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Gilead Sciences, Inc. (NASDAQ:GILD)

Q2 2014 Earnings Conference Call

July 23, 2014 05:00 PM ET

Executives

Patrick O'Brien - VP, IR

John Martin - Chairman and CEO

John Milligan - President and COO

Norbert Bischofberger - EVP, Research and Development and CSO

Paul Carter - EVP, Commercial Operations

Robin Washington - EVP and CFO

Analysts

Geoff Meacham - JPMorgan

Geoffrey Porges - Bernstein

Mark Schoenebaum - ISI Group

Brian Abrahams - Wells Fargo

Matthew Roden - UBS Securities

Michael Yee - RBC Capital Markets

Phil Nadeau - Cowen & Company

Yaron Werber - Citi

Ian Somaiya - Nomura Security

Ravi Mehrotra - Credit Suisse

Robyn Karnauskas - Deutsche Bank

Josh Schimmer - Piper Jaffray

Howard Liang - Leerink

Brian Skorney - Robert W Baird

Matthew Harrison - Morgan Stanley

Thomas Wei - Jefferies & Company

Terence Flynn - Goldman Sachs

Operator

Ladies and gentlemen, thank you for standing-by and welcome to the Gilead Sciences' Second Quarter 2014 Earnings Conference Call. My name is Samiya, 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.

Patrick O'Brien

Thank you, Sam. Good afternoon, everyone. We issued a press release this afternoon providing earnings results for the second quarter, which is available on our Web site 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 & Development, Norbert Bischofberger; our Executive Vice President of Commercial Operations, Paul Carter; and our Executive Vice President and Chief Financial Officer, Robin Washington.

Before we begin 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 Web site.

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

John Martin

Thank you, Patrick, and thank you all for joining us today. I am pleased with our progress and would like to highlight a number of key milestones achieved during the quarter. Just today the U.S. Food & Drug Administration approved Zydelig for the treatment of three B-cell malignancies, chronic lymphocytic leukemia, follicular B-cell lymphoma and small lymphocytic lymphoma. Zydelig is the first in our new class oral medicines that targets PI3K delta and we are pleased to provide this additional treatment option for patients.

Moving to hepatitis C, the rapid adoption of Sovaldi reflects wide spread recognition across the medical community as the benefits of this break through products can brings two patients suffering from hepatitis C. Since approval more than 70,000 patients in United States and 10,000 patients in the EU have been treated with Sovaldi containing regimens. Sovaldi offers higher cure rates with shortened treatment duration at a cost that is comparable to that of alternative treatment options and for many patients who have failed treatment with older regimens Sovaldi provides a new possibility for a cure.

Gilead has generated and is continuing to generate clinical data that support the scientific and medical evidence for treating hepatitis C as many stages of the disease. In fact across all our hepatitis C clinical studies over 6,000 patients have been treated and cured to-date.

In Japan our new drug application has been submitted to Japan’s pharmaceutical and medical devices agency for approval of sofosbuvir in combination with ribavirin for the treatment of genotype 2 infected patients. In the Phase 3 study supporting this application, 97% of patients, dose for 12 weeks with sofosbuvir ribavirin achieving an SVR12, this filing represents Gilead’s first drug application in Japan and they have approved Sofosbuvir would be the first product to be launched and marketed by Gilead in that country.

Our innovation and investment in improving the treatment for hepatitis C continues with the single tablet regimen of ledipasvir/sofosbuvir for patients infected with genotype 1 hepatitis C virus. FDA has assigned a PDUFA date of October 10th and the European Union approval is expected to come later in this year.

In Japan the ledipasvir/sofosbuvir marketing authorization application will be filed in the fourth quarter of this year. This application will be supported by results of a Phase 3 clinical trial conducted in Japan in which genotype 1 infected patients were treated with ledipasvir/sofosbuvir with or without ribavirin for 12 weeks. 22% of the patients have cirrhosis. Overall the SVR12 rate was 99% and the cohort that received ledipasvir/sofosbuvir without ribavirin the SVR rate was 100%.

Ensuring patient access to Sovaldi and all our medicines has been and will continue to be a top priority for Gilead. And we have been actively engaging with payors compelling the benefits of Sovaldi. In addition, we are committed to making Sovaldi available to patients in developed countries and have recently entered agreement with Egypt a country that has the highest presence of hepatitis C in the world.

In HIV, the single-tablet regimen abbreviated ECF TAF is being evaluated in a number of studies including treatment experienced patients, patients on stable therapy switch ECF TAF, patients with mild-to-moderate renal impairment as well as adolescents.

Data from our two Phase 3 studies compared to ECF TAF to Stribild in treatment naïve patients should become available in the third quarter of this year. We anticipate filing for U.S. and European marketing authorization of ECF TAF in the first quarter of 2015 for the treatment -- for the use in treatment naive, treatment experienced and renally impaired patients. TAF as a single agent is also being studied in chronic hepatitis B infection. Two studies in 1250 patients are 30% enrolled, one study is e-antigen positive and the other an e-antigen data of hepatitis B infected patients. We expect to complete enrollment of these studies around the end of this year.

We have significant activities ongoing across other therapeutic areas as well. A number of studies of Simtuzumab, our investigation of monoclonal antibody to organic LOXL2 protein are ongoing in a variety of fibrotic diseases and solid tumors. The Phase 2 study and non-alcoholic steatohepatitis is fully enrolled and data are expected in the middle of 2015. We also look forward to providing updates for the Simtuzumab studies in pancreatic and colorectal cancer and myelofibrosis before the end of the year.

GS-9620, a TLR-7 agonist has been evaluated in our Phase 2 study as a potential cure for hepatitis B in with the first patients have been screened at the beginning of July. GS-5745, a MMP9 monoclonal antibody inhibitor is firmly in Phase 1 and has been explored in Ulcerative Colitis and solid tumors. The synergistic activity of Ranolazine in combination with dronedarone an Atrial Fibrillation and the activity of GS-6615 and long QT-3 syndrome were presented recently at the annual Heart Rhythm Society meeting.

While I am only highlighting a few of our R&D accomplishments for this year I’m very pleased with our high level of innovation and productivity I would like the thank the more than 6,000 employees at Gilead and our collaborators and partners around the world for their dedication and immeasurable contributions for the Company. Their work and commitment have enabled us to achieve a number of milestones across different therapeutic areas of the business. And importantly continue to bring life changing therapies to patients and communities of need.

I would now like to turn the call over to Paul.

Paul Carter

Thanks John and good afternoon everyone. In the second quarter of 2014 our worldwide total net product revenue increased to $6.4 billion representing growth of a 141% over the second quarter last year. U.S. sales exceeded $4.8 billion and European sales exceeded 1.3 billion. This performance has been driven mainly by healthy demand in our HIV business and the uptake and stability which had sales totaling $3.5 billion. Of that number $3 billion represent U.S. sales with most of the rest of the remaining revenues coming from France and Germany. Patients are now being treated with Sovaldi in 34 countries worldwide and that number will continue to increase as further regulatory approvals and reimbursements are achieved.

Beginning with the U.S. and HIV, prescription volume continued to grow on our HIV products. Nine out of 10 patients new to treatment were prescribed to Gilead medicine, with seven out of 10 receiving one of Gilead’s TRUVADA-based single-tablet regimens. Of these Stribild continued to be the leading HIV regimen for patients who are beginning therapy, capturing three out of 10 stops. Prescription growth of Gilead’s TRUVADA-based single-tablet regimens including Stribild, Complera and Atripla is 13% year-over-year. I’m pleased to report that Stribild prescriptions alone grew 19% in quarter two over quarter one this year and Stribild is now approaching a $1 billion annual run rate in the U.S.

ADAP purchasing in the U.S. was in line with expectations and historical norms and we did not see any unusual movements in wholesaler inventory levels.

Moving to U.S. hepatitis C performance, Sovaldi sales of $3 billion showed strong patient demand and rapid adoption by physicians. We estimate that approximately 70,000 patients have now prescribed Sovaldi in U.S. since launch. The prescribing of Sovaldi in the U.S. has been driven mainly by hepatologists and gastroenterologists, but internal medicine specialists and primary care physicians, many of whom also treat HIV patients have also prescribed the treatment. Approximately 70% of the physicians visited by our therapeutic specialists have prescribed Sovaldi to-date.

We are seeing signs that physicians have begun delaying treatment for some patients also known as warehousing in anticipation of the approval of the single-tablet regimen of the differences across the derivatives. The initial patients who started a Sovaldi-based treatment in the U.S. became aware they were cured late in the second quarter. Based on prescription data and our cure rates in Sovaldi clinical trials we estimate that around 9,000 individuals have been cured to-date and that number will continue to accelerate as the year goes on.

Of the patients treated so far we believe that around 80% are new to therapy. The genotype distribution of patients that receive treatment is approximately representative of the U.S. HCV population with around 60% usage in genotype 1, 25% in genotype 2, 10% in genotype 3 and 5% in genotypes 4, 5 and 6 combined. We have noticed the reporting of an increased use of the interferon free regimen used in the Phase 2 Cosmos study comprised of Sovaldi with simeprevir and we estimate that during quarter two 70% of Sovaldi usage was in interferon free regimens including Cosmos.

On the payor front most commercial Medicare policy and state Medicaid plans take a full six months to review new drugs and we’re working with these plans to facilitate patient accessibility to Sovaldi. As anticipated we saw a slight shift in the payor mix in quarter two due to more patients from the BA and other non-retail coming on to treatment. As we exited the second quarter the overwhelming majority of state Medicaid all covering Sovaldi roughly half of them with a prior utilization to label and the other half with restrictions around fibrosis scores. Only three states are not covering Sovaldi pending completion of their review or the establishments of prior utilization criteria.

In the U.S. we have one of the most comprehensive patient assistance programs in the industry to help ensure cost is not a barrier for patients. The components of that program include providing coupons to bring the co-pay down to as low as $5 per month and paying the entire cost for the eligible uninsured. We also provide financial support to an independent non-profit organization offering assistance to patients who cannot cover their out of pocket medication costs.

Turning to Europe we are very pleased with our strong HIV performance again underscoring our confidence in the benefits of TRUVADA-based single-tablet regimens. Gilead single-tablet regimens have grown over 20% in volume year-over-year in the big five EU markets. Of these Eviplera is the most prescribed regimen for treatment naive HIV patients and also continues to extend its lead over Atripla as the most commonly switched to regimen.

Despite the availability of generic fibrates in Europe 70% of switches out of Atripla in quarter two went to Eviplera which since the beginning of the year has been actively promoted to switch in most countries where approved. This again demonstrates the value of TRUVADA-based single-tablet regimens. In fact we have seen little impact to our business from generic fibrates so far.

By the end of the second quarter we have sales from Stribild in 19 countries across Europe including all five EU big five markets. Stribild is now the second most prescribed regimen for switches after Eviplera, gaining most of these switches from previous protease inhibitor or raltegravir containing regimen.

Moving to Hepatitis C, we estimate approximately 10,000 patients have now received treatment with Sovaldi in Europe, where sales were $400 million in quarter two. The vast majority of these patients are in France and Germany. While Sovaldi has regulatory approval in the EU the full pricing and reimbursement process varies by country, with some countries completing the process more quickly than others. Negotiations are ongoing in the majority of EU markets, indeed we have filed health economic dossiers with all the major reimbursement agencies and we’re following the processes that lead to final price and reimbursement approval.

In France Sovaldi was given high marks in a recent government health technology assessment in which it was recognized as demonstrating a high level of innovation and is recommended to reimbursement consistent with Sovaldi’s label. While we are going through the rest of the pricing process with the French Ministry of Health we continue to make Sovaldi available to patients in the pre and post liver transplant setting and also for patients with advanced liver disease who failed other hepatitis C treatments or are interferon intolerant. This is in line with the temporary authorization for use or ATU score and is used for widening and full reimbursement is established.

In Germany just last week the government AMNOG process completed its review of Sovaldi, also recognizing the additional benefit that it brings to patients. The AMNOG process will continue over the next month. In the UK the National Institute for Clinical Excellence or NICE has requested additional consultation before a final recommendation on reimbursement can be made. We are confident that upon the completion of the process NICE will be able to make a positive formal recommendation that acknowledges both the clinical and health economic benefits that Sovaldi can bring to the broader UK population. In the meantime the National Health Service in England has approved funding for approximately 500 people recognizing the urgent need to sicker patient. It is also worth noting that Sovaldi has pre-received a positive HTA review in Scotland and this has been accepted by the Scottish Medicines Consortium on the behalf of NHS Scotland.

In Australia Sovaldi was recently approved by the Therapeutic Goods Administration or TGA and discussions for pricing and reimbursements are ongoing. Outside North America and Europe we continue to expand our geographic footprint, the build out of our Gilead organization in Japan is going according to plan, in anticipation of the approval of sofosbuvir in early 2015 and the single-tablet regimen of the difference we’re supposed to get later in 2015. In closing I’m excited to share that earlier today as John mentioned the FDA granted approval of Zydelig for use in three B-cell malignancies.

Our U.S. commercial team has been prepared for this day and will immediately begin to promote Zydelig. We’re very excited to have our first commercial product on oncology. The approvals in Europe are pending and our teams there will be ready for commercial launch consistent with the anticipated regulatory and reimbursement timelines.

I’d now like to turn over the call to Robin.

Robin Washington

Thanks Paul and good afternoon everyone. Total revenues for the second quarter were 6.5 billion, non-GAAP diluted earnings per share for the quarter was $2.36. As Paul covered the key commercial drivers and performance for the quarter, I would like to briefly discuss Q2 inventory dynamics for our core business and our recent Sovaldi product launch. As mentioned during our Q1 earnings call, we experienced an inventory draw down in the first quarter for our HIV and cardio pulmonary products following strong wholesaler and sub-wholesaler purchases in December 2013 in anticipation of January 1st price increases. During the second quarter inventory levels remained at the low-end of the range as we did not see a rebuild of inventory within the channel.

Turning to Sovaldi, we estimate the vast majority of U.S. sales for the second quarter were related to demand. Inventory across the supply chain for Sovaldi were at levels necessary to support demand during the quarter. And while the provisions for the inventory management agreements for Sovaldi with the big three wholesalers do not start until September; inventory levels were already within the range of those provisions as of the end of the quarter. As anticipated we have started to see some patient warehousing in advance of ledipasvir/sofosbuvir approval. If this warehousing continues it may have a downstream impact to Sovaldi inventory held in the distribution channel.

Turning to expenses, non-GAAP R&D expenses were up 54 million year-over-year reflecting increases in headcount to support clinical study activities, geographic expansion and marketed product support in addition to infrastructure costs related to expansion of our R&D activities. On a sequential basis, non-GAAP R&D expenses decreased 16 million to 542 million in the second quarter primarily as a result of the ramp down of Sovaldi and ledipasvir/sofosbuvir Phase 3 studies.

During the second half of 2014 we expect non-GAAP R&D expense to increase relative to first half 2014 levels to support expansion of studies in HCV, HIV, inflammation and respiratory therapeutic areas. Non-GAAP SG&A spending was up 193 million year-over-year to support Sovaldi sales, ongoing geographic expansion and the anticipated approvals of our HCV fixed dose combination and idelalisib.

On a sequential basis, non-GAAP SG&A increased by approximately 70 million driven primarily by the support of Sovaldi’s launch. We expect continued and incremental investments in these areas in the second half of 2014. Our non-GAAP effective tax rate for the quarter decreased to 14.6% primarily due to increased sales of Sovaldi and a cumulative touch up adjustment of 3.6 percentage points to the first quarter tax rate to reduce the year-to-date non-GAAP effective tax rate to 18.2%. We have included a reconciliation of this change on Slide 40 in the earnings deck.

The first half revenue performance resulted in another strong quarter of cash flow from operations of 4.2 billion. This reflects strong collections in the current quarter and a larger than normal component of Q1 collections given the ramp of Q1 Sovaldi sales. As committed we increased our level of shareholder return this quarter by repurchasing 15.2 million shares, utilizing 1.2 billion in cash. As of June 30, we had 1.7 billion remaining on our 5 billion repurchase authorization from January 2011, which we will complete in the third quarter prior to its escalation in September 2014.

In addition in May 2014, our Board approved an additional 5 billion in purchase authorization. During the quarter we repaid the remainder of outstanding May 2014 convertible notes as outlined on Slide 56. In first third quarter the warrants related to the May 2014 convertible debt will expire which if settled in cash will result in cash utilization of approximately 3.1 billion to 3.7 billion.

Finally, we are updating full year 2014 guidance which is outlined on Slide 43, to include HCV revenues for 2014. We expect Gilead total net product sales to be in the range of 21 billion to 23 billion. I would like to caution you that it is very difficult to accurately predict revenues from HCV products, which are now included in our total net product sales. As a result, the following factors specific to HCV products could cause our net product revenues to be higher or lower than projected.

These factors include the ledipasvir/sofosbuvir single-tablet regimen not being approved by the PDUFA date of October 10, 2014. The level and speed of market acceptance of the STR, the pricing and rate of reimbursement for the STR, the amount of patient warehousing and wholesaler inventory decreases prior to approval of the STR which could negatively impact sales of Sovaldi. And finally the launch timing and market acceptance of competitive drugs already on the market or scheduled to enter the market later this year.

Turning to expense guidance, our non-GAAP product gross margin is expected to be in the range of 85% to 88%. We’re increasing our non-GAAP R&D expenses to be in the range of 2.3 billion to 2.4 billion as we continue to invest in our pipeline. We’re increasing our non-GAAP SG&A expenses to also be in the range of 2.3 billion to 2.4 billion, which assumes the continued build out and expansion of our commercial infrastructure in Europe and Asia to support HCV product launches and increased marketing and sales efforts related to the launch of our first oncology product.

For the full year, our non-GAAP effective tax rate is expected to be in the range of 17.5% to 20.5%. As Congress has not extended the federal R&D tax credit for 2014, we have excluded the credit from our guidance. If the R&D tax credit is extended in 2014, we would expect an additional 0.4% reduction in our annual effective tax rate.

We’re anticipating the full year diluted EPS impact of acquisition-related restructuring and stock-based compensation expenses to be in the range of $0.63 to $0.66 per share. This range includes the full year effect of the amortization of end process R&D related to Sovaldi.

Thank you and we look forward to updating you on our progress during our next call. We would now like to open the call for questions, operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) As a reminder, we will be taking a maximum of one question per person at a time. If you have further questions you are welcome to rejoin the queue. (Operator Instructions) Our first question comes from Geoff Meacham with JPMorgan. Your line is now open.

Geoff Meacham - JPMorgan

So the cost benefits of Sovaldi seems pretty straight forward but there is still are a lot of public comments. So my question is there any color you can give us on the progress you’re making in Washington or private payors in this front? And then very related, what can be done to more rapidly increase and have budgets in the space for Medicaid patients and also across Europe? Thanks.

John Milligan

Geoff its John Milligan. Yes that’s a complicated question that you gave us there. So a number of things are being done of course, we have had a number of healthcare economic outcome research programs that we’ve commissioned and have published. We’re talking about the revalue of Sovaldi. There is clearly a lively debate within the press. There is a lively debate within the payer community and of course the interest of Washington on this. It is just now really that we’re starting to see some of the benefits of Sovaldi and we’ve been talking about this during the script, the fact that we can estimate that over 9,000 patients have now being cured in our commercial programs, that we’ve cured over 6,000 patients across a wide range of disease stage in HCV and our hepatitis clinical trial programs. And we’re starting to see some of these benefits. So this is the leading edge of benefit that you will see and that will clearly accelerate as we get into later in the years, more and more patients will have reach that important time point of 12 weeks past of their treatment periods.

So I think there’ll be a positive momentum and a positive series of stories coming out of that which will be quite helpful. Of course the discussions with the payors center around the volumes that they are seeing. I don’t think anybody disagrees with the fact that Sovaldi is a remarkable drug, it’s been called an outlier in some segments, I agree with it. It’s an outlier, because we’re curing people of horrible disease in a very rapid timeframe and that’s a very unusual thing for payors to think about. So we have noticed some positive movement of some payors indicated that they have budget in the second half of this year for this product, that is not been universal but we’re in discussions with them and talking about Sovaldi use and importantly the next generation product ledipasvir, sofosbuvir coming forward.

Interestingly, if you picked up on Paul’s script, we’ve noticed that the interferon regimens are becoming increasingly important. I think it is important that a high percentage of patients to be getting Sovaldi plus simeprevir indicating that all regimens are being approved by the payors and are considered important part of the way to treat these diseases going forward. As it’s a long answer to your long question. And the final part with regard to things like the Senate we of course are complying with their request for information and look forward to the opportunities to discuss the value of Sovaldi with members of the senatorial staff.

Operator

Thank you, our next question comes from Geoffrey Porges of Bernstein; your line is now open.

Geoffrey Porges - Bernstein

Thank you very much and congratulations again also on a remarkable quarter. Just a question on timing so, you mentioned the October 10 PDUFA dates for the fixed dose combination and that’s a eight months review cycle from filing and it has been given breakthrough status. So, is there anything going on in your interactions with the agency that suggest that might be expanded and just related question if Paul, could comment on TAF and Stribild another new combination just a little bit about, what you are seeing in the market in terms of the appetite for replacing the existing combinations with the TAF formulation?

Norbert Bischofberger

Hi Jeff, it’s Norbert; I will take your first question. The renew of ledipasvir/sofosbuvir is moving ahead nicely. We’ve had all the unusual questions from agency about clinical CMC, we have had clinical inspections that are done manufacturing and certain at this point, it’s all moving ahead nicely but it would be too much to speculate about the approval date. All we really know for certain is that PDUFA date is October 10.

John Martin

And Jeff, on your question about TAF clearly this drug is not approved yet and we haven’t completed our clinical trials and data really will instruct this on how this is going to play out? I think it’s worth mentioning though that single-tablet regimen are way ahead in our opinion and we hope very much that the data coming out of the tough trials will underscore the importance of get out single-tablet regimen.

Operator

Thank you, our next question comes from Mark Schoenebaum of ISI Group. Your line is now open.

Mark Schoenebaum - ISI Group

Hello, thank you very much for taking my question, I appreciated. I just wanted to ask about the progress maybe this question is for Norbert or John but the progress for your triplet regimen. Obviously Merck’s doing a trials four week dated at the end of the year and there’s a possibility they could shorten the duration with the triple regimen down to four weeks. And I know that you have explored triplet regimens in the past, a little update as to where you guys are with that if needed, how quickly you could move forward if to react to the Merck data if indeed it hits the high bar and it looks pretty good? Thank you.

Norbert Bischofberger

Mark, its Norbert. Very quickly to remind you, we actually disclosed data from a NIH study which was in early month this quarter and there we show that you can indeed take six weeks of three drugs, so in that case protease inhibitor 9451 (ph) ledipasvir/sofosuvir and you get a 100% cure rates. Of course in operating new dose data before we quite a while before we presented it so we have undertaken now to look at eight weeks in Sovaldi patients, we are looking at six weeks in Sovaldi patients, we are looking at four weeks in naive patients both takes three drugs and four drugs, you will see some of these data that are emerging hopefully at ASLD.

It’s been we see that at certain regimen as the profile that we hope that it has to happen remember the hurdle bar has gone way up below 95% I don’t think we will consider anything taken forward into Phase 3. We can then move fairly very quickly into phase 3 with whatever regimen we decide we want to do that the experiment on.

Mark Schoenebaum - ISI Group

Thanks, very helpful.

Operator

Thank you, our next question comes from Brian Abrahams of Wells Fargo; your line is now open.

Brian Abrahams - Wells Fargo

Hi, thanks very much for taking my question. I guess following up on Mark’s question, can you maybe clarify what regimens you are going to view at you are looking at with the three and four DAA combos from four to eight weeks that you just mentioned Norbert, I mean, are there other ways beyond those triplet regimens that you could potentially maintain your per patient hep C revenues should others add on and get down to four weeks? Thanks.

John Martin

Yeah hi, Brian. So, we have ledipasvir/sofosbuvir reports that’s under review that’s genotype 1, initial approval, we have 5816 sofosbuvir combination that it’s going into phase 3 and you will see some then very soon in the second half on clean trials then we have HIV a genotype 1 specific protease inhibitor 9451 and right we have a genotype 1 specific NS5B non-nucleus side inhibitor 9669. In addition, we are now moving very soon into Phase II, with a expansion of the protease inhibitor. So again to summarize all of this we are aiming for a genotypic regimen that either can be three drugs and it’s probably going to be sofosbuvir with 5816 and the expansion of the big protease inhibitor. And we just have to establish the minimum treatment duration and we are conscious that we want to be the treatment duration not only for treatment naïve non-cirrhotic patients to be shorter but also more difficult to treat treatment experience and cirrhotic patients to apply the same concept. And again we hope if everything goes well we will go into a larger Phase 2 study in the second half of this year or if we so choose, we could use 9451 and go directly into Phase 3. That all depends on what the emerging data looks like.

Operator

Thank you. Our next question comes from Matthew Roden of UBS. Your line is now open.

Matthew Roden - UBS Securities

Great, thanks very much for taking question and congrats on the real nice launch here. So on the guidance where you’ve included Sovaldi for the first time so you beat on HIV and you beat on hep C so far I think that I want to enter from the delta and sales guidance would imply straight line hep C sales in 3Q and 4Q despite current trends in the upcoming single to launch. So what I’m trying to understand is, is this just a conservative and given the uncertainties Robin that you mentioned or is there specific reason we wouldn’t see an uptake in the sales with the single pill?

And the just related real quick for Paul, in the hep C launch, is it possible for you to breakout the portion of patients for fibrotic and cirrhotic relative level of confidence that the less urgently sick patients will ultimately be treated down the line.

Robin Washington

Hi Matt, its Robin I will take the first part of the question. I think the variables that we discussed are the one I mentioned and it came from lower to high range. I would remind to keep in mind than unlike HIV which is kind of care in HCV, we cure patients. So it’s not necessarily as linear. But all the things that I talked about patient warehousing movement in inventory levels, the approval date, payor discussions all of these could price some variability in the range provided.

John Martin

Okay. And just add the comments on the fibrosis scores, this data is inaccurate I would say, but our best estimate is it around 40% of patients are F3, S4, 60% patients treated to date are zero to F3. We don’t have data on the cirrhotic level. But I did mention earlier that 80% of the patients treated are new to treatment, so consequently 20% are experienced patients and with the sicker ones.

Operator

Thank you. Our next question comes from Michael Yee of RBC Capital Markets. Your line is now open.

Michael Yee - RBC Capital Markets

Thanks. A quick question initially there was a lot of focus around you getting numbers around how many patients in U.S. were under care by an expert and I notice the numbers gone up a little bit to 93,000. Presumably that could be busted through over the next few years based on your trajectory. So just want to understand how you’re thinking about opening up that 700,000 or so I guess 1.4 million to get to the point diagnosis number. So we can think about just beyond the next couple of years. And then simultaneously Europe a similar thinking but presumably much low price so when you think out maybe with long-term, what percent of U.S. sales do you think in Europe or U.S. could be?

John Martin

With regard to the number of patients diagnosed and we are seeing certainly and your probably right about this as well a lot of doctors now reaching out the patients to have previously been diagnosed but have not been under care in the last 12 months. So that’s why you see that numbers shift. The learning patients know that new options are available and better options are coming so there has been an increase in the number patients seeking care.

So I think that’s been an important dynamic that we're witnessing, just really the beginning of this as we’re launching Sovaldi and as this is now become available in certain plans and certain stage.

We are confident that the increased cure rates it is treatment and the very important regimens that act more broadly across different types of patients will encourage patients to go get tested and bringing the care as well. So we think two thing will happen, one we’ll test the higher percentage of people increasing the diagnose number and those patients who diagnosed will eventually seek care. I have to say the controversy Sovaldi is a constant daily reminder the patients it gives a very important new option available for them as well and I have to think that’s been helpful as well. So we have a high degree of confidence in the future that more and more people now seeking care from the herpetologist as they have those options available.

Norbert Bischofberger

Paul, you want to take the second part?

Paul Carter

I don’t remember what it was?

Michael Yee - RBC Capital Markets

Your percent of sales for U.S.

Paul Carter

I think that’s really hard question Michael. It’s going to be a different timing its reality because the countries in Europe are going to be slow to reimburse and improve the product. But I think the prevalence in Europe is just marginally below the U.S. So I think in volume terms the numbers could end up being very similar, the price point in Europe, it’s going to be slightly less than Europe the ASP probably. So I think we can figure out -- the numbers are going to be fairly similar, some of the US probably slightly bigger than Europe in the end. It’s spread over on the timeframe.

Operator

Thank you, our next question comes from Phil Nadeau of Cowen & Company. Your line is now open.

Phil Nadeau - Cowen & Company

Good evening. Thanks for taking my question. I do have one on reimbursement. Could you give us some sense for the portion of people who are currently being denied coverage for Sovaldi? And how many people need for example to have their fibrosis status determined before they do get coverage. And then relatively what’s your most recent thinking on the pricing for the combo pill, I think in the past you said Sovaldi contributes the most, the highest percentage of value to the pills, is that still your position, any updated thoughts would be appreciated, thanks.

Paul Carter

I think I will have to come back to you on the fibrosis scores though, I don’t know the answer to that. This is Paul by the way. I was thinking about the fixed dose combination pricing, we haven’t come to a conclusion yet but I do think philosophically we feel the majority of the value in the fixed dose combination is within Sovaldi.

Norbert Bischofberger

So your question about reimbursement and denial of care, I mean we do have a significant number of patients who are getting some form of help from Gilead especially through patient assistance programs we do know that prior authorizations are being used in most of the plans, especially the Medicaid plans with a sense to slow down the rate of patients coming in to care and then we also know that this is now delaying putting patients on treatment, waiting for the fixed dose combination. So, it’s a difficult thing to say who’s being denied versus who’s being delayed waiting for the all oral regimens to come on the market. It is difficult and I don’t know that we’ll have a better answer for you anytime in the future either.

Operator

Thank you, our next question comes from Yaron Werber of Citi; your line is now opened.

Yaron Werber - Citi

Right, thanks for taking my question, so I’m sort of maybe a little bit of a follow on, on Phil’s question and it’s sort of in two parts. One, can you think of, I’m just trying to get a sense; this is a unique situation where we’re talking about an approved drug with a broad label and potential coverage denial. I mean, is that something that you can recall in the past even from a legal standpoint, are payers allowed to reject coverage? And then secondly, just a little bit from the Federal Trade Commission perspective. If you price the fixed dose combo in the way that’s competitive and then Sovaldi plus another drug is materially more expensive, is that an issue from a federal trade given that you’re going to be owning the market, thank you.

John Martin

Yaron, your first question is kind of a broad one, has this ever happened in the industry and I don’t know that I can speak to that, I certainly can’t think of any situations that are similar to this. Although this drug is different than other drugs you know in many ways we were in the HIV field we were limiting the patients who are coming -- via guidelines not specifically through FDA labeling, so there were consideration there that we’re not part of the FDA label and that’s the one that comes to mind. Obviously we’ve broadened those guidelines over time as the medicines got better and doctors got more comfortable putting patients on a higher and higher CD4 count and I think that’s probably most analogous. But again since it’s the care market we know you can make rational choices about who should come onto care today knowing that eventually you’ll be able to get to all the patients, even though that may take many-many years to do so and will naturally take many-many years. I think the second part of your question was about pricing and so simply, we can’t comment on pricing, our thoughts around pricing for an unapproved product and so I can’t really comment and won’t speculate on the outcomes that may happen with regard to that.

Operator

Thank you, our next question comes from Ian Somaiya of Nomura Security; your line is now open.

Ian Somaiya - Nomura Security

Thanks, I’m going to follow the trend and maybe ask one question two parts, completely unrelated. Just on maybe switching topics a little bit, maybe starting off with NASH and maybe Norbert if you could provide us a update on the, what you feel on the regulatory requirements to get a drug approved for NASH in the US and Europe, and then just on pricing, following up on an earlier question, I know the thought seems to be that Sovaldi should be driving most or is providing most of the benefit so it should engender most of the pricing power, how do you balance that with a payer environment US and Europe which is basically reimbursing two drugs unless you are on Sovaldi which affects very similarly.

Norbert Bischofberger

So Ian quickly the approvable end point and I’m simply telling you about the conversations we’ve had with FDA as little as six months ago, US FDA felt that histology even for accelerated approval is not an approvable end point, they wanted to have some clinical evidence of efficacy and after a lot of conversations and forth involving experts, FDA agreed that changes in hepatic Venus pressure gradient at 48 weeks they would accept as a clinical end point and that’s the study we’re doing right now. Our study in NASH with people with cirrhosis actually uses hepatic Venus pressure gradient that week 48 as the end point, and that will of course -- we have to have a NASH study in bridging fibrosis patients and in those patients it will be histology. But the histology would be kind of the link between the two studies so that ultimately the end point must be hepatic Venus pressure gradient. Ian having that said FDA could change their mind, so I am simply telling you what we were told six months ago.

John Milligan

And your second question about pricing, this is John Milligan. These are always complicated things to think about in terms of the value that a product brings. The types of patients that would be appropriate for and the appropriate level of pricing based on that. And so due to things that we have to take into consideration as well as the external environment we’re in and the competitive nature of future residents when we think about pricing. All those will factor into what the ultimate pricing decision will be on a fixed dose combination.

So I obviously can’t tell you more than that because these things can’t be talked about until after approvability, but these are the various factors that we used to think about that at ultimate price.

Operator

Thank you. Our next question comes from Ravi Mehrotra of Credit Suisse. Your line is now open.

Ravi Mehrotra - Credit Suisse

Obviously you guys are taking cash generation. So you’ll like to pull some capital allocation policy you previously talked about dividends. Are you any nearer to that? And concomitant to that, any philosophical change you are thinking how you accelerate your pipeline breadth, given your need arguably for higher future revenues given your higher current base.

Robin Washington

Ravi I’ll take the first part, I mean I think overall our capital structure practices remains similar to what we’ve communicated in the past. We’re committed to effectively leveraging our strong cash flow. And we’re disciplined in thinking about it relative to the investments in growing our pipeline selective M&A as well as returning capital to shareholders.

The vehicle that we used to date our share repurchases with the increased level of cash flows and the repayment of debt we expect to continue to use share repurchases over and beyond the 1.7 billion year to date. We announced as we did on call that we will repurchase another 1.7 billion this quarter. And as you know we have a larger 5 billion repurchase program outstanding. So at this point should we still believe that that’s the best vehicle for us to use, and it’s consistent with our belief that we feel our shares are currently under value.

We continue to have discussions with management about using other vehicles. So we could in the future think about a dividend in addition to share repurchases.

John Milligan

Just income highlight the second part of your question about the accelerated amount of cash generation change thinking about bringing in our pipeline. Really the cash generation isn’t material to our thinking this way. We have a lot of good things in the pipeline, as John Martin mentioned. He was only able to highlight a few of the many exciting things that are going on in our pipeline. We never had so many things going forward as we do today and we feel very, very confident in the pipeline that we have today. So our focus will be on selective deals in order to augment our pipeline in certain key areas. But with all the things going on so well, we fell that there isn’t a strong need to do anything more than that.

Operator

Thank you. Our next question comes from Robyn Karnauskas of Deutsche Bank. Your line is now open.

Robyn Karnauskas - Deutsche Bank

Just to switch actually on HIV. So it looks like this drive build, your new patient share is going up and we’ve done some math from the metrics you provided, looks like the amount of patients were switching of the current drug to sort of stable. So I just wanted to check and see if the math is right, that patients on current drugs switch is sort of stable? And then how do you see that influencing that switch market? And so you have any sense of how quickly that could occur over time?

John Milligan

I’ll take this question. So single tablet regimen growth Robyn both in the U.S. and in Europe continues a nice steady trajectory upwards. We’re seeing some switches out of the fab ring (ph) contained products within our single-tablet regimen. So patients are switching out of Atripla to some extent that is fairly slow and the majority, the vast majority of those switches out of Atripla are coming to either Stribild or Complera in the US or Eviplera in Europe. So we are pretty comfortable with that and pleased the way things are going.

Your question on TAF is really too early stage because the data coming out of the Phase 3 studies will be highly instructive as to the feature of our single tablet regimen treatment going forward.

Robyn Karnauskas - Deutsche Bank

As a follow up, our math says about 6% of people have switched and that has a sort of unstable over the last few quarters. Do you have any sense of how high that could go? Or is that important or not important to you?

John Milligan

It’s very stable, I can’t confirm the number you just quoted but I think it’s ahead of low single digit levels and we are comfortable with that.

Operator

Thank you, our next question comes from Joshua Schimmer of Piper Jaffray; your line is now open.

Josh Schimmer - Piper Jaffray

Thanks for taking my questions. Prior to the Sovaldi launch, you indicated you’re actively preparing payors for its impact, can you comment on how effective that’s been today, where as you think you may have been able to improve their preparedness for next during beyond and to what extent do you think that may help curtail some of the constants during the compliance we read about in the press on price? Thanks.

John Milligan

Hey Josh, it’s John Milligan. So we did talk to payers about the impact I think they frankly thought they were going to see something was much more like a vertex launch for Incivek and so they were surprised that the knowledge is a product launch at such a high rate but also that will continue to grow where it is popped out very quickly with Incivek which is of course going to happen and a drug that is a high touch point for physicians with lots of labor necessary and long duration of treatment. So, I think that is simply didn’t understand technically what happens if we only treat patients for 12 weeks and so they clearly understands a dynamic much better now, they understand also that the demand for all oral regimen is very high so the interest is high and I hope that will be preparing for this but it’s hard for me to know exactly what they are going to do and how they are going to think about something like our all oral picks those combination which is coming out later this year.

Josh Schimmer - Piper Jaffray

Do you believe that’s been a prime driver for kind of pricing noise concerns and complaints we have heard this year and will that a bet next year’s result?

John Milligan

Well, I don’t know if it’s been the prime driver it’s better to speak to the payors individual to have been saying these things and to me I don’t know if it’s going to have abatement next year or not I do know that has the value story growth I think that will be a greater appreciation that affect these patients have been appeared a lot of ancillary problems that they had will simplified and we believe that over time the healthcare system will save a lot of money by these patients being healthy again.

Josh Schimmer - Piper Jaffray

Okay, thank you.

Operator

Thank you, our next question comes from Howard Liang of Leerink. Your line is now open.

Howard Liang - Leerink

Thanks very much. Regarding the three phase 2 trials that read out in the fourth quarter for Simtuzumab in pancreatic, colorectal and myelofibrosis, what would you be looking for if you move forward and if can you talk about how important these oncology indications are for the amount of seven indications that you have at your testing for Simtuzumab?

Norbert Bischofberger

We look into two solid tumor studies of course the end point is PFS and we will be looking for a convincing difference of PFS on the active arms versus the placebo and how convincing I can’t tell you. Also both of them are have two doses of Simtuzumab 200 and 700 milligram. IV every two weeks and what would nice disease some dose response anybody something that would convince us to spend the money and time and resources going to phase 3 and as you may also know the end point in the myelofibrosis study is histology so again, we will be looking at something that just convince us that its worthwhile to put these drugs into further development.

How important these things are, I would say very important I mean I always said with Simtuzumab it’s high risk because it’s a novel target and as you know the lot of drugs against novel targets had never gone anywhere but if it works, this could be the really really useful drug for solid tumors. So, we are looking forward to learning more about the phase 2 data and that should happen in the October the second half of this year.

Howard Liang - Leerink

Thanks very much.

Operator

Thank you, our next question comes from Brian Skorney of Robert W Baird. Your line is now open.

Brian Skorney - Robert W Baird

Hey, good afternoon guys. Thanks for taking my questions. I guess I’m thinking a lot about the shortening duration of hep C therapy and I wondered if you can just comment strategically what options you have with Sovaldi in terms of pricing and access should data justify a four-week regimen through two company combination where Sovaldi is one of the agents I’m thinking in particular of Bristol-Myers forward study if that does show four weeks of ISVR, in their scenario were next year in a price competitive way, you would see potentially a 50% reduction in the overall price per patient if Sovaldi remains at the same price. So, I guess if you could give any color on other options to change Sovaldi’s pricing as a result of that?

John Martin

Brian, again we are not going to speculate on any pricing or regimens in the future that have been tested, we have a lot of options within our own regimens and we will undoubtedly options with the combinations of regimens in the future as there is the potential to get down to shorter and shorter durations certainly we have already shown that six weeks is possible at their own combinations until there maybe others that can get better as well. But I don’t want to I’m not going to publicly speculate about what we might not do with regard the pricing in the future we’ll just have to see how these things play out and we’ll make decisions accordingly in the future.

Operator

Thank you. Our next comes from Matthew Harrison of Morgan Stanley. Your line is now open.

Matthew Harrison - Morgan Stanley

Thanks for taking the question. I just want to ask change the topic and ask about idea less, obviously you got approval today on both indications I just wanted ask one obviously coming much earlier than you expected and if that change so how do you think about the launch and then also what you think about the impact as the black box is relative requirement of the EMS. Thanks.

Norbert Bischofberger

Matthew thanks for asking about that. Idelalisib it first this comes up with great news for us it’s our first oncology product and we’re all proud and happy about it, a goodness of price the one that it came sooner because we always new FDA was working towards this we have breakthrough status on one of the indications and the other make a comment about the black box from the clinical point of view. So first all Idelalisib is a highly effective drug for certain patients and we believe a lot of patients were benefiting from it actually in our clinical studies looking at some of the statistics eight out of 10 have benefit.

Secondly, you have to realize the data sets that we submitted to FDA both for the NHL, the two NHL and the CLL indications were relatively small. And to study one month fix with 110 patients on one arm and the total of the SLL and FL patients in the NHL study was about a 100.

So we’re left with a relatively small data set. And the data is the data. These events were observed, we did have fatalities. This is in patient population that is otherwise old age mostly very sick that takes other medications and we together with FDA felt that it was appropriate to include conservative warnings in the prescribing information. I also like to remind you we have a total of five additional clinical studies ongoing, two in CLL which in the month or two should be volume rolled, two in NHL both for relapse and one in front line therapy CLL to a five additional clinical studies and from these studies, this was inform us further about the safety profile of Idelalisib and as the data merged we may update the legal.

Paul, do you want to add anything?

Paul Carter

I just like to add that our commercial scene has been preparing for Idelalisib launch a quite a well now. We have a fully recruited team with recruited some very high kind of the people from companies that have high levels oncology experience while they seem trained they are in field and they are promoting the product as of today, we’re really very excited about it.

Operator

Thank you. Our next question comes from Thomas Wei of Jefferies. Your line is now open.

Thomas Wei - Jefferies & Company

Thanks. A question on top with data coming up in the third quarter I wanted to get your perspective on why you think is a clinically meaningful improvement on either the bone side or the renal side when comparing a TAF versus a regimen. Thanks.

John Martin

Thomas, we obviously thought a lot about this and so if you look at the totality of the VF data I think we can comfortably and confidently say that the BMD effects overall are not clinically relevant. We can also say that with the exception of a few patients that this continues also small degree of decrease in creatinine clearance does not have any clinically significant effects. So I don’t think we’re going to see this in the Phase 3 study Thomas but I think what we will see will be what we saw regular Phase 2 study that there will much less or no decrease in BMD, there will be much less or no decrease in creatinine clearance but I think with the clinical relevant is from the renal impairment study.

We have a study about 290 patients where we are testing the easier ECF TAF rate down to creatinine clearance of 30. And that would be a really important point if you could see there is no renal effect in laboratory while there is no BMD effect, moreover you don’t have to dose or dose interval just down to creatinine clearance of 30 and if the regulatory authority accept this we also don’t have to do regular creatinine checks. So I think it would be a very safe much more -- physicians and patients would feel more comfortable with this and then we would be ahead, if we didn’t have these laboratory abnormalities.

Operator

Thank you. And at this time we have time for one last question. Our final question comes from Terence Flynn of Goldman Sachs. Your line is now open.

Terence Flynn - Goldman Sachs

Hi, thanks for taking the question. Maybe just follow up on that TAF can you quantify for us the percentage of patients with HIV that have renal impairment and then also maybe stratify by age now the HIV patient cohort that maybe would be at highest risk for having fracture or low BMD given their age, and then the second part of the question is, I noticed during your remarks you said you’ve seen a minimal impact from generics Incivek in Europe right now on market share, but what about pricing, any impact there either now or maybe in the future, thank you.

John Martin

Yes so, Terrence just quickly from a -- you know I can’t give you specific numbers but qualitatively of course you know that the HIV population in the US and in other parts of the world is aging. With increasing age creatine or renal function declines and this will be just more convenient and safe for use of the drug if you have borderline creatinine clearance of 60 or 50 you will not worry about any adverse, renal adverse events to be happening with TAF whereas [indiscernible] as you know has to be dosed in a well adjusted when you come down to creatinine clearance of 50 or 70 in case of Stribild.

Paul Carter

Yes, and maybe I can just comment on the pricing question to Steve in Europe, so, the product that is affected is Atripla and we price Atripla on a one plus one basis. What we have seen is the branded prices, Sustiva has followed down to some extent the generic price of generic efavirenz, nevertheless the price of Atripla we managed to keep above slight that one plus one level and that recognizes the value of the single tablet regimen, and as I said also earlier where patients are switching out of Atripla for CNS reasons associated with efavirenz, most of those switches are coming to Gilead products notable 70% in quarter 2 went to Eviplera.

John Martin

Thank you, Sam and thank you all for joining us today, we appreciate your continued interest in Gilead and the team here looks forward to providing you with updates on our future progress.

Operator

Thank you sir, ladies and gentlemen thank you for participating in today’s conference, this does conclude today’s program, you may all disconnect. Everyone have a wonderful day.

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Source: Gilead Sciences' (GILD) CEO John Martin on Q2 2014 Results - Earnings Call Transcript

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