000 patients in the US that are at that level, but of course they would have to be followed up, they would have to be recalled, and typically HIV physicians bring those patients back on their routine followups when they are doing their monitoring. Often, that’s every 6 months, so we will have to see the guidelines change. I do feel that there already is a good number of physicians who are already treating the majority of their HIV positive patients, and if often comes down to whether the patient is ready for or prepared to take antiviral therapy.
Your next question comes from the line of Maged Shenouda with UBS.
Maged Shenouda – UBS
Can you comment on how the 311 study data are helping you handle the 312 study given that there is an active control and how you are thinking about that?
The 311 study has actually two comparisons. It compares darusentan to placebo and also it compares darusentan to guanfacine. The only thing I can tell you if you look at a number of other add-on studies, it is very clear that if you add on the second agent or a third agent or a fourth agent, you get less and less effect on blood pressure, and so my own suspicion about the guanfacine arm in 312 is that it’s not going to perform much different from placebo, but that’s something which we will have to see, but I want to point out the one comparison versus placebo, and so I think in that respect, the study will be very similar to 311.
Your next question comes from the line of Philip Nadeau with Cowen and Company.
Philip Nadeau – Cowen and Company
My question is also on potential change to treatment recommendations. I think Paul Sax in his editor in the New England Journal suggested that there were some shortfalls to the ACCORD study, in that it was more of an observational study than a randomized prospectively defined trial. Are you aware of any data that could come out in the near future from a prospectively defined randomized study that could help swing the recommendations committee?
No. There aren’t any data that are going to come out any time soon that I’m aware of, and you’re right, this was a retrospective cohort analysis, because to do a prospective randomized trial it would take thousands of patients and perhaps 5 to 7 years, so that is an active ongoing debate about whether that’s a useful thing to do or not within the HIV community with pretty strong feelings on either side of that. There may be additional cohorts that are being gathered, but I’m not aware of any at the moment.
Philip Nadeau – Cowen and Company
Do you have any intelligence from the recommendations committee themselves whether they have even met to take up this issue?
No, we are not aware of that, and again this all happens external to Gilead, so we don’t know much more than you guys know in this area.
Your next question comes from the line of Ian Somaiya with Thomas Weisel Partners. Go ahead.
Ian Somaiya – Thomas Weisel Partners
Just a question on the implications of the darusentan phase III trial data. On the characteristics, the makeup of the CV sales organization, what impact will it have in terms of the type of individuals or focus of that sales organization?
I’ll only talk in general terms because as we said earlier we’re in high gear of integrating the CVT organization. It’s certainly going very well as I speak. We are taking on 170 sales representatives. They are cardiology focused. They do both general cardiologists as well as at some very major centers in the US, so we are taking them in totality into our organization, and we will be looking very closely whether we need to push and pull that field force. We know the company, the vender that supplied all of the sizing data. We’ve worked with them in the past. In fact, we’ve already over the last couple of weeks done some sizing analysis, so around the 2Q earnings, we will be able to give you more insights into what that might look like. First and foremost, for Ranexa, our sense at the moment is that would provide us with the lion’s share of the launch for resistance hypertension for specialists. It would not certainly cover physician groups like the renal physicians and the endocrinologists who do get heavily involved in resistance hypertension by virtue of renal failure and diabetes. We will have to think about the additional specialist audience, but I think the way that we’re all thinking here at Gilead right now is that we are going to concentrate on darusentan for a specialist audience launch.
Your next question comes from the line of Sapna Srivastava with Morgan Stanley.
Sapna Srivastava – Morgan Stanley
Do you think with the current economic environment, you can continue to take price increases for your drugs? We just saw maybe there is an 8% price increase in Viread. Do you think you can take further price increases for Truvada and Atripla this year?
Well, obviously we have seen that there are a number of pharmaceutical companies that have taken rather large price increases earlier this year. We did take a Viread and Hepsera price increase on April 1st, but of course that’s our hepatitis market. We think very carefully about taking HIV price increases. We always have a significant debate here. I think we are aided in our ability to help price flexibility in our normal retail market by the fact that we have taken a significant step of having the price freeze through 2010 with our federal payers, so I think that puts us in a somewhat stronger position, but as we move through the year, I think we are going to try and sense the economy environment and of course, weigh that against the value that our drugs provide.
Your next question comes from the line of Jason Kantor with RBC Capital Markets.
Jason Kantor – RBC Capital Markets
Can you quantify that price increase on April 1st and also on the ADAP purchasing. If you are typically seeing a lot of extra purchasing in Q1, you would then be seeing inventory draw downs in Q2, so with the anticipation that you would have little more strength in Q2 relative to prior years?
On the second one first Jason, I think we just don’t know. It’s very very difficult to predict these ADAP purchases. We might just feel that we are going to get a very strong Q1 like we did in 2008, and that didn’t materialize, so I think it’s a very difficult prospect actually making predications about these state program purchases. In terms of the price increases, both Viread and Hepsera were increased by 7.9% on April 1st.
Ladies and gentlemen, we have ran out of time for additional questions. Ms. Susan Hubbard, any closing remarks?
Thank you, operator, and thank you all for joining us today. I apologize because the call ran a little bit longer, but we appreciate your attention, you continued interest in Gilead and look forward to providing you with updates on our future progress.
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