Gilead Sciences Inc (GILD) — Q1 2015 Earnings Call Transcript

Thank you, Ashley, and good afternoon everyone. Just after market closed today, we issued a press release with the details of our earnings results for the first quarter of 2015. The press release, along with the detailed slides, are available on the Investor Relations section of the Gilead Sciences’ website. The two speakers on today’s call will be Robin Washington, Executive Vice President and Chief Financial Officer, and based on a great deal of interest in Gilead’s R&D pipeline, Norbert Bischofberger, Executive Vice President of Research & Development and Chief Scientific Officer, will provide an update on our R&D progress. Also in the room with us for the Q&A session are John Martin, our Chairman and Chief Executive Officer; John Milligan, President and Chief Operating Officer; and Paul Carter, our Executive Vice President of Commercial Operations. Before we begin our formal remarks, let me remind you that we will be making forward-looking statements, including plans and expectations with respect to our product candidates and financial projections, all of which involve certain assumptions, risks, and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements. A description of these risks can be found in our latest SEC disclosure documents and the recent press releases. In addition, Gilead does not undertake any obligation to update any forward-looking statements made during this call. We will also be using non-GAAP financial measures to help you understand underlying business performance. The GAAP to non-GAAP reconciliations are provided in our press release as well as on our website. I will now turn the call over to Robin Washington.

Thank you, Patrick, and thank you all for joining us today. The year is off to a great start, and I am pleased to summarize the results of the first quarter of 2015. Gilead performed well across all therapeutic categories, achieving an all-time high in net product revenues. We continue to invest in research and development, commercial operations, and initiatives to increase access to treatment, and importantly, our medicines are now reaching approximately 10 million people around the world. The company also continues to execute on our capital allocation strategy. Earlier today, we reported non-GAAP diluted EPS for the quarter of 2015 of $2.94 per share and total revenue of $7.6 billion, an increase of 99% and 52% respectively compared to the first quarter of 2014. HCV product sales were $4.6 billion for the first quarter, a doubling year-over-year and an increase of 19% sequentially, driven by continuous launches across many geographies. This quarter alone, we estimate that approximately 90,000 patients started on a sofosbuvir-based therapy in the U.S. and Europe. Product sales excluding HCV were $2.9 billion, an increase of 10% compared to the first quarter of 2014, driven by the ongoing uptick of our HIV single tablet regimen. Underlying prescription demand grew for our new single tablet regimens Stribild and Complera compared to the fourth quarter of 2014. Overall, HIV product sales were down 16% sequentially, primarily due to an inventory decrease in the U.S. following an inventory build that occurred in the fourth quarter of 2014 and a higher proportion of sales into Medicaid and ADAP programs, which are more heavily discounted. Turning to the U.S. in more detail, Q1 2015 net product revenues were $5.2 billion. HIV net product revenues increased 15% year-over-year to $1.4 billion. Growth was driven by our single tablet regimen with Stribild increasing by more than 50% and Complera by 24%. The recently updated HIV treatment guidelines from the U.S. Department of Health and Human Services reinforced the benefit of improved single tablet regimens like Stribild. Atripla was appropriately downgraded in the guidelines as we anticipated. As such, underlying prescription demand for Atripla declined 8% year-over-year and we expect it will continue to decline as it is replaced by better single-tablet regimens. U.S. HIV revenues declined sequentially by 24% due primarily to decreased inventory across the supply chain. Wholesaler inventory levels declined to the near bottom of established ranges and we also saw a drawdown by sub-wholesalers. Both of these trends are similar to what we’ve seen in the first quarter over the past several years. In addition, HIV sequential revenues were impacted by a one-time favorable accounting accrual in Q4 and a shift in payer mix in Q1 as I previously mentioned. U.S. HCV revenue increased 8% sequentially to $3.4 billion, as an increase in patient volume was partially offset by a higher level of rebates for commercial plans that were executed throughout the first quarter of 2015. Many of these agreements became effective during the quarter, so we expect to see the full gross to net impact in the second quarter of 2015. In the U.S., approximately 70,000 patients initiated treatment with the Gilead HCV product in the first quarter, an increase of more than 50% over the prior quarter. Since the December 2013 approval of Sovaldi, more than 210,000 U.S. patients have started on a sofosbuvir-based therapy. We estimate that at least 90% of genotype 1 HCV patients beginning treatment in the quarter started therapy on Harvoni and that greater than 80% of genotype 1 patients have direct access to the product through either preferred or parity formulary status. Turning to Europe, Q1 2015 was a record quarter with $1.8 billion in product revenues inclusive of currency headwinds. HIV revenue growth was driven by our single tablet regimen. Eviplera, together with Stribild, grew by 55% year-over-year, and for the first time, combined quarterly sales exceeded sales of Atripla in a quarter. More than half of new patients initiating therapy started with the Gilead single tablet regimen, with Eviplera and Stribild being the first and second most prescribed regimens in Europe. These two regimens were also the most prescribed for patients switching therapy. HCV revenues in the EU approximated $1 billion in Q1, which reflects the first quarter where Sovaldi was prescribed in each of the big five countries. In some countries, most notably the UK, restrictions have resulted in limiting treatment to sicker patients. Uptake for Sovaldi was particularly strong in Spain, driven by a rapid achievement of regional reimbursement. Harvoni access is progressing at a faster rate than we saw with Sovaldi. Harvoni reimbursement is already in place in smaller countries of the EU, and we expect reimbursement in Italy and Spain to be in place in the second quarter. In Europe, we estimate 21,000 patients started therapy with the Gilead regimen in the first quarter and that the total number of patients treated since the approval of Sovaldi in January 2014 has now surpassed 50,000. Turning to expenses, non-GAAP R&D expenses for the quarter were $651 million, up 17% compared to the prior year due to the continued progression and expansion of our clinical studies, particularly Phase 3 studies in the liver disease and oncology areas. Additionally, personnel and infrastructure expenses increased to support ongoing clinical study activities, geographic expansion, and marketed product support. Sequentially, non-GAAP R&D expenses decreased by $248 million, driven by one-time M&A-related costs that occurred in Q4 2014. We expect that our R&D expenses will continue to ramp up during the remainder of 2015, as our level of clinical activity increases. Non-GAAP SG&A expenses for the quarter were $600 million, up 20% compared to the prior year, driven by the growth in our business and geographic expansions during the past year as we continue to launch Sovaldi and Harvoni. Sequentially, non-GAAP SG&A expenses decreased by approximately $200 million, driven primarily by a favorable cumulative adjustment for the U.S. branded prescription drug fee, based on the receipt of the preliminary invoice from the IRS. Turning to cash flows, during the first quarter of 2015, we generated $5.7 billion in cash from operations. It is important to note that this figure includes unpaid rebates associated with the launch of Harvoni, and future cash flows will be impacted as these payments are made. We utilized $3 billion in cash during the quarter to repurchase 29.6 million shares at an average price of $101.38 per share, which completed our May 2014 $5 billion share repurchase program. As of April 1st, we initiated purchases under the recently authorized $15 billion share repurchase program. Earlier today, we announced that our Board of Directors declared a quarterly cash dividend of $0.43 per share of common stock, with the payment date of June 29, 2015, to all stockholders of record as of the close of business on the record date of June 16, 2015. This is the first quarterly dividend declared under our dividend program announced in February 2015. Initiating the dividend reflects our continued confidence in our business and financial position. This dividend complements our share repurchase program and gives us an additional vehicle to return cash to our shareholders in a consistent and predictable manner. Finally, I would like to update our full year 2015 financial guidance, provided to you on February 3rd and summarized on slide 31 in the earnings presentation available on our corporate website. We now expect 2015 product sales to be in the range of $28 billion to $29 billion, an increase of 14% to 18% over 2014. Our guidance for product revenue is subject to a number of uncertainties including the full year impact of our discounts, chargebacks, and rebates associated with pricing negotiations with payors in the United States and Europe. Market share and full year effects of competition, potentially incorrect assumptions regarding HCV patient flow, a larger than anticipated shift in payer mix to more highly discounted payer segments such as PHF, FFS, Medicaid, and the VA, the timing and success of our commercial launches of Sovaldi and Harvoni in Japan, the effects of new HIV treatment guidelines downgrading Atripla to an alternative therapy, and the potential for continued volatility in foreign currency exchange rates; all other components of our 2014 guidance remain unchanged. I would now turn the call over to Norbert.

Thank you, Robin. Throughout my 25 years at Gilead, I've frequently been asked about the next phase of our growth, and I’ve never felt more assured due to the many programs we have aimed at addressing unmet medical needs. I will take the next few minutes to outline some of our ongoing initiatives in the areas of HIV, liver disease, cardiovascular, oncology, and respiratory inflammation. In HIV, we’re making progress with various tenofovir alafenamide, or TAF, regimens. TAF is a nucleotide HIV reverse transcriptase inhibitor, and important clinical data was shared in February at the CROI conference in Seattle. In two sizable Phase III trials, the single tablet regimen of E/C/F/TAF proved to be non-inferior to Stribild while demonstrating improved safety regarding renal and bone laboratory parameters. The findings from these studies were published in the April 16 issue of The Lancet, highlighting these results. Another study illustrated that E/C/F/TAF can be safely given to patients with mild to moderate renal impairment. This ongoing study, with nearly 1,500 patients switched to E/C/F/TAF, will present its findings at an upcoming conference. Marketing authorization applications for E/C/F/TAF have been filed in several countries, with the U.S. FDA assigning a PDUFA date of November 5, 2015. This application was followed this month by F/TAF, a fixed dose combination of TAF and emtricitabine, representing a significant advancement over Truvada. The third application, R/F/TAF, which combines rilpivirine with the F/TAF backbone in a single tablet regimen, is set to be submitted in the third quarter of this year, utilizing the Priority Review Voucher obtained from Knight Therapeutics last November. If all applications are approved, we plan to launch three new TAF-containing HIV regimens between November 2015 and mid-2016. Encouraging Phase I pharmacokinetic and viral dynamics results have led to the initiation of dosing in the Phase 2 study of GS-9883, a novel once-daily integrase inhibitor that does not require boosting with the F/TAF backbone. If successful, this could provide a third TAF-containing single tablet regimen for patients. Additionally, at CROI, we shared findings on a TLR7 agonist’s ability to induce viremia in SIV-infected monkeys fully suppressed on antiretroviral therapy. Following these promising results, we have begun a clinical study of GS-9620, a potent TLR7 agonist, that aims to potentially eliminate the virus and achieve a functional cure for HIV. Shifting to liver disease, we are currently evaluating the pan-genotypic regimen of sofosbuvir in GS-5816 across four separate Phase 3 trials, each with a treatment duration of 12 weeks. Given the current data and the success of Harvoni, we believe sofosbuvir in combination with GS-5816 will be best utilized for non-genotype 1 infected patients, where the need is highest. We hope to share the top-line results from these four Phase 3 studies in the third quarter and target marketing authorization applications by the end of the year. Last week at the annual EASL conference in Vienna, multiple presentations reaffirmed the high efficacy, good safety, and tolerability of Sovaldi and Harvoni in various patient populations with non-genotype 1 HCV infections. Data were also shared regarding the pan-genotypic triple combination of sofosbuvir, GS-5816, and GS-9857. GS-5816 acts as a pan-genotypic NS5A inhibitor, while GS-9857 serves as a pan-genotypic protease inhibitor. These findings indicate that a treatment duration of fewer than 12 weeks, but more than four weeks, might be viable for all patient populations. Based on these results, we have initiated two Phase 2 studies to assess treatment durations of six, eight, and twelve weeks with this triple combination. On March 25, Sovaldi, in combination with ribavirin, received approval from the Japanese Ministry of Health, Labor and Welfare for the suppression of viremia in patients with genotype hepatitis C infection, marking the first all-oral, interferon-free treatment for genotype-2 infection in Japan. This approval was expedited due to an unmet need and the lack of alternatives for the 200,000 Japanese patients infected with genotype-2. Additionally, Harvoni is under regulatory review in Japan, and we anticipate approval by mid-year for treating patients with genotype 1B infection. Treatment for most chronic hepatitis B infections is typically lifelong, and we continue to research finite treatment durations that may lead to a functional cure for hepatitis B surface antigen conversion. Two approaches are currently in Phase 2 studies: GS-9620, the TLR7 agonist, and GS-4774, a therapeutic yeast-based vaccine, in patients with virally suppressed chronic hepatitis B. We expect data from these studies in the second half of this year. TAF as a standalone treatment for chronic hepatitis B is in Phase 3, aiming to present an alternative to Viread, with data from these studies expected in early 2016. In the domain of non-viral liver diseases, simtuzumab is under evaluation in two studies for liver fibrosis due to NASH and in a study for primary sclerosing cholangitis. These studies are fully enrolled, and we expect to report 96-week endpoint data in the fourth quarter of next year. NASH, a complex disease, may necessitate multiple treatment approaches or different options at various stages of progression. Alongside simtuzumab, we are exploring two additional mechanisms. The first, GS-4997, an ASK-1 inhibitor, will be assessed in a Phase 2 study, both alone and in combination with simtuzumab. The second mechanism, GS-9674, an FXR agonist acquired through our acquisition of Phenex, should enter clinical trials before the year ends. In our respiratory inflammation area, simtuzumab is currently in Phase 2 evaluation for IPF. Enrollment has been completed for this randomized placebo-controlled study, and we anticipate full enrollment by the second quarter. This is an event-driven study, with results expected in 2016. As mentioned on our last quarterly call, the MMP9 antibody GS-5745 has demonstrated promising safety and efficacy in a Phase 1b study involving ulcerative colitis, prompting us to move the program into Phase 2/3 in the latter half of this year. GS-5745 is also being investigated for potential utility in COPD, rheumatoid arthritis, and Crohn’s disease. Our cardiovascular area is witnessing significant advances as well. The NDA for using the combination of Ambrisentan and Tadalafil as a frontline treatment for PAH was submitted to the FDA in December, with a PDUFA date of October 5 assigned. Ranolazine is currently being evaluated in over 2,600 patients as an adjunct therapy to percutaneous coronary intervention to minimize hospitalizations due to ischemia or significant revascularization. This study has achieved the required number of events, and we expect to unblind the study in the coming weeks. If the results are favorable, we plan to submit a supplemental NDA around mid-year. The late cardiac sodium channel inhibitor, GS-6615, is being developed for four indications: Long QT-3 Syndrome, hypertrophic cardiomyopathy, ventricular tachycardia, and ventricular fibrillation in ischemic heart disease. This low-dose, once-daily compound may present options for these patients, who currently have none. We are also exploring GS-6615 for Long QT-2 Syndrome and drug-induced QT prolongation. In oncology, a crucial area of unmet medical need, scientific progress enables us to explore combination products and new targets. Our oncology program is robust, featuring 30 ongoing clinical studies, including 10 Phase 3 studies. Idelalisib is being evaluated in multiple Phase 2 and Phase 3 study programs for CLL and NHL, targeting both frontline and previously treated patients. We are enthusiastic about idelalisib's profile, especially in relapse CLL combined with ofatumumab, with results to be shared next month at the ASCO Meeting in Chicago. We envision the future of hematology-oncology focusing on chemotherapy-free drug combinations to achieve deeper and more durable responses, ultimately aiming for a cure. We have developed four classes of kinase inhibitors: PI3K, Syk, JAK, and BTK, including a program recently in-licensed from ONO Pharmaceuticals. Our ability to target various signaling pathways positions us advantageously for pursuing combination therapies while we actively seek collaborations with other companies. Recently, we signed an agreement with AstraZeneca to investigate the combination of idelalisib with AstraZeneca’s checkpoint inhibitor in diffuse large B cell lymphoma and triple-negative breast cancer, aiming to initiate clinical studies in the latter half of this year. Two additional exciting opportunities for our kinase inhibitor portfolio involve solid tumors and the emerging immune-oncology field, where evidence suggests that kinase inhibitors can have immunostimulatory effects by inhibiting regulatory T-cells and myeloid-derived suppressor cells. Following promising preclinical and clinical findings, we will begin a Phase 3 study in the second half of this year for momelotinib in frontline metastatic pancreatic cancer, comparing momelotinib to placebo alongside gemcitabine and Abraxane. A Phase 1 study for second-line pancreatic cancer is currently ongoing. Furthermore, momelotinib is being evaluated in EGFR-mutated first-line non-small cell lung cancer and in combination with a MEK inhibitor for KRAS-mutated non-small cell lung cancer. We intend to launch additional Phase 1a studies for both momelotinib and idelalisib in solid tumors soon. We will keep you updated on our progress with our kinase inhibitors. As we noted in our last earnings call, the anti-MMP9 antibody GS-5745 has shown promising efficacy and safety in gastric cancer patients. Due to these results, we plan to initiate a Phase 3 study involving 430 patients with gastric cancers, who will be randomized to receive either the current standard of care or the standard of care plus GS-5745. We aim to start this study in the third quarter. GS-5745 is also under evaluation in a Phase 1b study for pancreatic cancer. In conclusion, Gilead has a robust discovery and development pipeline. Additionally, our strong financial position allows us to capitalize on external opportunities as they arise. We continue to carefully evaluate opportunities based on their scientific merit and commercial potential. Thus, the comprehensive nature of our current programs, coupled with numerous external possibilities, instills great confidence in our future. I want to take this opportunity to acknowledge our 7,500 employees for their continued hard work, dedication, and collaboration with external organizations. With that, I would like to open the call for questions. Operator?

When you guys think about durability of the Hep C market, what have you learned so far about the capacity to treat in the U.S. and EU and the cure patients that are waiting therapy also in the U.S. and Europe?

This is something clearly on our mind as we assess and think about our guidance going forward during this year. So the U.S. had 70,000 starts in quarter one and a large number of those, the vast majority of those were Harvoni starts in GT1. We think that there are various dynamics here that probably involved some patients being warehoused at the end of quarter four waiting for Harvoni. Then we had the impact of all the contract negotiations early in the year, and we had a widening of the pipeline in a sense of intensive fibrosis restrictions by many of the payors that we have made contracts with. Going forward, we see the prescriptions; the same data as you see, and we do see a kind of flattening off at the moment. But we also think that in general we’re in very early days into this launch. So, the run rate would imply that with somewhere north of the 250,000 patients that we indicated last time is all possible in the U.S. this year. I was at EASL last week myself and spoke to a number of physicians who I asked this question, did they think they were seeing physician capacity being reached. And the answer was not physician capacity per se but really back office capacity to deal with the bureaucracy and paperwork. Whether that thins out a little bit in the rest of the year is to be seen. But I think the run rate we’re seeing with some of these dynamics of fibrosis restrictions opening up with prior authorization, should stem to ease up a little bit. But at the same time, with the physician office capacity challenges, it’s somewhere between 250 and the high 200, I think the patients we will probably see being treated in the U.S. this year. Going to Europe, we’re also very happy to see a large number of patients being treated in Europe for the first time, around 20,000 in the first quarter. The majority of which were in the big five countries. We’re seeing in Europe that Sovaldi is now approved in the big five countries and Harvoni available in Germany and in France under the French ATU system. We signed agreements where we should see Harvoni in both Spain and Italy quite soon. This is great news. The capacity constraints in Europe is really the budget that have been set by the governments and we work with the government in terms of the prevalence and the number of patients that they hope to treat, and we encourage them to really maximize the amount of budget they could put towards hepatitis C. Nevertheless, they are single payors with budgets. We think that we should get to the sort of top of those budgets this year. So, we previously said we thought in Europe around about 100,000 patients was probable for 2015, and I think that’s kind of our thinking at the moment.

Congratulations on the strong Hep C numbers. I noticed that the IMS data for the hepatitis C market seems to show a flattening and subsequent decline in new prescriptions, which has also resulted in a similar trend in total prescriptions. I’m curious if we should interpret this data as an indication that the U.S. hepatitis C market has peaked, or is there something in the IMS data or another reason to expect a reacceleration later this year?

That’s a hard question to answer. I think again I would just emphasize it is early days still in the U.S. as some of the contracts that payors we contracted with in the first quarter start to unfold. Some of them have very open fibrosis restrictions; some of them are still fairly restricted to sicker patients. We have this dynamic of warehousing; we also have direct-to-consumer campaigns that you may have just noted starting. I think all of these dynamics are moving. Again, the data points that we’ve seen, I agree with you, would imply a slight flattening of the U.S. market. But I would say there is still a possibility of further growth in the rest of the year. But again, I’d just emphasize it’s very early days to make a prediction on that.

Thank you very much and add my congratulations on a remarkable quarter and progress. Maybe just change gear a little bit, Robin could you update us on where your cash is and where your cash flow is? And then really phenomenal cash flow, are you sort of thinking about how else you might use that other than the dividend and the share repurchase; I mean obviously you just kind of have a massive amount of cash flow? Related to that, can you raise debt in Europe against that cash flow, is that something you’ve done or just to be punctual?

Sure, Geoff. So just to get the stats out of the way, if you look at our cash, and the full year we expect our cash balance, 40% or so that we expect to be onshore. Relative to cash flow, it’s slightly less. About a third of our cash flow is generated in the U.S. We still think we have fairly significant capacity to borrow in the U.S. If we do discuss borrowing externally, it’s not something we plan to do immediately relative to our overall cash balance, very similar to what we’ve been saying all along. We’re very focused on investing in our pipeline; we continue to look at strategic opportunities that may make sense for us with the focus on Phase 2 or earlier stage assets, and the rest as you see that we’ve been doing is we will redeploy and return it to shareholders via dividends and share repurchases.

It’s a question I guess for whoever wants to pick it up, just a little bit of understanding. Where are you in the peer mix and sort of the rebate mix in the U.S. Hep C market? And can you give us a sense, what’s going on with Medicaid? I mean it was about a $1 billion book of business for you last year, a very much mix geographically around the country, how is the ramp going there?

So we have negotiated and signed contracts I think now with about 90% of the covered lives in the U.S. Of that 90%, 83% have direct access to Harvoni, either through an exclusive arrangement or through a parity arrangement. I would take this opportunity to say once more that Gilead really believes prescribing should be in the hands of doctors and their patients, not through these exclusive arrangements. The payor mix is around 70% what I would call commercial and 30% public. And within that commercial, that includes Medicaid Part D at roughly half that amount. The reason I made that split is because the rebates associated with those covered lives would be in the same sort of ballpark with clearly higher discounts with the public payors. Medicaid, I am not going to comment on extensively except to say that we have ongoing negotiations. I am sure you appreciate from a competitive point of view why I can’t talk too much about that. Nevertheless, we are winning some exclusive arrangements, and our competitors are winning some exclusive arrangements. I think that’s all I can say really at this point.

At the EASL meeting last week, nice to see you out there. Dramatically, one of the things that was emerging is a lot more emphasis on hepatitis B drug development. And you guys have your two programs where I think you’re going to see data this year. So, Norbert, can you just talk about these programs and what you are looking for as a basis for go/no-go in Phase 3 decision? And I guess are you looking for a functional cure in these studies or are you looking for a basis to define the right combinations to move that forward?

With the TLR7 agonist 9620, we’re aiming for a reduction in S-antigen. It doesn’t need to be complete conversion, but if we observe a decrease, that would be sufficient to proceed to Phase 3. For the therapeutic vaccine 4774, which is yeast-based, we are focusing on immunological indicators. We want to see a strong anti-S-antibody response or anything that suggests a specific immune response from hepatitis B-infected individuals, either through antibodies or T-cells. I want to emphasize that our hepatitis B cure initiative is one of our primary research projects. We have dedicated a significant number of personnel to biology, and we are exploring compounds that could inhibit cccDNA and possibly eliminate it, along with investigating epigenetic approaches and several others that I cannot discuss yet due to confidentiality. This area is a major focus for us, and we expect to make progress in the latter half of this year. Lastly, I want to note that both studies involving the TLR-7 agonist and the yeast vaccine are being conducted in virally suppressed patients. Depending on the outcomes in these patients, we will then expand our studies to include treatment-naïve, non-virally suppressed individuals. We have already started a follow-up study on the TLR-7 agonist in viremic patients because we believe there may be immunological reasons it could be effective in that group, even if it doesn't work in those who are virally suppressed.

Norbert, you made some comments on BD and whatnot. I just wanted to ask broadly what you can say to your appetite for deals whether small, medium, or big, specifically John Milligan, I’m sure he’s in the room, had commented earlier that as a corporation we are not really ready for a big transaction. I wonder if anything has changed and how you should be thinking about your capacity for deals, small, medium, or large as we get through Hep C?

We have talked about this in the past about having constraints on what we could do basically, the limitations on the kinds of activities we’re going to undertake because of how difficult it was to get Sovaldi and then replace it with Harvoni in such short order. As we exited last year, we really thought that we had achieved a greater balance across the company and that we had the capability to do more things and to look at more things than we had in the past, and that has, as each month and quarter goes on, we actually gained more ability to do those things as we move forward. Now, Norbert highlighted all the very exciting opportunities that we have in our pipeline. We do feel that we have a very full pipeline. But I think with our position as a company with the cash flow that we have and with our appetite to continue to do more things for more patients around the world, there are some good opportunities; it would be a good time for Gilead to consider a wide range of things. But I can’t tell you that we have an appetite for things large or small, it has to be kind of the right fit for Gilead. We typically like things where we can have a direct impact on Phase 3 and where we can accelerate those products either into the approval process or in great utility over them overall. So, we are open to suggestions; there have been many mentioned out there. But I would say that I want to stick very closely to kinds of areas we’re in here today.

I was just looking at your slide 22 where you speak to the patient dynamics in the U.S., the ones that are considering sofosbuvir and wondering how that’s going to change or if you could speak to how that could change by the time some of the companies reach the market, some of the further combination products to reach the market? And maybe taking a step further just thinking about your triple combo teams like the goal likely be limited to an eight-week regimen and how we should think about the competitive implications of that as other companies also pursue a triple combination?

Just on slide 22, which is the type of patients that are being treated in terms of genotype, fibrosis score, and whether they are naïve or not. I think there will be some dynamics through this year as the sicker patients get treated. I think payors that are currently restricting fibrosis scores will start to open up a little bit. That’s something I would imagine will stop to happen in 2016. Although there are plenty of patients that seem through all scores at the moment. We have some data on intent to prescribe during the first quarter which shows that physician level in the U.S. where doctors intended to prescribe actually slightly more than half of their patients being fibrosis scores zero through S2. In reality, we know that the payors are putting some restrictions, not all payors but some of them. Most likely the actual treatment is going to be towards the sicker patients and that will start to unfold. We also saw the data from the chart, indicating 82% of patients naïve to treatment. I guess that would stay the same, possibly even increase if the experienced patients get addressed. You asked about how we would see that change with other competitors in the market. I would just emphasize we are extremely pleased with the chemical profile of Harvoni and at EASL last week, we saw more data showing how Harvoni can deal with really sick patients extremely effectively and some other genotypes. That clinical profile will only get stronger during the course of this year as we gather an incredible amount of real-world data. I think that data will be very advantageous for us compared to competitors with no real-world data entering the market next year. So, I think the dynamics of the types of patients will change a little bit over time, but there are plenty of patients out there, and we’re seeing plenty of patients coming from the diagnosis pool into treatment and plenty to keep this market going for a number of years.

You asked the second part of the question about the triple and the duration of therapy. I would say we have some conflicting reports coming out of EASL, but I can tell from our own interactions with physicians and thinking about the dynamics of the market, we do think it could get down to a shorter duration. I think certainly as Norbert said that 12, 8, and 6-week durations are what we’ll be looking at our triple combination. It’s our goal to try to collapse the most number of patients down to the shortest duration possible. It will be interesting to see how this triple works across the wide range of different kinds of diseases, both by genotype and by stage of disease. Still, those severely ill patients have fewer options because many of these agents can’t be used in severely ill patients, and they don’t tend to cure at a higher rate. We’ve seen that certainly as you get into Child's B and Child's C scores. I think what will happen here is that it will go down to some easy duration to use. But the pushback we’ve been getting from doctors and from regulators is that six versus eight doesn’t really matter to them. In fact, I’m not sure eight versus twelve matters all that much; as long as it’s simple; as long as it’s safe and as long as there is surety that they will get high cure rates, that’s what they’re looking for. So it’s the outcome that seems to matter more than the duration. We can also tell you from the regulators’ point of view, they don’t view a shortened duration as an important parameter at all. That will create an even further barrier on all of us as we try to get to shorter durations if we can’t provide that simplicity across a wide range of patients, and that will make it more difficult for those products to come to market.

On simtuzumab, Norbert, it sounded like in your prepared remarks you said we’re going to get the 96-week data at the end of 2016. I think in prior calls suggested that the 48-week data would come out late this year. So, I guess two parts to the question. One, are we now not going to get the 48-week data from simtuzumab? And then two, what’s your most recent thinking on the ability of Gilead to file for approval of simtuzumab on its Phase 2 data?

So, there is a 48-week analysis but it’s a utility analysis that is being done by DSMB. If the DSMB comes to the conclusion there is absolutely no change that will ever reach the endpoint, then they will recommend to stop this study and then, of course, the decision is up to us. If they don’t see that, then they will simply tell us to continue. The real endpoint is 96 weeks, and by the way, this was negotiated and agreed upon with the FDA. The FDA felt for somewhere in NASH that is a chronic potentially lifelong disease, 48 weeks are not enough of a treatment duration; they would like to see 96 weeks. But if we can show a convincing reduction in the Sovaldi study, there are two NASH studies, one is in Sovaldi. The endpoint there has been pressured going; if we see a clinically meaningful reduction at week 48 and week 96 in HVPG, that would get us potentially accelerated approval under the sub-part. I can’t remember what it’s called for biologics; it’s sub-part agent for small molecules guidelines.

So, I guess just as a follow-up to the color you provided on Hep C discount. So, does your guidance of 46% still hold? And how do we think about this quarter stocking for the quarter? And then lastly, when you think about hitting that 46%, how do we think about when you’ll start 46%?

So, we made a very atypical last quarter by describing gross to net. And by the way, gross to net is not the same as discount to rebate; there are other items in that. We’ve taken a view that for competitive reasons, I hope you appreciate why we don’t want to discuss gross to net really ever again this year. Having said that during the first quarter, some of the contracts, and Robin said this in her script that we signed, started to be executed during the first quarter. I would say we’re in a steady state really from quarter two and the guidance that we just we’ve given absolutely reflects our assumptions around gross to net in the U.S. hepatitis market. I hope that answers your last part of the question. Stocking, yes. There was actually very minimal stock increase during the first quarter; I would say not material in the hepatitis market; a very slight increase in Harvoni stocking matched by a slight decrease in Sovaldi stocking.

Maybe if I could just ask something, so both you and your competitor AbbVie have indicated that most of the contracts have started to come in but didn’t fully come in, and there is potentially an acceleration, at least AbbVie has, of their run rate and the market share into April. I am wondering if you can just comment on dynamics in April. I know you said during the quarter you had about a 90% share; I am just wondering if that has shifted dramatically with some of these additional contracts that come in. And if I can sneak one in for Robin, can you just say what the one-time impact was from the branded prescription to you on SG&A?

So the April share data, I actually don’t have anything on my fingertips Matthew, but I am not sensing any dramatic change whatsoever in the dynamics and the share and the prescriptions that we’re getting. Robin?

So to your point, the majority of the SG&A quarter-on-quarter decline was driven by the one-time impact, and then like sort of further decline because we got a preliminary invoice from the IRS. So we took down our accrual a bit with under 200 million associated with the new estimate that we’ve got, and I’ll reemphasize that it is just an estimate. So we will see what happens longer term when we get the final invoice in August.

Most of the questions are already asked, but for Robin, can you comment more on the impact or magnitude of the unpaid rebates from the cash flow standpoint that you alluded to in your prepared remarks?

So, as you know, we had a significant increase in contracting that occurred in Q1, primarily related to Harvoni. It usually takes the payors and governments up to about three months to six months, sometimes even nine months to ultimately come back and charge us for those rebates or chargebacks. So, if you look at our cash flow, it grew over $2 billion quarter-on-quarter. What we were seeing is that shift because that cash hasn’t actually been paid out. Our run rate really is not at $5.7 billion going forward in further quarters.

Regarding the patients treated, the fibrosis side of the patients treated, you gave us stats in U.S., can you talk about similar information for Europe? And can you also give us a sense of the pricing point that you negotiated in Italy and Spain and the budget cuts?

So fibrosis scores in Europe interestingly do vary somewhat between countries. In fact in Germany, there’s fairly open treatments restrictions. Therefore, there’s a range of patients from sick to not sick being treated; that’s different in France and in Italy and Spain in particular where the budget constraints are really ensuring that only the sickest patients are being prioritized at this stage, so really in Spain and Italy for example, a majority of the French patients are S3 and S4.

Price point?

I wouldn’t comment on the price points except that the listed price points are between EUR 41,000 and EUR 45,000 for Sovaldi and we would anticipate probably a premium of around 15% for Harvoni when those numbers get announced.

Just wondering on the HIV franchise, now that you have a very broad strategy with respect to the TAF combos, can you help us think about just the longer-term market share that you think you can retain post the entry of generic Viread and maybe some other generic competitors down the road as you think about the longer-term longevity of that franchise?

Well that’s a really tough question, predicting into the future. I mean today, as I think everyone knows, we have a very substantial market share in the HIV world. And even in this quarter, we see in the U.S. about eight out of ten patients naïve to treatment going for Gilead product, but six out of ten are getting a Gilead single tablet regimen with Truvada backbone. We’re seeing very good growth of our Truvada based single tablet regimens like Stribild, which is going 75% year-on-year, and Complera, which is going up 33% year-on-year. You can see both in Europe and in U.S. that the top three or four regimens remain Gilead’s single tablet regimens. So we’re in a very, very strong position today. We’re competing with the GSK products, and we do see their impact. I mean for example, we were getting seven out of ten patients in the U.S. on a Gilead single tablet regimen; we’re getting about six. But I do think that emphasizes that the single tablet regimens are the way forward here. We have very strong data with E/C/F/TAF and we hope to have switch data launch. As we mentioned earlier, the PDUFA date is the 5th of November this year. We are getting our organization very much tuned up for that launch, and we will be focusing on really trying to bring the conversation back to the importance of a great backbone. We have great confidence that the F/TAF backbone is a great innovation over Truvada with very high efficacy and safety benefits, which are really increasingly important for the ageing HIV population. So, I think that it’s all about whether doctors feel that the F/TAF backbone warrants a priority. We’re going to make sure that our medical organization convey that data very clearly.

Thank you, Ashley, and thanks to all for joining us today. We appreciate your continued interest in Gilead and the team here looking for updates on future progress. Thanks.