Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Gilead Sciences (NASDAQ:GILD)

Q2 2011 Earnings Call

July 26, 2011 5:00 pm ET

Executives

Robin Washington - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Susan Hubbard - Vice President of Investor Relations

John Martin - Chairman of the Board and Chief Executive Officer

John Milligan - President and Chief Operating Officer

Kevin Young - Executive Vice President of Commercial Operations

Norbert Bischofberger - Chief Scientific Officer and Executive Vice President of Research & Development

Analysts

Sapna Srivastava - Goldman Sachs Group Inc.

Robyn Karnauskas - Deutsche Bank AG

Joel Sendek - Lazard Capital Markets LLC

Geoffrey Porges - Sanford C. Bernstein & Co., Inc.

Ravi Mehrotra - Crédit Suisse AG

Thomas Wei - Jefferies & Company, Inc.

Brian Abrahams - Wells Fargo Securities, LLC

Joshua Schimmer - Leerink Swann LLC

Thomas Russo - Robert W. Baird & Co. Incorporated

M. Ian Somaiya - Piper Jaffray Companies

Yaron Werber - Citigroup Inc

Michael Yee - RBC Capital Markets, LLC

Mark Schoenebaum - ISI Group Inc.

Philip Nadeau - Cowen and Company, LLC

Rachel McMinn - BofA Merrill Lynch

Matthew Roden - UBS Investment Bank

Geoffrey Meacham - JP Morgan Chase & Co

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Gilead Sciences Second Quarter 2011 Earnings Conference Call. My name is Stacy, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference call is being recorded today, July 26, 2011. I would now like to turn the call over to Susan Hubbard, Vice President of Investor Relations. Please, go ahead.

Susan Hubbard

Thank you, Stacy, and good afternoon, everyone. Welcome to Gilead's Second Quarter 2011 Earnings Conference Call. We issued a press release this afternoon providing earnings results for the quarter. This press release is available on our website, as are the slides that provide much more detail around the topics covered on today's call. Your speakers for today will be John Martin, Chairman and Chief Executive Officer; Robin Washington, Senior Vice President and Chief Financial Officer; and John Milligan, President and Chief Operating Officer. John Martin will review the second quarter milestones, Robin will discuss our financial results and commercial performance, and then John Milligan will provide an update on our research and development progress and discuss our future outlook and opportunities. Norbert Bischofberger, Executive Vice President of R&D and Chief Scientific Officer; and Kevin Young, Executive Vice President of Commercial Operations are here as well to answer your questions later in the call.

I'd first like to remind you that we will be making statements relating 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 latest SEC disclosure documents and recent press releases for a detailed description of risk factors and other matters related to our business. In addition, please note that we undertake no obligation to update or revise these forward-looking statements. We will be making certain references to financial measures that are on a non-GAAP basis. We reconcile GAAP and non-GAAP numbers in the press release we just issued as well as on our corporate website. I will now turn the call over to John Martin to provide the highlights on the quarter.

John Martin

Thank you, Susan. I'm very pleased with our progress during the second quarter. In addition to solid financial results, we advanced a number of programs across our therapeutic areas, achieved several anticipated milestones and presented steady results that set the stage for key events during the second half of this year and in 2012.

On the HIV front. Two important milestones occurred since our last earnings call that put us another step closer to the introduction of our next single tablet regiments. First, in May, our partner, Tibotec Pharmaceuticals, announced the FDA's approval of Rilpivirine, their non-nucleoside reverse transcriptase inhibitor. Rilpivirine's indication's for use in combination with other antiretroviral agents for the treatment of HIV in treatment-naive adults. As you are most likely aware, we partnered with Tibotec in July of 2009 to develop a single tablet regimen combining Truvada with Rilpivirine. This potential product is currently under review by U.S. and EU regulatory authorities. We anticipate action by the authorities in both geographies in the second half of this year.

The second major milestone was the late breaker presentation of the 48-week data from our pivotal Phase III Study #145 at the International AIDS Society meeting in Rome. The data demonstrated that elvitegravir, our oral HIV integrase inhibitor was not inferior to the integrase inhibitor of raltegravir given via IV in treatment-experienced patients. At 48 weeks of treatment, 59% of patients receiving elvitegravir achieved and maintained HIV RNA levels, less than 50 copies per milliliter compared to 58% of patients receiving raltegravir. Discontinuation rates due to adverse events and safety and resistant profiles were comparable in both arms of the study.

This is an important result and is the first from the 4 Phase III studies supporting our Quad elvitegravir and cobicistat programs.

Continuing our vision of bringing additional fixed dose and single-tablet regimens forward to meet the individual needs of HIV patients, we announced in June that we entered into a license agreement with Tibotec for the development and commercialization of a new fixed-dose antiretroviral combination product containing cobicistat, our boosting agent, and their protease inhibitor, darunavir.

In connection with this agreement, we announced our current negotiations for the development and commercialization of a future single-tablet regimen combining darunavir with Emtriva, cobicistat and our investigation of next generation NRTI GS 7340. Because it is a substantially lower dose than Viread at 300 milligrams, GS 7340 allows for fixed-dose formulations not possible with Viread. And in this case, it would allow for the co-formulation of the first single-tablet regimen containing a protease inhibitor.

As we stated at the time of the announcement, the agreement to develop the fixed-dose combination of cobicistat and darunavir is contingent upon signing -- of the signing of the agreement to develop the GS 7340 containing single-tablet regimen. We will continue to keep you posted on our progress.

During the quarter, there were also a number of external releases that contributed to the growing body of evidence supporting the use of Viread and Truvada for the prevention of HIV infection. The first was the release of results in May from the HPTN 052 Study, which define treatment as a method of preventing new HIV infections. HPTN 052 is an NIH-sponsored study designed to determine if treatment can prevent HIV transmission between HIV discordant couples. This study was performed in Botswana, Brazil, India, Kenya, Malawi, South Africa, Thailand and Zimbabwe. More than 1,750 HIV-positive individuals were signed to either begin taking a combination of antiretroviral drugs immediately or delay the initiation of therapy until their CD4 counts fell below 250 or they were diagnosed with an HIV-related illness.

The results demonstrated that earlier initiation of antiretroviral therapy led to a 96% reduction in HIV transmission to the HIV-uninfected partner. Based on this finding, the study's Data Safety Monitoring Board recommended that the study be stopped early, 4 years ahead of schedule. These data were also the subject of a late-breaker presentation at IAS, which garnered significant interest from the medical community. The results add powerful evidence that treatment benefits the individual and also has a public health benefit in reducing further infections.

Another trial known as Partners PrEP was sponsored by the University of Washington and involved 4,758 heterosexual couples, in which one partner was infected with HIV and the other was not. In this Phase III study conducted at 9 sites in Kenya and Uganda, daily use of either oral Viread or oral Truvada by the HIV-negative participants reduced their risk of acquiring HIV by 62% and 73%, respectively.

Due to the strong HIV prevention affects seen, the DSMB recommended that results be made public and the placebo arm of the study discontinued. The difference between Viread and Truvada was not statistically significant, but this blind data comparison continues.

The other trial known as TDF2 was sponsored by U.S. Centers for Disease Control and Prevention and involved 1,200 HIV-negative heterosexual men and women. Data collected on the smaller cohort throughout the end of the trial indicated that daily use of oral Truvada significantly reduced HIV acquisition by 63%. In both studies, the safety and tolerability was similar to patients taking Viread, Truvada or placebo.

As previously indicated, we intend to file for inclusion of the prevention data in our Truvada label and continue our discussions with U.S. FDA to define the content and the timing of the submission.

We'll turn briefly to our efforts in hepatitis C. We initiated the first all-oral antiviral study in HCV-infected patients during the quarter. This Phase IIa study is comparing 2 doses of GS 5885 in combination with GS 9451, GS 9190 and ribavirin for 12 and 24 weeks in genotype 1-infected patients. Before the end of the year, we will have started multiple Phase II studies in hepatitis C, evaluating different combinations of compounds in over 2,000 patients. We are evaluating multiple regimens that reduce or eliminate the use of peg-related interferon in both treatment-naive and treatment-experienced patients.

I will now turn the call over to Robin to discuss our financial results for the quarter.

Robin Washington

Thanks, John. During the second quarter, we delivered record product revenues and EPS while continuing our share repurchase program and investing in our potential future growth drivers.

We posted total revenues of $2.1 billion for the quarter, with net product revenues surpassing the $2 billion mark for the first time, up 13% over the same quarter of 2010. We ended the quarter with non-GAAP EPS of $1 per share, an increase of 18% compared to the same quarter of 2010, and generated cash flow from operations of $943 million.

Under our $5 billion share repurchase program authorized in May of last year, we continue to return value to shareholders by retiring more than 723 million in common stock during the second quarter and 4.2 billion since the current program began in May 2010.

Our revenue growth was fueled by strong performances in our antiviral and cardiovascular franchises, with revenues of $1.9 billion for the second quarter and $3.7 billion for the year-to-date. The U.S. contributed $943 million to our antiviral product sales, increasing 6% year-over-year and 8% sequentially, driven by healthy underlying patient demand.

Wolters Kluwer Health total prescription growth for both Atripla and Truvada were 3% and 4%, respectively, in the second quarter, with total NRTI prescription share exceeding 70% at the end of the quarter. Our major wholesaler inventory levels remained constant with levels at the end of the first quarter.

As we shared with you last quarter, in early April, HRSA, an administrative arm of the Department of Health and Human Services, announced the federal fiscal year 2011 budget for the AIDS Drug Assistance Program of $885 million or 6% or $50 million increase over the previous year's funding of $835 million. To date, only a portion of the full year budget, $418 million, was provided to the state, which, as expected, resulted in measured purchasing by individual states during the quarter.

We expect a second allocation of $417 million to be dispersed to the state shortly. The final $50 million has now been earmarked as emergency funding and will be allocated to the states that have applied for and qualified to receive a portion of these funds based on need. The deadline for the states to apply for a portion of the $50 million is August 5.

Europe ended the quarter with more than $697 million in antiviral product sale, an increase of 16% year-over-year. Growth was 7% sequentially, driven primarily by underlying patient demand, and to a lesser degree, product buy-ins typical of the second quarter in advance for the summer holidays.

In the second quarter, our cardiovascular franchise continued to expand. Letairis, which had the Black Box Warning for liver toxicity removed by the FDA earlier this year, demonstrated strong year-over-year growth of 22% in the second quarter and 18%, sequentially. Additionally, Ranexa grew 42% in the second quarter year-over-year and 26%, sequentially.

Excluding the benefit of a onetime return to reserve adjustment of approximately $8 million for Ranexa, growth was 29% year-over-year and 14%, sequentially. And finally, we are reiterating the full year 2011 guidance provided to you first in January and reiterated in April. This guidance can be found on Slide 33 of the earnings call deck, which is available on our corporate website.

While all guidance parameters remain unchanged, we believe, based on our recent acquisitions and collaborations, in addition to further clarity on the calculation of the Healthcare Reform Excise Tax, that our R&D and SG&A results are trending toward the high end of the range.

In summary, our second quarter results are reflective of continued commercial execution and key investments in potential future growth drivers. Additionally, our strong balance sheet and operating cash flow provides us with the ability to continue our share repurchase program, while maintaining the flexibility for opportunistic investments. Now, I'll turn the call over to John Milligan to discuss upcoming pipeline milestones.

John Milligan

Thank you, Robin. As we head into the second half of this year and on into 2012, we look forward to several important clinical milestones and potential product launches, all of which will contribute to the long-term vision for our antiviral portfolio.

First, as John mentioned earlier, we are approaching the U.S. PDUFA date for the Truvada-Rilpivirine single-tablet regimen, which is August 10. Pending approval, our commercial organization will be ready to launch the product immediately. All of our HIV field-based staff will support the launch and promote the product as a first-priority detail, and we'll be joined in this effort by the Tibotec sales team. This will be only the second single-tablet regimen available, extending the options currently available to treatment-naive patients and particularly, to women of child-bearing potentials.

As previously stated, we expect the decision by EU regulatory authorities on the Truvada-Rilpivirine single-tablet regimen prior to end of this year. And if approved, we will be prepared to begin launching the product with the first introductions in the U.K. and Germany.

For the Quad, the 2 pivotal studies will reach their 48-week endpoint this quarter. The first study compares Quad to Atripla, and the second compares Quad to the combination of atazanavir, ritonavir and Truvada. Both are non-inferiority studies with approximately 700 treatment-naive patients randomized one to one. The primary endpoint is the proportion of patients achieving HIV RNA levels of less than 50 copies per milliliter at week 48. We look forward to sharing these data sets with you as they become available and pending positive outcomes to submitting regulatory filings for the Quad in the first quarter of 2012.

For cobicistat and elvitegravir, data from the final study Cobicistat Versus Retonavir in a Regimen of Atazanavir and Truvada will be available the fourth quarter of this year. As a result, the elvitegravir and cobicistat NDA filings will follow the Quad filings in the second quarter of 2012.

This summer marks the 5-year anniversary of the launch of Atripla in the U.S. In that short time, Atripla has become the most widely prescribed regimen and the #2 brand, second only to Truvada. In the second quarter, Atripla had total sales of over $800 million, helping lead Gilead to record product sales of over $2 billion. It is clear that doctors and patients recognize the benefits of single-tablet regimens, and as you can tell from our R&D activities, Gilead is committed to providing even more options for patients for the future.

As we've outlined in many occasions, we remain committed to effectively leveraging a strong cash flow, $943 million this quarter alone to enable a disciplined balance of continued investment in ongoing pipeline, selective licensing, opportunistic M&A and returning value to shareholders via share repurchases. I am pleased by the numerous opportunities we've been able to execute upon in the last year, broadening Gilead's R&D capabilities of potentially providing future products to patients in categories outside of HIV.

I am confident that for the future, Gilead has the people and the skills to move forward aggressively and rapidly in all our commercial, R&D and business development efforts. We look forward to the many exciting milestones we have ahead of us and to sharing these results with you. We'll now open the call to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Geoff Meacham with JP Morgan.

Geoffrey Meacham - JP Morgan Chase & Co

A question for you on the Quad filing for the first quarter of '12. Beyond the Phase IIIs, what are the other gating factors for the filing? Has the PK and the tox reports been done? And do you guys have to wait for the cobicistat final data prior to submitting the Quad NDA? Just help us out with that, that would be helpful.

Norbert Bischofberger

Geoff, its Norbert. Now to check, some of the data that's included in the NDAs is essentially the 2 Phase III studies: Quad versus the Atripla; Quad versus atazanavir, retonavir, Truvada, plus all the supporting PK and preclinical information tox and virology, et cetera. And that will all be ready. The gating factor is really only getting the Phase III unblinded, analyzed and written up.

John Martin

And there are no new analysis that you have to do by way of the metabolism, the issue that you had that was a short-term delay to the Rilpivirine filing?

Norbert Bischofberger

I know that's what you're after. No. So the issue is exactly the same. And by the way, all those, the emtricitabine-degradation product, essentially is contained in all products where emtricitabine is co-formulated with Viread. So it affects Truvada, Atripla, Rilpivirine, fixed-dose combination in Quad. And we have to submit those data. It's actually the same data package that's been submitted to multiple NDAs. And we have initiated that in various territories 4 months ago.

Operator

Your next question comes from the line of Mark Schoenebaum with ISI Group.

Mark Schoenebaum - ISI Group Inc.

Is Kevin around today? Or, I guess, maybe John can answer this. But I was just looking at the x U.S. patient data that you've provided in your slides for the last several quarters. It looks like the patients on drug in Europe, at least according to the data that you guys have provided, has been roughly flat for the last 3 quarters, patients on Gilead drug. Yet you've clearly reported nice increases sequentially over the last 3 quarters in European sales. And by my math, that all can't be explained by FX. So A, can you just perhaps explain the discrepancy between the patient numbers and the reported? And maybe -- then maybe the simple side of the question, if you can give us just volume growth in Europe sequentially, that would be great.

Kevin Young

Mark, its Kevin. Unfortunately, they didn't give me afternoon off so I am here. Good to get your question. First of all, just to step back, I'd like to say that how pleased I was with the overall quarter. I think both my U.S. team and the European team did a heck of a job, not just HIV but Letairis coming now hard on stream. And just across the products, across the geography, this was a great quarter. So specifically on Europe, please bear in mind that the data we supply is the big 5 European countries. And of course, Europe, when we look at actual revenues, is a collection of more countries than just the big 5. So when we supply Synovate, it's based on the big 5 countries. I can certainly reassure you that we have had both the growth in Atripla and Truvada. It's always mixed because number one, we don't have a first line label for Atripla, so we're never going to get the Atripla type of shares in Europe. And of course, there's a mixture of third agents across Europe, which continue to keep the popularity of Truvada as a backbone. So if you talk specifically about Q2, we had a 7% increase in our revenues. About 1% of that was FX, you see that in our slides. And at probably around about 2%, 2% to 3%, was the pre-summer buy-in that was referred to by Robin. With European sales, Q2 and Q4 are always your strongest quarters. And that's because people are buying in ahead of holiday periods and particularly, countries like France, Italy, Spain and Portugal. The southern European markets still tend to take those big 3-week holidays during August and into September. So typically in June, you get a very strong month, which ups your second quarter. So if you like in real demand terms, we probably had about a 3% to 4% increase in our European numbers. So we continue to see good progress. There was not a price effect, so that was reassuring. We don't have a crystal ball for the rest of the year in terms of European pricing, but there was not a discernible big change in any of our prices, Q1 on Q2 in Europe.

Mark Schoenebaum - ISI Group Inc.

Was there volume growth in the big 5? And then I'll stop.

Kevin Young

Yes, there was a small volume growth, yes.

Operator

Your next question comes from the line of Matt Roden with UBS.

Matthew Roden - UBS Investment Bank

I just wanted to follow up on the last one. Can you just confirm that you will be seeking and expect to gain a label for treatment-naive patients in Europe for both the Rilpivirine fixed-dose combination as well as the Quad? And then the second question is, Kevin, I wonder if you could talk a little bit more about what you're seeing in the U.S. market this quarter? I think, Robin, you talked a little bit about some of the dynamics in terms of the disbursement of funds, but can you help us with any of the intra-quarter trends that -- I don't know. Was there anything different as you exited the quarter that can maybe be a leading indicator for what we should expect in the quarter?

Norbert Bischofberger

Matt, it's Norbert, and I'll answer your first question. The answer is yes, we will seek a naïve indication for both Rilpivirine fixed-dose combination and the Quad. And the reason is very simple, both of these products are supported by 2 Phase III studies each in treatment of naïve patients. So it follows the clinical Phase III studies, and Kevin will answer the other question.

Kevin Young

Yes, let me take you through the U.S. results for HIV. The first thing again, we mentioned, as Robin had it in her commentary. Q2 was not an inventory story. Our major wholesalers where we have IMA agreements held their inventory up the low end of the range where we ended Q1. That was not unexpected. I think the sense out there is that the large wholesalers are very carefully now managing their inventory from a financial point of view. And I think you saw our expectation is that it's going to stay at that bottom end of our contractual range likely in the remainder of 2011. So it wasn't a quarter-on-quarter inventory effect. Second part of it was we had good underlying TRx growth. Atripla was 3% and Truvada was 4%. And then you put Q2 on the back of Q1. That's some of the best back-to-back quarters that we've had over the last 2 years in terms of prescription growth. So that bodes well for our underlying business. So the story again is, of course, non-retail. The growth in non-retail was not as high as the TRx growth, we pointed that out. But it was higher than Q1, not by a lot, but it was higher than Q1. So let me give you some granularity on the non-retail. The first thing to say is that Q2, the calendar Q2, which is the first quarter for the ADAP fiscal year is always the weakest. If I look back at the past 4 years of ADAP purchase, Q2 calendar is always the weakest, has been for every one of the previous 4 years. Q3, Q4 and Q1 have always been sort of varied over the years, but Q2 has always been the poorest of the quarters. And that's because ADAPs have always been in a situation where they're waiting for confirmation of their budgets. In terms of the major purchases, direct purchases for ADAP, Florida routinely ordered during Q2. Texas ordered from the middle of Q2, and we saw some very healthy orders from Puerto Rico. So that's the third largest, the fourth largest and the fifth largest of the ADAPs were weak purchasing. I think our sense was there weren't building inventory, but they certainly were back on stream. And it has to be pointed out that they have not had the remainder of the $835 million core budget allocated yet. I checked today with my people, they've still not gone out. Although we do expect them in the next few weeks. And then there's got to be this extra $50 million of emergency funds allocated, and ADAP are going to go through a process on that. So I think the long and short of it is that ADAP is nicely coming back on stream even with not having their final numbers. We saw the ADAPs that previously had the challenges in the first quarter, Florida and Texas back-repurchasing. So I think that bodes well for us going forward.

Operator

Your next question comes from the line of Yaron Werber with Citigroup.

Yaron Werber - Citigroup Inc

So just, Kevin, a follow-up on the last question. Just help us understand maybe a little bit -- kind of 2 things. Number one, when you look at the ADAP in general, Florida is by far, as you guys pointed out many times and it's evidenced in the data, Florida is definitely the outlier relative to everybody else in terms of the tightness of their budget and how big their waitlists are. And given that some of these ADAP budget are so sort of outdated when they originally are sent to the government and sort of projected, what's the likelihood that they can get some kind of a decent share out of that $50 million since Florida really didn't really sort of boost their own budget that much? And then secondly, help us just put into context, we're getting a lot of questions on the ADAP waitlist, the patient waitlist, what does that mean? Does that mean that Gilead or other companies have to provide free drugs to these patients until they go on an ADAP? And at what point would you think the budget is really going to increase for ADAP in general?

Kevin Young

Okay, let me try and do them in order for you, Yaron. Good questions. So perhaps that -- I'll take the second question first. So in terms of waitlist, yes, waitlists continue to go up. It's almost 9,000 patients. I do think that some ADAPs will use that as a bit of a kind of a safety valve, the one that obviously has got the biggest is Florida, and as you pointed out, have the biggest challenges around their budgeting. Yes, we -- as long as they hits the Gilead criteria, we do take them into our own patient assistance program, we think that's the right thing to do. And ultimately, we hope that they transition out at some point in time to go on normal prescribed ADAP drug. Just to point out, and I think this is very important, we still are incredibly helped by the overall ADAP program. If you look at the 9,000 patients on the waitlist versus the 499,000 Gilead patients, that's just over 1%. So in relative term, it still is a very, very small number of people on these waitlists. We'd like to see it come down, but in the big context, it's still a very, very, very small percentage. Coming to the allocation of the $50 million, as we understand it, they're going to do it very similar to the $25 million emergency fund that they gave out in fiscal year 2010. So they are now getting the ADAP programs to submit justification for funding. But we have heard that unlike last year, that they will cap the amount. Any one amount of dollars, there'll be a maximum amount that they would give to any one ADAP. So if you remember, there was the interesting situation in 2010 where 25% of that $25 million went to Florida. We are told and led to believe that any one ADAP will not be able to get that type of very, very significant portion, but they will put in caps that no one ADAP will be able to go over. We also are told that it is for the clearance of waitlists, so to address the waitlist situation. So that's deliberately what this $50 million is for.

Operator

Your next question comes from the line of Rachel McMinn with Bank of America Merrill Lynch.

Rachel McMinn - BofA Merrill Lynch

I just wanted to better understand the expense guidance. Robin, I think you mentioned you'd be towards the upper end, but it looks the first half trajectory actually leads to a higher overall [indiscernible] within your guidance. So is there anything onetime in the first half that we should be thinking about, kind of a net second half decline? And if I could sneak in a quick HCV question, is there anything at AASLD that we should be looking at?

Robin Washington

Sure, Rachel. I'll take the first, and I think Norbert will take the second. Relative to our guidance, the only one time I think you'll probably see, and it's not atypical as on the SG&A side, Rachel, were typically are promotion and some of our marketing expenses, particularly with our upcoming and pending launches are a bit higher. And you also have the seasonality in Europe that also drives SG&A up to the higher end in the first half. One of the things that we're looking at is just the ramp relative to the collaborations and acquisitions I mentioned on the R&D side. And as we continue to rationalize that pipeline and work through it, we anticipate expenses continue to go up. On the SG&A side, as mentioned, it's primarily driven by the fact that we now have a preliminary bill on the excise tax and believe we are now, expect our overall expense for excise tax to be at the high end. Also we're cognizant of southern European bad debt and want to be sure that we appropriately think about bad debt expense. We also have some legal expenses associated with the antidotes and DOJ that we're working through as well.

Norbert Bischofberger

And, Rachel, regarding AASLD, on the hepatitis C side, as you know or may not know, we have 8 Phase II studies that are just in the process of being conducted and to be started, so they won't be at a point for AASLD for any presentation. We've allowed a number of preclinical things to talk about, but something that I wanted to point out is on the hepatitis B front, we will have some very interesting 5-year data on Viread, where we have seen dramatic reversals of hepatic fibrosis and cirrhosis after 5 years of treatment. This is supported by parent biopsies from patients in our 2 pivotal studies.

Operator

Your next question comes from the line of Ian Samoiya with Piper Jaffray.

M. Ian Somaiya - Piper Jaffray Companies

I have a question on the Tibotec deal, not the one that you signed, but the one that you are negotiating right now, the single-tablet regimen. What will be the regulatory path for that combination? And as you negotiate a deal with Tibotec, is the starting point the deal that you signed for Rilpivirine or is this a completely new process?

Norbert Bischofberger

Ian, this is Norbert. I'm going to answer the regulatory question. So this fixed -- the single-tablet regimen will contain 4 components, so it's ritonavir, cobicistat, elvitegravir and 7340. 7340 is the only compound that is not approved currently. So we obviously have to support this filing with safety and efficacy data of showing the safe and efficacy of 7340. And one way how that could be done, although we haven't finally decided, you could simply compare that single-tablet regimen that contains 7340 to the best standard of care at that time, which may be the Quad or it may be Atripla. So that's one of the pathways. It's fairly straightforward. And John will answer the other questions.

John Martin

Yes, so with regard the collaboration, obviously, we're still negotiating it. And so it's in progress. I think you mean is the Rilpivirine deal the basis for that probably from an economic standpoint. And I would point out that unlike -- the deals are quite different because with Rilpivirine, that was an unapproved study in which we invested money on the Phase III studies, as you recall. Whereas, this would be a different kind of program, where ritonavir's already approved, not experimental as it was with Rilpivirine. And we will have the experimental agent in there. So we are negotiating from a different basis of understanding about who brings what to the table, and that will help determine the final economics. And once we're able to conclude that, we'll be happy to share it with you.

Operator

Your next question comes from the line of Brian Abrahams with Wells Fargo Securities.

Brian Abrahams - Wells Fargo Securities, LLC

A question for Kevin on the Truvada-Edurant single-tablet regimen. In the past few months, we've seen both the 96-week Phase III data for the regimen as well as your partner's announcement of Edurant's pricing at a premium to Sustiva. I was just wondering how these 2 developments influence your commercial approach. And then what's the plan for incorporating the 96-week data into the label? Is this being provided now to the FDA and EMA? And could it potentially push back the respective action dates?

John Martin

Brian, I'll let Norbert take the very last part of your question. But in terms of our preparations for launch, no big change in terms of sort of what we've seen after the 96-week on, indeed, the pricing. To date, the uptake of Edurant to the single tablet has been modest, as you've probably seen. That doesn't surprise us. I don't think that surprises Tibotec. It was always going to be a product in combination and exactly why they wanted a single-tablet regimen together with Gilead. We've -- doing a lot of preparation. In fact, I'm going down to see my sales organization, who are finishing their training this very week. I think the enthusiasm is very high. We'll share with you once we get into a launch a bit more of what we've done around patient targeting. But clearly, I think in the larger, more general HIV comments, because of the benefits of CNS, I think we have an opportunity with this single tablet. In terms of reimbursements, Tibotec haven't made good progress. The information that we have is that the major ADAP programs, places like Florida and California, are all listing Edurant. State Medicaid programs are, and we're now in the 90-day window of working through the formeries [ph] for Medicare. And we don't see any grates or hurdles or barriers with managed care. We will still have to do our own reimbursement work because it's a separate NDC code for the single tablets. But we think that will go relatively quickly, and the pricing and the reimbursement won't be a barrier to uptick.

Norbert Bischofberger

And, Brian, regarding your question about pathway for the 96-week data, this would not delay approval of the single-tablet regimen or of Rilpivirine in the EU. There is really no regulatory path to submitting further efficacy data to an ongoing NDA. The way this would be done, you wait for approval for the NDA and MAA, and submit it then as an sNDA in the EOS [ph] centers and type 2 variation in the EU.

Operator

Your next question comes from the line of Ravi Mehrotra from Crédit Suisse.

Ravi Mehrotra - Crédit Suisse AG

On Letairis, could you give us any more color on where you're putting patients from presumably, the label change having a kick in? And is it really from both center and [indiscernible] failure patients or, I mean, impacts to new patients? And perhaps I could sneak a very quick second one in for Robin. You, obviously, towards the end of your $5 billion share buyback program, can we presume that you'll move straight onto the -- the further $5 billion program that you announced in Q4? And has your view on capital allocation changed recently?

Kevin Young

Ravi, its Kevin. We're delighted with the takeoff or the uptick in Letairis since the label change. Our revenues were up 18%. It's important to stress that, that's not represented of the uptick in enrollments. Unfortunately, I can't share that with you because that's something that is proprietary, but I can certainly reinforce that our enrollments increases are far in excess of the 18%. So we've been delighted with the way Letairis has gone. As you can see from Slide 23 in our Web deck, we've done a lot of educational work because not only is this a practical benefit for patients and for PH centers, it's clearly the scientific difference between the label for Letairis and the competitor. In terms of patient make-up, it is listed on Slide 23. About 40% of the patients coming on to Letairis in Q2 are monotherapy, completely new, but on monotherapy Letairis. 29% are monotherapy but have switched, they have come from a switch from Tracleer, and 31% are combination. So that is typically Letairis with a PDE5 or a phosphonoid [ph]. So we have broken that out for you as a new data point in this quarter.

Robin Washington

Ravi, to your other question on the share repurchase program, I'll reiterate what we've committed to for 2011, which is completion of the current $5 billion program. And I think we've got about $700 million, $750 million outstanding on that program. Output, we've talked about it. Overall, our view on capital allocation has not changed. We do feel we've done a fairly aggressive job relative to our evaluation of returning value via our program to date, based on how aggressive we've been at completing the first program.

Operator

Your next question comes from the line of Tom Russo with Robert W. Baird.

Thomas Russo - Robert W. Baird & Co. Incorporated

Apologies for one more on ADAP, but just a little different way of looking at it. I know its complex, but if you're able to say, what do you see as the year-over-year growth this year in the national ADAP budget across all funding sources, not just federal, and also across the states? And then given your dominant shares, is that growth in the overall ADAP budget a good proxy for your growth potential on that segment?

Kevin Young

It's very difficult for us, Tom, to actually know the total, total of percentage growths. The obvious one that we do know is the 6% growth in the federal budget, we put that in a slide and the way it's passed out to our best knowledge. And so you can sort it back in the deck this time. The other components, of course, there are states, states around different fiscal timelines. Federal is April. Some come in July, some come in the August-September timeframe. From what we have seen so far and again, the best of our knowledge, for some of this is not that transparent, the states' year-over-year HIV ADAP budgets seem to be flat, 2011 versus 2010. Now, of course, you'll never know quite what happens in potential top-ups or anything else during the year. But from what we understand, 2 big ones, Florida and California were actually flat. Now that's not a bad situation when you think of all the haircuts that have been taking place in state budgets in 2010 and 2011. So relatively, that's not a bad place to be. So we'll probably never quite know the full picture here. We're always running arrears when we get kind of a year complete and have that sort of totality of percentage year-on-year.

Thomas Russo - Robert W. Baird & Co. Incorporated

And if I could sneak one in? What is the degree of risk, if any, to the proposed Ryan White allocations given what's going on in D.C. right now?

John Martin

Well, Ryan White will be running through 2013, Tom. So he still has 2 more years to go. So we're hopeful that we're going to continue to have -- there's going to be funding there because actually there's legislation in place for Ryan White. Thereafter, we start to see, on the horizon, the new Medicaid program for 2014. So we did, I think, well this year when some people thought that it would be flat from middle, perhaps even some risk there. I think to come out with the plus 6% was a good place. And HIV is still very much at the forefront of people's minds. The World AIDS meeting will be in Washington D.C. in 2012. So we know Washington, D.C. has, in some ways, been the epicenter of late for HIV. So again, I think that's going to put HIV in the U.S. again, front and center, in people's minds.

Operator

Your next question comes from the line of Josh Schimmer with Leerink Swann.

Joshua Schimmer - Leerink Swann LLC

I guess with the upcoming Quad versus Atripla data, there's been a lot of focus on whether or not it will hit superiority. I guess I'm wondering commercially, do you think it matters if you hit superiority versus just non-inferiority? And if so, why? And then what was the share count at the end of the quarter?

Kevin Young

I'll give you just a quick answer, Josh, and perhaps John or somebody else wants to add to it. But I would be absolutely delighted with non-inferiority. I think that's what our physicians expect, and I think we can do tremendously well with Quad if we hit non-inferiority on both studies. So that's the profile that we're going to be planning towards. The data will tell, but non-inferiority would be very welcomed by the [indiscernible] organization.

Robin Washington

Josh, its Robin. You can find share count on Slide 32 in the deck. At the end of the quarter, it was just 776 million shares.

Operator

Your next question comes from the line of Sapna Srivastava with Goldman Sachs.

Sapna Srivastava - Goldman Sachs Group Inc.

The one question I have is for the court filing. Considering the filing for 2 drugs, are there any extra requirements that can emerge or that you think can come forward from the FDA? And the second thing is just falling on the last question on non-inferiority, could you just help us walk through -- how much actually you think you'll have over Atripla if you just hit non-inferiority?

Norbert Bischofberger

Okay, Sapna, you asked are there any issues with regards to the fact that the Quad contains 2 new chemical entities. And the answer to that is no. We actually talked to FDA about all the requirements for the filing. We will, of course, file both products with regards to the preclinical talk studies, the PK studies, the micro support, and we also have it supported by the 2 Phase III studies. In addition, we will also submit the elvitegravir 48-week data to the NDA. So there is support independently for elvitegravir as well. With regards to the issue of statistics in our Quad versus Atripla study, let me just give you the numbers. So the study, we assumed an 80% response rate, so that means 80% of the people that are all in the study are below 50 copies per mill at week 48. Then, the study with 700 patients has a 95% power to assist non-inferiority with a 2-sided peak confidence interval and the lower bound of the delta, being 12. Now you asked how much different would with the 2 arms had to be in roughly about 6%. So in other words, if we would see overall response rate 80%, the Atripla arm would be 77 and the Quad arm would be a little bit more than 83, then, we would have statistically a possibility of having the lower bound of the confidence interval marked across 0.

Kevin Young

Yes, just to add something, we are very close now. So it wouldn't be appropriate to throw out the sort of the market share capture or anything like that. But it is clear that physicians like integration in the point Europe of tolerability. Initially, I think, well, technically, it did very well. I think there's been some flattening recently because of some of the studies that were halted on its inability to be a once daily problems. So I think if we are successful with non-inferiority and have our single tablet, then I think that becomes a very attractive proposition for HIV physicians.

Operator

Your next question comes from the line of Geoff Porges with Sanford Bernstein.

Geoffrey Porges - Sanford C. Bernstein & Co., Inc.

Just regarding the TMC278-rilpivirine combination. Could you talk a little bit about first, the significance of the high rate of breakthrough there and whether that's kind of being a liability for you either in the final stages, prohibiting all the regulatory process but also the market? And then Kevin, could you talk a little bit about how this is going to fit in over the next 18 months and then beyond that? Is this really just an bridge to the Quad? Or do you think it's going to have an ongoing role as part of the portfolio of those combinations?

Kevin Young

Jeff, I'll take it and maybe Norbert wants to come in and just sort of talk about the data a little bit. I don't think the 96-week had a great bearing on the physicians that we spoke to coming out of IAS in Rome. We did our normal discussions. We had advisory boards since then. So I don't think that really has changed anything. I think we know the type of patients who are going to be applicable here, particularly people who don't want to see any side effects of -- or to see [ph] the people with high acuity in their jobs, people working with mechanical equipment. Certainly, the 20% of patients, the women of childbearing potential, this is going to be, if all goes well, a category B compared to category D, what we have for Atripla. So I think we kind of know the patients that this is going to be applicable. Certainly, I think if I was to say to my team who were getting ready this week that we were halfhearted about this. I think they would probably give me a very big scowl because we are working with the team extremely hard. So this is not a dry run. This is not a practice. This is not a halfhearted kind of kick around for the launch of the Quad. We want to be successful with Truvada rilpivirine. We think it's got a role to play. Of course, we're very excited about Quad. But I don't believe in going into a launch of our products with some form of kind of semi-launch. You launch your products, and hopefully, you get it right from the point of view of how the product profile will fit the market.

Norbert Bischofberger

Jeff, if I may add the -- I think with regards to significance, it could seem to look at this, the U.S. label, that actually gives you a lot of information how to think about it. It's broadly indicated for the treatment of HIV infection treatment naïve adults. But then, it says consideration should be given to higher volume, low failures and the talks about the resistance. And then in the clinical section, it clearly outlines that -- first of all, I want to remind you that overall, numerically in the combined -- a comprised study, rilpivirine was actually better numerical tool to the efavirenz arm. But it does, then, say in the label that more of our logical failures occurred in patients that had a baseline borrow load above 100,000 or about 500,000. So I would say, as Kevin pointed out, it's going to be a good drug for certain patients. But it's not for everybody, particularly with high viral loads. People will think about whether to use compound or not.

Geoffrey Porges - Sanford C. Bernstein & Co., Inc.

Yes. But how would it fit with your Quad, when you say 3 years from now then?

Kevin Young

Well, I would say right now, Jeff, is that yes, Quad will likely be top of the detail list in terms of our emphasis and what we'll do in terms of incentive compensation plan. But the Truvada 278 will be very much still part of the detail, and we have contractual obligations to our partner, Tibotec. So both products will very much be promoted.

Operator

Your next question comes from the line of Thomas Wei with Jefferies & Co.

Thomas Wei - Jefferies & Company, Inc.

I had a follow-up on TMC 278. So as you mentioned the prescription data had been very modest. So we're 7 weeks into data now and running at less than 200 prescriptions a week, and it looks a little bit like the old CCR5 launch. So just to play devil's advocate here, you highlight that there is a big clinical advantage on CNS side effects and the ability to use the drug in women of childbearing age. Is that by itself not sufficient to get usage of the drug in a naïve population especially when doctors, I think, generally also believe that the fixed dose combination is coming so soon? Or is there some other factor here like has J&J been in semi-launch mode with 278 as a single pell? Can you help me understand that a little bit better?

Kevin Young

So Thomas, I don't think it would be right of Gilead to sort of be commenting on the sort of qualitative performance of Tibotec. Now please bear in mind that as of our Q1 data from Synovate, 55% of new patients began on Atripla. 55% began on a single-tablet regimen. So as John Milligan said, single tablets have been transformational. They're not nice to have. They are part and parcel of delivering HIV care. And I think, tetherins, rilpivirine, with its profile, with its kind of specific profile, as Norbert pointed out, was just probably going to be modest as a divided-dose drug. And honestly, we have not been shocked. We have not been sort of sideswiped by what has happened. It's entirely explainable, and we have always known that it would be all about the single tablet. And I think Tibotec always knew it would be about the single tablet. Hence, their reasons for coming to produce the fixed-dose combination in the first place. So I think it's kind of what we expected. The pricing reimbursement has gone well, but they're still working through that process with Medicare programs, with Medicare Part D. There is a 90-day window that they've got to react in, but its 90 days. So there's always a little bit of a drag on uptake of products. But I think it's really the profile and the need for having rilpivirine in a single tablet. That's what this is all about.

Operator

Your next question comes from the line of Joel Sendek with Lazard Capital Markets.

Joel Sendek - Lazard Capital Markets LLC

As you prepared to launch these new drugs in the next coming months and years, I'm just wondering what your long-term philosophy is on pricing. Because, as I see it, you get prices higher to reflect annuations in the combinations or you could price on the lower end to maintain your market-leading share and create a better value proposition versus generics and other companies with new drugs coming out. I wondering if you can -- I know you can't tell us what the pricing will be but just general philosophy on that.

John Milligan

Yes, Joel, John Milligan. Yes, you're right. It's very difficult to talk about these things. I do want to remind you of a couple of things. So contractually, for example, with the rilpivirine-Truvada combination, Johnson & Johnson Tibotec is responsible in all jurisdictions for the pricing of rilpivirine, and we simply follow that with the addition of the pricing from us. So we have no flexibility in that pricing. Obviously, with regard to the Quad, we have choices to make on how we're going to price that for the future. And I think that will depend somewhat on how the data sets turn out and somewhat how we feel the environment will be in the future. But I think it's too early to speculate and I certainly, until we have further work done on our own and to figure out exactly where we're going to come out on pricing, I think it's just not right to speculate on the call.

Operator

Your next question comes from the line of Michael Yee with RBC Capital Markets.

Michael Yee - RBC Capital Markets, LLC

A macro-themed question. What in the U.S. does your work in Washington suggest could happen with dual eligibles? Remind me your exposure impact there for dual eligibles. And then in Europe, macro question. With regards to pricing, specifically in Germany and other nations, we've heard about a lot of price concessions. So can you just comment on European pricing trends either last quarter or first half of this year?

Kevin Young

So Mike, I'll take a couple and John Milligan does an awful lot of work in Washington, so I'll let John talk about kind of the landscape as he sees it. FYI, in terms of dual eligible, the slide that be previously in our deck, if you remember, 9% by value of our payer mix is the Medicare Part D dual eligible. So that's as per the previous slides we have for Q1. As you know, there were significant price decreases that were administered by Goodmans [ph] in Spain and Germany. Spain was 7.5% and Germany was 10%. That's as a rebate that we're giving out in 2010. To be honest, Michael, I don't think you can make any bets on what Goodmans [ph] might do coming forward. We all know that there are still countries in difficulties. We continue to watch the situation very carefully. I think that tends to be, the Portugal's, Ireland's, Greece, Spain's, there's also been significant in the past sort of 18 month's price actions also in Turkey. So we just have to be like the rest of the pharmaceutical industry and see what we can do to influence and to try and keep our prices there. I have to say I think HIV can do well. Number one, we are a hospital product, and of course, we are a very specialist product. We have some discussions in Portugal over the last year, where I actually think they were very attracted to Atripla because it's much more economical than the boosted protease. So there are advantages that sometimes come out of these very difficult situations. John, on Washington?

John Milligan

So Michael, as you know, there are certain members of Congress who are still upset with what happened when Medicare Part D was put in. As you may recall, in years past, when those patients went from Medicaid to Medicare, Gilead and other companies got a change in the net price that was favorable to the industry, and there are still certain members of Congress who are quite sore about that, but it was really the legal issue. There is no way to discount into that segment legally for a company like Gilead. And so they are agitating for a return to the Medicaid-type rebate, which would be about 23% of those products. And as Kevin mentioned, it's about 9% of our volume overall but clearly, some of the higher price patients who would come down. So that's as far as I can quantitate it for you here today.

Operator

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG

So I was just wondering maybe if you can comment a little bit about how you see the PI market evolving and how important is it for you to capture some of this market with new STRs and maybe the potential for the Quad and your new darunavir STR with this -- their ability to capture this bucket of patients.

Kevin Young

I'll chip in to start with. The regimens who are #2 and #3 after Atripla, a long way back, that has to be said is Truvada plus boosted reatauzin [ph], Truvada plus boosted Prezista. So you got Atripla about 37% of all treated patients and you drop down quite significantly, where you drop down to Truvada plus reatauzin [ph], 12% and Truvada plus Prezista, about 8%. So it's about 20% of all treated patients. And if you then add in Truvada plus Kaletra, that's another 5%. So you got 25% of patients currently on a protease inhibitor, most of which are in a boosted situation. So that opens up a very nice, I think, opportunity for us, which we've never been able to do because of just the bulk of a potential tablet of Truvada plus Prezista. So I think we could have a very nice small tablet, and we give the option where there are strong supporters in some quarters of physicians who like protease inhibitors there. The agent and the cost, I should also say that in European countries like France and in Italy, they've always been protease inhibitor markets.

Operator

Our final question comes from the line of Phil Nadeau with Cowen and Company.

Philip Nadeau - Cowen and Company, LLC

My question is actually on generic Epivir. Coming into 2011, there seem to be chatter that generic Epivir could be launched in the first half of the year. I don't believe that's happened. So I was wondering if you could give us an update on when that to come. And then second was if you've had any conversations with payers particularly ADAPs to see how would they use generic Epivir should it come to reduce their budgetary constraints.

Kevin Young

Phil, its Kevin. No, we have not seen any sight or sound of generic 3TC in United States. Nothing whatsoever. I think we were always considering that the impact would be very, very small indeed. Bear in mind there's only 11,000 patients on branded Epivir today. And only 39,000 on Condevir [ph]. So due to our success and the preference in guidelines, preference in clinical practice to Truvada-based regimens, either Truvada plus something or, of course, with our very, very great success with Atripla, as a result of that, other products have contracted. So really, the attractiveness of introducing a single generic compound just to exchange with the branded is what? Less than modest. So I don't think it's something that a generic company is going to chase. I think going forward, perhaps some time in 2012, we may well see a Condevir[ph] come to market. But we've always said that, that's probably, again, impact limited to the high control areas such as corrections in the United States.

Philip Nadeau - Cowen and Company, LLC

I guess on the generic Epivir, what I was wondering some of the physicians especially the ADAPs may try to force therapeutic substitution onto Epivir in order to save, basically, 1/3 of the price of an HIV regimen. Is that something that you've heard in any of your discussions with the ADAPs? And is that even possible or practical?

Kevin Young

Phil, no, not at all. Categorically, not at all. We don't hear about it from ADAPs, and we, certainly, don't hear it from managed care. Don't forget that ADAP is still in the business of access. They want to try to keep the clinical choice in the hands of the physician. And 3TC in the United States is not part of preferred regimens. So physicians want to use the preferred regimens. Obviously, they want to have their patients on the drug. And whilst wait lists in some areas go up, we have our patient assistance programs, and we have extremely good coverage elsewhere in managed care. So that is not a pressure point that ADAPs, to our knowledge, in any shape or form are bringing to bear.

Operator

Ms. Hubbard, at this point, we have run on time for additional questions.

Susan Hubbard

Great. Thank you, Stacy, and thank you all very much for joining us today. We appreciate your continued interest in Gilead and look forward to providing you with updates in our future progress. We'll be available for your follow-up calls so please don't hesitate to give us a ring. Thanks so much. Bye bye.

Operator

We thank you for your participation in today's conference. This does conclude your presentation. You may now disconnect and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Gilead Sciences' CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts