Gilead Sciences (GILD) John C. Martin on Q4 2015 Results - Earnings Call Transcript

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Gilead Sciences, Inc. (NASDAQ:GILD)

Q4 2015 Earnings Call

February 02, 2016 4:30 pm ET

Executives

Patrick O'Brien - Vice President, Investor Relations

John C. Martin - Chairman and Chief Executive Officer

John F. Milligan - President and Chief Operating Officer

Paul R. Carter - Executive Vice President, Commercial Operations

Robin L. Washington - Executive Vice President and Chief Financial Officer

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

Analysts

Carter Gould - Barclays Capital, Inc.

Volodymyr Nikolenko - Evercore ISI

Matt M. Roden - UBS Securities LLC

Michael J. Yee - RBC Capital Markets LLC

Matthew K. Harrison - Morgan Stanley & Co. LLC

Cory W. Kasimov - JPMorgan Securities LLC

Phil Nadeau - Cowen & Co. LLC

Ying Huang - Bank of America Merrill Lynch

Alethia Young - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Brian Abrahams - Jefferies LLC

Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker)

Terence C. Flynn - Goldman Sachs & Co.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences fourth quarter 2015 earnings conference call. My name is Candace, and I'll 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 - Vice President, Investor Relations

Thank you, Candace. And good afternoon, everyone. Just after market close today, a press release was issued with earnings results for the fourth quarter and full year 2015. The press release and detailed slides are available on the Investor Relations section of the Gilead Sciences website.

Joining today's call will be John Martin, Chairman and Chief Executive Officer; John Milligan, President and Chief Operating Officer; Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer; Paul Carter, Executive Vice President of Commercial Operations; and Robin Washington, Executive Vice President and Chief Financial Officer.

Before beginning formal remarks, let me remind you that we will be making forward-looking statements including plans and expectations with respect to products, product candidates, financial projections, and the use of capital, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the 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.

Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings release press release, as well as on the Gilead Sciences website. I will now turn the call over to John Martin.

John C. Martin - Chairman and Chief Executive Officer

Thank you, Patrick, and thank you, everyone, for joining us today. 2015 was an exceptional year for Gilead, with progress in a number of therapeutic areas, most notably in the development of TAF-based therapies for HIV and hepatitis B and new agents for the treatment of liver disease. Gilead is entering 2016 from a position of financial strength; a portfolio of 20 marketed products that address significant unmet medical needs, including Genvoya, the most recent product to be introduced; and growing pipeline with multiple programs for which milestones are expected during the coming year, including regulatory decisions on two products for HIV and one each for HCV and HBV.

As you all know, we announced on Friday that John Milligan will be appointed CEO, a role he will assume in a few weeks. I will be taking on the role of Executive Chairman and will continue to be actively engaged in the company. John Milligan has been with Gilead for more than 25 years and over that time has built expertise in every functional area of the company's operations. The board and I are confident that this is the right time for this transition and that John is the right person to lead Gilead in the next few years of evolution.

John, congratulations. I'll now turn the call over to you to make a few remarks.

John F. Milligan - President and Chief Operating Officer

Thanks, John. I'm honored and excited by the opportunity to lead this company and the great team we have. In my new role, I will continue to work hard to help Gilead's business grow beyond antivirals and into new therapeutic areas for the betterment of patients. I'm also greatly appreciative that John will remain closely involved as the Executive Chairman.

Turning to the business and results of the quarter. Genvoya, the company's first TAF-based single-tablet regimen for the treatment of HIV-1 infection, is now approved in the U.S. and Europe. Genvoya achieved preferred status in the U.S. Department of Health and Human Services treatment guidelines within the first two weeks after approval, which speaks to the profile of the product and the important need it addresses. Two other TAF-based regimens are pending regulatory approval in the U.S. and EU. F/TAF has been assigned a PDUFA date of April 7, and in the EU a CHMP opinion could be adopted in the first quarter of this year. R/F/TAF has been assigned a PDUFA date of March 1, and a CHMP opinion is expected in the second half of this year. This means that Gilead could launch two new TAF-containing products in the coming months, giving patients a wider range of options for the treatment of their HIV.

During the last quarter, four Phase 3 studies of GS-9883, Gilead's proprietary integrase inhibitor combined into a single-tablet regimen with F/TAF, were initiated. Two studies will evaluate the safety and efficacy of GS-9883/F/TAF in HIV-1-infected, treatment-naive adults. One will compare GS-9883/F/TAF to Triumeq, and the other will compare GS-9883/F/TAF to dolutegravir plus F/TAF. Two other studies will evaluate patients who switch from Triumeq or a boosted PI to GS-9883/F/TAF.

Phase 2 data on GS-9883/F/TAF will be presented later this year at a medical conference describing the safety and antiviral activity over 48 weeks of treatment. Analysis of the data through 24 weeks indicated that an STR of GS-9883/F/TAF may represent a valuable option for many patients. And based on current timelines, the U.S. NDA and EU MAA could be filed in the second half of next year.

Last month, Gilead submitted a new drug application in the U.S. and a marketing authorization application in the EU for TAF as a treatment for chronic hepatitis B. Regulatory submissions are also expected in Japan, Korea, Taiwan, and India this year and China in the first half of 2017. Phase 3 study results reflect high efficacy and improved renal and bone safety parameters, similar to those seen in clinical studies evaluating TAF-based regimens for HIV.

Beyond TAF for HBV, several ongoing research programs are focused on therapies with finite duration of dosing that achieve long-term viral suppression. The first is an immunomodulatory approach where multiple programs are evaluating different ways to activate the immune system to eliminate infected hepatocytes. The most advanced is our TLR7 agonist, GS-9620, which is currently in two Phase 2 studies. Other approaches include the combination of novel direct-acting antivirals and agents that modulate cccDNA transcription. Two of these new programs may enter into clinical trials in the first half of 2016.

In hepatitis C, Gilead's focus remains on advancing care of people with the disease, regardless of genotype or disease severity. Since the launch of Sovaldi in December 2013 and Harvoni in October 2014, more than 770,000 individuals around the world have been treated with sofosbuvir-based regimen. In November, FDA approved Harvoni for expanded use in patients with genotype 4, 5, and 6 chronic HCV infection and in patients co-infected with HIV. In addition, Harvoni plus ribavirin for 12 weeks was approved as an alternate therapy to 24 weeks of Harvoni for treatment-experienced genotype 1 patients with cirrhosis.

Sofosbuvir and velpatasvir is an investigational once-daily pan-genotypic combination studied for the treatment of genotype 1 through 6 chronic HCV infection, including patients with compensated and decompensated cirrhosis. FDA granted priority review and has set a PDUFA date of June 28, 2016. Additionally, sofosbuvir/velpatasvir has been granted accelerated assessment in the EU. If approved, sofosbuvir/velpatasvir will represent a significant step forward, particularly for genotype 3 patients. It would also become the first and only regimen offering high SVR rates with 12 weeks of treatment for patients with all HCV genotypes.

The advances in treatment of HCV with Sovaldi and Harvoni over the past two years have allowed Gilead to work with governments and public health experts on eradication strategies among specific populations and geographies. Programs such as those ongoing in the Republic of Georgia and Iceland could serve as examples for other governments around the world seeking to eradicate HCV.

Public health programs to prevent HIV transmission are also underway, including efforts to raise awareness about the use of Truvada for PrEP. Today, more than 40,000 patients in the U.S. are receiving Truvada for its preventative indication. Yesterday, the MAA was validated for Gilead's Type II variation of Truvada for PrEP, and it is now under evaluation by the EMA.

Gilead continues its R&D efforts in NASH, or nonalcoholic steatohepatitis. Phase 2 studies of simtuzumab, a LOXL2-targeting antibody, are ongoing in patients with NASH and also primary sclerosing cholangitis. The data monitoring committee for these studies recently met and recommended the continuation of the studies, which have a 96-week endpoint. Additionally, clinical studies of the FXR agonist GS-9674 have been initiated, with the first patients receiving treatment in Q4 of last year.

Moving to oncology, Gilead continues to study Zydelig in several hematological disorders. Phase 3 study results show adding Zydelig to bendamustine and rituximab provides statistically significant and clinically meaningful improvements in progression-free and overall survival compared to bendamustine and rituximab alone. Supplemental regulatory filings are planned in the U.S. and Europe early this year to include these important new data. Beyond Zydelig, Gilead also is exploring novel combinations of investigational therapies for a range of cancers, including four classes of kinase inhibitors, PI3K, SYK, JAK, and BTK, that each target different signaling pathways.

Progress has been made in inflammation as well. Gilead entered into a global partnership with Galapagos late last year for the development and commercialization of filgotinib, a JAK1 inhibitor for rheumatoid arthritis and other inflammatory diseases. Phase 2 trial data show that filgotinib has the potential to be an effective and well-tolerated oral therapy for patients with RA and Crohn's disease. Phase 3 studies of filgotinib in RA and Crohn's are planned to start later this year.

In summary, Gilead's substantial pipeline offers numerous opportunities for continued growth, both in the short and longer term, and the financial strength of the company allows us to be thoughtful and opportunistic in pursuing partnerships or acquisitions that will further expand the future portfolio of products. 2016 will be a busy year for Gilead, and I want to take this opportunity to thank all of our employees for their support in this transition, and for their continued hard work and dedication.

Paul Carter will now provide a commercial update.

Paul R. Carter - Executive Vice President, Commercial Operations

Thanks, John, and good afternoon everyone. Gilead achieved $8.4 billion in net product revenue in the fourth quarter, representing 16% year-over-year growth. U.S. product revenue reached $4.8 billion in the fourth quarter, which is down 14% from the third quarter and down 12% on a year-over-year basis, largely due to a decrease of HCV revenue. European product revenue reached $1.7 billion in the quarter, which was in line with the prior quarter and up 22% on a year-over-year basis, despite a negative 11% foreign exchange impact. For the rest of the world, product revenues were $1.9 billion for the fourth quarter and $3.8 billion for the full year, driven largely by HCV launches in Japan.

Beginning with hepatitis C, total HCV product revenue reached $4.9 billion in the fourth quarter. In the next few minutes, I'll describe the results for quarter four by region and also describe how we're thinking about the year ahead. In the United States, HCV product revenue totaled $2.4 billion, which is down 27% from the third quarter. This decline was impacted by substantially lower VA sales in the fourth quarter. In quarter three, Congress allocated an additional $500 million to the VA for HCV treatment, and this was fully utilized in quarter three. New patient starts in the VA were very limited during quarter four due to the uncertainty of future funding at that time. Congress has since allocated substantial funding of $1.5 billion for the fiscal year, which will allow treatment in the VA to resume this quarter.

In terms of patient numbers in 2015, nearly 250,000 U.S. HCV patients started treatment, with more than 90% of these patients receiving Gilead HCV therapies. As I commented last quarter, there were an unusually large number of patient starts in the U.S. in the first quarter of last year, indicative of the rapid initiation of treatment for many warehoused patients, followed by a flattening of patients in the remaining quarters of the year.

Looking to the future, even with nearly 400,000 patients treated since the launch of Sovaldi, there remain more than 3 million HCV-infected individuals in the U.S. who have yet to be treated, approximately half of whom are diagnosed according to recent CDC data. Long-term education and awareness efforts to increase rates of diagnosis and the flow of HCV-infected patients into treated care are important and will play out over many years, as we know from our experience in HIV.

Turning to Europe, hepatitis C revenue was $846 million in the fourth quarter. And we estimate that more than 110,000 patients were treated with sofosbuvir-based regimens in 2015. Following the normal summer seasonality in quarter three, there was an increase of patient starts throughout Europe in quarter four, including in the UK following the final appraisal determination for Harvoni from NICE. A number of countries in Europe have volume-based incentives for Sovaldi and Harvoni, which serve to encourage a higher number of patients being treated. In quarter four, the growth in revenues did not match the growth in patient starts because of the impact of certain volume-based agreements, combined with adverse foreign exchange movements.

In Japan, hepatitis C revenues for the fourth quarter were $1.4 billion. Since the launch of Sovaldi in May and the launch of Harvoni in September, sales of $1.9 billion have been generated in Japan, with Harvoni representing more than $1 billion of that number. In late December, pricing and reimbursement negotiations for Sovaldi and Harvoni in Australia were finalized.

There are a number of variables to consider when thinking about HCV patient numbers and revenues for 2016. Patient starts in the U.S. will likely be similar to 2015 levels, both observed in the second half and extrapolated for the full year, while the Europe numbers will continue to grow as early launch markets stabilize and new markets ramp up treatment. In Japan, patient numbers are difficult to predict because launches are still in the early stages, and to some extent, we are likely seeing the impact of warehoused patients. In the rest of the world, we're excited to reach new patients in several new markets, notably in Asia-Pacific and in Latin America.

As we think about revenue, we anticipate that variables to consider include potential shorter durations of treatment, the full-year effect of payer contracts in the U.S., and by price volume deals in some European markets, which may allow more patients to be treated at a lower per-patient cost. We also anticipate that payer mix in the U.S. may shift slightly towards public payers, while in Japan, new legislation will likely result in lower pricing for Sovaldi and Harvoni.

We're confident in the long-term sustainability of HCV markets worldwide. Despite the number of patients treated to date, there are still millions of HCV-infected individuals who have yet to be treated and many that have yet to be diagnosed. There are significant efforts under way by industry, governments, and patient organizations to increase rates of diagnosis and linkage to care.

We're also confident in our competitive position as we enter 2016. Sovaldi and Harvoni are breakthrough therapies that set the bar with cure rates of up to 99%. Data presented at AASLD in November show real-world cure rates with Harvoni that met or exceeded what was predicted by clinical trials, including the eight-week duration of therapy. We also look forward to launching our next HCV product, sofosbuvir/velpatasvir, in due course around the world, starting later this year.

Turning to HIV, HIV product revenue reached $3 billion in the fourth quarter. In the U.S., revenues were $2 billion, a 3% increase from the third quarter and up 5% on a year-over-year basis, driven by the continued demand for Stribild, Complera, Truvada, and the recent launch of Genvoya. Stribild and Complera have a strong underlying prescription demand with year-on-year growth of 40% and 12% respectively. Seven out of 10 HIV patients in the U.S. initiate therapy with a Gilead product, and nearly six in 10 receive a Gilead single-tablet regimen.

Genvoya sales have been very encouraging in the first few weeks of launch. Revenues for the quarter were $44 million, with early product uptake well ahead of the launch of Stribild at the same time point. Access and reimbursement have been consistent with historical norms in HIV, and the rapid addition of Genvoya to the DHHS treatment guidelines as a preferred first-line treatment reinforces the safety and efficacy profile observed in clinical trials and reflected in our product label.

In Europe, HIV revenues were $747 million for the quarter, up 4% from the third quarter, driven by the sales of Stribild and Eviplera, with a slight decline year over year caused by foreign exchange. Seven out of 10 patients in Europe also started on a Truvada-based backbone in 2015. Genvoya was launched in Europe in November. Similar to the U.S., we are seeing encouraging early product uptake in the six countries launched during the fourth quarter. A final comment on HIV is that the commercial organization is getting ready to execute the launches of R/F/TAF and F/TAF in the next months.

Turning to other therapy areas, total revenue for products outside of HIV and HCV, which includes Zydelig, AmBisome, Cayston, Letairis, and Ranexa, totaled $1.9 billion in 2015 and grew 16% year over year. Over the last quarter, progress has been made in the area of cardiovascular disease. Since the inclusion of the AMBITION data in the Letairis label, we've seen a great deal of interest and engagement from the medical community. Revenue for the full year for Letairis reached $700 million, and market share for the products among patients initiating therapy is nearly 50%.

In closing, Gilead had a remarkable 2015. The commercial organization's excited about the opportunities across all of Gilead's therapeutic areas, both in the near term and over the longer term, to help many more patients around the world.

And I'll now turn the call over to Robin.

Robin L. Washington - Executive Vice President and Chief Financial Officer

Thank you, Paul, and good afternoon, everyone. We are pleased to share full-year and fourth quarter 2015 financial results and provide 2016 guidance.

For the fourth quarter, total revenues were $8.5 billion, up 16% compared to the fourth quarter of 2014. Net income for the quarter was $4.7 billion or $3.18 per diluted share, compared to $3.5 billion or $2.18 per diluted share for the fourth quarter of 2014. Non-GAAP diluted EPS for the fourth quarter was $3.32 per share, up 37% compared to the fourth quarter 2014.

Turning to fiscal year 2015, full-year total revenues were $32.6 billion, up 31% year over year. Net income for the year was $18.1 billion or $11.91 per diluted share, compared to $12.1 billion or $7.35 per diluted share for 2014. Non-GAAP diluted EPS was $12.61 per share for the year, up 56% year over year. Product sales during the year were $32.2 billion, up 31% year over year. HCV product sales increased year over year to $19.1 billion, up 54%, and non-HCV product sales increased year over year to $13 billion, up 8%.

The increase in HCV product sales for the year was primarily driven by sales of Harvoni, which launched in October 2014. Further, the annualized HCV growth-to-net estimate that was shared with you during the Q4 earnings call a year ago is on target and reflected in our 2015 results. Non-HCV product sales growth for the year was primarily driven by Stribild and Complera/Eviplera, partially offset by Atripla.

Turning to expenses for the full year 2015, non-GAAP R&D expenses were $2.8 billion, up 10% compared to the prior year, reflecting the continued progression of our product pipeline. Non-GAAP SG&A expenses were $3.2 billion, up 17% compared to the prior year, driven by expenses to support our growth and geographic expansion. The non-GAAP effective tax rate for the full year was 16.2%, which was lower compared to guidance, due to the permanent extension of the federal R&D credit that was passed in December. If you recall, the permanent extension of the credit was not included in 2015 guidance. Cash flows from operations were $20.3 billion for the full year 2015 and $4.9 billion for the fourth quarter.

With respect to shareholder returns, $3.1 billion in cash was utilized to repurchase 29 million shares during the quarter, bringing total 2015 share repurchases to $10 billion and 95 million shares. Including the Q2 2015 warrant settlement of $3.9 billion, dividends, and share repurchases, Gilead has returned more than $15 billion in cash to shareholders in 2015. Earlier today, we announced an increase of the quarterly dividend from $0.43 per share to $0.47 per share, which will become effective in the second quarter of 2016, subject to a declaration by the board of directors.

Additionally, the board authorized a new $12 billion share repurchase program to be initiated after the completion of the current $15 billion program, which, as of December 31, 2015, had $8 billion remaining. Also announced was the utilization of $5 billion of the current program to enter into an accelerated share repurchase agreement, which is expected to be completed in the next three months. This is in addition to the ongoing open market share repurchases that have continued under the current share repurchase program since January of this year.

The increase in the dividend and increased level of share repurchases underscore the confidence of the board and management and the strength of the business and future cash flows. Since 2010, in addition to financing ongoing R&D programs and business development activities, more than 75% of free cash flows were returned to shareholders, and share count was reduced in excess of 20% while maintaining and improving investment-grade credit ratings, which Gilead values.

Looking forward, the plan is to continue to return a significant component of free cash flows to shareholders via share repurchases and increases to our dividend over time. As in the past, there could be future periods of time when share repurchases are reduced due to acquisitions and other pipeline investments that are prioritized to drive future long-term growth. This strategy provides agility and financial flexibility to support R&D investments, as well as any future acquisitions or partnership opportunities we may consider.

Finally, I would like to cover full-year 2016 non-GAAP financial guidance, summarized on slide 51 in the earnings presentation available on the Gilead website. Product sales are expected to be in the range of $30 billion to $31 billion. Guidance for product sales is subject to a number of uncertainties, including an uncertain global macroeconomic environment; adoption of additional pricing measures to reduce HCV spending; volatility in foreign currency exchange rates; inaccuracy in HCV patient start estimates; additional competitive launches in HCV; an increase in discounts, chargebacks, and rebates due to ongoing contracts and future negotiations with commercial and government payers; and a larger-than-anticipated shift in payer mix to more highly discounted payer segments such as PHS, FFS, Medicaid, and the VA.

Non-GAAP product gross margins are expected to be in the range of 88% to 90%. Non-GAAP R&D expenses are expected to be in the range of $3.2 billion to $3.5 billion as a result of the continued investment in our product pipeline. This includes the financial impact of the Galapagos collaboration, which closed in January.

Non-GAAP SG&A expenses are expected to be in the range of $3.3 billion to $3.6 billion. This reflects an estimated $200 million increase for the U.S.-branded prescription drug fee. Please note that 2015 included a favorable adjustment of approximately $100 million based on the receipt of the 2015 invoice from the IRS.

For the full year, the non-GAAP effective tax rate is expected to be in the range of 18% to 20%. This includes the impact of the federal R&D tax credit, which was permanently extended at the end of 2015, and the increase for the U.S.-branded prescription drug fee, which is not tax deductible. Full-year diluted EPS impact of acquisition-related restructuring and stock-based compensation expenses is expected to be in the range of $1.10 to $1.16 per share.

In closing, we are pleased with 2015 accomplishments across the organization. Thank you, and we look forward to updating you on our progress. Let's now open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. And our first question comes from Geoff Meacham of Barclays. Your line is now open.

Carter Gould - Barclays Capital, Inc.

Hi, guys. This is Carter Gould on for Geoff. Congrats on the quarter. With regard to 2016 guidance, how should we think about the top line guidance and what that implies for any loosening of restrictions in the lower fibrosis score groups or any changes in net pricing? And if maybe that's a little more detail than you're ready to go into, maybe you can just frame how we should think about these levers in 2016 relative to 2015. Thank you.

Paul R. Carter - Executive Vice President, Commercial Operations

Okay. So I think I said in the script that we should anticipate in the United States that 2016 revenues should be more or less based on the second half of 2015, extrapolated for the year. I also mentioned that we had some lumpiness in the second half of the year due to the purchasing profile of the VA. And we anticipate that that will smooth out during the course of this year.

I've also said numerous times before that in quarter one last year, we had a very large bulbous of warehoused patients being treated, which of course we're unlikely to see again. But to some extent, that gets substituted as the payers, commercial payers that are well known are beginning to loosen restrictions. So there's a few dynamics in the U.S., but I think the way that I would look at it is a fairly flat, stable, perhaps marginally growing number of patients flowing into treatment. If we see public payers stepping up, like Medicaids and perhaps the correctional facilities start treating more patients, then patient numbers could go higher than that in 2016.

There's a few other factors which I also mentioned as we think about the revenue aspect as opposed to just patient numbers. The less sick patients, GT1 patients that qualify, are more likely to be using the eight-week Harvoni treatment duration. And of course, therefore revenue per patient would come down proportionately. Having said that, the offset is that budgets for treating patients go up, and we would like to think that more patients could be treated. So I think that's sort of the main things.

I think from the competitive point of view, we feel very confident that our label is very strong and that we're very much supported by the real-world data we've seen since the launch of Harvoni with very high SVR rates and a very strong safety profile, at least as good if not better than the one that was used in our registrational trials. So I think we feel good about the year. The U.S. is fairly steady and possibly could even grow, as I said, if some restrictions are loosened and public payers step up.

Around the world, as I mentioned, we expect patient numbers to grow in Europe. They've started to stabilize in the major markets now, again following more or less the shape of the curve in the U.S., where there was a large lump because of warehoused patients being treated initially. That is smoothing out now, and many of the smaller markets are now beginning to come onstream. And so we should see higher number of patients in Europe, but the same thing, we're likely to see more patients being treated with shorter durations. And as I also mentioned, we do have a number of price-volume agreements in place, which are deliberately incentivized to encourage higher volumes of patients being treated, but at a lower revenue per patient, if you like. So we should think about that.

And then around the rest of the world, Japan, I mentioned very early days. We're still in that warehousing phase I think in Japan, although we're very pleased with the launch there so far. And then there are various other smaller markets around the world, and medium-sized markets, Australia being one of the medium-sized markets that are yet to launch yet. So we have plenty of patients around the world, but there are some other dynamics, as I said, around shorter treatment and of course the competitive situation.

Carter Gould - Barclays Capital, Inc.

Thank you.

Operator

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

Volodymyr Nikolenko - Evercore ISI

Hi, guys. Thank you. It's actually Vlad Nikolenko on behalf of Mark Schoenebaum. I have a question about filgotinib specific JAK1 inhibitor, the one that you got from Galapagos. Just to hear your thoughts about testicular tox concerns on filgotinib, as well as whether your base case will be a 200 milligrams daily dose going forward in the years. And sort of somewhat related questions, what exactly impact on your 2016 guidance on R&D expenses from Galapagos collaboration? Thank you.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

Yeah, so maybe I could answer the first few questions. So we were very excited about filgotinib because of the clinical profile. As you know, they have now data. Galapagos has generated data in RA and also Crohn's. Both of those have very remarkable efficacy. And also importantly, we think that filgotinib can be distinguished from competitors because of its safety profile, in particular the lack of hemoglobin decreases and very low infection rates.

The other thing you asked about, the dose, that still needs to be negotiated with the FDA. We actually have a meeting coming up in the next couple of months where we will talk about, in detail, the Phase 3 program design, including the doses. So it's really, at this point, too early to say what the dose will be.

Robin L. Washington - Executive Vice President and Chief Financial Officer

This is Robin to answer the second part of your question. We really have included, relative to the collaboration, some of the upfront milestone payments, as well as the cost associated with some of the Phase 3 trials that Norbert just spoke about. So we don't break it out in detail, but I would assume a couple of hundred million incremental to 2015 included in our guidance to support those projects.

Volodymyr Nikolenko - Evercore ISI

Thank you.

Operator

Thank you. And our next question comes from Matt Roden of UBS. Your line is now open.

Matt M. Roden - UBS Securities LLC

Great. Thanks very much for taking the question, and congrats to John Martin for an amazing 20 years at the helm here. So I have a big-picture question – seems like a good time to ask it, I guess, with the transition – is over the last two years, you've tripled your revenues, you've increased your earnings by about six fold over that period. The market seems to be discounting your ability to grow the business from here. Just wanted to see if you could maybe lay out a vision of the development of the various franchises that you have. You have lots going on in cancer. You've added to the inflammation franchise, you have TAF and 9883 in HIV. Just wondering if you could just maybe shine the light on how you visualize the growth out to say 2020, something like that? It would be really helpful to hear your thoughts. Thanks.

John F. Milligan - President and Chief Operating Officer

Matt, this is John Milligan. I assume the question's for me, not the congratulatory one to John Martin.

Matt M. Roden - UBS Securities LLC

Whoever will take it.

John F. Milligan - President and Chief Operating Officer

So whoever will take it. Well, I'll take it; I'd be happy to. So It's a really good question. So you're right, we've faced an extraordinary time when we've been able to triple revenue over the last couple of years, which is a very unusual thing for an organization to be able to do. And we're moving our pipeline along as fast as we can. And as we mentioned, there are some very interesting opportunities for us.

So we do see very good opportunities in organic growth. I have great confidence in the HIV portfolio that with the three STRs we talked about on the call today and the other STR being developed by our partner, Janssen, that we'll have a very meaningful, continued growth of both patients and revenues in the future in HIV; I think that's a very important thing for us. We're continuing to accelerate HCV to bring sof/velpatasvir to market and try to work in more countries than we ever have before. So those are important initiatives on things that are current to market.

We're very excited about filgotinib. I think there's great opportunities for us in inflammatory diseases. We haven't spoken about it very much about it in the past, and sort of quietly we've been investigating our MMP9 antibody, 5745, which we didn't talk about on this call, which now has positive data in three of the four indications we've looked at in inflammatory diseases, with a fourth under investigation. And so not only do we have filgotinib potentially for RA and inflammatory diseases, but we have an antibody which has a mechanism, which is very refractory to current care. It could be a good beginning to an inflammatory disease franchise.

Of course, you mentioned the kinase inhibitors that we have for oncology. There's always the potential that those could be useful in various diseases in combination with filgotinib as well and we will explore that, although I still think the vast value of it is the fact that it's a very good-looking drug and some very positive data in Crohn's disease. So we are going down the pathway of inflammatory diseases by virtue of the successes we've had in our pipeline and successes in licensing.

In oncology, Zydelig has been a good start for us. We really need to continue to try to ramp up our efforts in this area and to continue to broaden the areas we want to work in. It's pretty clear we have to do additional partnerships or find other avenues to broaden the revenue stream there for the future. And as Robin mentioned, with our balance sheet, we have the great flexibility of doing partnerships or acquisitions that could get us there. And so that would be an important consideration for us. That may not be the only avenue. We'd also look at other areas where we could bring in different programs, potentially accelerating to revenue as soon as possible in some of those areas when those things are available. And I'd say the environment has shifted dramatically in our favor for doing those sorts of partnerships and whatnot. So that's a good – 2016, I believe, will be a good year for us, because of the strengths of the underlying business and the economic uncertainty that's driving the market today.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

John, can I add something, maybe?

John F. Milligan - President and Chief Operating Officer

Please.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

I would like to reiterate what Robin said in her script. If you look back at the last six years, it has been remarkable. We have done many, many deals – CGI, Arresto, Calistoga, Pharmasset, Galapagos – and yet, we were able to return 70% out of free cash flow to shareholders. So I think that is a good way to think about the future, to in-license through collaborative efforts while at the same time returning money to shareholders.

Matt M. Roden - UBS Securities LLC

Thanks very much.

Operator

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

Michael J. Yee - RBC Capital Markets LLC

Thanks, and my congrats to John Milligan as well. Looking forward to a new era. I wanted to ask a bit of a two-part question. One was you gave some guidance here, and remarkably like the last question, it actually looks like you're a little bit flattish or whatnot this year. Do you expect qualitatively to be growing over the next year? And, two, do you expect that this is a bit of trough revenue here? I just wanted to get your view on that. And, importantly, when you look at managed care – second part of the question – look at managed care, given that there's a new competitor on board, do you expect minimal to no changes or minimal changes in terms of access and things like that? Just given the new competition, can you talk a little about that? And there's a little bit of nervousness on how that may change things on the payer front. Thanks.

John F. Milligan - President and Chief Operating Officer

Michael, it's John Milligan. First of all, thank you for the congratulations. Second of all, unfortunately, we can't tell you about revenue growth beyond – we have a lot of opportunities, but obviously we don't give 2017 or beyond guidance. In this business, you almost have to take things one year at a time, especially in hepatitis C as we understand the rate of diagnosis and patients coming into care, which is – there's great opportunity out there with a 1.5 million patients, as Paul mentioned, still being diagnosed but not yet under care. So really good opportunities for us.

With regard to the competition coming to market, we have a very, very strong position. But I'm going to turn this over to Paul because he'd like to give you some of his thoughts on what the competitive landscape looks like versus Harvoni.

Paul R. Carter - Executive Vice President, Commercial Operations

Yeah, thanks, John. I mean, I think if we cast our minds back 12 months, we had the first competitor coming into the hepatitis C space. And I think the managed care view at that time was that these products were interchangeable and could be treated like commodities to some extent, which really triggered off the pricing and negotiations we saw in the early part of last year. That has been proven to be a totally incorrect view of the hepatitis C products. And what we've seen, fortunately with Harvoni in particular, is the real-world data has really strengthened its position and people's understanding of what that product does. It cures people with an incredibly high SVR rate, and the safety profile has been extremely good and in line, if not better, than its label.

That hasn't been the case of competitor products so far. In fact, we've seen safety warnings added to labels, and we've seen a differentiation. And that's played out in the market. So I think, as we see a new competitor coming into the market now, payers are really thinking this through. There isn't any kind of instinctive reactions. People are being very thoughtful, and we notice because we have very close discussions with the managed care main players, and we're working with them as they think through this. And I think we feel pretty confident that we'll maintain a strong position as we enter 2016.

Michael J. Yee - RBC Capital Markets LLC

Okay. Thank you.

Operator

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

Matthew K. Harrison - Morgan Stanley & Co. LLC

Great. Thanks for taking my question, and I want to extend my congratulations to both Johns. I thought if I could just ask two related specific questions. So first, Paul, maybe – I just want to make sure I understand what you're trying to say with respect to U.S. HCV volumes. If we look at the two volumes and the numbers you've given us in the third and the fourth quarter, it's about 105,000 patients together, which is about 210,000 on a full-year basis, which is below the 236,000 you guys reported. And if I take the low end of the 47,000, which it sounds like you're saying is too low because of the VA from the fourth quarter, that's 188,000 annualized. So I just – if you can just give us some direction on – I'm sure you're not going to tell us a number – around those numbers, just so we're clear on exactly what you're trying to say. And then maybe related to that, can you specifically address where you think access is going to go from Medicaid in prisons this year? Thanks.

Paul R. Carter - Executive Vice President, Commercial Operations

Sure. So if you've got your pencil ready, these are the numbers that I think happened last year. In fact, I'll take you back even into quarter four 2014, where we think 46,000 HCV starts were in the market. This is total starts, by the way. In quarter one 2015, there were 72,000. That really was the peak of this warehoused patient part of the curve. Then drop down into quarter two of 65,000. There were still some of those warehoused patients coming through. And then quarter three was 62,000, and quarter four was 50,000. We know that in quarter three, a lot of patients were treated by the VA, who by the way seem to be incredibly efficient at getting patients into treatment. And we know that in quarter four, very few patients were initiated by the VA. So I think if you do the basic math on that, we'd get up to about 230,000-something, forecasting that forward into 2016 if you assume the VA picks up.

Then I think this sort of merges into the second part of your question, which is what happens with Medicaid and other public payers who to date have really treated very, very few people. So our assumption is they're still not going to treat that many more patients this year, is the way we're thinking forward, but we are hopeful that that will be a trend that improves over time as people start to see how effective these drugs are and particularly the eight-week usage of Harvoni, which, as I've mentioned, in the real world seems to be incredibly effective and offers very good value. So that's how we're thinking about it. I hope that's clear.

Operator

Thank you. And our next question comes from Cory Kasimov of JPMorgan. Your line is now open.

Cory W. Kasimov - JPMorgan Securities LLC

Hey. Thank you, guys. Good afternoon. Thanks for taking the questions, and also my congrats to both John and John on a great run and a great opportunity. So wanted to ask about longer-term trends, the evolution of the HCV market. I know it's hard for everyone to get their hands around it, but you indicated again there are about 3 million HCV patients in the U.S. that have yet to be treated. About half of those are diagnosed. In terms of new patients that are entering the system, how similar or different are they from the existing patients or those that have already been cured in terms of I guess the overall motivation to be treated, fibrosis score, insurance coverage? We get a lot of questions on, are these future patients actually legitimate candidates in terms of being under the care of a doc, not IV drug users, et cetera. So can you just comment, try to give us a little bit more comfort on how we can be thinking about this longer term evolution in the U.S.? Thanks.

Paul R. Carter - Executive Vice President, Commercial Operations

So, Cory, I've mentioned before that we have some proprietary research that we do to try and monitor the flow of patients into treated care, and that means people who are diagnosed with hepatitis C and are registered with a hepatitis C prescriber. And that number has been remarkably consistent at around – we have actually three different sources of data, and it's around high 20,000s to 30,000 patients a month have been falling into that category. So they're diagnosed with HCV and they're registered with a treater. So if you do the math on that, clearly that's 360,000 patients coming into treatment a year, and we're seeing treatment levels a lot lower than that. What that speaks to is the types of patients are different amongst that 360,000 group, and their sort of pathway to actual treatment varies considerably.

But there does appear, again doing the math and assuming the research is correct, that there is a line at the door of patients that still need to be treated and are accessible. I don't think those are the people that are, let's say out of society or these are people that are accessible, and for one reason or another reason, they haven't started treatment yet. But there's a strong flow of patients still out there, and I don't think we're anywhere near getting to the point where we're dealing with patients that are extremely difficult, let's say, to manage.

Cory W. Kasimov - JPMorgan Securities LLC

Okay. Great. Thank you.

Operator

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

Phil Nadeau - Cowen & Co. LLC

Good afternoon. Thanks for taking my question, and let me add my congratulations to John Martin and John Milligan. John Milligan, a question for you. I found it interesting that in your prepared remarks, right after you were introduced, you mentioned that you wanted to take Gilead into therapeutic areas outside of antivirals. And I know in an answer to a prior question, you went through the assets you have in other areas. But I'm curious whether you're signaling a need for even more assets in those areas, and in particular, if you had a shopping list, which areas would be on the top of your list?

John F. Milligan - President and Chief Operating Officer

So I mean, it's pretty clear we've done some great things in HIV and HCV, but for the company to grow, we have to work in other areas. That doesn't mean that we're not going to continue to work in hepatitis B, which is important to us, and there is the potential to cure that disease. We all recognize that is a hard thing to do, as well as curing HIV, which is an equally or harder thing to do, perhaps.

So that does imply that we have to go outside of antivirals for continued growth, and we're interested in doing that as we've been hiring and growing with new things in our portfolio over a number of years. And I think I have some good core teams that can help us grow into those areas. And so the answer is yeah, we're very interested in acquiring assets through partnerships or potentially acquisition that could help us grow in those areas. And with the tripling of our revenue over the last few years, the need to do so sooner rather than later is heightened.

That being said, we want to get the right assets at the right price. And so we have the flexibility certainly with our balance sheet, in the current business, to be patient to get things – to not be forced into doing something before we want to. And so we are looking in the area of oncology. We are looking at additional things in inflammatory diseases and things that are adjacent to there, to see what opportunities might fit within our portfolio, so that we can create a really strong franchise like we have in HIV and HCV with multiple options for success in those areas.

Some of it will depend on what happens in our portfolio this year as we make progress with our MMP9 antibody or not. Obviously we're looking heavily in NASH with the FXR agonist. We're very interested in liver diseases, so that's a very important area for us, and we'll continue to try to bolster those to make sure that the company has the assets necessary to have the progress for the future.

Is there a shopping list? There's always a list that you have in your mind or sometimes on paper. That's probably dangerous, so mine's in my mind, in which I think about things that would be important for us or things that could have the right opportunity at the right price. Whether or not those things ever come to fruition depends on a lot of factors. But clearly we're going to be very interested in taking a look this year.

Phil Nadeau - Cowen & Co. LLC

And with the assets having sold off pretty aggressively in the public markets over the last several months, does that make things more attractive to you, or is it really about getting the right asset that's derisked and price is secondary?

John F. Milligan - President and Chief Operating Officer

Well, it makes it more attractive, there's no question.

Phil Nadeau - Cowen & Co. LLC

Great, thanks for taking my question.

Operator

Thank you, and our next question comes from Ying Huang of Bank of America Merrill Lynch. Your line is now open.

Ying Huang - Bank of America Merrill Lynch

Hi. Good afternoon. Thanks for taking the question. First one on maybe pricing trend. If my math is right, if you take about $5.6 billion you booked in second half, divided by about 112,000 patients, starting treatment, you're looking at roughly $50,000 per patient revenue in the U.S. in the second half of 2015. So now, with Merck's new drug they are launching in HCV, how should we think about pricing trend in the market in 2016? And then also I have a question about the diagnosis rate. Based on experience you have in the field, can you provide a little bit more color on the rate of newly diagnosed patients in HCV? Thanks.

Paul R. Carter - Executive Vice President, Commercial Operations

Well, maybe I'll talk about pricing first of all. I mean, I think everyone knows this, but it's really net prices that are the important number here for payers in the U.S. and indeed in Europe. So there seem to be over the last few days somewhat of misinformation or confusion around the WAC price and discounts. So we feel that our pricing is extremely competitive and offers very, very good value given the competitive set. And as I said earlier, payers in the U.S. this time around are taking a very much more thoughtful look at the labels and trying to make sure they do the right thing for their clients. And so we feel pretty strong and pretty confident in the solid basis, let's say, of our price in the U.S. market. And the second question was about HCV.

Patrick O'Brien - Vice President, Investor Relations

Percentage of newly diagnosed patients.

John F. Milligan - President and Chief Operating Officer

I think that's a hard thing to get at. We still see about 30,000 patients coming into care every month. So that's been an interesting metric for us, because more patients are coming into care than are being treated. We don't know how many are newly diagnosed and how many are coming out of the bucket of diagnosed patients. But it is interesting to note that our most recent data still suggests there's about 1.5 million patients diagnosed in America, which means that – and that was about 1.6 million when we launched Sovaldi. So that implies that there has been a refilling of that bucket, a replenishment, if you will.

I don't know if buckets are the right way to think of it, but in this category of patient, as more patients are being diagnosed and working their way through the system. So we don't have a firm handle on the exact numbers, so that's the closest approximation I can give you. But it does suggest that there's a pretty good flow of patients who are now becoming aware and coming in to at least be diagnosed. We don't know the characterization of those patients. There was an earlier question about whether those are patients eligible for treatment, since many of the Medicaids are not treating many patients, and that's something we're trying to figure out right now.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

And Ying, I may want to add that there's the CDC recommendation about general diagnosis. We have a number of projects in a number of American cities to look at subpopulations that we test, and we demonstrate that you can actually have fairly high diagnosis rates up, to 20% in some of these populations. And I think as people become aware of these things, I think the diagnosis will increase. That's our belief.

Ying Huang - Bank of America Merrill Lynch

Thanks, Norbert.

Operator

Thank you. And our next question comes from Alethia Young of Credit Suisse. Your line is now open.

Alethia Young - Credit Suisse Securities (USA) LLC (Broker)

Hey, guys. Thanks for taking my question. And to both Johns, congrats on a great history and a great future. Two questions; they're sort of – one's quick. In Japan, can you just help us understand, like kind of think about this, whether it's a 12% or maybe perhaps the larger kind of 50% range of discount when it comes to what kind of a pricing discount will happen? And then also, just on Genvoya, I was just – and I saw Stribild was down a little bit in new start and total share. So I just wanted to understand if you think the total lion's share is coming from Stribild or do you think there's like some maybe Atripla kind of new starts or maybe switches coming in with the Genvoya launch? Thanks.

Paul R. Carter - Executive Vice President, Commercial Operations

Okay. Maybe I'll comment on Japan. We are fully aware of the new pricing regulation that's just been introduced in Japan. We are, let's say, highly confident that that will affect Harvoni and Sovaldi in Japan. We're not totally certain yet on the number or the timing of that, of that likely price cut, but we have factored that into our guidance. And the second question was on Stribild -

John F. Milligan - President and Chief Operating Officer

And switches from Genvoya.

Paul R. Carter - Executive Vice President, Commercial Operations

And switches from Genvoya.

Alethia Young - Credit Suisse Securities (USA) LLC (Broker)

And Genvoya.

Paul R. Carter - Executive Vice President, Commercial Operations

Yeah, yeah. Well, Genvoya's got off to a really good start. We think that about 80% of the Genvoya business to date is from switches, and we think that the majority of those switches are actually from Stribild so far. So that probably accounts for the Stribild share number. We think, of the switches to Genvoya, about 10% of those switches so far have come from non-Gilead products. So we're pleased with the pace of switching, and we're pleased that we're also getting some incremental growth.

Alethia Young - Credit Suisse Securities (USA) LLC (Broker)

Great, thanks.

Operator

Thank you. And our next question comes from Brian Abrahams of Jefferies. Your line is now open.

Brian Abrahams - Jefferies LLC

Hi. My congratulations to John Martin on all your accomplishments as CEO and to John Milligan on your well-deserved new role. So a question related to the inflammatory franchise. Historically, you guys have had a lot of success developing and commercializing products with best-in-class features along efficacy, safety, and dosing that enable you to really dominate a space, such as an HIV and hep C. RA and inflammatory bowel diseases are a little bit different. They're a lot more crowded. Wondering if you could talk a little bit about some of the ways you're thinking about conducting the development paths for drugs like filgotinib and 5745 to maximize differentiation. Perhaps maybe you could talk about combination opportunities there and how this ties into your long-term commercial strategy as you enter these new therapeutic areas.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

Yeah, so, Brian, as I said before, we believe filgotinib by itself, if you compare it with other JAK inhibitors, is a very valuable franchise. It has a good efficacy, and it could have safety advantages. And I'm saying it could have because I'm making cross-study comparisons, so until we do a large Phase 3 program, we don't really know that for certain. But then as you pointed out, where we have to work fairly quickly want to go with filgotinib is in combination therapy.

We believe that in inflammatory bowel disease and also RA, there's a huge unmet need still. If you look at some of the ACR20 responses, they're up to 80% but ACR70s are only in the teens or 20% at most. So that means there's a huge improvement left to be done, and that, we believe, could be done with combination therapies. We're going to go ahead and combine our JAK inhibitor with our MMP9. That's going to be the first thing. And afterwards also possibly with the SYK compounds and the BTK inhibitors. That's where we think we could have a big impact on the future of the treatment of inflammatory conditions.

Brian Abrahams - Jefferies LLC

Thanks, Norbert.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

Thank you.

Operator

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

Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker)

Hey. Good afternoon, guys. Thanks for taking the question, and my congratulations too to John and John. Just two, I guess. I guess the first question is in terms of Japanese sales, I understand there's a government-mandated price cut given the revenue that Sovaldi and Harvoni are generating. Could you just walk us through how that flows as of Jan. 1? And can you give us a scale of what we should expect for the price cut? And then just to dig down a little more on Merck's pricing and how it impacts you guys, I think we were all surprised by the quickness in the gross-to-net discounts that AbbVie and you had applied for the initial launches. I guess the question is, Merck clearly is going to take a pretty substantial discount versus what you guys have out. Are you at a point where you're comfortable enough in the profile that you're drawing a line in the sand to say you're essentially not going to be discounting anymore?

Paul R. Carter - Executive Vice President, Commercial Operations

Let me start by talking about Japan, Brian. We're not going to say what our assumption is around the tax outcome. I mean, I think I already said before, we understand the rules. It's pretty clear what the range is. And we're going to be somewhere in that range, and we're also not sure exactly the timing of that. But we've built an assumption into our guidance that we've given, and I can't really comment further on that at this point.

Then on the gross-to-net, I mean, I think your question is, are we confident enough to walk away? And I think the answer is yes, we are. But we're hopeful that our close discussions with payers and the strength of our label and the strength of the – sorry, the relative strength of our label as compared to the competitors, and of course this enormous wealth of real-world data that we've got gives us a position where we sincerely hope the right thing is done for patients and patients get access to our medicines. So I think that's the way we think about it.

Norbert W. Bischofberger - Executive Vice President, Research and Development and Chief Scientific Officer

And, Brian, other than the costs of drug, you should also consider of course the cost of treatment. There is a genotype required for genotype 1a, the resistance test will cost about $700, and incurs some time delay. There's tests for ALTs at eight weeks and at 12 weeks if you have to dose for 16 weeks. And also, it's possible that – well, a fairly significant number of the genotype 1a patients, and you know those are 50% in U.S., they will require 16 weeks with ribavirin. So that's not – it's more than – it increases the treatment cost proportionally compared to 12 weeks or eight weeks in our case with Harvoni.

Paul R. Carter - Executive Vice President, Commercial Operations

But I think the good news, just to reemphasize, is that the payers across the United States are being very cognizant of this and thinking carefully. The full implications and not being dazzled by the headlines of a low WAC price.

Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker)

Got you. Thank you, guys.

Operator

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

Terence C. Flynn - Goldman Sachs & Co.

Hi. Thanks for taking the question. I have two, because I'm guessing you might not want to answer the first one. But just for Robin on capital allocation, you mentioned 77% of free cash flow returned from 2010 through 2015. As you look forward, do you guys have a target payout ratio in mind? And then the second one was just on EU hep C patient volumes in 2016. Paul, you gave us a lot of context for U.S., but maybe just if you could be a little bit more specific in terms of actually thinking about volumes in Europe? Thanks.

Robin L. Washington - Executive Vice President and Chief Financial Officer

Sure, Terence. I'll take the first one. You're right, I'm not going give a specific number. And as I mentioned on the call, I think it varies based on the other investments we're making, and the numbers we gave you were on average. There have been periods where we've been higher and periods we've been lower. But by using the word "substantial," I think you can assume it to remain significant, but it could vary year to year is how I'd look at it.

Paul R. Carter - Executive Vice President, Commercial Operations

And on the EU volumes, we estimated that in – the EU, I should say, so the 28 countries of the EU where the product's been launched so far in 2015, around about 140,000 patients in total were treated. We have a slightly lower market share in Europe than we do in the U.S., and that's because of payer-type arrangements that our competitor have got in place. The range of market shares ranges from 70% to 90%, but I would say the average would be about 80%, of that 140,000. All of the main countries, the big countries in Europe, have now gone through their sort of warehoused point of the launch trajectory or the patient flow and are getting into more stable patient flows, but are growing. So I think that's my main point.

We anticipate higher numbers of patients in 2016 over 2015. Countries like the UK really didn't treat very many patients at all so far, but they are now beginning to ramp up. And then some of the smaller countries – Netherlands, Austria – are beginning to grow patient numbers. Having said that, I also mentioned earlier price-volume agreements. These are set up to try and encourage more patients being treated. But obviously, the flip side to those arrangements is that the price per patient comes down and there's better value to treat more patients. The other thing, I think, is the real-world data with eight weeks of Harvoni treatment. It looks stronger and stronger and is more convincing to European payers. And therefore, they will also use that opportunity to try and treat more patients, but of course, at a lower revenue per patient.

Terence C. Flynn - Goldman Sachs & Co.

Great. Thanks.

Patrick O'Brien - Vice President, Investor Relations

Thank you, Candace, 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

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day, everyone.

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