Gilead Sciences Inc (GILD) — Q3 2019 Earnings Call Transcript

Thank you, Liz, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the third quarter 2019. 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 Daniel O'Day, Chairman and Chief Executive Officer; Robin Washington, Executive Vice President and Chief Financial Officer; and Johanna Mercier, Chief Commercial Officer. Also in the room are Diana Brainard, Senior Vice President and Head of our HIV and Emerging Viruses Therapeutic area; and John Sundy, Senior Vice President and Head of our Inflammation Therapeutic area. 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 our 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'll now turn the call over to Dan.

Thank you, Sung, and good afternoon, everyone. Thank you for joining today. I'll share a few opening comments and then turn the call over to Robin. And after that Johanna will take you through the commercial highlights of the quarter as well. So let me start by saying, I'm very pleased with the progress that we're making on all fronts here at Gilead and strong third quarter results. Once again, we saw significant growth in our HIV business, reaching an all-time high in quarterly HIV revenue. As you know in my time at Gilead, I've focused on three key areas since coming in: the pipeline, commercial delivery, and people. And today in my brief remarks, I'll focus on the significant progress we've made in two of those areas: the pipeline and the people, and then Johanna will talk to you about the excellent commercial performance later in the call. So let me begin by saying a few words about our pipeline, starting with HIV. As you're aware, we received FDA approval for DESCOVY for PrEP earlier this month. This is a really important indication for us as it allows us to extend the benefits of DESCOVY to people who are at risk of HIV. To remind you, the approval was based on the DISCOVER trial, which demonstrates that DESCOVY is just as effective as Truvada and offers advantages in bone and renal safety parameters. We are excited to build on DESCOVY's status as the most-prescribed dual NRTI backbone in the world by advancing its use in PrEP. Happy to say, we've also received endorsement to begin the study of DESCOVY for PrEP in cisgender women, which will allow us to eventually bring the medicine to a broader group of people. Rest assured, we continue to remain focused on our HIV pipeline beyond our DESCOVY-based regimens as well as on our long-acting antivirals programs that will treat highly treatment-experienced patients and, of course, on our CARE research as well. So turning to filgotinib, we've now filed for approval of filgotinib in rheumatoid arthritis in the EU and Japan and are on track to complete our filing in the United States by the end of the year. Our teams around the world are preparing for launch and I'm encouraged about the potential of filgotinib to be best-in-class among the JAK inhibitors. In addition to rheumatoid arthritis, we're continuing to advance filgotinib together with our partner Galapagos. We have a comprehensive program across a number of other inflammatory diseases, including ulcerative colitis, for which we expect to have data next year. Additionally, we were successful in closing our partnership with Galapagos this past quarter. I'm looking forward to the American College of Rheumatology coming up in Atlanta, where we will share further updates on filgotinib. Researchers there will present further analysis in the FINCH two study, which evaluated filgotinib in patients with RA previously treated with a biologic and updated results from the pooled safety analysis of filgotinib across the FINCH program will also be presented. Turning to cell therapy, I would like to say a few words about Kite and our work in cell therapy. The teams down at Kite are busy preparing for the American Society of Hematology meeting, which will happen in early December, where, in addition to exciting data from our ongoing clinical trials, we will share survival data for Yescarta at three years in large B-cell lymphoma as well as results from the registrational study of KTE-X19 in mantle cell lymphoma. Recently we also completed enrollment in the pivotal ZUMA-7 study of Yescarta in second-line large B-cell lymphoma and we're excited about the potential this medicine could have for this group of patients. As we discussed also last quarter, we continue to see quarterly variations in Yescarta, but we're very confident in its future and the long-term trajectory of our cell therapy platform. Finally, a few comments about our leadership team, which is now complete with two new appointments. Merdad Parsey will join us on November 1st as our Chief Medical Officer. Merdad, who previously led the early clinical development program at Genentech, will have responsibility for all of our global developments and medical affairs functions. Bill Lee will continue to lead our research organization and will report directly to me while working closely with Merdad. Merdad is an outstanding scientist and leader with a remarkable track record of success. I believe that Merdad will be a tremendous asset to Gilead, maintaining a very high bar for innovation, allowing us to continue to build on our legacy of transformational medicines. I'm also very excited about the appointment of Andy Dickinson to the role of CFO. Andy has been at Gilead since 2016 and currently serves as our Executive Vice President of Corporate Development and Strategy. He transformed the way that the company approaches corporate development before I came in, expanding the kinds of transactions executed and implemented a broader, more strategic approach to deal-making at Gilead. As of November 1st, Andy will succeed Robin Washington, whose retirement we announced earlier this year. I'm happy that Robin will remain at Gilead in an advisory capacity through early next year while we complete the reporting of our 2019 results. I'd also like to take this opportunity to thank Robin for her outstanding contributions, dedication, and tremendous commitment to Gilead. We wish her all the best in retirement, and I'm sure she'll continue to stay busy. I look forward to working with this outstanding group of leaders here at Gilead, who bring a strong blend of skills and diverse perspectives to the path forward for our future. In closing, I'm increasingly optimistic about the future and believe we are well-positioned as we enter the last part of the year and look ahead to 2020 and beyond. We will continue to build on our success as we replenish our pipeline and bring the next wave of transformational advances to patients. On behalf of the leadership team, I want to thank all of our employees and partners around the world for the dedication and hard work that led to the successful quarter and the results that you see here today, and whose commitment will continue to make it successful in the future. With that, I will now turn the call over to Robin.

Thank you, Dan, for your kind words. It has been a privilege to serve as Gilead's CFO for the past 11 years and to work alongside exceptional colleagues to bring medicines to people around the world. I know the focus on this mission will continue, and I look forward to cheering Gilead on in 2020 and beyond. I'm pleased to report the financial results for the third quarter, which were marked by strong execution across our therapeutic areas led by the continued growth of our HIV franchise and continued predictability of HCV. Total revenue for the third quarter was $5.6 billion, with non-GAAP diluted earnings per share of $1.75. This compares to revenues of $5.6 billion and non-GAAP diluted earnings per share of $1.84 for the same period last year. As noted in the earnings press release, on a GAAP basis, we recorded a loss of $0.92 per share primarily due to $3.92 billion, or $2.40 per diluted share, of upfront collaboration and licensing expense associated with our global research and development collaboration agreement with Galapagos. Turning to product sales, product sales for the third quarter were $5.5 billion, down 2% sequentially and up 1% year-over-year. In the U.S., product sales for the third quarter were $4.2 billion, up 4% sequentially and up 2% year-over-year. In Europe, product sales for the third quarter were $804 million, down 23% sequentially and down 8% year-over-year. The sequential performance was primarily impacted by two items. First, recall that the second quarter benefited from a $160 million adjustment for a statutory revenue clawback reserve. And second, the third quarter was negatively impacted by a statutory clawback reserve adjustment. These two factors, which impacted our HCV and HIV revenues, caused an approximately $200 million decline between quarters. Turning to cell therapy, worldwide Yescarta sales for the third quarter were $118 million, up 57% year-over-year and down 2% sequentially. U.S. sales were $86 million for the third quarter, up 15% year-over-year and down 13% sequentially. In Europe, Yescarta sales were $32 million, up 52% sequentially, as we continue to ramp in the region. It is clear that cell therapy is a validated platform with hundreds of patients treated quarterly in the U.S. Yescarta has established itself as a differentiated leader in an increasingly competitive environment. We will continue our efforts on CAR T education in the community oncology setting to stimulate referrals of appropriate patients to cell therapy treatment centers. We have also observed CAR T-eligible patients being enrolled in clinical trials at a much higher rate compared to commercial patients. As such, and as Dan outlined, we anticipate further quarterly sales variations, but remain confident in the future trajectory of Yescarta. Now turning to expenses. Non-GAAP R&D expenses were $954 million for the third quarter, up 13% compared to the same period last year, primarily due to increased investment in our oncology programs, HIV programs, and research projects. Non-GAAP SG&A expenses were $967 million for the third quarter, up 14% compared to the same period last year, primarily due to higher promotional expenses in the U.S. and expenses associated with the expansion of Gilead's business in Japan and China. Moving to the balance sheet. During the third quarter, we generated $2.6 billion in cash from operations and ended the quarter with $25.1 billion in cash and investments. We paid $5.5 billion in connection with our global research collaboration and equity investment in Galapagos, which was classified in our cash flow statement as cash from investing activities and includes a $1.1 billion equity investment. We also paid $1.5 billion of debt used to finance our acquisition of Kite. We paid cash dividends of $804 million and repurchased 3.4 million shares of stock for $223 million. Turning to our guidance. As we move closer to the end of 2019, we are narrowing our guidance ranges as follows. Net product sales are expected to be in the range of $21.8 billion to $22.1 billion. Non-GAAP R&D expenses are expected to be in the range of $3.7 billion to $3.8 billion. We expect non-GAAP SG&A expenses to be in the range of $4 billion to $4.1 billion. All other components of our guidance remain unchanged. Our guidance is subject to a number of uncertainties which are outlined in slides 22 and 23 in our earnings call presentation. I will now turn the call over to Johanna.

Thanks, Robin, and good afternoon, everyone. As I've settled into my role, I've been really impressed with the talent here at Gilead and the potential we have to reach even more patients with our medicines. I want to talk today about a few areas, the continued strength of our HIV business, including our recent launch of Descovy for PrEP, the durability of HCV, and finally touch briefly on our cardiopulmonary business and close by discussing our filgotinib launch preparations. So, let's start with HIV. Global HIV sales for Q3 were $4.2 billion, up 4% sequentially and 13% year-over-year. This marks the sixth consecutive quarter of double-digit year-over-year growth. As Dan noted, this is an all-time high for quarterly HIV product sales. U.S. HIV product sales were $3.4 billion in Q3, up 6% sequentially and 14% year-over-year. The year-over-year increase was driven by underlying prescription demand growth of 13%, mainly Biktarvy. Biktarvy was the number one prescribed regimen in the U.S. in the quarter. In prevention, there are now approximately 224,000 people taking Truvada for PrEP, an increase of approximately 25% year-over-year of active patients. Our teams are now in the field with Descovy with its recent approval in PrEP. We initiated efforts to educate healthcare providers and people at risk for HIV about Descovy immediately following the approval, and are really quite pleased with the anecdotal feedback from providers. Turning to Europe, Q3 HIV product sales were $558 million, down 10% sequentially and 4% year-over-year. The year-over-year decline was expected due to the broad availability of generic versions of Truvada. The impact of generics is starting to wane as the launch of our Descovy-based products, namely Biktarvy, progresses. As Robin just mentioned, the sequential performance was impacted by an adjustment for statutory clawback reserve in Europe, which benefited the second quarter. Biktarvy is now available across the EU5 and continues to grow. It's on track to be the best HIV launch in Europe and is number one in naive and switch across Germany, France, and Spain. It recently launched in Italy and the U.K. and is off to a strong start in both those countries. Moving on to HCV, global Q3 HCV sales were $674 million, down 20% sequentially and 25% year-over-year. U.S. product sales for Q3 were $380 million, up 7% sequentially and down 22% year-over-year. The sequential performance was driven by the continued uptake of authorized generics, which has improved our overall competitive position in the U.S. In Europe, HCV product sales for the second quarter were $111 million, down 60% sequentially and 45% year-over-year. As anticipated, the sequential performance was negatively impacted by the adjustment for statutory clawback reserve in Europe, which benefited Q2. Overall, the HCV market continues to see a more predictable decline in patient starts and perform in line with our expectations. Before closing, I wanted to just make a few comments on our cardiopulmonary business, where we have seen generic competition enter the market. As anticipated, significant volume erosion has occurred and as of September, we have seen an 85% erosion of Ranexa and a 60% erosion of Letairis, a trend that we expect to continue. Finally, I spent time recently in both Europe and Japan, where our teams have completed the regulatory filings for filgotinib in rheumatoid arthritis. Launch preparations are well underway in both regions as well as in the United States, which Dan noted we plan to file before the end of the year. I believe that we truly have an opportunity to make a difference in the lives of people with RA and, in the future, other inflammatory diseases. We're actively preparing for a competitive and innovative launch of a differentiated JAK inhibitor across our key markets. I really look forward to working with this great team of people to deliver on the promise of these medicines. So, thank you very much for joining today's call and now let's turn it over to questions.

Hey guys. Thanks for the questions. I had a question for Dan. Obviously Dan, you've spent a lot of time this year putting in the right people, getting everything all set up. You did the Galapagos deal to build up the pipeline a bit. I guess in thinking about the pipeline and building that out, where are you focusing your priorities? How should we think about your next area whether that's in NASH or oncology? How should we think about that? And maybe just give us a little state of the union there?

Yes. Thanks Michael very much for the question and delighted that we now have the team coming together for the future. I think it's really good diverse team with some strong Gilead legacy colleagues, as well as combined with some talent from outside the organization with different perspectives. I think it's going to lead to a really strong team that will help drive the future chapters of Gilead moving forward. Also pleased Michael that we had the Galapagos transaction finalized in the quarter, we're obviously getting going now on a deeper collaboration beyond filgotinib. And as I said to you in the past and I'll say it again, I think the team here and I have the pipeline as our number one priority, of course. We approach that in a variety of different ways; one is, the strength of our internal pipeline looking for ways to accelerate differentiated medicines that we can develop internally and with Galapagos now significantly expanding our research base in addition to other collaborations we have externally that allow us to essentially double our research base of medicines coming into the development portfolio. In terms of therapeutic area, I would say our approach to external partnerships and M&A will be very much the same as what you saw in the past. First and foremost, it will be driven by science and by where we think the most unique opportunities are. Secondarily, it will be informed by our own expertise; as you know we play across four therapeutic areas today and have strong scientific understanding in the base in antivirals and immunomodulation. There is no one size fits all of course. At times it makes sense to just do a partnership but other times it makes sense to do a full acquisition and other times it makes sense to do something like a Galapagos arrangement where we have a deep partnership associated with that. We’ll continue in that area. I think more to come as the team comes together as we continue to evaluate. Certainly, the areas that you mentioned are areas that we’re looking at carefully to complement our internal expertise, but we're not driven by any one therapeutic area. We're driven more by where is the next innovation going to come from in science and how do we complement that portfolio. We acknowledge that we have to accelerate the development of our later-stage pipeline as well. That can happen by both accelerating our internal pipeline or by having partnerships with companies outside of Gilead. So Michael, more to come and obviously with some of the conferences coming up and into next year, I can be even more specific and articulate about how some of our strategies are forming.

Perfect. Looks forward to that. Thank you.

Hi, thank you for addressing my question. You've adjusted the R&D and SG&A guidance to the upper end of the previous ranges. I'm curious about the broader perspective, particularly as we approach the filgotinib launch. How do you manage the balance between maintaining margins and achieving earnings growth while also considering investments in inflammation? Additionally, how might the leadership changes impact this balance? Thank you.

Yes. Let's let Robin provide her insights, and then I can add my thoughts as well. Hi, Brian. Thanks for the questions. I'd say we manage them very carefully. As you know, we've always been a very highly efficient organization, really focused on operational excellence and ensuring that even as we've grown, we've grown profitably as we think about margins. At the same time, as you've heard me say before, we're always balancing the need to invest for the long term, and as you know that can have implications in the short term. You've seen us with previous launches and with acquisitions make the necessary investments upfront that may yield shorter operating margins in the short term, but ultimately get us to higher revenues and overall margins long term. So I think that's how we think about our model. It’s not by quarter or by year; it’s really ensuring that when we make investments we make the necessary actions in the short time to ensure the overall ROI on those investments. I'll turn it over to Dan to talk about the future but I think we're pretty much aligned going forward.

It's well said, Robin. And Brian you may want to hear it from my vantage point as well just particularly with the CFO transition to make sure you understand the stability from my side as well. I've really admired Gilead's efficiency as Robin mentioned and the careful management of expenses. I think that's something that we will continue to make sure that we maintain. I've also been a student of the history here at Gilead and I've looked back in the past and seen in times of important launches that investment has increased correspondingly in the interest of patients and in the interest of shareholders. I think that type of philosophy will continue. As we have generic erosion coming this year and next year, we also have the ability to redeploy those resources as we already have done with cardiopulmonary to other areas of focus and interest including the current launch for DESCOVY in PrEP. We will also make sure that we have a competitive launch of filgotinib because we know that it will be essential to have the right share of voice to get that off to a good start. We have one chance to launch a product in this industry and therefore we have to do that accordingly. As we get into providing you with more guidance in 2020, we can elaborate a little bit further about how we see that expense management for next year. I hope you get a sense that much of the discipline that Gilead has had in the past can be expected in the future as well, Brian.

Thanks so much.

Hey, guys. Thanks for the question. Congrats, Andy and Robin. It's been great to work together. I wish you the best. Just wanted to ask about HIV market expansion outside of PrEP, and with Biktarvy, the share gains are impressive and with its profile, are you seeing an uptick in treated patients on ART overall? I just wanted to ask because HIV market expansion used to be a secondary driver of the market but I'm not sure about that today. How do you think this differs in Europe? Thanks so much.

I can address that. Geoff, it's Johanna. Regarding the overall HIV business and treatment, the situation has never been stronger, with 80% of our total HIV business performing well. In the U.S. and Europe, approximately 80% of patients are switch patients, while 20% are naïve patients. The naïve patients represent a smaller opportunity for market expansion, but there is significant growth among switch patients. This switch is crucial for Biktarvy. Our strategy has shown that around 20% to 25% of switches come from dolutegravir-based regimens, about a third from Truvada-based regimens, and another third from Genvoya. The switch aspect is the most important part of the business in both the U.S. and Europe, where the figures are quite similar. The challenge in Europe is that there are more Truvada components due to generic competition. Overall, we are seeing strong consistency among both naïve and switch patients, and Biktarvy is leading in the U.S. as well as in Germany, France, and Spain. We recently obtained reimbursement for the U.K. and Italy, and those launches are off to a strong and consistent start, just as we've experienced in other markets.

Thank you, Geoff. So we'll go on to the next questioner.

Thank you very much. I'm just wondering if you could help me understand a little bit on the research side. You've sort of glossed over that a bit. Firsthand, could you break out the $4 billion or so in annual spend that you have now between immunology, oncology, hepatology and then research? Just give us a sense of those allocations? And then, related to that, Dan, could you talk about, if you were to contemplate significant M&A or for that matter, additional licensing, do you envisage that that $4 billion run rate will have to go up to accommodate those new programs? Or do you have some savings from big trials coming to an end and/or other efficiencies that might take the $4 billion down and accommodate incremental programs from outside the company?

Terrific. Yes, thanks, Geoff. Actually, I'm glad you asked the question because on the previous question I spoke more about how we look at allocation resources on the commercial side more so than the research side. Let me first state that the first part of your question relative to how we allocate that across therapeutic areas. It's not something that we disclose accordingly, so I can't help you with that, but I think I can help with the forward question, which is, as we think forward to either partnerships or M&A, how is that going to help or what impact will that have on overall R&D spend? There’s one aspect that’s very important: we're constantly prioritizing our internal portfolio, making sure that we have the most attractive programs that we are funding. Every organization has to draw a line, and we also have to do that. Things change because of the nature of data that’s read out, competitive environments, the variety of things that happen. The portfolio is constantly evolving and moving internally based on that portfolio. That is to your point; there are times when we stop studies, studies come to a natural conclusion and they've been successful and we have those to reinvest again. Also, many structures that we’ve looked at in our partnerships have been designed to be, first of all, innovation forward but also allow for some balanced risk across the portfolio and spend. For instance, with Galapagos, our relationship with them is that they are covering trials up until Phase 2 and they take the decisions and they take the risk associated with that along with all the diversity and benefit that comes from having another organization look at that differently. Then, post our opt-in, we would start to incur expenses on our R&D line as well. So, many of our partnerships and collaborations have been designed with that in mind as well and we'll continue to do it that way to be efficient with risk versus investment. More to come on that. I would just say the one thing we do disclose Geoff on the R&D line is that around 15% to 20% of the $4 billion goes into research, and the remaining is into development human trials accordingly. So that I can give you. But we don't really break it down further by therapeutic area. Does that help?

Somewhat. Thanks, Dan.

Great. Good afternoon. Thanks for taking the question. I was hoping you could just talk briefly; I know it's very early in the switch from Truvada to Descovy. But maybe you could talk about your expectations for some of the markers we should be looking for there and then maybe anecdotal feedback, as you may have been in the market for a couple of weeks already with that. Thanks.

Thanks, Matthew, for the question. So, yes, only a few weeks in, right? We got the approval in early October. Even within a few weeks we're off to a strong start. I think the team is very excited about it, but more importantly the early feedback from physicians is very positive and we're hearing a lot of enthusiasm from our prescribers. The PrEP market is a little different than the treatment market in that it has a much larger number of prescribers. Over 50,000 prescribers have written at least one script for PrEP with Truvada. More than half of the volume that we're seeing in PrEP is very concentrated in a couple of thousand specialists who also prescribe in treatment. That has been our number one focus and target physicians that we have been calling on over the last couple of weeks, because these are folks that obviously have the largest volume pool, but also have experienced converting from TDF to TAF and also understand the value of DESCOVY and its clinical profile, specifically around the safety with bone and renal. We assume a very similar conversion than what we've seen in the past. We have a lot of experience in the TDF to TAF conversions and we assume that same conversion rate will happen with these top prescribers. For the balance of the volume, we are assuming a little bit of a slower uptake with those prescribers just because it's so much more diffuse. Having said that, we've augmented the field team. I think Dan mentioned this earlier, how we've taken a lot of our field forces from cardiopulmonary in light of the generics hitting there. We basically trained them and moved them over there to supplement the team and have also augmented our consumer approach to get rapid awareness of DESCOVY both to physicians as well as targeted consumers. So far so good, very excited about the launch, and probably in the next quarter we'll have more to talk about with data.

Hey, guys. Thanks for taking my question. I just wanted to talk a little bit about NASH strategy from here. I understand you have the ATLAS study in the fourth quarter, but I also saw you started a combination study with semaglutide GLP-1. Can you maybe frame for us how you think about what might be your backbone asset in NASH and possibly your plans going forward there?

Yes. Thank you very much, Alethia. You rightly pointed out an important data point coming up here that will allow us to think about how we pivot our NASH strategy moving forward; that's the ATLAS study that we will be reading out before the end of the year. For those who don't know, that's a combination trial that will allow us to look at the results of a variety of different combinations on the progression of NASH. As you also know, we've had a number of other collaborations with Novo Nordisk on GLP-1 and some of the other ones you've mentioned; they are approaching this from different angles as well. I do think that our most progressed clinical trial is currently the ATLAS trial, and once we see the results for that and dig into that, it will help us understand how to progress with NASH in what format and way. We think that NASH represents a very high unmet medical need, but it is also a challenging disease to develop because of its nature, heterogeneity, and end points. We think a company like Gilead, with expertise in this area, needs to be informed by science to solve and understand our path forward. More on the NASH strategy after the ATLAS trial at the end of this year.

Hi. Thanks so much for taking my question. I wanted to focus on a couple of R&D topics if I may. One on filgotinib. I noticed the FDA called attention to thrombosis risk for the JAK class. What are your expectations? Do you think you'll get a black box for that? And do you think that impacts commercial uptake? Secondly, there was a program in your pipeline, GS-9131, which I was starting to get excited about because it’s the type of thing Gilead has been very good at—novel nucleosides. I noticed it's not in the slide deck this time around; can you catch us up on any learnings from that program? Thank you.

Sure, Umer. I mean, as you know, and we've spoken of before, we know that patients with inflammatory diseases are at risk for thrombosis. It's always a comparison against expected background rates of this event in patients. We think it's possible that selected JAK1 inhibition, as we have with filgotinib, may have some advantages. But certainly at this point, it would be premature to speculate on what the label outcomes may be. We're going to go through the process. We believe we have a strong story with regard to thrombosis risk and at the same time are reassured by the overall efficacy and safety profile we've seen across all our programs. We're looking forward to having that discussion with the regulators.

This is Diana Brainard. I'll speak to your question around GS-9131, which is a nucleotide reverse transcriptase inhibitor with an improved resistance profile over currently approved drugs in that class. This is a compound that we've been excited about and moving through the clinic in early phase studies because we do have a commitment to highly treatment-experienced patients who have failed higher regimens and have multidrug resistance. In parallel with the GS-9131 program, our capsid inhibitor program with GS-6207 has also progressed very rapidly. GS-6207 is the first-in-class compound with a novel mechanism of action. We haven't seen any pre-existing resistance among all of the samples we've tested from treatment-naïve patients and heavily treatment-experienced patients. Because of this novel mechanism of action, potency, and lack of pre-existing resistance, we feel that the capsid inhibitor is the best and lead compound to bring forward in heavily treatment-experienced patients. Its promise was recognized by the FDA when they granted us breakthrough designation for this population. We are moving ahead with capsid in this population into a registrational trial, and therefore we won't be bringing GS-9131 forward for this population because we prioritize our capsid inhibitor.

Thank you very much.

Great. Thanks for taking my question. It would help to clarify regarding your plans to develop the capsid inhibitor in Phase 2. Have you discussed internally about what combination agent you'll be using for this long-acting treatment at this point? And when can we learn more about your PrEP strategy for the capsid inhibitor? Thank you.

Sure. We're really envisioning the capsid inhibitor to have multiple applications for people living with HIV. Its use for heavily treatment-experienced patients where it could be added on to optimize background therapy is an important application. Also, it has huge potential for people living with HIV who might want to switch to a long-acting regimen because of its ability to be dosed every three months, every six months, and potentially in the future longer. We’re still actively looking for what's the right partner for our capsid inhibitor and have multiple internal programs which are preclinical or in the early stages of assessments in the clinic. We're looking forward to sharing more details as we get more certainty about what the right combination will be to partner with capsid. What we're prioritizing is ease of administration. We're looking at subcutaneously administered drugs and drugs that can go the distance in terms of longer, at least monthly, if not longer, and match the potential of capsid. As we prioritize these features and bring forward different compounds, we are excited to share that data.

Hey, good afternoon, guys. Thanks for taking my question. I wanted to see if you could talk a little bit more about the quarter-over-quarter trends for Yescarta? I know you mentioned there were or there were a higher number of potential patients going into clinical trials in Q3, but how much do you think this sequential drop can also be attributed to the launch of Polivy? Are you seeing centers slot that in ahead of CAR T products or potentially any other dynamics taking place? Thanks.

Absolutely, Cory. Thanks for the question. It's important that I start out by letting you know that the team is really confident with the longer-term opportunity of Yescarta and our cell therapy. This is a pioneering platform and it literally changes everything from patient identification to clinical practice to reimbursement to safety management. I would say, some of the growing challenges with getting the pioneering technology in is what we would expect. What’s kind of unquestionable is, in the patient set where it has been studied, specifically in relapsed/refractory DLBCL, the efficacy and durability are unprecedented. Most of the patients are alive at two years, and as we know, hematology/oncology is a data-driven space. The NTAP improvement that just went into effect in October 2019 from reimbursement by CMS is a step in the right direction. It does take time before that gets fully absorbed and introduced into the community. I would point out the ASH data coming up; we’ll have three key events there; the survival data at three years in relapse/refractory DLBCL, early steroid use, as well as data on KTE-X19 in MCL. I look forward to that trial playing through. As we go into next year, we can also look toward a DRG for CAR-T. Those are some of the positive elements we see in the market. The challenges still remain with Medicare reimbursement updates, and there is a high rate of clinical trial usage in DLBCL, which is good news for patients. We do have some new market entrants in the early stages. You mentioned one on the call today, and there are dynamics between inpatient and outpatient reimbursement. The team is systematically working through these; that’s why we see some quarter-to-quarter fluctuation in the United States. I would point out that we're now also getting going in Europe, which is terrific for growth, and the dynamics are different there as well. As we learn each quarter about these dynamics, I think we’ll be able to define our expectations further. Overall, the data we’re seeing and the duration of response in the patients that we've studied is second to none.

Thanks, Dan. Appreciate the color.

Hi guys. Thanks for taking my question. Congrats to Robin and welcome to Andy. Just one for me on hepatitis B; can you provide an update on the core inhibitor? What's the status there? I know there have been some safety issues predominantly coming from HAV and SBA derivatives. Can you give us a little color; is your core inhibitor still in development or not, and is it one of those derivatives? Thanks.

Salim, this is Diana Brainard. Are you talking about the capsid inhibitor?

For hepatitis B.

Yes. We’ve seen competitor data regarding capsid, and we're looking closely at our compounds preclinically as well as clinically. With hepatitis B, we've got a lot of experience in this space. We know the value of suppressive treatment and how it reduces cirrhosis and hepatocellular carcinoma. While we’re committed to cure and recognize that we’re going to need combination therapies, we're cognizant of the safety barrier that has to be exceeded to bring combinations forward. I think that's really all we can say about that right now.

Are you still developing? Has it been terminated in the marketplace?

We're in the process of continually evaluating what our best next steps are. In terms of prioritizing what we bring forward, we’ve got the TLR8 study in Phase 2, and we want to see the results of those studies before making any final decisions on next steps and future combinations.

Good afternoon. Thanks for taking my question. Just one question on filgotinib. Maybe to ask Umer's question a different way. You've talked a lot about differentiating filgotinib. How important is the differentiated label to that process commercially? What key points will you have in differentiating filgotinib? And then second filgotinib question. We have been expecting data from filgotinib as well as GS-9876 in Sjogren's and CLE in the second half of this year. I noticed in your slides neither of those programs are mentioned. Is there any update on those two Phase 2 programs?

I'll let Johanna start on the commercial side, Phil, then we'll go to John on the development.

As you know, this environment is super competitive. We've pulled together a team with considerable experience. The piece that I would say about the differentiated label is that we’re seeing from the FDA a more class labeling. Our expectations are we’ll go through the process but I think we need to be conservative in our expectations. What’s important to us is the data we’ve got, particularly results from the three FINCH studies. They are really exciting for both efficacy and safety. A lot of the work right now is sub-analysis to better educate physicians about our data, and we feel we have the opportunity to position filgotinib as potentially best-in-class.

Let me update you on the status of the Sjogren's and cutaneous lupus studies. These are proof-of-concept studies; we set a high bar for ourselves. While we did not meet the primary endpoint in these studies, we did see evidence of activity with filgotinib, particularly in patients who had markers of more active disease. We are looking at the full set of data and will determine the next steps in lupus and Sjogren's disease, sharing those results at an upcoming meeting soon.

That’s very helpful. Thank you.

Hi there and thank you for taking my questions. I want to extend my best wishes to Robin on her retirement. Just one on the Kite franchise. I'm wondering if you can help me better understand the rationale for the increased investment, namely with the manufacturing facility. But more broadly, how does expansion into cell therapy beyond Yescarta fit within your new strategy for Gilead? Aside from Yescarta, are there any programs we should focus on that drive near-term value for the franchise?

Thanks for the question. I think it’s really important to acknowledge that the ability to manufacture and the turnaround time associated with cell therapy is fundamental to patient benefits and also efficacy results. It’s a competitive advantage to have a network of state-of-the-art manufacturing facilities that can reduce turnaround time. As for near-term projects, the state on Yescarta at ASH will be important, looking at the three-year data and early steroid use. The Kite X19 is now a second product for MCL, and we’ll present that data as well. ZUMA-7 is now fully enrolled, and we look forward to those trials playing through. In considering the longer-term strategy for Gilead in oncology, leveraging pioneering technologies like CAR T is a key area. Cell therapy, alongside the deep expertise we have in traditional methods such as small molecules, is what we want to expand. I would say we are committed to mid- to long-term programs that cover solid tumors as well as allogenic CAR-T, which might pose additional risks and opportunities.

Great. Thanks for the question. Appreciate it.

Thanks guys. Good afternoon. Earlier you spoke towards your strategic areas of focus for business development. The Galapagos deal makes a lot of sense from a long-term, broadening out the pipeline perspective and acquiring additional scientific talent in Europe. Could you speak a little bit further to your urgency to acquire late-stage or on-market assets particularly maybe within the next year to add to the top-line, which as it stands is relatively flat?

Thanks, Tyler. We are focused on differentiated medicines and will be driven by science both internally and externally. It won’t be too long before we start talking about guidance for 2020 and beyond, and while I won’t elaborate today, I’m confident in Gilead’s long-term growth potential captured within its HIV business. It continues to offset patent expirations this year and predicts a durable business. We've established a more predictable trajectory with our HIV-HCV business, with upside potential in filgotinib launching next year. While we want to find ways to accelerate growth in the coming years through both internal and external strategies, we will remain disciplined in our approach to M&A and partnerships. We’re looking for opportunities that can complement our later-stage portfolio, and we have the financial capacity to act if moments arise. Our priorities are clear: increase growth through internal and external avenues.

Yes, thanks very much.

Thank you, Liz, 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.