Gilead Sciences Inc (GILD) — Q2 2015 Earnings Call Transcript

Thank you, Candice, and good afternoon everyone. Just after market closed today, we issued a press release with the details of our earnings results for the second quarter of 2015. The press release and detailed slides are available on the Investor Relations section of the Gilead Sciences’ website. The speakers on today’s call will be John Martin, Chairman and Chief Executive Officer, Paul Carter, our Executive Vice President of Commercial Operations and Robin Washington, Executive Vice President and Chief Financial Officer. Also in the room with us for the Q&A session are John Milligan, President and Chief Operating Officer, and Norbert Bischofberger, Executive Vice President of Research & Development and Chief Scientific Officer. Before we begin our formal remarks, let me remind you that we'll 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 our underlying business performance. The GAAP to non-GAAP reconciliations are provided in our press release as well as on our website. I would now turn the call over to John Martin.

Thank you, Patrick, and thanks everyone for joining us today. Paul and Robin will elaborate on our commercial and financial results in just a moment. I would like to first comment on our HIV and HCV development programs. Our newest antiretroviral agent TAF, which is under review as part of multiple products for the treatment of HIV, has a superior safety profile compared to TDF. This is important because most newly diagnosed patients would now be treated for decades, and at the same time, many HIV infected individuals who are in treatment, particularly in the U.S. and Europe, are advancing in NIH. It has also become clear that upon diagnosis, HIV patients should immediately begin treatment; this point was driven home by the presentation of the NIH-sponsored START study results last week at the International AIDS Society Conference (IAS) in Vancouver and the concurrent publication of results in the New England Journal of Medicine. The START trial was a two-arm randomized study in which patients with CD4 counts greater than 500 were randomized to immediate treatment versus deferred treatment until their CD4 count had declined to 350. The study was stopped after it was apparent that there was a clear net benefit in the immediate treatment. For patients facing decades of therapy, the profile of TAF suggests that it will be viewed favorably as a new treatment option. We now have three TAF-containing products under review: two single-tablet regimens and a TAF and emtricitabine coformulated tablet. Important data from Gilead study 109 were presented last week at IAS. Study 109 is an open-label clinical trial with over 1,400 biologically suppressed patients who are randomized to switch from a TDF-containing regimen to E/C/F/TAF or to remain on their TDF containing therapies. The study met its primary endpoint and showed statistical superiority of E/C/F/TAF in terms of the proportion of patients with HIV RNA less than 50 copies per mL at week 48. The study also demonstrated statistically significant improvement in bone and renal laboratory parameters. E/C/F/TAF is poised to be the first TAF-based regimen on the market, with an FDA PDUFA date of November 5, and regulatory decision expected in Europe before year-end. Our second TAF single tablet regimen, F/TAF, was submitted for FDA review earlier this month. We're using our Priority Review Voucher, which shortens the review by four months, meaning that the expected FDA action date is in March of 2016. Submission of a regulatory file application for R/F/TAF EU is planned for the third quarter. In the developing world, more than 30 million people are living with HIV, and nearly 8 million now receive TDF-based treatment regimens. The switch data presented at IAS and the overall safety profile of TAF make it an important option for these patients, and Gilead has already licensed the technology to our generic manufacturing partners with the goal of expediting access as soon as initial regulatory approvals are received. Turning briefly to HCV, since the approval of Sovaldi in December 2013, approximately 470,000 patients globally have initiated treatment with Sovaldi or Harvoni. The rapid uptake and utilization of these medicines is a testament to the fact that the real-world safety and efficacy parallels the results obtained in our controlled clinical studies. Three supplemental new drug applications for Harvoni were submitted to the FDA last quarter, each of which has been granted priority review. If approved, these applications will expand the indicated use for Harvoni to include HCV/HIV co-infected patients, patients with genotypes 4, 5, or 6, and treatment-experienced cirrhotic patients. A decision from the FDA for each of these three sNDA is expected by November 15. In closing, I would like to thank Gilead's dedicated employees for their tireless efforts and collaboration with our partners to develop new therapies and deliver them to people around the world. I will now turn the call over to Paul.

Thanks, John. I am pleased to provide an update on our commercial business, which in the second quarter generated $8.1 billion in worldwide net product sales. U.S. revenue was $5.6 billion, a 7% sequential increase and a 16% increase compared to the second quarter of last year. European revenue was $2 billion during the second quarter, up 8% sequentially and more than 50% on a year-over-year basis despite the foreign exchange headwinds. Beginning with hepatitis C, as John mentioned earlier, we're very pleased with the number of patients we're reaching with Sovaldi and Harvoni, which have now been approved in 51 and 40 countries, respectively. Total HCV revenue for the second quarter was $4.9 billion. In the U.S., HCV product revenue totaled $3.4 billion, with Harvoni representing $2.8 billion of that amount. In the first half of 2015, an estimated 130,000 U.S. hepatitis C patients started treatment on a Gilead product, almost matching the number of treated patients for all of 2014. While this demonstrates that improvements in access have been made, there are still many new prescriptions being written that have yet to be filled. Following the nearly 70,000 patients in quarter one, more than 60,000 additional patients started therapy on a Gilead hepatitis C product during the second quarter, which represents Gilead's market share of over 90% of all HCV patients, with Harvoni alone representing approximately 85% of all patients captured in the standard third-party tracking data. We have also maintained our very strong position with U.S. payers, as reflected by our formulary status across all payer segments. 83% of genotype 1 patients have direct access to Harvoni, a percentage that has remained stable since the first quarter. In Europe, hepatitis C revenue was more than $1.1 billion this quarter with over 30,000 estimated new patients starting treatment. We observed particularly high patient initiations in Spain, Italy, and Portugal during the second quarter. As one example, Sovaldi uptake in Spain was driven by unprecedented regional access and a significant increase over historic hepatitis C treatment rates. Additionally, Harvoni was launched in April and has surpassed the success of Sovaldi, with more than 6,000 Spanish patients receiving treatment in the second quarter. We have seen a continued broadening of access and reimbursement across multiple European markets. Harvoni is now reimbursed in four of the five major EU countries, and in France, we completed pricing negotiations for Harvoni in June, opening access to all patients with a fibrosis score of F2 and to all HIV co-infected patients. This is a broader group of patients than those previously treated under the French ATU or early access program. Looking ahead, we are confident in the opportunities to reach more patients in Europe, including in the UK, where Sovaldi reimbursement is expected to come online more broadly later this summer, and Harvoni will follow afterward. In both the U.S. and Europe, we're starting to see average treatment durations shorten. For example, fewer patients have been treated for 24 weeks, and in the United States, approximately 40% of Harvoni used in the second quarter was for eight weeks. This is an encouraging trend, as it suggests payers should be seeing the value of earlier treatment for appropriate genotype 1 patients. We believe this makes for a strong case for payers to further ease restrictions on patient access. In the U.S., we saw an unusually large number of patient starts in the first quarter, reflecting warehousing of patients in anticipation of access to Harvoni. In the second quarter, we saw the total number of prescriptions decline from a peak in March, reflecting a smaller pool of patients who were in need of immediate treatment. When we think about hepatitis C patient numbers going forward, this market is still in its early days, with many patients identified and waiting to be treated. As I mentioned earlier, many prescriptions go unfilled due to denials in the prior authorization process. Going forward, we believe more payers will lower restrictions, allowing patients with lower fibrosis scores to access treatment. The increasing amount of real-world data should reinforce confidence that our highly differentiated product provides high cure rates that align with our clinical trials. Additionally, we and others are increasingly active in generating awareness of hepatitis C and communicating the benefits of hepatitis C testing and early treatment. We believe our efforts to bring new patients to care will continue to be fruitful in the future. So while the number of new patients starting on treatment will continue to be influenced by the restrictions applied by the payers, we see encouraging trends and remain highly confident both for the remainder of this year and for the long-term sustainability of the hepatitis C market in the United States. In Europe, the dynamics of our hepatitis C business are defined by each country and their respective launch timings. Like in the U.S. at launch, we've seen unusually high numbers of patients being treated, as there has been some warehousing, especially so for Harvoni GT-1 patients. We also see a changing mix as the high-volume Southern European countries like Spain, Italy, and Portugal begin to treat patients. Our pricing arrangements took into consideration macroeconomic circumstances, hepatitis C prevalence, and countries' intent to increase treatment rates from past levels. As a result, we’re likely to see a changing mix in patient volumes as well as average selling prices over time. We've recognized that there remains a huge unmet medical need in Europe, and a small fraction of diagnosed patients have so far been treated. As in the U.S., our European teams are working hard to encourage diagnosis and increase levels of treatments in the years ahead. Turning to Japan, we're pleased with the initial introduction of Sovaldi for genotype 2 patients and I'm excited about the prospects for Harvoni in genotype 1. With the approval in July, we expect reimbursement for Harvoni to be in place in Japan later this summer. There is consensus within the medical community that Gilead medications offer patients an easy and effective cure for hepatitis C. This is evidenced in treatment guidelines around the world and from the real-world data that continue to be generated and presented and published in peer-reviewed forums. We will continue to work to bring these treatments to more patients as quickly as possible. In closing, we’re very pleased with the commercial results for the second quarter. And now I'll turn the call over to Robin.

Thanks, Paul, and good afternoon everyone. We’re pleased to report solid second-quarter results with non-GAAP diluted EPS of $3.15 for the second quarter, up 33% year-over-year. Total revenues were $8.2 billion, up 26% year-over-year and 9% sequentially. Despite currency headwinds, net product sales for the quarter were $8.1 billion, up 27% year-over-year, driven by the launch of Harvoni across various geographies, continued growth of Sovaldi outside the U.S., and increased sales of our newer HIV single-tablet regimen. Non-GAAP product gross margin was 90% for the second quarter of 2015 compared to 89% for the second quarter of 2014, benefiting from changes in product mix, including a year-over-year decline in Atripla sales which had a lower margin. Turning to expenses, non-GAAP R&D expenses were $702 million for the second quarter, up 30% 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. Non-GAAP SG&A expenses were $761 million for the second quarter, up 34% compared to the prior year, primarily due to an increase in our portion of the branded prescription geography and higher costs associated with the growth of our business, including commercial expansion to support our HCV products. Turning to our balance sheet, we ended the second quarter with $14.7 billion in cash and investments and generated cash flow from operations of $5.7 billion. On June 29, shareholders received their first quarterly cash dividend of $633 million or $0.43 per share. Our Q3 2015 quarterly cash dividend of $0.43 per share was announced this afternoon. During the quarter, we repurchased approximately 9 million shares at an average price of $102.14 pursuant to our $15 billion share repurchase plan approved in January 2015. As of June 30th, we have $14.1 billion remaining under the current plan and remain active in repurchasing shares. Additionally, we utilized $3.9 billion in cash for the early retirement of 46 million warrants, which will result in a third-quarter decline in diluted shares outstanding of approximately 25 million shares. Approximately 9 million warrants remain outstanding at the end of June. Finally, we are updating our full-year 2015 guidance as outlined on Slide 46. The changes are as follows: we expect product sales to be in the range of $29 billion to $30 billion, an increase of 18% to 23% over 2014. Our guidance for product revenues is subject to a number of uncertainties including inaccuracies in our estimates of HCV patient starts, a larger than anticipated shift in payer mix to more highly discounted payer segment such as PHF, FFS, Medicaid, and the VA. The commercial launches of Sovaldi and Harvoni in Japan, the potential adoption in Europe of additional pricing measures to reduce HCV spending, and the potential for continued volatility in foreign currency exchange rates. Product gross margin guidance is now in the 88% to 90%. We are lowering R&D expense guidance to be in the range of $2.8 billion to $3 billion, driven by cost efficiencies in our clinical development activity and faster than expected enrollment of HIV and HCV studies. We are lowering our SG&A expense guidance to be in the range of $3 billion to $3.2 billion, primarily driven by the favorable one-time adjustment expected in place from the IRS for the branded prescription drug fees. Our tax rate is now anticipated to be 17% to 18%; all other components of our 2015 guidance remain unchanged. In summary, Gilead had another very solid quarter, and we see strong prospects for the remainder of the year with higher than originally forecasted revenues and lower than originally forecasted expenses. Thank you, and we look forward to updating you on our progress during our next call. We would now like to open the call for questions.

Congrats on the quarter, very impressive. I want to ask you an excess question about hep C from Paul. If I look on Slide 25 and you’ve broken out new patients by fibrosis states, I have a couple questions. One, what trends have you seen for F0 and F1 patients? And what could be the tipping point for new starts for F0 and F1? And then how important is that when you guys view the durability for U.S. sales?

The data that we have on intent to prescribe shows that in this quarter the data indicates that about 55% of prescriptions were F0 through F2. However, we don’t believe that nearly that many prescriptions were actually filled. By definition, intent to prescribe is prescriptions that have actually been written, not necessarily filled. So there are still a lot of restrictions in place in the United States, and I think this is the variable that will really influence the number of patients that we see being treated or the rate of the number of patients being treated in the rest of the year and through the next few years. What we're hoping is those restrictions start to unwind somewhat; we are encouraged by a couple of things. Specifically, we're encouraged that the number of people being treated for eight weeks and genotype 1 patients is increasing; that is now about 40% of Harvoni prescriptions. That suggests that less sick patients are being treated, and we also hope that, as I mentioned in my script, the data starts to provide some encouragement to payers in terms of value as they consider curing patients. We'll have to wait and see over time how these restrictions unfold.

If I may, John Milligan, perhaps three pharma CEOs, companies with market caps in some cases smaller than yours, have said something in fact that mid-cap biotech is priced to perfection; one even said it's a bubble. The biggest question on everyone's mind for Gilead is who you're going to buy? So, I was wondering, A, if you could comment on the general state of valuations in mid-cap and small-cap biotech, and B, give us an update about what you're thinking on acquisitions. Are you ready to do them now? If so, would you be willing to do a series of smaller ones, or would you be willing to do, for example, a very large transformative type of deal?

Thank you for that question. A couple of things: on one number, you've talked about the valuation of our industry, and we have seen the dramatic growth in the valuation of a lot of companies, certainly the small and mid-cap companies. I have to say it has been accompanied by some really significant increases in innovation and some very interesting and innovative products that have come along, so it's hard to say that there's a bubble when we are seeing such dramatic innovations creating a lot of value. So that's how I think about it. The second thing addresses your question about what we are going to buy. Gilead is in terrific shape; we've got a very strong workforce, a robust balance sheet, and great scientific expertise on board, which gives us the capability to do a wide range of things. We could contemplate small deals or perhaps larger transformative deals, and we're in a position of strength where we can be very selective about the opportunities we pursue and take our time to ensure that the acquisitions we undertake are effective in delivering new products to market and continuing to grow our top-line revenue and EPS. So we'll consider all options, but obviously I can't comment specifically on any potential targets; that would be inappropriate.

Congratulations on the quarter; arguably the most remarkable guidance we've seen in a long time. I have a question for Paul on HCV. You've tracked roughly 300,000 patients in the U.S. over the last 18 months or so. Paul, my question is, is the patient pool that is still to be treated being replenished via new diagnosis or new patient identification at the same rate as that 300,000 depletion or faster or slower than that 300,000?

The answer is yes; we have some quantitative evidence and plenty of anecdotal evidence. We talk to doctors all the time, and physicians in the U.S. tell us they have many patients in the queue, waiting for treatment. The barriers to them being treated are the restrictions that payers are imposing. We, ourselves and our competitors, along with many stakeholders, are working hard to promote awareness of hepatitis C, encourage testing, and facilitate patient linkage to care. We even measure the number of patients moving from diagnosis to treated care. We estimate there are about 30,000 patients per month moving into treated care. So I'm quite confident that we can move these numbers consistently. We are actively working to increase diagnosis rates, as we have approximately 1.6 million people diagnosed in the U.S. but have treated only about 300,000 in the last year or two. There's still a long way to go for diagnosed patients.

I just wanted to ask about the product sales guidance; nice increase in the quarter here. If I plug in your half-year sales of about $15.5 billion and look at your full-year sales guidance of $29 to $30 billion, that implies you're probably not thinking that hep C sales are going to roll off the cliff in the U.S. in the back half of the year. Could you talk a little bit more about your assumptions that went into your sales guidance raise for this year, particularly around the product mix and geographic mix? Lastly, I know you only provide guidance for this year's numbers but anything you can share about your thinking on the outlook for 2016 in terms of the mix?

We don't think as many patients in the U.S. will be treated for hepatitis C in the second half as in the first half. The reason for that is not that we believe that patient numbers are being treated at a lesser rate but rather that we saw a very significant spike in quarter one due to a backlog of patients waiting for interferon-free Harvoni. Harvoni has really changed the landscape for those patients waiting for treatment. To put this in context, in quarter four last year, Gilead treated about 45,000 patients, while in quarter two we treated over 60,000 patients—a 40% increase in patient numbers. Therefore, we don't feel that the overall trend in this market is declining; however, we did see this significant spike in quarter one, which we don't expect to be repeated in the second half. We are also mindful of how payer restrictions will play out for the remainder of the year. We have the VA situation, which has been widely publicized due to depleted funds. Thus, we assume that those purchases will start to rebound toward the end of the year when their funds are replenished. Furthermore, we recognize the various dynamics going on outside the U.S., and we’ve observed trends similar to those in the U.S., where there tends to be early spikes in volumes as critically ill patients get treated before leveling off. We also realize that budget ceilings have implications for treatment dynamics, particularly since some countries may reach or surpass previous treatment ceilings. Therefore, we've adopted a conservative view on our guidance.

Just a follow-up on a couple of these points. Should the takeaway be that U.S. patient numbers treated are likely to continue to shrink here over the next few quarters, but that potential growth will be offset by OUS? As you work to get comfortable with the U.S. market, at what point do you think it might stabilize or bottom out? Further, does Medicaid play a significant role in this? I know you've been discussing it in the context of payment contracts, but haven't heard much about it recently.

We don’t know for sure yet whether the U.S. patient numbers have actually stabilized, but we have a sense that directionally, they will stabilize and stop declining as payer restrictions start to ease. The VA should start purchasing again, and we expect that dynamic may bring some stability to the mix between public and private payers, shifting it a little more towards public payer in the second half of the year. Year-to-date, we're at about 70% public payer to 30% private, and we see that maybe moving to 60-40 in the second half. With regards to the Medicaid population, our competitors have exclusive access to some Medicaid, while we have other deals in place. Harvoni patients in Medicaid are available in about 34 states that have signed contracts with us to make Harvoni available; that’s around two-thirds of the patients covered by Medicaid.

I wanted to ask a little more about the access expansion you've discussed in the U.S. What's the biggest hold-up in that access expansion? It sounds like you've made various provisions to help, including rebates and other initiatives. However, what is ultimately stopping the payers? Do you have confidence that simply taking a little more time will eventually lead to expanded access?

Our confidence is high that restrictions will start to ease. The question is more about the timeframe. Real-world evidence plays an important role in that. Many studies are now being published that show real-world data matches or even exceeds the clinical data. This gives payers the assurance that the investment is worthwhile. Furthermore, personal patient stories resonate well and increase pressure on payers. We're hearing instances of patients taking legal action against their insurers because they aren't getting coverage despite having insurance. Collectively, I think this combination of factors will increasingly put pressure on payers to open restrictions.

I have a specific question regarding gross to net adjustments for the HCV franchise. On the Q1 call you highlighted that you had not fully assessed those impacts yet, but in your prepared remarks this quarter, you suggested that the full effect of the payer contracts is now being felt. However, it sounds as though you may continue adjustments in future quarters due to increased proportions of public payer reimbursement. Can you elaborate on the current evolution of gross to net measures and whether the run rate this quarter is a good indication for the second half of the year?

I would say we do feel we are getting closer to what we'd expect, given a full quarter of the contracts in place. Relative to Gross to Net, this quarter's adjustments brought us closer to our initial estimates. Nonetheless, based on the payer mix, which we forecast changing going from 70% private to 60% public in the second half, there may be minor adjustments. Overall, we anticipate no significant quarter-on-quarter changes at this juncture regarding gross to net.

Just following up on Phil's gross to net question. Would you expect to go through another round of payer negotiations upon the potential approval of Merck's regimen early next year?

Cory, I'll respond to that. We have agreements in place, and it's important to note that about 96% of lives in the U.S. are now covered under agreements. Harvoni has access for 83% of these either in exclusive or parity arrangements. I want to emphasize that Gilead does not believe in exclusive access and we believe that physicians and patients should have the freedom to prescribe what they see fit. As such, we are not aiming for further exclusivity but rather competition on the merits of our products.

I want to focus on the oncology area. Celgene is very aggressive in the blood cancer space with acquisitions. You've mentioned your interest in immuno-oncology before. How aggressive do you think you have to be in oncology to compete? Additionally, do you think it's more important to focus on blood cancer compared to solid tumor reductions given the current competitive landscape?

That's a good question, and the current landscape is fascinating. The blood cancer segment has become quite crowded. We have broadened our criteria for exploration and are looking at various opportunities. Specifically, in immuno-oncology, we haven't explicitly focused on that space due to its competitive nature, especially in PD-1 and PD-L1, but this doesn't preclude us from considering novel areas that could benefit patients. While we are open to opportunities making a meaningful impact in our portfolio, the terms of 'aggressive' are context-dependent.

Robyn, I'd also like to point out that we are actively pursuing solid tumors. We have our MMP9 antibody in gastric, pancreatic, and lung cancers, which provides a unique aspect of immuno-oncology as well.

Looking at Sovaldi, it seems to be a big quarter in the U.S., but it didn’t quite match the prescription data from previous quarters. Is there any color you can provide? Is there any source of Sovaldi revenue not being captured in the prescription data, or were any one-time factors at play last quarter or this quarter that we should consider? Additionally, I’m curious if there is any particular mid-cap company you think plays a role in the biotech innovation wave that you've mentioned, which the public markets may be undervaluing?

I don't believe there was anything unusual about Sovaldi this quarter; there was a minimal amount of inventory growth. Sovaldi appears to be steady in terms of patient volume, with no specific factors making it exceptional.

Regarding undervalued small or mid-cap stocks, I can't provide stock tips but I do believe the ongoing innovation will speak for itself regarding valuation.

There are two parts to my question. First, if we look at sales for Sovaldi and average price per patient, it seems to be higher this quarter compared to the last. Is that simply a mix question based on more Sovaldi patients versus Harvoni? Second, as we think about 5816's Phase 3 data, how should we think about positioning it relative to Sovaldi? Would you consider pulling Sovaldi from the market if 5816 proves effective, or would you keep it available and how do you see its pricing dynamic?

Yes, the increase is primarily driven by product mix. I’ll turn this over to Norbert.

Regarding 5816, there is clearly an opportunity here to address genotype 3 patients, which remains an unmet need. The clinical data shows substantial, yet suboptimal response rates—specifically, cirrhotic patients have SVR rates around 60%. That's a significant gap for us to address. Regarding Sovaldi, no, we would not consider pulling it from the market, as Sovaldi still has substantial value in certain subpopulations and remains a useful agent when combined with others.

Could you speak about the European market? Do you foresee growth facing bottlenecks from government budget processes in the second half and next year? Secondly, your competitor AbbVie suggested that the number of U.S. GT-1 patients being treated will be annualized at around 175,000 to 180,000; do you agree with AbbVie, or do you predict a higher number of treated patients?

Regarding U.S. patient numbers, I believe AbbVie's estimated figures are lower than ours. We believe there should be upwards of 250,000 treated in the U.S. next year, not just for GT-1 but across all patient types. Historically, we mentioned that the treating capacity is around 300,000, and we see no reason for that to change. As for Europe, our agreements consider the government's ability to finance treatments. There is strong political will in some countries to expand access, and we see varying success in treatment rates depending on budgetary constraints. Whether those budgets are reached remains unknown, but we foresee pressure on countries to allocate more funding to hepatitis C treatment.

Paul, could you discuss further the market opportunity in Japan for HCV? Specifically, how does the pricing mechanism work there, and is there any statutory discounting based on volume?

Japan represents an exciting opportunity for us as it's our first product launch in the country. We established our Japanese entity for the launch; this positions us well for future products beyond hepatitis C. The initial launch of Sovaldi for GT-2 is off to a good start, as there are around 200,000 diagnosed GT-2 patients in Japan with no available interferon-free options apart from Sovaldi. We're also working to agree on pricing for Harvoni shortly, and we expect favorable outcomes with prompt launches. In terms of statutory discounts, there are typically discounts of 2-5% every couple of years. However, there won't be significant discounts during the first years post-launch.

As we discuss building the market for Harvoni in the U.S., how do you perceive the cost-control measures implemented by insurance carriers? We frequently hear of pricing strategies in efforts to control growth; how do you foresee this affecting Harvoni moving forward?

We need to appreciate the incredible value that our products provide, particularly with Sovaldi, Harvoni, and our future product pipeline. The innovation is our strong negotiation leverage, and I believe payers fundamentally want to enable their patients access to these advanced therapies. Thus, we must continue negotiating terms beneficial for both parties. We are optimistic about maintaining robust relationships and ensuring high levels of access to our medicines, especially our forthcoming HCV innovations.

Could you provide more context around R&D and SG&A spending this year? Why was this quarter lower than anticipated? Additionally, what are your thoughts on long-term trends into '16 and '17?

Overall, on a year-over-year basis, both SG&A and R&D expenditures increased. R&D was driven by further acceleration in our pipeline. Positive enrollment in trials has allowed us to be efficient in our spending, which is why we are able to adjust guidance downward. SG&A saw an increase due to ongoing commercial efforts for launching new products. Notably, the SG&A decrease was related to a one-time adjustment in the branded prescription drug fee from the IRS. Regarding long-term trends, while I cannot provide quantitative projections, we are focused on frontier efforts that promote efficient expense management going into '16 and '17.

Thank you, Candice, 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 future progress.