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Gilead Sciences, Inc. (NASDAQ:GILD)

Wells Fargo Healthcare Conference Call

June 17, 2014 10:00 ET

Executives

John Martin - Chairman and Chief Executive Officer

Pat O’Brien - Vice President, Investor Relations

Analysts

Brian Abrahams - Wells Fargo Securities

Brian Abrahams - Wells Fargo Securities

Well, good morning everybody. I am Brian Abrahams, Senior Biotech Analyst at Wells Fargo Securities. It’s my great pleasure to have our next presenting company, Gilead, really needs no introduction. I think over the past several decades, Gilead has clearly made a tremendous difference in the lives of many patients suffering from many different diseases. We are really excited to have them here today; John Martin, Chairman and CEO and Pat O’Brien, Vice President of Investor Relations. Thank you guys so much for joining us and thanks everyone for being here.

So, a lot going on at Gilead these days, so a lot to talk about. Maybe, we could start with HIV. We are going to be seeing data for TAF relatively soon, but if you could talk a little bit more about what that program means, what aspects do you think are going to be key for differentiating TAF from VIREAD, from tenofovir, and what sort of feedback are you hearing from both clinicians and payers in terms of how much differentiation you will need to show once VIREAD potentially becomes genericized?

John Martin - Chairman and Chief Executive Officer

Sure. That’s a very broad question. So, thank you for it. TAF, we are comparing that in treatment-naïve patients in a TAF -- directly it is Stribild with the same components with TAF substituting for VIREAD. And beyond that, we are doing a variety of switch studies, difficult-to-treat patients. We are including adolescents in our initial studies. As you know, normally adolescents come later, and adolescents for HIV has become over the years very small problem in the United States, but that’s putting together really comprehensive package, and also TAF which would also lower the costs of VIREAD in terms of manufacturing cost to support for low income countries. We have tremendous support from the medical community. The way we work at this stage is we have involvement of the senior medical community around the world in our development programs, and that builds the medical knowledge and understanding as the data comes out. They can help differentiate for payers, so the payers part of the question is probably a little bit premature. We saw differences in bone and kidney effects in Phase II studies that may or may not be predictive for Phase III.

The other thing with VIREAD in its various formulations is that the patients being treated are on longer and longer period of times, and the median age has gone above 50 in the United States, which means that having a molecule that it has some level of toxicity to kidneys as VIREAD does could be detrimental versus having TAF. I should point out that VIREAD is given at 300 milligrams, TAF at 25 milligrams or in some combinations, only 10 milligrams. TAF at 25 milligrams is more potent in monotherapy than VIREAD at 300 milligrams. In fact, we already know it has a very good safety profile, and we believe that this will ultimately be an attractive option for individuals around the world.

We have in developed countries close to 1 million people on our various formulations of VIREAD. We also have about 6 million people in low income countries on the various formulations of VIREAD. So, it’s in those low income countries in addition to the better tolerability potency, we would expect to lower manufacturing costs to also drive uptake of TAF regimens. Everything we would look at now is with single tablet regimen, so it’s -- we will be looking in the future to incorporate TAF into other single tablet regimens, including third agents we have under research in the company at this time.

Brian Abrahams - Wells Fargo Securities

And touching upon some of the most, I guess recent news with the concept of nuke-sparing regimens, I think we have seen fits and starts for that concept over the years. I think the goal also to try to mitigate some of the long-term toxicities of certain nukes, but most recently, we of course saw two prominent companies collaborating on an integrase and an RTI combo. How significant of its strategy are nuke-sparing regimens to the future of Gilead’s HIV franchise, which of course builds upon the different nukes, or do you think the impetus for developing such regimen is mitigated anyway by the fact that TAF may offer those advantages -- with safety advantages long-term with all the nuke (indiscernible) resistance advantages?

John Martin - Chairman and Chief Executive Officer

Yes, to your last question, that’s the answer. We thought -- ACT being the first drug on the market for treatment of HIV is a nuke and highly toxic. And then, we had DDI and DDC that had even worst tolerability. So, nuke-sparing has been in our language for over 25 years because of the very important toxicities of those early nucleoside drugs. You really haven’t heard much of it lately, because of the success of VIREAD, which was launched in 2001, so 12.5 years ago. So, that dialogue kind of went away. It also went away because the various two-drug regimens that people are using weren’t quite as robust as nuke-containing regimens, especially VIREAD containing regimens. So, the argument of saying nuke-sparing does, as I said yes to your question, I don’t really think that applies to TAF.

Brian Abrahams - Wells Fargo Securities

Okay.

John Martin - Chairman and Chief Executive Officer

It goes way back when people – the example I used to use two decades ago, people say nucleosides are too toxic, and my answer would be acyclovir is no longer a nucleoside, it’s become a drug. People don’t remember it’s a nucleoside anymore.

Brian Abrahams - Wells Fargo Securities

You’ve over the years assembled single-tablet regimens with both your proprietary compounds and with looking externally, are there any – is there any prospect for additional joint developments, programs, or exploration into I guess a Gilead-based cocktail, for instance, TAF and Emtriva potentially with dolutegravir or somebody else’s asset, how open are you still to those – to that concept?

John Martin - Chairman and Chief Executive Officer

Yes, we are open to various opportunities. I should have said also, I didn’t say for the group that we will have all the data on TAF by the end of this year, so we should file the NDA and European applications early next year. In terms of newer products, our internal research is focused on third agents and our external collaborations has also been focused on third agents. TRUVADA has been in the background now for a number of years of therapy and having the TAF TRUVADA as part of a variety of agents is definitely the goal of the company.

Brian Abrahams - Wells Fargo Securities

When might we hear more about some of the internal third agents under development?

John Martin - Chairman and Chief Executive Officer

No, it will come out over time, and it depends on how we make the priority calls among the various third agents.

Brian Abrahams - Wells Fargo Securities

Good. Shifting gears to hepatitis C, what’s your view on how this Sovaldi launch has gone thus far, and where are you with respect to your efforts to really broaden your reach across different tiers of prescribing clinicians at this point now that we are kind of almost at the middle of the year with Sovaldi?

John Martin - Chairman and Chief Executive Officer

Yes, it’s going really well. The one – I mean, everyone knows it’s going well. The one thing I would like to point out is, people in this room probably think -- you can raise your hands, how many people we’ve cured when I call [cures], but the fact is it takes 24 weeks to cure someone, 12 weeks on therapy and 12 weeks off, and if they are negative for virus after that 24-week period, they are deemed cure. That’s the endpoint. So, the 30,000 people that started therapy with Sovaldi in the first quarter of this year, none have cured yet. And I would guess by the end of this year, at the rate we have been treating patients, almost everyone in this room will know someone or have a family member or a friend that’s been cured of hepatitis C.

And that’s going in my mind, when you think about the excitement where we are now, there is still not that much of a personal experience with what the launch of this revolutionary product means in the lives of individuals, and as we all get to know people, and I have because of being involved in the clinical studies, what the transformation it has, because patients who have hepatitis C, there is extra-hepatic aspects of including all-cause mortality and people going on therapy feel better in about a week. And so, it really is a transformative drug just even beyond the major advance of curing the hepatitis. So, there is sort of a self-reinforcement that I believe will continue to go on in this field, tremendous amount of excitement. I think from the external view, you hear media discussions of price. From most of what I hear is an evolving of an important understanding of how this is really transforming a major disease burden into something that’s going to be finally quite manageable.

Brian Abrahams - Wells Fargo Securities

It’s remarkable, and the data is obviously incredible. It seems like looking at prescription data thus far, the prescriptions have remained fairly steady over the past couple of months. So, I am wondering what sort of dynamics underlie that or is there growth amongst certain groups balanced out by perhaps some warehousing or an increase in the number of people on the sidelines anticipating the ledipasvir combo towards the end of this year? What’s kind of underlying the dynamics?

John Martin

All those and concerns about incurring more cost in the short-term is of course a factor in all this too. It’s interesting the term people call warehousing is I don’t really think of it that way, because treatment is being deferred for the majority of people who we know are [infected] [ph] right from the beginning - last year or the year before. The one study that we did there is a lot of internal debate, the three months study, where we used Sofosbuvir plus peg/riba for genotype 1. There is internal debate no one is going to use it. And we have decided well should have, because there is going to be that window there where people if they don’t have this option won’t have access to care. And it wouldn’t be a question of warehousing, there just wouldn’t be the right option for them. And it turns out 70% of our use is [peg] [ph] regimen and we correctly recognized that three months of interferon in this window time would be acceptable that it has certainly made this – that small study that was a single-arm study has made this market this year much larger than it otherwise would have been.

Brian Abrahams - Wells Fargo Securities

Now, that you are through a few quarters of the launch, is there anything you have learned that gives you a sense, any change in your sense of how sustainable the opportunity to reach patients could be over the next 3, 5, 10 years?

John Martin

Yes. It’s a – there are lot of patients in this market. [It’s not only the limit following] [ph] cost of medication that people need to budget for, but also the providers who can treat the disease limits the number of people that can be treated. This year, in the United States, whatever projections you come up with would involve treating less than 10% of the diagnosed population, which is less than half the total population. So, it’s a very, very large and sustainable market around the world really.

Brian Abrahams - Wells Fargo Securities

Okay. We have seen and you sort of alluded to this in terms of some of the [inaudible] limitations; we have seen some public insurers initially relegate the drug to patients that are deemed to have the most urgent need for treatment, which makes sense given some of the cost and care barriers out there. Is that something you foresee as kind of a long-term limitation and if that were to be put into effect more broadly how large is the opportunity and how sustainable is the opportunity if the drug is primarily relegated to those with more urgent need for instance F3 or greater fibrosis?

John Martin

Well, it’s not - so there is prioritization toward that side F3 and F4, it’s not really for me to say how it should be prioritized, but some of that prioritization has success, but some individuals at earlier stages have been also treated. To me, it just seems logical that there will be a progression over time for treating the people who more urgently need treatment to the people who are less urgent. But ultimately there is no reason why you wouldn’t want to treat everyone and cure them of this infection. And by curing people of infection you can break the cycle of new infections too. And certainly in some patient groups that can be very important to lower the disease burden of a community and that’s exactly what’s been going on in HIV. The U.S. government invested billions of dollars in prevention programs with the goal of half in the number of new infections and the number of new infections during that period went up 250%, this is HIV. And so they have recognized that the way to control new infections is to test and treat and ultimately it will be there for hepatitis C. I am convinced of that.

Brian Abrahams - Wells Fargo Securities

Let’s talk a little bit about competition and Hep C obviously the success of Sovaldi has captured a lot of folks’ attention. What are your views on Merck’s recent announcement of the acquisition of Idenix and just the implications of another clinical stage now being in the hands of a major Hep C focused biopharma company?

John Martin

Yes. So, there are certain areas of research becomes [cashable] [ph] at certain points of time the science advances. And so over the last decade, it’s been remarkable to see what’s happened in hepatitis C. That’s – it’s not just one or two or three, it’s companies across the board and including academic organizations have transformed this field in a way you couldn’t have predicted. It’s very exciting. I am personally gratified to be a part of it. The Merck acquisition of Idenix makes sense to me. When we acquired Pharmasset I walked around and I met with many of you. The comment I had for everyone is this puts Gilead in such a strong position that you are going to see other consolidations in this industry as people try to find ways to catch up with where we are. And we are seeing those types of things come and some of them go, but I think – I fully expect that we will have competitors out there in the future that have important regimens and I can’t predict who those competitors will be today.

Brian Abrahams - Wells Fargo Securities

I think a lot of people looked at the premium that was paid for that company and sort of wondered if there is some component of that that might relate to some of the intellectual property that that company might have. And so I am just wondering how should we kind of potentially interpret that really I guess from your perspective your level of confidence in your intellectual property and freedom to operate with Sovaldi and your willingness to kind of go the distance in some of the ongoing patent battles versus settling?

John Martin

Yes, same answer as last year. I’m completely confident, same level of confidence as when we acquired Pharmasset 2.5 years ago. I would assume that the premium is related to the opportunity, the long-term opportunity of hepatitis C and it must have been a competitive process.

Brian Abrahams - Wells Fargo Securities

Got it. There has been some more discussion about the idea of potentially shortening the duration of treatment even further; you have already shortened it to 12 weeks and probably 8 weeks, how important is it to further shorten the duration to 4 or even 6 weeks?

John Martin

Well. We are certainly we are working on shorter treatments just to take a step back if the [NDA] [ph] we have under review now, the single tablet regimen Sofosbuvir and ledipasvir we have 8-week and 12-week data that is approximately similar, I guess, I would say about 95%. That you could argue eight weeks of therapy, you save money, 12 weeks of therapy, you overtreat 95% of people. And so, different groups will think about those trade-offs as to what’s appropriate for individual patients. People who are sporadic in treatment experience, I think doctors would be more conservative with, right, [inaudible] 8-week data is very, very important in moving the field. We also yesterday announced 12-week data in Japan, where all the patients - there were three people who did not have SVR and they were all treatment-naïve on the STR plus ribovarin. Every single patient whether treatment experienced or treatment-naïve that took those single pill of ledipasvir plus Sofosbuvir had an SVR at 12 weeks. So, the reason I am going through this Brian is that sets the hurdle bar - shorter duration is important, but the efficacy needs to be close to that 100% number.

Brian Abrahams - Wells Fargo Securities

Do you have plans to look at shorter durations like 4 weeks I know you have several PIs in the pipeline?

John Martin - Chairman and Chief Executive Officer

Yes, we have PIs in pipeline. 9451, which is fairly advanced, has been looked at in shorter duration studies. We have non-nuke that’s been looked at shorter duration studies. These are 6-week studies. We are in the process of looking at even shorter durations and the different classes of drugs and the number of drugs it would take to achieve this, I don’t have any idea of what theoretically shorter limit will be, shorter limit would be that where you could get to, but it would be important that the shorter durations have that very high efficacy for them to be viable.

Brian Abrahams - Wells Fargo Securities

What’s the latest on 5816 in terms of your thoughts on the go-forward plan?

John Martin - Chairman and Chief Executive Officer

We expect that to – we are finalizing the design that the study is now, so I won’t comment on that, but we expect that to go into Phase 3 hopefully in the next quarter, the third quarter.

Brian Abrahams - Wells Fargo Securities

Great. Wanted to cover a couple of different topics in your pipeline beyond HIV and hep C if I may?

John Martin - Chairman and Chief Executive Officer

Sure.

Brian Abrahams - Wells Fargo Securities

Simtuzumab has shown some very promising preclinical data. Can you remind us about the next data readouts there and maybe the indications that you are most enthusiastic about given all the different places that drug could go?

John Martin - Chairman and Chief Executive Officer

Yes. It’s all under John McHutchison. So, John who has been in charge of developing our liver disease areas, including hepatitis B is in charge of that too for the oncology and the fibrotic indications. So, we are looking at it for NASH, IPF, colorectal and pancreatic cancer. I honestly can’t tell you the time readouts valid, if Patrick wants to know what…

Pat O’Brien - Vice President, Investor Relations

Colorectal will probably come out by the end of this year in fourth quarter. So that will be the first readout. And the NASH study that John mentioned will fully enroll that mid this year with an interim 48-week look mid 2015.

John Martin - Chairman and Chief Executive Officer

Yes. So, the NASH is definitely long-term.

Brian Abrahams - Wells Fargo Securities

Okay. And could your ongoing IPF study potentially be registrational, I know it’s a fairly large study, but there have also been some changes in the field recently?

John Martin - Chairman and Chief Executive Officer

Yes. Brian, you can’t really count on that. If you get surprisingly strong result in a Phase 2 program, of course, it can give you an opportunity to negotiate with the FDA, but it’s in a field and I never like IPO for NASH. Yes, I think I would have to say it’s more likely we would learn how to design over subsequent studies to go for approval.

Brian Abrahams - Wells Fargo Securities

Okay. And then 5806 for RSV recently presented some exciting data at ATS, what’s your level of enthusiasm for that program? How big of an opportunity is that? And how should we be thinking about the ATS data and that some challenge study in terms of what it means for proof of concept for the program?

John Martin - Chairman and Chief Executive Officer

It’s exactly the point. You mentioned that it’s a challenge study. So, it’s an artificial creation and it’s based on your good [ample] data that went into that. So, these are adults who are infected with an attenuated RSV straight and they are only treated with drug or placebo once they start shedding virus. So, it’s you are not – it’s time so you can get in there and gather at that point. So, it’s artificial, but the result is very, very impressive and we have not seen data like that before. The ultimate goal and it’s a long path is to generate enough confidence in safety with a product like this in preclinical studies and clinical studies to go through [children] through a series of studies, including efficacy studies and getting through all of that, that’s a very important unmet medical need and it’s obviously a very large marketplace.

Brian Abrahams - Wells Fargo Securities

How this idelalisib kind of potentially split into the evolving competitive landscape in CLL and NHL?

John Martin - Chairman and Chief Executive Officer

Yes. Well, that’s complicated. We would have now data that we just presented at ASCO on a SIK inhibitor for CLL. So, our goal and it’s not something is going to happen for us this year. Our goal is to have products that we can combine together and use in combination for specific oncology indications that are proprietary trials or have some sort of proprietary advantage that also advance the field of treatment of various types of cancers. (inaudible) we have -- it’s under review by the FDA, we expect action by I believe this August date is the PDUFA date for both CLL and iNHL.

Brian Abrahams - Wells Fargo Securities

And are you thinking about idelalisib in solid tumors, I think you would see some preclinical data recently published on the concept of PI3 kinase inhibition is helping prevent tumors or for any tumors from abating the immune system?

John Martin - Chairman and Chief Executive Officer

Yes, just last week, yes. Of course, I haven’t been back in the office since that was published, but we are obviously interested in solid tumors also in our oncology program.

Brian Abrahams - Wells Fargo Securities

And I guess along those lines any change to your view in where momelotinib, the JAK inhibitor could go in solid tumors? Coming out of ASCO and now that we have actually seen full detailed data from and understood kind of the inflammatory subgroup that is being studied there, how excited are you about momelotinib in solid tumors help to run a program do you wonder?

John Martin - Chairman and Chief Executive Officer

Well, I think that’s – so what we are seeing are advances in the biology and understanding. That’s what you are talking about, Brian that could well revolutionize the treatment of oncology over the next few years. The challenge within an organization is where do you make your bets, how you differentiate. Every time, you take on new program, there is a variety of doses to look at and in combination studies you need to balance those doses. So, how do you advance the field without getting exponential complexity in what you are doing is what I believe we will be wrestling with the Gilead over the next few years.

Brian Abrahams - Wells Fargo Securities

Want to leave time for a couple of questions from the audience, but before I get to that just what’s your latest view on the use of the cash you will be generating from Sovaldi? Are there areas of the business that you would like to strengthen strategically what are you – you have announced accelerated share buybacks, what’s…

John Martin - Chairman and Chief Executive Officer

That’s one of the things we just did that we will complete the current one by September, the Board has authorized, which is $3 billion more and we will have another being authorized by the Board. We have always been opportunistic in our acquisitions and acquisitions do put a stress on the company. So, we are very careful about maintaining the focus of the organization. We obviously – this will be a maturing story over time, because we obviously have the opportunity to deploy a large amount of cash in the future. People think about we always have faced for years how do we diversify to have more opportunities, but I personally I care less about even though having more slices of pie, what we have done very successfully is by focus we have made the pie a lot bigger and that’s inherent the way we do business.

Brian Abrahams - Wells Fargo Securities

Do we have any questions from the audience?

Question-and-Answer Session

Brian Abrahams - Wells Fargo Securities

So, I am getting a question here on line I guess along those lines in terms of how would you characterize your appetite for external acquisitions especially in light of the current M&A environment, but some of the valuations that are out there?

John Martin

Yes, yes. Well, deals like acquired Triangle for emtricitabine or Pharmasset for sofosbuvir, they don’t come along off the tide. And we do lots of little things inbetween that are the nuts and bolts of building an organization, we are very, very active in that remain.

Brian Abrahams - Wells Fargo Securities

Okay. Well, with that, I think we are out of time. So, John and Pat thank you so much and thanks for everybody.

Pat O’Brien - Vice President, Investor Relations

Thanks, Brian.

John Martin - Chairman and Chief Executive Officer

Thanks, Brian.

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