Sung Lee - Gilead Sciences, Inc. Robin L. Washington - Gilead Sciences, Inc. James R. Meyers - Gilead Sciences, Inc. John F. Milligan - Gilead Sciences, Inc. Kevin B. Young - Gilead Sciences, Inc. Norbert W. Bischofberger - Gilead Sciences, Inc..

Geoffrey C. Porges - Leerink Partners LLC Geoffrey Meacham - Barclays Capital, Inc. Matthew K. Harrison - Morgan Stanley & Co. LLC Joshua E. Schimmer - Piper Jaffray & Co. Alethia Young - Credit Suisse Securities (USA) LLC Cory W. Kasimov - JPMorgan Securities LLC Mohit Bansal - Citigroup Global Markets, Inc.

Ying Huang - Bank of America Merrill Lynch Phil Nadeau, Ph.D. - Cowen and Company Umer Raffat - Evercore Group LLC Katherine Breedis - Stifel, Nicolaus & Co., Inc. Terence Flynn - Goldman Sachs & Co..

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences First Quarter 2017 Earnings Conference call. My name is Candice, and I'll be your conference operator today. I would now like to turn the call over to Sung Lee, Vice President of Investor Relations. Please go ahead..

Great. Thank you, Candice, and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the first quarter 2017. The press release and detailed slides are available on the Investor Relations section of the Gilead website.

In addition, this year we have combined our annual and corporate social responsibility reports into a single publication titled 2016 Year in Review to share essential information about the company's financial, social, environmental and governance performance. This report can be found on the Investor Relations section of our website.

The speakers on today's call will be John Milligan, President and Chief Executive Officer; Robin Washington, Executive Vice President and Chief Financial Officer; Jim Meyers, Executive Vice President, Commercial Operations.

Also in the room with us for the Q&A session are Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer, and Kevin Young, Chief Operating Officer.

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

A description of these risks can be found in the latest SEC disclosure documents and recent press releases. In addition, Gilead does not undertake any obligation to update any forward-looking statements made during this call. Non-GAAP financial measures will be used to help you understand the company's underlying business performance.

The GAAP to non-GAAP reconciliations are provided in the earnings press release as well as on the Gilead website. I will now turn the call over to Robin..

Thank you, Sung, and good afternoon everyone. We are pleased to provide you with an update on our first quarter. I'll review our financial results. Jim will elaborate on our commercial performance, and then John will make a few comments.

There were a number of positive trends from our non-HCV business in the first quarter that Jim will describe in a few minutes. Overall, earnings per share and the total revenues were down year-over-year, due primarily to dynamics in the HCV marketplace that we described during our last earnings call.

Total revenues for the first quarter were $6.5 billion with non-GAAP diluted earnings per share of $2.23. This compares to revenues of $7.8 billion and non-GAAP earnings per share of $3.03 for the same period last year. Product sales for the first quarter were $6.4 billion, down 17% year-over-year and down 12% sequentially.

The year-over-year decline was due to lower HCV sales, partially offset by increased sales in HIV and other therapeutic areas. Sequentially, the decline was due to lower HCV sales and sub-wholesaler inventory decreases in the U.S.

associated with our non-HCV franchises, reflective of the seasonal inventory pattern from the fourth quarter to the first quarter. Turning to the U.S., product sales for the first quarter were $4.5 billion, up 2% year-over-year and down 10% sequentially. Jim will provide more color for the U.S. as well as the other regions.

Turning to Europe, product sales for the first quarter were $1.3 billion, down 23% year-over-year and down 11% sequentially, primarily due to competitive dynamics in HCV and unfavorable currency movements.

Now turning to expenses, non-GAAP research and development expenses were $889 million for the first quarter, up 16% compared to the same period last year, due primarily to the purchase of a $125 million U.S. FDA priority review voucher in March.

Non-GAAP SG&A expenses were $807 million for the first quarter compared to $638 million in the same period last year. These expenses increased primarily due to a higher net branded prescription drug fee for the first quarter of 2017 compared to the first quarter of 2016, which included a $191 million favorable adjustment as referenced on slide 11.

Without this one-time adjustment, non-GAAP SG&A expenses for the quarter would have been slightly lower compared to the first quarter of 2016.

We continue to focus our efforts on operating in a highly efficient manner by proactively managing expenses and investing in areas of strategic importance to retain our industry-leading operating margins, significant cash flows and healthy balance sheets.

During the quarter, we generated cash flows from operations of $2.9 billion and ended the quarter with $34 billion in cash and investments. As part of our plan to return capital to our shareholders, in the first quarter we paid cash dividends of $687 million and repurchased 7.9 million shares of stock for $565 million.

The timing and amount of share repurchases was aligned to our stock compensation awards, which are largely granted in the first quarter. As noted in our last earnings call, we are prioritizing the use of capital for investing in the long-term growth of our business including partnerships and acquisitions.

The year is progressing consistent with our expectations. As such, we are reiterating our full-year 2017 guidance provided to you on February 7 and summarized on slide 7 in the earnings results presentation available on our corporate website. I will now turn the call over to Jim to provide more details on our commercial results for the quarter..

Well thank you, Robin, and good afternoon everyone. I'm pleased to provide an update on our commercial performance for the first quarter, and I'll start with a few comments on HCV. Starting with the U.S., approximately 700,000 people have initiated HCV therapy since the launch of Sovaldi in December 2013, with 90% receiving a sofosbuvir-based regimen.

Total U.S. revenue from Gilead's HCV therapies for the quarter was $1.7 billion, down 18% year-over-year and 17% sequentially. The decrease in sequential revenue was driven by the declining sales of Epclusa, resulting in lower inventory, as well as some loss of market share as a result of increased competition.

For the remainder of 2017, while increased competition will have some level of impact on patient share and pricing, we expect that the continued decline in HCV patient starts will be the primary driver of the year-over-year decrease in revenue. This decline in starts is driven by the evolving profile of patients that are in care.

62% of patients initiating therapy in the first quarter had fibrosis scores of F0 to F2. That's the highest we've seen for this metric, and indicative of the fact that patients are coming into care with earlier-stage disease, a trend that is illustrated on slide 26. Over the last six months, we've introduced two new direct-to-consumer campaigns.

The first launched in late 2016 with the goal of increasing screening among baby boomers. We were pleased to see that this campaign, along with the efforts of organizations like the CDC, had an immediate effect, with a 24% increase in HCV antibody testing among undiagnosed baby boomers over the first two months of implementation.

The second campaign launched in March, and is directed towards diagnosed patients with a goal of encouraging them to seek treatment with Harvoni. We hope these campaigns will continue to have an impact, and will help more individuals seek testing, linkage to care and treatment.

It's important to remember that while the timeline for a patient to go from entering care to initiating therapy has lengthened and is more variable, there are still nearly 3 million people with HCV infection in the U.S., only half of whom are diagnosed. Turning to Europe, HCV revenues were down 42% year-over-year and 22% sequentially.

Quarterly revenues of $487 million were negatively impacted by lower market share as a result of increased competition. During the quarter, we negotiated new agreements with France and Italy to expand access to HCV patients regardless of fibrosis score.

This means that there are now 14 European countries, including four of the five major markets, that allow patient access regardless of disease severity. In addition, Epclusa has now been launched in all five of the major markets in Europe, and will be an important treatment option as some countries have a high percentage of genotype 2 and 3 patients.

These patients and their health care providers have been waiting for an effective therapy that does not require co-administration of ribavirin, or extended treatment durations.

In Japan, HCV product sales for the first quarter were $205 million, down 81% year-over-year and down 35% sequentially, due to a decrease in patient starts and increased competition. In the Japanese market, nearly 130,000 patients have been treated with a sofosbuvir-based regimen since the launch of Sovaldi in May 2015.

Because there remain many untreated patients, we continued to implement our direct-to-consumer education campaign to broaden the awareness of HCV in Japan. Worldwide, 1.4 million patients have now initiated HCV therapy with a Gilead regimen in less than four years.

With SOF/VEL/VOX, our investigational pan-genotypic single-tablet regimen for salvage therapy under regulatory review, we expect to complete our portfolio of HCV therapies later this year. Now turning to HIV, we are pleased with the rapid adoption and acceptance of our TAF-based regimens by patients and physicians in the U.S. and Europe.

In the U.S., HIV and HBV revenues were $2.3 billion in the first quarter, up 20% year-over-year and down 3% sequentially. As Robin stated earlier, the quarter-on-quarter decline is consistent with the typical seasonality that we see in sub-wholesaler inventory.

Importantly, first quarter revenue from our TAF portfolio exceeded $1 billion for the first time, which translates to a quarter-on-quarter growth of 47%. The launch of our TAF portfolio continued to drive the year-on-year growth of the Gilead HIV franchise. Genvoya represents nothing less than the most successful launch in U.S.

HIV history as measured by cumulative total prescriptions over the first five quarters following launch. By the end of 2016, Genvoya remained the most prescribed regimen for treatment-naïve patients, counting for nearly one in three patients.

More broadly, our TAF-based regimens now represent 42% of total Gilead HIV prescription volume just 17 months after the launch of Genvoya, and less than a year after the launches of Odefsey and Descovy. Truvada for PrEP also continues to be an important growth driver for Gilead.

We've seen a significant uptick in PrEP usage in 2017 with an estimated 125,000 patients using Truvada as we exited the quarter. This is encouraging given the important role that PrEP plays in preventing HIV transmission. Turning to Europe, HIV and HBV revenues were $697 million in the first quarter, down 3% year-over-year and down 1% sequentially.

Year-over-year volume growth driven by TAF portfolio launches was offset primarily by FX. Notably, the TAF portfolio revenue grew by 24% quarter-on-quarter. I'm pleased to report that Genvoya launched in France and Italy during the quarter. Genvoya is now available in 23 European countries, including all major markets.

In France, the second largest HIV market in the world, Genvoya is off to a particularly strong start. And in early launch markets like Germany, TAF-based regimens already account for up to 60% of Gilead's total HIV prescription volume.

This demonstrates the rapid acceptance of TAF by national health systems and the importance of an optimized safety profile for people living longer with HIV.

The TAF portfolio has achieved preferred status and treatment guidelines in four of the five major EU markets, as well as the EACS guidelines, with preferred status anticipated in France in the third quarter of this year. Shifting away from HIV and HCV, our U.S. cardiovascular team continues to deliver impressive results.

Letairis remains the market leader in PAH with a naïve patient share greater than the top two ERA competitors combined, while Ranexa is ranked in the top five cardiovascular branded products in terms of revenue for each of the past two years. In closing, we were pleased with our first quarter results.

For the remainder of the year we will continue to ensure that as many people as possible can benefit from Gilead products around the world. I would now like to turn the call over to John..

Thank you, Jim. As you've heard, product revenues for the first quarter of 2017 were down 12% from the fourth quarter of 2016.

While any decrease in revenue is disappointing of course, this decline is a result of the natural challenge of the HCV cure market, where in each country there was a rapid increase in the number of patients who were treated and cured, followed by a decline in the number of patients seeking care and being able to access HCV treatment.

The ongoing reduction in patient starts continues to be the major factor impacting our revenues, however 2017 is progressing as we expected and communicated to you on our last earnings call.

On a positive note, we continue to see strong uptake of our TAF-based regimens in HIV, pointing to the valuable role these therapies play in the long-term treatment of patients with this disease. Genvoya is now our number one selling HIV product, surpassing both Truvada and Atripla since the last quarter of 2016.

During the first quarter, I had an opportunity to attend CROI, the Conference on Retroviruses and Opportunistic Infections. This is a good scientific forum with much progress described across the spectrum of HIV research for prevention, to novel targets and treatment to cure.

Gilead's work featured prominently in the conference, including Phase 2 data for bictegravir used in combinations with F/TAF, long-term data supporting use of Genvoya, and preclinical data describing the potential of our novel capsid inhibitor as a long-acting treatment.

During CROI, there was great enthusiasm for the emerging profile of B-F/TAF, as this is the first time we are able to present the full 48-week dataset from our Phase 2 study. As many of you know, we initiated Phase 3 studies last year based on our interim look at the 24-week data from the study.

These four Phase 3 studies include more than 2,400 patients and enrollment was completed in third quarter of last year. We look forward to sharing data from these studies in the coming months and anticipate that we will begin submitting regulatory filings for approval in the third quarter of this year.

The progress we made in providing new options to patients with HIV is remarkable and I'm proud of Gilead's contributions over our 30-year history. Last month, Gilead research was featured in 85 abstracts at the International Liver Conference, or EASL as it is often called.

One of the most exciting stories emerging from the conference involved NASH for non-alcoholic steatohepatitis. This is a disease that garnered relatively little attention at medical meetings a few years ago but is increasingly understood as a serious health issue for patients, particularly those presenting with the later stages of fibrosis.

These are the patients facing the greatest risks of complications, and those with the most urgent need for new treatment options. We shared proof of concept data for GS-0976, our inhibitor of Acetyl-CoA carboxylase, or ACC, in an oral late-breaker presentation.

ACC catalyzes the rate-limiting step in de novo lipogenesis, which means the formation of new fat. Inhibition of ACC with GS-0976 leads to significant reductions in both liver fat content and stiffness with decreases in markers of liver fibrosis seen after 12 weeks of treatment. We have now progressed GS-0976 to a larger Phase II study.

In addition to 0976, another compound in development is our ASK-1 inhibitor selonsertib. We described for your previously the exciting data presented at AASLD last fall, showing that inhibition of ASK-1 with selonsertib led to decreases in fibrosis and secondary markers of NASH in a dose-dependent manner.

We now have two Phase III trials underway evaluating selonsertib in NASH patients with bridging fibrosis and cirrhosis. Also in NASH, GS-9674, a gut-restricted FXR agonist, has progressed into Phase II studies, having shown biological activity through up regulation of FGF19 in a Phase I study.

Complete resolution of NASH may require the inhibition of more than one pathway, and animal studies indicate that combinations of selonsertib, GS-0976 or GS-9674 may be more effective than the individual components alone.

We have initiated a Phase II study in 20 patients evaluating the combination of selonsertib and GS-9674 and will initiate additional combination studies this year. If these combinations prove safe and efficacious, we will move one or more into extended Phase II evaluation next year.

In HCV, we had six presentations at EASL further characterizing the efficacy and safety of SOF/VEL/VOX, our pangenotypic single-tablet regimen in more than 1,000 DAA-naïve and DAA-experienced patients across all HCV genotypes.

Most notable was data showing no impact of resistance-associated substitutions on the high efficacy of SOF/VEL/VOX for 12 weeks in DAA-experienced patients. As Jim mentioned, this regime is currently under regulatory review with a U.S. FDA PDUFA date of August 8.

Also on HCV, data from two Phase II studies of Harvoni demonstrated HCV cure rates of 99% in children age six to 11 and 100% in adults co-infected with HCV and HBV. The pediatric data have recently been included in our U.S. label.

And finally, we presented 96-week results from two ongoing Phase III studies evaluating the safety and efficacy of daily Vemlidy in e-antigen positive and negative patients in 24-week data in patients switching from Viread to Vemlidy.

The results reinforce Vemlidy as an important treatment option for patients living with chronic hepatitis B infection. In the area of inflammation, Phase II studies of filgotnib, a JAK1-selective inhibitor are underway and enrolling in rheumatoid arthritis, ulcerative colitis and Crohn's disease.

With this once-daily dosing in our approximately 1,700 patient-years of experience, we and our partner Galapagos have now started, or announced the intention to start six additional Phase II studies across a range of different inflammatory diseases where JAK1 activity is implicated.

Before we wrap up our prepared remarks, I want to mention another recent and important event at Gilead, at which Gilead's work was highlighted, and that's the Neglected Tropical Diseases Summit that took place last month in Geneva.

At this meeting, which brought together industry, the World Health Organization, public health and government officials, and many NGOs working to deliver medicines to the developing world, we reaffirmed our commitment to the London Declaration on Neglected Tropical Diseases.

This declaration, signed five years ago, outlines the WHO's ongoing efforts to control, eliminate or eradicate 10 key neglected tropical diseases.

In Gilead's case and related to this declaration, we have partnered with WHO for many years to provide AmBisome for use in several developing countries as a treatment for visceral leishmaniasis, a deadly parasitic infection. This is a very important application for AmBisome, which is better known for its use in cases of systemic fungal infections.

We are pleased that the use of AmBisome, along with other mitigation strategies, has resulted in a marked decrease in the number of visceral leishmaniasis cases in India, Nepal and Bangladesh.

In addition to visceral leishmaniasis, we have research ongoing to address other neglected or emerging tropical diseases that pose significant public health threats in resource-limited parts of the world. For example, our work on GS-5734 for the treatment of Ebola and potentially other deadly viruses such as those that cause SARS and MERS.

In 30 years, we've learned that the value of partnerships in developing innovative new therapies, and have demonstrated a willingness to make bold moves.

That hasn't changed, and we are committed to building on our success in HIV and HCV by leveraging our own scientific expertise as well as the knowledge of others through collaborations and partnerships to work toward the next generation of life-saving therapies.

I would like to conclude by thanking you for your interest in Gilead and thanking our nearly 9,000 employees for the hard work that is well represented in our results his quarter. So let's now open the call for questions.

Operator?.

Thank you. And our first question comes from Geoff Porges of Leerink Partners. Your line is now open..

Thanks very much for taking the question, and appreciate all the color on the dynamics in HCV and HIV. Perhaps we could talk a little bit about the HIV category. And Jim or John, give us a sense of what percentage of your HIV revenue in the U.S.

today is Medicaid funded and then what percentage is covered or at least patients are covered by insurance provided by ADAPs. And then lastly, what do you expect to happen to pricing as you get into generic Viread being available both outside the U.S. and then in the U.S.

at the end of the year? Should we anticipate Atripla's price coming down to some of their components or staying at the branded price? Sorry, but they're sort of related..

Thanks for your one question, Geoff..

Hey, Geoff. It's Kevin here. Let me have a go at the first couple of parts, and then Jim can also help out. So I'll just split the business really between the public side and the private side for HIV. We've got about 55% of our business HIV sales go through the public, and about 45% go through the private. It's actually almost a direct reverse of HCV.

And of that 55%, 20% or so is ADAP in the U.S. So that's basically the situation that we have. We're very pleased with the progress with Genvoya. As we said on the last earnings call, we will see the effects of generics in Europe in the second half of this year. That will be a country-by-country event.

I think the most direct effect, of course, will be on Viread and Truvada. The most important parts, as far as we're concerned, is to make sure as many of our countries convert from TDF-based regimens to TAF-based regimens. And as you heard from Jim, some of our European markets are doing very, very well on that front.

We've got Germany already at a ratio of 60% TAF to TDF. So we're trying to control I think the most important variable, which is good for patients, which is to see them converted to TAF away from TDF in advance of the change in the TDF landscape..

Yes, and, Kevin, just to add on that, and I agree with everything you said. I think HIV is a bit of a different market over the years. Of all the markets, of all the chronic therapy markets Gilead's ever been in, it's been driven more by increases in patient volume than by changes in price.

And there's always some element of both in every therapeutic area that you're in, but disproportionately in HIV. There's always been a healthy steady flow of number of treated patients each year. As I think you're probably aware, and as Kevin just said, we're already in heavily, deeply-discounted payer segments in the U.S. market.

What that means is that's already part of the run rate. So the normal impact of a generic is a big change from where you are.

We're already, especially for the older products that are going to be coming off patent, the difference between generic pricing and where those prices are right now is much more incremental than you'd see in most markets, and anyways, that's something that's just very unique with that.

We continue to see obviously a strong support for single-tablet regimens and fixed-dose combinations, and of course, there will be some level of impact whenever there is generic entry, particularly outside of the U.S.

But we still very firmly believe that when we want to ultimately have the full launch of our entire TAF portfolio, particularly BIC/TAF, B-F/TAF, that this remains very much a sustainable franchise going forward. Again, I would say we hear sometimes how sustainable is price levels in HIV. That really hasn't been the story of HIV.

It's really, I mean particularly in the U.S. market, because of the deeply-discounted segments and the CPI-U penalties you have over time, this has been a market that has overwhelmingly been driven by patient volume. So we're not as reliant on that. We have not been historically as reliant on, if you look at list pricing for sure, it's there.

But net pricing has deteriorated over time, and that's already in the run rate. But I'll stop there, and we feel very confident in this being a sustainable franchise..

Geoff, just two last points, Geoff. We obviously thought about these events as part of our guidance. They're included in our guidance, and the other point I'd like to make is I think for the first time, we've really seen a downturn in the number of Atripla patients.

Atripla stayed very strong for 10 years since its launch, but with Genvoya now and the TAF-based regimens, we've really seen that turn, and I think that's good for patients and obviously it's very encouraging for Gilead..

Great. Thanks very much. Appreciate it..

Thank you, and our next question comes from Geoff Meacham with Barclays. Your line is now open..

Afternoon, guys. Thanks for the question. Jim, on HIV, PrEP has been a big volume driver. What's the typical duration of use? And how would you size the opportunity? And then, John, you mentioned revenue trends in the quarter. I'm just curious if there's a metric, be it cash flow or margin that maybe that best informs your biz-dev or deal strategy.

Thank you..

Sure. So starting with PrEP, what we're seeing very encouragingly, and I think consistent with CDC guidance and data, is that we're starting to see persistency that is very similar to patients taking antiretroviral therapy for treatment, and that's what you want.

Frankly, three, four years ago, PrEP prescribing was very episodic, and we're not seeing that now. So that's not just a good thing for Gilead, I think that's a good thing for patients. That's what the data would say is the way that PrEP should be prescribed.

So we're not seeing very much shade of light between those two, and because of that, we do see this as a significant continued driver of growth.

I think as we said in the last earnings call, 90% of PrEP prescribing was coming out of five cities coming into this year, and they weren't the cities where a lot of the epidemic is really starting to unfortunately increase, areas like New Orleans, DC, Newark, Oakland, the Bronx.

And part of our efforts, both with the field-based team that we deployed of prevention specialists, and also with some of our education that we're doing is geared towards those markets, because honestly I think that's where the needle can be moved the most..

So, Geoff, I would give you a shorter answer to your question. But you asked about metrics. Certainly as we think about opportunities, we do look for things which have potential to have a high operating margin. That's important to us. That of course informs the potential cash flow from the business in the future.

We also of course look for things that have a scientific and medical need such that we can build a sustainable business that would have the top line growth that we desire, along with those margins and cash flows. So those things are all informative in terms of how we think about it..

Okay. Thanks..

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

Great. Thanks very much and thanks for taking the question. I wanted to ask about bictegravir specifically.

And maybe you could just talk about, how do you view the potential to being able to achieve superiority with bictegravir over dolutegravir? And maybe as part of your answer if you're willing, can you talk about what's the statistical plan and the powering in the head-to-head naïve study? Thanks..

Yes hi, Matt. I'm happy to answer that. So the head-to-head studies in naïve patients, remember one of them is comparing bictegravir to dolutegravir. The other one is comparing our single-tablet regimen to Triomune. Both assume that the comparator arm has a 91% success rate, and the lower bound of the 95% confidence interval is 12%. So the delta is 12%.

Now what the chances of achieving superiority, there's always a possibility. I don't think I would like to speculate on that. It really depends. This will clearly show that these are both large studies and will clearly show if there is a difference between these two drugs, we should see it..

Yes. Matt, the only other thing I would add from a commercial point of view is that the success of Genvoya, the success of Descovy is the platform for BIC/TAF. So we see it as a family. TAF is doing extraordinarily well. You saw the results of Descovy in the quarter. So that's just the building block upon which that we'll launch BIC-F/TAF.

So the momentum we really have going now will be taken forward with B-F/TAF. But we see it all as sort of a collective platform..

Matt, I forgot to add something. Of course we will look for superiority. So the primary test will be non-inferiority, and if we meet that, we will of course look for superiority, which is of course a possibility..

Thank you. And our next question comes from Josh Schimmer, Piper Jaffray. Your line is now open..

Great. Thanks for taking the question. Let's discuss why TAF is so strong in Germany versus U.S.

And then as you think about launching bictegravir into these markets, is that something going to sustain the current trajectory of TAF adoption or do you expect it to accelerate the penetration? And if it's accelerating, what is the patient population that that one will specifically unlock? Thanks very much..

You said TAF uptake in Germany versus U.S..

Yes. Sorry, Josh. You broke up a little bit. So we're going to try to recreate your question as best we can. We'll turn it over to Jim for that.

Yeah, so my apologies that I didn't hear all that. I think I have it now. But I think what we have seen in Germany is consistent with what we've seen in other early launch markets in Europe, which is number one, rapid adoption or rapid acceptance of the TAF profile and treatment guidelines.

Again, we have it in four of the five markets right now in addition to EACS. But also a strong desire to appropriately, depending on the label, move patients to the TAF-based regimens. And because Genvoya launched earlier there, that's a good example of what we're seeing in some of our earlier markets. The example we gave was Germany. It was up to 60%.

We also have some earlier launch markets in the Nordics and in some of the northern European countries that tend to launch earlier that are there or thereabouts, closer to 60%. So the encouraging thing for us, too, is that as we mentioned, we just launched Genvoya in France this quarter and in Italy literally at the end of the quarter.

So we've got a lot of room to grow there and try to get up to the levels that we've seen in the other countries. But I think it's primarily a function of just it was an earlier launch. People are seeing good results.

They realize that this is a patient population that is aging, and the attributes of TAF in a 50 to 60 year old patient are even more important than they are in a 40 year-old patient, and I think we're seeing that reflected..

Yes, Josh. It's Kevin. I was just out in Australia about ten days ago. They've already got a 40% conversion to TAF, so it's happening around the world where we have launched in most markets, a lot of markets just over a year. I would also say that, with HIV, as Jim referred to earlier, this is not a contracting type of market.

This is once you have reimbursement, then generally physicians have the freedom to operate and will follow guidelines and put patients on advances in therapy, and clearly, clearly, clearly, clearly TAF is an advancement on TDF..

I think the one final thing I'd say is that in some quarters there's some worry that as you get into some of the generic options, that choice will be taken out of physicians' hands, so you do see a lot of physicians wanting to switch to TAF while they have the ability to do that. And that makes a lot of sense..

Got it.

And bictegravir insights?.

Thank you..

I'm sorry, Josh. We couldn't hear that..

So I said the impact of the bictegravir on the adoption curve accelerator just remaining..

Do you think bictegravir's going to accelerate the adoption curve of TAF?.

I do, yes. I mean, I've said it, and Norbert's probably – we've all said it in this room. I truly believe that it is the first single-tablet regimen we've had without tradeoffs. And I believe that most of our physicians see it that way too. And I'm looking at my clinical colleagues in the room here, and that's what we hear from our advisors..

Yes..

Thank you..

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

Hey, guys. Thanks for taking my question. I guess I'll continue the trend of no hep C questions, but thinking about NASH, in one of your slides you said less than 1% of patients were diagnosed.

So I'm just curious kind of what you're doing alongside your Phase II, Phase III work to kind of drive diagnosis? Like particular biomarker work or anything to that respect. Thanks..

Yes, so Alethia. I want to answer first then Kevin will, if you have any comments. So we are including in our Phase 3 studies, of course, the primary endpoint as you know is histology. We think that's a potential hurdle to diagnose patients and get patients into care.

So we're looking at the use of FibroScan with all patients in that study, and hopefully we can then show the correlation between FibroScan and histology, that that may be a way to include those data and the need. Again, we have not discussed this with regulatory authorities. It's too early for that. We just have to see what the data looks like.

But clearly, one thing from a clinical point of view is to get away from doing biopsy. And we're also looking at the usual markers of fibrosis. We presented at EASL, the ELF data, and others like CK-18.

So these are all serum markers that have to do with fibrosis and we showed a fairly good correlation between these serum markers and MREs, so and medical resonance elastography. And if we can do the same thing showing the correlation with histology, then hopefully this will become the accepted diagnostic avenue..

Yes, Alethia, not much to add. Yes, we've got to find non-invasive measures. But I would emphasize that we like the focus of going into the F3 and F4 patients. I mean, they're very defined.

Somebody's got cirrhosis, it's a very defined patient population and I think with perhaps different from perhaps some other companies in the area, we like that focus and that's where we want to begin our entry into NASH and then build upon that..

Alethia, I want to add, we had another presentation at EASL about, you know the study of simtuzumab in bridging fibrosis and cirrhosis, that overall field.

So it didn't show any efficacy, but it taught us a lot about disease progression endpoints, and it is clear that fibrosis is the only predictive biomarker, the only predictive diagnostic that predicts clinical outcomes. And we also got a good sense for what we can experience over a year or two years in terms of clinical events.

And based on this data, we are comfortable that with two-year follow-up, we should have enough clinical events, hepatic decompensation ascites, et cetera, that would get us potentially full approval rather than accelerated approval based on histology..

Great. Thanks..

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

Hey. Good afternoon, guys, and thanks for taking my question.

I wanted to ask about business development and curious how much of a barrier all the uncertainty in Washington right now regarding tax reform is when it comes to pulling the trigger on potential BD opportunities? And then, following some of the recent hires you've made over the last six or so months, do you think you have the bandwidth now to more fully explore the myriad of assets in companies that are out there? Thanks..

Yeah, thanks for the question, Cory. So first of all, with regard to Washington, I think that uncertainty in Washington seems to be the norm in my 27 years here. So I think we've kind of learned to filter that out and focus on the things that are right for the company. There may be tax reform.

There may be repatriation, but you can't count on it and you can't wait for it either.

So we've focused our efforts – I'll turn to what you asked last, which is we really focused our efforts on broadening our team, adding some depth both scientifically and with business development experience so that we in fact have much, much greater capacity to assess things and are in fact fully engaged with our teams assessing a number of different opportunities, which we think could play out over the coming year as we start to make progress in getting partnerships and potential acquisitions together.

So we're going to just focus on what's right for Gilead, try to ignore the noise globally on terms of tax reform, and do the best thing for the company and for the shareholders in the long term. And we really have a great team right now..

Thanks, John..

Thank you. And our next question comes from Mohit Bansal of Citi. Your line is now open..

Great. Good afternoon. Thanks for taking my question. So one question on NASH. If you could help us understand the futility analysis you have baked in in your ASK-1 program, and also like what is your strategy for data release there? And when do you think we could see those data? Thank you..

Yes, there seems to be this rumor in the public that we have a futility analysis. We do not have an interim analysis planned in our Phase III studies. This will be 48-week endpoint with histology. There will be the usual DS&B meetings that mostly look at safety. But there is not a futility or an interim analysis planned.

So we are going to carry this study out to 48 weeks, last patient 48 weeks biopsy. That will constitute the NDA filing..

But the study will continue blinded after that..

The study will continue blinded because we believe that the histology will get us accelerated approval, and in order to get full approval, you need to reach clinical endpoints. And we think they should be reached as I explained just before in the two-year timeframe or so..

Got it. Thanks for clarification. Thank you..

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

Hi. Thanks for taking my question. I have a couple of quick ones related to HCV. First one is you had 44,000 patients starting in U.S. So if you flatline, that trend is actually to the high end of the reg you provided at the beginning of the year of 150,000 to 175,000 patients starting this year.

And if you look at your HCV sales, again if you flatline just times 4, it's actually above your range.

So I was wondering what do you see in the rest of the year, the next three quarters, what could cause that patient start and also the sales to trend down from 1Q level? And then another related question comes from the comments of Merck and AbbVie on HCV. I think they had a little bit different opinion.

Merck was saying that they continue to see patient trending down, patient start, but then, so AbbVie was saying that, but they have different opinion on where the long-term trend is going. So I was wondering if you can provide any color on that. Thank you..

Hey, Ying. It's Kevin. Let me try and take a stab at that. I mean, let me say right from the start, HCV continues to be a large opportunity, albeit that it's declining, and that decline is happening in every market that we look around the world.

In terms of looking at revenues and our performance, we took a very realistic view when we set about our guidance three months ago, and really nothing has changed. We still think the number of 150,000 to 175,000 patient starts in the U.S. is still a very solid number.

Yes, you are correct that it was 44,000 treated, but please bear in mind that when you look at revenues, it's a composite that's made up of starts. It's made up of share. It's made up of payer mix, and it's made up of product mix. So there's a number of components that goes into this. It's early in the year. It's just three months.

Starts can vary from quarter to quarter, but we don't see anything right now that would change from where we set our guidance back in February. Yes, and so I think from what I can see, and it's not for me to comment on other companies in the area, I think pretty much everybody is now seeing this market in a similar fashion.

It's large, and it'll go on for a long time. I don't think anybody really knows when there will be a turning point. We'll probably only know that turning point when we're nine to 12 months after that turning point.

But clearly, with 1.5 million people diagnosed in the U.S., 3 million infected but 1.5 million diagnosed, that's still a lot of patients to cure. And I think ourselves and probably the general noise in the market will encourage people to step forward and be treated, and as Jim described earlier, our DTC campaigns are really focused on that..

Thanks, Kevin..

Thank you, and our next question comes from Phil Nadeau with Cowen. Your line is now open..

Good afternoon. Thanks for taking my question. One for John, kind of a broad big picture question. John, last year there was some talk of Gilead providing a strategic overview early in 2017 and discussing your strategic imperatives in a bit more detail.

It seems like that has obviously not happened, but I'm curious, is that still something that we can expect? Is there going to be a time when you will more definitively define your strategy? Or is it just going to be piecemeal, we'll kind of see things develop as they do?.

Well, first of all, Phil, I don't recall ever saying that we were going to have a specific unveiling of a strategy, and strategies for companies are an ongoing process, not an event. And so what you have seen in our different areas, I mean, really think about our strategies over the last few years.

We wanted to stabilize and then grow HCV products by the introduction of TAF and additional STRs. We wanted to round out our HCV portfolio with SOF/VEL/VOX so we'd have an answer for every patient within our portfolio.

We did that very successfully last year, and then we brought Vemlidy to market to help stabilize the HBV market and provide a really good foundation for the company. We're making forays into NASH, as we've described, more compounds that we've acquired, and are building upon. We may do more there. We're building really nicely in filgotinib.

I think we have a really great opportunity with filgotinib to accelerate the clinical development timelines, now that baricitinib seems to have a setback, which could provide greater upside for us as well if that is significantly delayed.

So those are two different areas where we're continuing to invest, and you'll see with filgotinib, we're going to embark upon other studies. For example, we have a Syk inhibitor that could be also useful in RA, and that maybe combinable with filgotinib.

With regard to future legs of stool, I think it's pretty clear we're looking for another avenue to increase our opportunity for revenue, and also for helping patients with the considerable heft that we have, and it's clear we've been focusing on oncology, where the question is there in the area, where we can use our resources to accelerate products to market and build a meaningful franchise in oncology.

And that was the hiring of Alessandro Riva; that was the foray we made with our business development people to broaden and then to look at other things that can build this.

And so I feel very good that we've got a number of different ways to accelerate growth for the company into the future so that a decade from now we're a very different company, having reinvented ourselves beyond antivirals into a really multi-therapeutic area company.

And I feel very good about where we are and we'll continue to try to enhance that as well. So that's our strategy..

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

Hi. Thank you so much for taking my question. I just wanted to zoom in a little bit on the TAF patent estate. And some of your prior commentary seems to imply that you're guiding to a 2025 patent expiry for TAF-based regimens.

And we're seeing some patents listed all the way out to 2032, and just wanted to understand, A, how you think about those patents and B, in your base case do you consider using those patents in any possible patent litigation that comes up down the road? Thank you..

Well, first of all, I'm not going to comment on future patent litigation and what we won't or won't do. I don't have my attorney with me, so I'd be loath to say anything. With regard to TAF itself, the TAF patent is out through 2025.

What you're seeing in additional patents is, of course, as we have bictegravir and other products that we're developing, those will have longer product patents of course. And so those products and combination products may go out to a much longer date than that. And as we continue to invent other molecules for HIV, we're not done.

We're still looking at, for example, drugs for salvage. Those will have additionally long patent lives, as well. So it will be somewhat of a laddered portfolio of patent expirations going out well into 2030..

2033 for bictegravir..

Thank you, 2033. Sung has corrected me for bictegravir..

Got it. Thank you..

Thank you. And our next question comes from Katherine Breedis of Stifel. Your line is now open..

Thank you very much for taking my question.

As a follow up to the early exciting data for your NASH portfolio that were featured at EASL, I was wondering if you could provide some thoughts about what you think the timeline for potential patient recruitment might be, particularly for selonsertib in Phase III, which again looks very compelling, but we've seen from other recent competitors some enrollment delays.

Thank you..

Yeah, Katherine, honestly, it's a little bit too early to talk about where we are in patient recruitment, because I always want to get a quarter or one-third into the recruitment phase to be able to make intelligent projections.

But clearly what I can tell you is the STELLAR 4 study, which is the one in cirrhotic patients, is enrolling very, very fast and there are two obvious reasons. No competition, number one and unmet need with a population that is very ready to enroll in a study that has the potential to help them and to make their fibrosis better.

So the answer was a little bit qualitative. Again, to quantitatively answer it, it's too early. But it is also clear that we might have STELLAR 4 enrolled much sooner than STELLAR 3, in which case we would file with STELLAR 4 only. Of course, this has to be discussed with regulatory..

Yes. I'd say we have the potential to file it early depending on the data and the safety and risk benefit..

Sure. I think it's also important to say that we know many of these sites very, very well from our HCV programs.

These are the same, almost, many times the same investigators, yes.

Great. Thank you very much..

Thank you. And our next question comes from Terence Flynn of Goldman Sachs. Your line is now open..

Hi. Just a couple more on hep C. I was wondering if you have data yet on the number of new diagnoses in the U.S. in 2016. I know you've provided that in the past for 2015. And then, can you tell us the contribution from the VA this quarter? And then ex-U.S. market share looks like has been declining on a dollar basis since early 2016.

Anything you guys can do to stabilize that? Thank you..

Hey, Terence, it's Kevin. No. It's just too early. We haven't got the 2016 data yet. So, sorry. It's not that we're holding this back at all. It's just not available. We're hoping maybe going into the second quarter or middle of the year that we'd have that data, but no. We don't have 2016. I'll let Jim take the VA..

Sure. So, yeah, the VA as you know in the past has been at times one in four patient starts for us in any given quarter. The VA is experiencing the same dynamics outside the VA where we are seeing a steady gradual decline in the number of treated patients, due largely to the changing profile of the patient under care.

We're seeing it actually in a little bit more of an accelerated manner in the VA, simply because they were so efficient and so effective in getting their folks into care and getting them treated. So they actually have been able to treat about 50% of their population.

So we would anticipate that the VA would continue to represent a smaller and smaller percentage of our overall treated patient population..

It's important to say, Jim, that we don't see or we don't hear of any budget restrictions from a VA point of view..

Yes. It isn't and -.

The market share year on year..

Yes.

I'm sorry the question was – so if you think about market share across Europe, you know we had about the same number of patients this quarter as we did last quarter, but what you are seeing, you are correct on a dollar basis it goes down, and that's somewhat a shift from the patients in the north to the patients in the south, which is sort of a natural again evolution because there are more patients in southern Europe where the prices are lower than they are in northern Europe where we have had a good run at curing a high percentage of the patients already.

So I think that trend will likely continue..

Yeah and, Terence, as Jim pointed out, we do have the opening of access now in France and Italy. So we're going to be obviously trying to use that opportunity to treat more patients. So that's a very positive situation that we've got right now..

Particularly in France, yes.

Particularly in France, yes..

Thank you. And that concludes today's question-and-answer session. I'd like to turn the conference back over to Sung Lee for any further remarks..

Thank you, Candice, and thank you all for joining us today. We appreciate your continued interest in Gilead and the team here looks forward to providing you with updates on our future progress..

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