Gilead Sciences Inc (GILD) — Q1 2018 Earnings Call Transcript

Thank you, Candace, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the first quarter of 2018. The press release and detailed slides are available on the Investor Relations section of the Gilead website. The speakers on today's call will be: John Milligan, President and Chief Executive Officer; John McHutchison, Chief Scientific Officer and head of Research and Development; and Robin Washington, Executive Vice President and Chief Financial Officer. Also in the room with us for the Q&A session is Andrew Cheng, Chief Medical Officer and Executive Vice President. Before we begin with our prepared comments, 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 press release as well as on the Gilead website. I will now turn the call over to John Milligan.

Thank you, Sung, and thank you, everyone, for joining us today. I would like to start by introducing John McHutchison and Andrew Cheng in their new roles. As you know, Norbert made the decision earlier this year to step down from his position as Chief Scientific Officer. I've worked alongside Norbert for 27 years, and on behalf of the entire Gilead organization, I would like to express my profound thanks to him for his many contributions. In terms of succession, Gilead is fortunate to have strong leaders across our R&D organization who will build on the tremendous success that we have had for over three decades. I look forward to the leadership of John in his new role as Chief Scientific Officer and Head of R&D and Andrew in his new role as Chief Medical Officer, as we continue our work to invent and develop new products for patients in need. Turning to the business and results of the quarter, we continued to see strong growth in our HIV business, driven by broad acceptance and uptake of our Descovy-based regimens. We are confident that this franchise will remain a key growth driver for the company moving forward. One of the products contributing to the growth is our latest Descovy-based single-tablet regimen, Biktarvy, formerly referred to as BIC/F/TAF, which was approved in February by the U.S. Food and Drug Administration for the treatment of HIV. In March, Biktarvy was added to the U.S. DHHS guidelines for the use of antiretroviral agents in adults and adolescents living with HIV as one of the recommended initial regimens. Last week, we announced that the CHMP has adopted a positive opinion on the Marketing Authorization Application for Biktarvy in the EU. We expect approval in the third quarter of this year. Biktarvy represents Gilead's sixth single-tablet regimen and, with the approval of Symtuza in the EU by our partner, Janssen, the fourth containing Descovy backbone. Symtuza is currently under FDA review in the U.S. Biktarvy is a combination of an unboosted integrase inhibitor and the well-established backbone Descovy. Its small size, minimal drug interactions, and established renal and bone safety profile make Biktarvy an important treatment option for most HIV patients. This is particularly true for an aging HIV population, which is at increased risk for AIDS-related morbidities. In February at CROI, the Conference on Retroviruses and Opportunistic Infections, one of the most important meetings for HIV research, we had the opportunity to share our progress on the work we are doing to bring innovative therapies to people living with HIV. Gilead's compounds were featured in 21 abstracts and data presentations, including promising preclinical results from our HIV cure research program. These data show that the combination of two investigational agents, GS-9620, a toll-like receptor 7 agonist, and PGT-121, a broadly neutralizing antibody that binds to the HIV envelope, induced viral remission in the absence of antiviral therapy in HIV-infected monkeys and support clinical investigation of such combination strategies. Investigators also presented Phase 3 data in patients switching from a regimen containing abacavir, dolutegravir, and lamivudine to Biktarvy, and data from a multi-national Phase 3 study of Biktarvy in women, a group that is often underrepresented in clinical trials. Data from these studies further demonstrate that Biktarvy may be appropriate for a wide range of people living with HIV. The data presented at CROI represent encouraging progress and demonstrate our continued leadership in driving innovation in HIV therapy. Moving to liver disease, our team recently attended the International Liver Congress in Paris, where there was a lot of emerging data around NASH and hepatitis B. The particular focus on NASH was very much like what we saw with the early breakthroughs in hepatitis C before the disease took center stage at the conference. John will share more specifics about EASL and the data presented there in a few minutes.

Thank you, John. I am privileged to lead our R&D organization, which has been a leader in scientific innovation for over 30 years. Under Norbert's guidance, Gilead has introduced 25 innovative treatments that have positively impacted millions of people facing serious diseases globally. I believe our team will enhance these outstanding achievements. I would like to take a few moments to outline our recent advancements in liver diseases, inflammation, and cell therapy. Starting with liver disease, we are making significant progress in NASH, concentrating on patients with the most severe forms of the disease, particularly those with advanced fibrosis who are at the greatest risk of progressing to end-stage liver disease, liver cancer, and potentially needing a liver transplant. We recently announced that our two ongoing Phase 3 trials, STELLAR 3 and STELLAR 4, completed enrollment ahead of schedule. These studies are assessing selonsertib, our S1 inhibitor, in patients with F3 and F4 stages of fibrosis. We anticipate data from both Phase 3 studies in the first half of 2019. If the data confirms safety and presents a statistically significant and clinically meaningful effect on fibrosis, we could seek regulatory approval by the end of 2019. Additionally, we are investigating combination therapy approaches with compounds that have distinctly different mechanisms of action. In animal studies of NASH, these combination approaches have been safe and led to enhanced anti-fibrotic responses compared to monotherapy. As John highlighted, there was increasing interest in NASH at the International Liver Congress in Paris last month. We had the chance to share promising early results from a proof-of-concept study that explored both single agents and combinations of selonsertib with Gilead's ACC inhibitor, GS-0976, and our FXR agonist, GS-9674, in patients with NASH. The primary goal of this study was to assess the safety of the combination therapy. Based on the 12-week study, our combination therapies were well tolerated, and they provided additional benefits in improving NASH by reducing liver fat content, liver cell injury, and other markers of fibrosis. This also marked the first study to demonstrate that GS-9674 alone was effective in patients with NASH. Encouraged by these positive data and supported by pre-clinical findings, Gilead has started a larger Phase 2b study involving 350 patients to evaluate combinations of selonsertib, GS-0976, and GS-9674 in individuals with advanced fibrosis due to NASH. Treatment will last for 48 weeks, with liver biopsies taken before and after the treatment period. Another objective of our NASH program is to pinpoint accurate non-invasive tests that could help healthcare providers identify patients requiring treatment. At the recent Liver Congress, we presented data using two distinct machine-learning methods based on our earlier NASH studies. The results suggested that non-invasive tests could accurately predict the risk of disease progression and improvement in liver histology. We will persist in investigating non-invasive tests, aiming to potentially replace liver biopsies for diagnosing NASH and managing patients. Turning to inflammation, I am pleased to report that our three Phase 3 studies of filgotinib, our JAK-1 specific inhibitor for rheumatoid arthritis patients, are now fully enrolled. These studies are assessing the efficacy and safety of filgotinib in patients who are inadequate responders to biologic treatments, methotrexate inadequate responders, and treatment-naive patients respectively. We expect data from FINCH 2 to be available in the latter half of this year, while data from FINCH 1 and FINCH 3 will be accessible in the first half of 2019. Filgotinib is also being studied in two separate Phase 3 trials for Crohn's disease and ulcerative colitis, which will enroll over 2,500 patients, as well as in several smaller Phase 2 studies covering psoriatic arthritis, ankylosing spondylitis, cutaneous lupus, Sjogren's syndrome, and uveitis. We hope to have data from some of the Phase 2 studies this year. Additionally, we announced a significant scientific collaboration with Verily, the life sciences division of Alphabet, to enhance our understanding of rheumatoid arthritis, inflammatory bowel disease, and lupus-related diseases. Most patients suffering from these immune-driven diseases do not achieve sustained or significant remissions with existing therapies, indicating a clear need for innovation. Through this partnership, we will utilize Verily's ImmunoScape platform to analyze the molecular features of these immune-related diseases by categorizing each patient's individual leukocytes into numerous immune cell subsets. Using epigenetic and transcriptomic assays, we believe this technology could help identify patient groups who respond to specific therapies and also uncover new drug discovery targets. Moving on to cell therapy, we expect that the CHMP will give an opinion for Yescarta in the second quarter. If favorable, approval should follow in the third quarter of this year. Given the groundbreaking nature of CAR T therapy, the European Medicines Agency is reviewing the application under standard review to ensure adequate evaluation of the submitted data. Furthermore, we continue to enroll patients in ZUMA-7, a Phase 3 study comparing Yescarta to the standard of care, which involves salvage chemotherapy followed by autologous stem cell transplantation in the second-line treatment of diffuse large B-cell lymphoma patients. ZUMA-7 is the first global randomized Phase 3 study of a CAR T therapy and plans to enroll 350 patients across 50 locations in North America and Europe. There is a significant unmet medical need for patients experiencing relapsed or refractory DLBCL post first-line therapy, given that salvage chemotherapy followed by transplantation only cures about 10% to 20% of these patients. Should the ZUMA-7 trial yield positive results, Yescarta could be a viable option earlier in the disease course, thereby broadening the treatment potential of cell therapy for individuals with diffuse large B-cell lymphoma. We are also thrilled about our partnership with Sangamo Therapeutics, announced in February. This collaboration will provide our researchers access to Sangamo's gene-editing technology, which we believe will facilitate the creation of an allogeneic T-cell therapy that can be produced using healthy donor cells. This gene-editing approach aims to minimize complications commonly associated with allogeneic stem cell transplants, such as rejection and graft-versus-host disease. Allogeneic therapies would also allow us to manufacture CAR T treatments that are universally applicable, enabling quicker access to treatment for patients, especially those who are critically ill. Merging gene editing with the synthetic biology tools acquired from Cell Design Laboratories last year will further empower us to create therapies that accurately target hematological malignancies and solid tumors, potentially making them safer, more effective, and easier to produce. Our R&D organization has made tremendous strides this quarter, and I am optimistic that we will continue to achieve significant progress throughout the year. In conclusion, I am excited to lead the talented Gilead R&D team moving forward. I also look forward to collaborating with Andrew Cheng in his new role and all of my R&D colleagues. We are in an incredibly exciting time for science and medicine, with remarkable discoveries occurring almost weekly. It will be our responsibility to harness these advancements and develop more effective, targeted therapies for patients with urgent medical needs. I will now hand the call over to Robin.

Thank you, John, and good afternoon, everyone. We are pleased to share our financial results for the first quarter of 2018. Total revenues for the first quarter were $5.1 billion, with non-GAAP diluted earnings per share of $1.48. This compares to revenues of $6.5 billion and non-GAAP earnings per share of $2.23 for the same period last year. Starting with HIV and HBV, product sales for the first quarter were $3.3 billion, up 2% year over year and down 10% sequentially. The year-over-year increase was driven by the continued uptake of our Descovy-based regimens, partially offset by the entry of generics and greater U.S. inventory drawdown than in the prior-year period. Sequentially, the decline was due to U.S. sub-wholesaler inventory, reflective of the seasonal pattern from the fourth quarter to the first quarter and the availability of generic versions of TDF in the U.S., which impacted our HBV revenue. Our U.S. HIV business remains robust, led by the continued uptake of Descovy-based regimens. On a year-over-year basis, U.S. HIV product sales grew 8% and total prescriptions for Descovy-based and Truvada-containing regimens grew 12%, consistent with growth seen in each of the preceding four quarters. As John mentioned, Biktarvy, our newest single-tablet regimen for HIV, was approved in the U.S. in February, and we are encouraged by the initial uptake among prescribers. It's very early days, but launch to date Biktarvy is tracking very well against our expectations. With this trajectory, we anticipate over time Biktarvy will become the number one single-tablet regimen for treatment-naive and switch patients, a distinction currently held by Genvoya. Approximately 80% of Biktarvy's prescriptions came from switches, of which approximately one-third came from Genvoya and two-thirds from other regimens, including approximately 20% from regimens that contain dolutegravir, confirming Biktarvy's broad utility across patient types. Similar to the launch of Genvoya, access to Biktarvy has been strong, with the vast majority of state ADAPs and Medicaid programs now covering Biktarvy, with coverage in additional state programs expected this quarter. Truvada for PrEP continued to grow, with approximately 167,000 individuals taking Truvada for this indication in Q1. In Europe, sales of Descovy-based regimens comprise more than half of our HIV product revenues and continue to grow, primarily driven by strong uptake in important markets such as France and Italy. Genvoya remained the number one regimen for naive and switch patients across the EU5 collectively for the fourth consecutive quarter, reflective of the strong physician and patient preference for Descovy-based regimens. Turning to HCV, product sales for the first quarter were $1 billion, down 59% year over year and down 30% sequentially. Consistent with our expectations, in Q1 we observed a downward pricing and market share trend across the major geographies as a result of a more competitive environment. Price has now largely stabilized, and we expect market share to stabilize by midyear. In addition, patient starts have become more predictable, and we expect a slow and steady decline moving forward. We continue to see the HCV market as durable. And albeit a smaller component of our revenues going forward, there are still many patients that remain to be treated. Our cardiovascular products, Ranexa and Letairis, generated $399 million in the first quarter. As a reminder, the patent for ambrisentan in the U.S. will expire in July this year. And finally, sales of Yescarta were $40 million in the first full quarter since approval in October. As John mentioned earlier, we are making great progress in training and certifying additional centers. In terms of access in the U.S., we are seeing the payer mix play out as expected, with approximately two-thirds of Yescarta patients covered by commercial and fee-for-service plans and approximately one-quarter of patients covered by Medicare. There is broad coverage of Yescarta-eligible patients with commercial insurance. It's encouraging to see the strong execution by our commercial, medical affairs, and manufacturing teams, the positive feedback from centers, and the growing awareness of Yescarta in the hematology and patient communities. Now turning to expenses, non-GAAP R&D expenses were $814 million for the first quarter, down 8% compared to the same period last year, primarily due to our purchase of a Priority Review voucher in the prior year. Non-GAAP SG&A expenses were $884 million for the first full quarter, up 10% compared to the same period last year, primarily due to costs associated with our newest product launches, including Biktarvy and Yescarta, geographic expansion, and increased expenses to support the growth of our business following the acquisition of Kite. Moving to the balance sheet, during the first quarter we generated cash flows from operations of $2.3 billion and ended the quarter with $32.1 billion in cash and investments. We repaid $4.5 billion of term loans borrowed in connection with our acquisition of Kite, paid cash dividends of $753 million, and repurchased 13 million shares of stock for $1 billion. The amount of shares repurchased was aligned to our stock compensation awards, which are largely granted in the first quarter and reflects a one-time impact to repurchases related to unvested equity assumed from the Kite transaction. While our cash flows will remain strong for the remainder of the year, we anticipate a sequential decrease in Q2 2018 due to anticipated tax-related payments. The year is progressing consistent with our expectations, and we are reiterating our full-year guidance, which can be found on slide 47 in the earnings results presentation. Our confidence in the future is supported by a strong and growing HIV business, led by the launch of Biktarvy in the U.S., increasing momentum in our cell therapy business, and potential opportunities in emerging R&D areas of NASH and inflammation. I would like to conclude by thanking our nearly 10,000 employees for their commitment to excellence and hard work that is well represented in the results this quarter. Let's now open the call for questions.

Thank you very much, and I appreciate the question. John McHutchison, congratulations on all the responsibilities. Maybe we could start off with a commercial question. More seriously on the R&D side, could you give us the latest disclosure on the PE and DVT events you've seen so far in the RA program for filgotinib? And then perhaps you could talk a little bit more generally about what areas you're particularly excited about in your new position that you think the company has the opportunity to invest in more aggressively. Thanks.

Thank you, Geoff, for the kind words and for the question. So regarding the first part of your question, the thromboembolic event rates with baracitinib, the most recent data that we have shown was a presentation at ACR late last year by Mark Genovese, which is an oral presentation. Now this is just from the DARWIN 1, 2, and 3 extension studies, where we have about 1,700 patient years of exposure, but that rate was very low, only one patient in that presentation who had both a DVT and a PE. So the rate actually in that presentation was 0.06 per 100 patient years. But, Geoff, so far we've got thousands of patients in Phase 3. We've got a relatively small data set in terms of exposure, but that's what we have said so far. We continue to collect all of that information. The other point to raise about this was the discussion recently at the Advisory Committee and whether this is slightly or partly related to JAK-2. As you know, filgotinib is very selective for JAK-1. And in terms of JAK-2 specificity, we don't have that at all. So we don't see any changes in hemoglobin. When we see positive changes in hemoglobin, we don't see any increase in platelets. In fact, we see a small decrease in platelets. Whether or not that's related to thromboembolic phenomena, we don't know. In terms of what we're excited about in R&D, you know me, Geoff. I'm always excited about everything. But the opportunity to make huge progress in cell therapy, not just with Yescarta, which has enormous potential, but the future of cell therapy going forward. Investing in research as we have, to come forward with next-generation products is really exciting for the organization to lead that entire field. And we will continue to lead that, and I will ensure that, as will Andrew and others in the organization as well. Additionally, I think we have a lot of opportunities in NASH. The ability to have a drug approved for an antifibrotic endpoint in liver disease has never been done before, and we clearly want to do that, and there's a lot of patients out there with NASH. And then I believe our fledgling programs that are now developing in full force in inflammation, with filgotinib in multiple diseases are becoming differentiated, exciting, and heading in the right direction, particularly with things such as the Verily collaboration. So that's a long answer. I'm sorry, Geoff.

Good afternoon, guys. Thanks for the question. So the HIV franchise is really key to Gilead getting back to a growth company, so I was hoping you guys could give a bit more detail on the underlying demand trends in the U.S. and Europe, just independent of inventory fluctuations. I guess I'm trying to reconcile the 2% growth with maintaining guidance in the positive commentary. Thanks so much.

So I'm going to let Andrew start with just giving you really the underlying details around the Biktarvy launch, and then I'll jump in with some of the revenue areas.

Geoff, it's Andrew. So I just want to touch on and reiterate some of the things that Robin has mentioned during the call in her prepared remarks, primarily that when we look at Biktarvy, we see 80% of Biktarvy scripts come from switches. Of those switches, a third are from Genvoya and about 20% come from dolutegravir-based regimens, both Tivicay and Triumeq. When we see the switches as well as the naive patients' trajectory overall, they're right on target for what we predicted prior to the launch and really are in line for where we think Biktarvy will ultimately end up as the top switch as well as naive drug in HIV, a position that's currently occupied by Genvoya.

And, Geoff, I'd add to that that keep in mind that the launch of Biktarvy, we basically got six weeks of revenue currently in the quarter. So while a partial quarter, we also had about half of it was related to inventory. But underlying, to your point, we're really excited with the overall launch of Biktarvy and the success to date. The launch trajectory is looking very close to Genvoya. And over time, we expect it to overtake Genvoya, as I mentioned, as the number one STR for naive and switch patients over time. I think if you then turn and think about just Europe beyond Biktarvy, we're also seeing, as I mentioned, over 50% of our HIV sales came from Descovy-based products in Europe, and that's exceeding in advance of the fact that generics are widely available. So to the point I made on the call and John made, we're really excited with the opportunity for HIV to be a growth business. That's inclusive of PrEP as well, but we're excited where we are for the year and for the opportunity to have this business be a growth trajectory for us beyond 2018.

Hey, guys. Thanks for the question as well, a two-part question. On HIV, can you just perhaps quantify how much inventory impacted the results? I think people are quite a bit concerned on the HIV numbers, so maybe just help us out there relative to consensus, $100 million – $200 million, or more of inventory. And on hep C, there was a miss there, and I guess people are concerned about that relative to your competition. So maybe just talk to that because you're reiterating the guidance. Thanks so much.

Sure. So, Michael, let me start with HIV inventory. The drawdown in inventory was primarily from our HIV products. But as I mentioned, if you look at underlying U.S. prescription growth overall, it was 12% year over year. And as I mentioned, 50% of our HIV revenues in Europe were comprised of Descovy-containing regimens. So while we haven't quantified the dollar magnitude, the drawdown was larger than what we have seen in past quarters. And typically, if you go back, the last eight quarters we've had that Q4 to Q1 dynamic relative to inventory, so it is seasonal. There were two key events this quarter that made that inventory decline greater than expected. One was the availability of generic versions of TDFs, so therefore wholesalers weren't carrying Viread anymore. And then two, the anticipation of the Biktarvy approval, so lower stocking of both TAF and TDF-containing regimens. Keep in mind if you look at year-on-year and quarter-on-quarter growth, the availability of generic versions of TDF in the U.S. impacted our HBV business. Overall, as we think about our big three wholesalers, we were in line relative to our inventory agreements. I'll remind you that we don't have agreements in place for the sub-wholesalers. But again, just emphasizing that overall, our underlying HIV growth remains strong but we have the typical seasonal inventory, driven by the two events that I just mentioned.

The second part was on HCV.

So to turn to your second question on HCV, which the question was about the competitive environment. Yes, the competitive environment, I would say if you step back and think about where we are relative to our guidance and our expectations, we reiterated guidance. It is pretty much playing out in line with our expectations. We talked about the fact in my comments that the U.S. pricing has largely stabilized, and we expect market share to stabilize by midyear. I would say, Michael, that the ex-U.S. competition has intensified, but I'd also say that competition was a more intense environment prior to the launch of a competitor and remains to be. So we do believe that overall hep C is a long and durable market. We'll continue to compete very aggressively with our competitor. But in summary, our expectations for 2018 are intact, and we believe our revenue reflects the guidance that we provided at the beginning of the year.

Hi, thanks for taking my question and my congrats to Norbert on all your accomplishments and to Andrew and John on your new roles and responsibilities. A question on Yescarta, as we try to gauge avenues of continued growth there this year and beyond, can you maybe help us understand the proportion of centers that are operating at high throughput and perhaps how far along in infrastructure establishment those additional centers that you expect will be authorized are going to be relative to those already online? And then I guess I'm also just curious on revenue recognition there relative to reimbursement, how we should be thinking about that. Thanks.

So I'll start, Brian. I would say you're right. It's early days, so we're not going to get into throughput discussions or specifically what we're seeing at every center. We're really pleased with our full first-quarter revenue. We've talked about this being a very measured launch, with our focus being this year on getting centers authorized and being sure that their experience with Yescarta meets the expectation of the centers and the patients. So I mentioned we have 40 centers authorized, and we expect by midyear that we'll have coverage for 80% of the eligible Yescarta patients as we continue to ramp up centers. Relative to revenue recognition, no overall concerns there, we're seeing good reimbursement overall for both commercial as well as Medicare patients. So we're really comfortable where we are with the launch to date.

Great, good afternoon. Thanks for the question. I guess one, with HCV price stabilizing, I wonder if you'd just give us some idea of where that stabilized relative to some of the prior comments you've made around what the average price was across the regimens. And then if I can ask a separate question for John McHutchison, related to the UC program for filgotinib, I believe you have a futility analysis to move from Phase 2 to Phase 3. Could you just talk a little bit about what the bar is and what the hurdle is to move into the Phase 3 program and how you're thinking about that? Thanks.

So I'll start, Matthew. I think the main change that you saw in Q1 in that step-down, as we talked about on our February call, was related to Medicare in the U.S. So as we mentioned this call and the prior, we expected that step-down with the price adjustment as we move to the new contractual arrangements at the beginning of the year.

And, Matthew, it's John McHutchison. The second part of the question was about the futility interim analysis for the selection of filgotinib in ulcerative colitis Phase 3 study. Just to remind you, the reason we did this futility analysis is we hadn't studied filgotinib in ulcerative colitis in Phase 2. We had in Crohn's disease in the FITZROY study and we have obviously had data in rheumatoid arthritis, but we had to have an interim analysis in the ulcerative colitis study to make sure that we were on track. That analysis is planned, without getting into all of the details, coming up shortly this year. It's based on the week 10 induction timepoint and the endoscopic response and improvements in endoscopic response in the two groups of patients that are enrolled in the trial, those that are naive and those that are biologic non-responders. So I'll leave it at that, I think, to answer the question, and we'll see how it goes.

Hi, guys, thank you for taking the question, so just one quick question on HCV. You did not reiterate HCV guidance, so I was just curious whether or not that's reiterated as well. And then on Yescarta, I'm just trying to understand a little bit about what you're seeing in the real world on safety, given that you'll be facing some competition. Are you seeing safety in line with your clinical trial work or side effects that are not as common? Thanks.

So, Robyn, I'll take the first question regarding guidance. We didn't give specific HCV guidance. But again, if you take a look at our revenues and you look at the components that we provided in our guidance overview last quarter, we're pretty much in line and at the high end of that guidance overall with $1 billion-plus in global HCV revenues. And we did reiterate our total guidance, which is how we guided this year on total net product revenue. Relative to safety on Yescarta, John, do you want to?

Robyn, it's John McHutchison. Hello. So I've been talking to some of the team members in Santa Monica over the last couple of days. And in general, there's nothing untoward that's been observed to my knowledge as well outside of the clinical trial.

Hi, this is Regina Grebla on for Umer. Thank you for taking our questions. So first, many investors think that you're in an earnings trough this year. Do you think that you're in an earnings trough? And NASH is emerging as an important catalyst in your pipeline. We saw some data from Allergen at EASL where patients in their placebo arms seesawed between fibrosis stages. We do recognize that the Allergen study enrolled earlier fibrosis stage patients than F3. But how much of a risk do you think this could be in your Phase 3 program? Thank you.

Hi, Regina, so I'll start off. As I mentioned on the call, I think we're off to a great start. We've reiterated guidance, and the year is progressing in line with our expectations. We do believe that 2018 is a trough year for us on which we can grow. We'll have seasonality fluctuations from quarter to quarter, but we're very confident, hence, reiterated our overall guidance for the year and expect to be able to grow off of our 2018 base going forward.

Hi, Regina. It's John McHutchison. In terms of the second part of your question relating to variability in placebo response rates, it is an issue with liver biopsy, where we know there's a 30% variability if you have two pathologists read the same liver biopsy. And I think some of the presentations you referred to at AASLD might be partly reflecting that. So it's an imperfect tool at best but what we have in terms of drug approvals for NASH patients. We have had the fortunate opportunity of being able to address this. Our previous simtuzumab trial enrolled many hundreds of patients. Now the drug didn't work, unfortunately, but we have a lot of patients with two liver biopsies a long time apart, so we are very, very confident of what we expect to see in F3 and F4 patients in terms of the placebo response rate, in terms of the fibrosis improvement score of one point with no worsening of NASH. So we have that number, and that is what we've used to calculate our power and our sample size in our STELLAR 3 and STELLAR 4 programs.

Good afternoon, thanks for taking my question, two follow-up questions on the commercial side. So first on HCV, just to maybe ask Robyn's question in a different way, on slide 35 of the slide deck you handed out on the last call, you did give a range for 2018 expected HCV sales of $3.5 billion to $4 billion, even if that wasn't formal guidance. And you said that the decrease versus the $9.1 billion from 2017 would be due to about a $1 billion hit from total market patient starts and a $4.3 billion to $4.6 billion hit from the competitive environment. So if you're going to redo that slide today given what you've seen in Q1, would those numbers still hold? Would you still expect the same hit from market starts, competitive environment leading to the same 2018 range? And then just briefly on Biktarvy, I know you said that the access was good. We've heard from physician consultants that insurers are requiring prior auths and other methods early in the launch of HIV products. What are you seeing in terms of prior auths from insurance plans for Biktarvy? Thanks.

Hi, Phil. So I'll take the first part and then turn it over to Andrew for Biktarvy. Looking at the slide that you referred to, and again I'll reiterate our HCV revenues for the quarter were $1 billion. So if I think about what we talked about, the reason for the step-down, one being price, because we did the new contracting in Q1, that would fall under competitive environment as well as thinking about share. The combination of those two make up the competitive environment. Starts, we talked about them being a slow and steady decline. So yes, I believe this slide is intact, and it's included in our overall reiteration of our guidance for the full year of $20 billion to $21 billion.

So, Phil, it's Andrew. So we'll switch gears, and you were asking about prior authorizations with Biktarvy. I think as you're well aware that when any new product launches that there is some degree of prior authorization as they start to review the product. However, as John mentioned on his initial remarks of the call, on March 27, the DHHS guidelines placed Biktarvy in the top tier of its recommended initial regimens list. Since that time, we've received some feedback that the amount of prior authorizations has really decreased and has become less of an impediment. And taken together, that helps put us to and reiterate what Robin said earlier on the call that we have every expectation that Biktarvy will match and then exceed Genvoya when it comes to number one position for both naive and switch patients.

Hi, thanks for taking the question. I was just wondering maybe, John McHutchison, if you can discuss the importance of first-mover advantage for Yescarta in DLBCL versus any potential modest benefit that a future competitor might have on CRS. I'm just wondering how you think about that. And then maybe one for Robin, just HIV pricing in Europe, have you guys seen any change in the pricing dynamics on the branded side given the entry of generics? Thanks a lot.

Hey, Terence. It's John McHutchison. Hello, thank you for the question. I think the first-mover advantage is important. We have the relationships. We have the experience now in the community, particularly in the U.S., which will obviously extend elsewhere. So I think it's an important advantage, as it has been for us in other diseases, including HIV and hepatitis C, where we were fortunate to be first as well. So that's a brief and general answer, but I think it is important.

Terence, it's Andrew. So I'll touch on the impact in Europe and what we've seen. Generics for Viread, TDF, are available in Europe, and we have seen some impact on certain pricings in certain countries. However, I think it's important to recognize that over 50% of our European revenues come from TAF-based products. And you can see, as we mentioned on our last call, that in certain countries, the conversion rate from TDF to TAF products like Germany exceeds 70%. So I think when one thinks about the impact, we've already made that switchover for a number of countries, and that impact is somewhat muted.

And, Terence, to follow on to that, we priced Genvoya at parity with Stribild. So our ability to get early access in those markets where we've launched has been helped, and it's helped that overall transition that Andrew just referred to, with greater than 50% being Descovy regimens overall.

Hey, good afternoon, guys. Thanks for taking my question. It's on Yescarta, and I'm wondering. Is the $40 million in sales in Q1 pretty evenly distributed across your 40 authorized centers, or is it more concentrated in a handful of them? And then just in general terms, should we be thinking about patient capacity per center as something that also gradually evolves over time? Thanks.

Hi, Cory. It's Robin. I'd say again, it's early days relative to our centers being certified and getting launched to really get at a throughput per center or any of those type of metrics. And I'd also say that because this is such a specialized treatment, we've selected centers that we think can be successful. We're helping them through that. Yes, some of the earlier centers we're seeing higher volumes, as you would anticipate. But I think the volume is not just determined by saying you're now certified. It's just determined by the hospital and their resources and looking at the other various treatments, et cetera, and other capacity centers that any hospital has to manage. So it's going to be harder, particularly in this therapeutic area, to provide the level of detail and granularity or at this stage, details by center. The $40 million was very robust for us. We're happy with the results today. And as I mentioned, this is going to be a controlled, measured launch for us, and we're going to continue in that process and provide you updates on that as much as we can.

Hey, guys, thanks for taking my question and congrats to John and Andrew. This is more one on the commercial standpoint, just big-picture. So Biktarvy has taken roughly 80% switch from Genvoya. I just wanted to think about broadly. Should we think Genvoya continues to grow, or does it inflect and then Biktarvy picks up where Genvoya left off, or is it just a case that the 80% Biktarvy switch most likely may moderate a little bit so that trend may not be as pronounced? Thanks.

So, Alethia, let me just clarify something in your call, just to recognize that when we think about Biktarvy scripts, 80% come from switches. About a third of those come from Genvoya. So I think when we think about it, a third from Genvoya, then about 20% from dolutegravir-based regimens, either Tivicay or Triumeq, and then the remainder of the switches come from a mix of different regimens. So when we think about it overall, I think we're very happy with the mix. And given our robust development plan where two of the four studies were based on switch, one from Triumeq and one from protease inhibitor-based regimens, we expect that mix actually to be the same going forward, about an 80:20 switch given the overall dynamics. Now there's certainly going to be some degree of variability from quarter to quarter into the proportion that's Genvoya versus dolutegravir-based regimens. But certainly, we're very comfortable with where we are and expect that the overall growth of Biktarvy to continue, as we mentioned earlier.

Hi, guys, thanks for taking the question, just one on Yescarta. Could you just maybe comment on what sort of education you guys are doing with the medical community for the non-CAR T oncology docs, and if these docs are actually referring patients to the CAR T centers after which line of therapy in general? Thank you.

Hi, Salim. It's John Milligan. I just wanted to – it's actually a very timely question. So as you know, we've been out in the community detailing Zydelig, and we've just recently taken those representatives, our therapeutic specialists, and put them through specific CAR T training so that they can start to have a conversation with doctors and the communities about what CAR T is, what kinds of patients are eligible for CAR T, and can help them with referrals. I don't know specific referrals, but certainly encouraging doctors to refer those patients who would be eligible to specialists who then can handle those cases. So we are starting an educational campaign in the community that really kicked off this week.

Hi, thanks for taking my questions, the first one I have related to the data you presented at EASL. So if you look at the MRI-PDFF data, it seems that the asthma inhibitor does not appear to be very potent compared to the ACC inhibitor or even FXR. So I was just wondering based on that, how much confidence do you have on the ultimate success of the Phase 3 trials for asthma in STELLAR 3 and 4 trials? And then maybe, Robin, can you elaborate a little bit on the ex-U.S. dynamics for HCV? Because it appears that AbbVie has enjoyed very much success in launching Mavyret in ex-U.S. based on the numbers reported. I was wondering how you see that evolving in the next few quarters, whether you can gain back share from AbbVie or not? Thank you.

Hello, Ying, it's John McHutchison to answer the first part of your question. The observation you made and noted in our EASL presentation that selonsertib has less of an effect on steatosis in the liver than our ACC inhibitor that inhibits de novo lipogenesis is exactly what we wanted to see and expected to see because of the mechanism of action. Selonsertib doesn't have a primary anti-lipo toxicity effect. It's an anti-ASK, and it works on hepatic stellate cells as well. So that's what we expected to see. In terms of the second part of your question, does that give us more or less confidence in terms of our Phase 3 STELLAR programs, I think you need to take the context of what we presented at EASL in a 12-week study and think about it in the overall context. What we did in all of these programs is we did single-agent small studies first to show that each drug was effective, which we've done for all of our three drugs. Then we did a small combination study to see if there was combination safety. That's what we presented at EASL. We did, however, also present some of the parameters that you've been talking about. But our goal was always, once we had combination safety, to then be able to kick off a definitive larger study with a longer duration of therapy to determine which of those drugs is safer, which is what we're doing. To get back to the selonsertib question, we decided to do a Phase 3 STELLAR selonsertib study based on a previous study that we presented last year that was 24 weeks in duration, that had two liver biopsies, that showed a dose-dependent effect on the regression of fibrosis, and an inverse relationship to the development of cirrhosis. We also showed that the target phospho-p38 is up-regulated in MAPK patients, and it's also blocked or inhibited or down-regulated by the drug. So everything is heading in the right direction. And I think what's happening here is people are taking this small 12-week experiment that was due and looking at combination safety out of context. When we started our STELLAR Phase 3 program, it was based on a larger Phase 2 study, two biopsies six months apart, that showed a definitive effect on fibrosis. So we are in good shape. I'm excited about the results. We've enrolled them ahead of schedule, and we look forward to getting the results early next year.

Thanks, John. And I think, Ying, your other question was related to ex-U.S. HCV sales. So let me start by saying I think that's always been a much more competitive environment compared to the U.S. But OUS sales if we compare what we did relative to our competitor includes a wide variety of geographies, including Europe, Japan, and Asia. And I would say the market share is very different from country to country. I think it is fair to say that we've seen our competitors do very well in Japan, for example, with some of the prior DAA failures and some warehousing there. But there are other countries where we're doing well and we're going to pick our opportunities to focus on. While we know this is a competitive market, we feel we have the field force and necessary folks in place to be competitive. And as mentioned, I think we're on track. And relative to where we expected us to be, we see things playing out very close to that. As I also said, we expect our share to stabilize by midyear, so I think we'll be able to provide more insight around share going forward during the next call.

Thanks, guys, for taking the question. I was looking to get some clarity on the regulatory strategy for filgotinib and if investors should expect you to file I guess following that the FINCH 1 and FINCH 3 data become available. Or will you look to wait for maybe one of the GI-focused indications to have that Phase 3 data in hand as well? Thank you.

So, Carter, it's John McHutchison. Thank you for the question. So as I said today in my prepared notes that we now are in the fortunate position to have all FINCH 3 trials enrolled for both methotrexate-naive and inadequate responders in our biologic non-responders. So we can file if the data supports it, of course. We can file for RA with all of those three studies, and they are in a different timeline from the inflammatory bowel disease study, so we would not wait for the inflammatory bowel disease studies.

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.