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

Geoff Meacham - Barclays Capital, Inc. Matthew K. Harrison - Morgan Stanley & Co. LLC Geoffrey C. Porges - Leerink Partners LLC Alethia Young - Credit Suisse Securities (USA) LLC Brian P. Skorney - Robert W. Baird & Co., Inc. Robyn Karnauskas - Citigroup Global Markets, Inc. Cory W.

Kasimov - JPMorgan Securities LLC Ying Huang - Bank of America Merrill Lynch Michael J. Yee - Jefferies LLC Phil Nadeau - Cowen & Co. LLC Terence Flynn, Ph.D. - Goldman Sachs & Co. LLC M. Ian Somaiya - BMO Capital Markets (United States) Salim Syed - Mizuho Securities USA, Inc. Carter Gould - UBS Securities LLC.

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences Second Quarter 2017 Earnings Conference Call. My name is Liz and I will 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..

Thank you, Liz, and good afternoon everyone. Just after market close today, we issued a press release with earnings results for the second quarter 2017. 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 Robin Washington, Executive Vice President and Chief Financial Officer; Kevin Young, Chief Operating Officer; Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer; and John Milligan, President and Chief Executive 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 is 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 for our second quarter. I'll review the financial results, Kevin will address the commercial performance, Norbert will highlight the progress made in R&D, and then John will make a few closing comments.

Our strong performance in the second quarter was driven by a continuation of the positive trends in our non-HCV business and better than expected results from our HCV business, particularly in the U.S. Total revenues for the second quarter were $7.1 billion, with non-GAAP diluted earnings per share of $2.56.

This compares to revenues of $7.8 billion and non-GAAP earnings per share of $3.08 for the same period last year. Product sales for the second quarter were $7 billion, down 8% year-over-year and up 10% sequentially. The year-over-year decline was due to lower HCV sales partially offset by increased sales in HIV and other therapeutic areas.

Sequentially, HCV sales grew 11% and HIV and other therapeutic area sales grew 10%.

Turning to the U.S., product sales for the second quarter were $5 billion, up 2% year-over-year, driven by favorable demand for our non-HCV products offset by lower HCV sales, and up 12% sequentially, primarily due to the continued strong uptake of our TAF franchise and favorable inventory movements for HIV and HCV.

Turning to Europe, product sales for the second quarter were $1.4 billion, down 13% year-over-year and up 11% sequentially. The year-over-year decline was primarily due to competitive dynamics in HCV and unfavorable currency movements.

The sequential increase was primarily due to the one-time recognition of deferred revenue related to an HCV contract, demand for Epclusa and the continued uptake of our TAF-based regimens. Kevin will provide more color for the U.S. as well as the other regions. Now turning to expenses.

Non-GAAP R&D expenses were $812 million for the second quarter, down 22% compared to the same period last year, due primarily to the purchase of an FDA priority review voucher in 2016. Non-GAAP SG&A expenses were $827 million for the second quarter compared to $838 million in the same period last year.

We remain focused on operating in a highly efficient manner and are proactively managing expenses and investing in areas of strategic importance to generate industry-leading operating margins, significant cash flows and a strong balance sheet.

We ended the quarter with $36.6 billion in cash and investments and generated cash flows from operations of $3.5 billion. While we anticipate strong cash flows in the second half of 2017, we expect a sequential decrease in the second half of the year as we anticipate large cash payments for government rebates, both in the U.S.

and abroad, as well as other seasonal payments. As part of our plan to return capital to our shareholders, we paid cash dividends of $680 million and repurchased 2 million shares of stock for $130 million to offset dilution in the second quarter.

We continue to prioritize the use of capital for investing in the long-term growth of our business including partnerships and acquisitions. Finally, I would like to update our full-year 2017 guidance provided to you on May 2 and summarized on slide 6 in the earnings results presentation available on our corporate website.

We are increasing net product sales to a range of $24 billion to $25.5 billion. Non-HCV net product sales are expected to be in the range of $15.5 billion to $16 billion. HCV net product sales are expected to be in the range of $8.5 billion to $9.5 billion.

This guidance reflects the strong performance we have seen in the first half of 2017 across our businesses, specifically in the U.S., while continuing to anticipate increased competitive dynamics in the U.S. and EU during the second half of the year.

This guidance is subject to a number of uncertainties which are highlighted on slide 16 in the earnings results presentation, including the accuracy of our estimates for HCV patient starts for the remainder of 2017, unanticipated pricing pressures from payers and competitors resulting in lower than anticipated market share in HCV, and lower than expected market share and greater price erosion as the result of the introduction of generic versions of TDF and the fixed-dose combination of FTC/TDF outside the U.S.

We are narrowing the R&D expense guidance to a range of $3.2 billion to $3.4 billion. We are also narrowing the SG&A expense guidance to a range of $3.2 billion to $3.4 billion. Finally, the diluted earnings per share impact of GAAP to non-GAAP adjustments is expected to be in the range of $0.86 to $0.93.

All other components of our guidance remain unchanged. I would now turn the call over to Kevin to provide more details on our commercial results for the quarter..

Thank you, Robin, and good afternoon everyone. We continue to see strong uptake of our TAF-based regimens in the United States and Europe. In the U.S., total HIV and HBV revenues were $2.6 billion for the quarter, up 19% year-over-year and up 10% sequentially. These results demonstrate the strength and sustainability of our HIV franchise.

At the end of June, our TAF-based regimens accounted for 51% of Gilead's total HIV prescription volume. Leading the way was Genvoya with a treatment-naïve patient share of 41%, more than twice that of the second-most prescribed therapy.

This represents the highest treatment-naïve patient share for a single product or regimen since the early days of Atripla. In addition, more than one third of patients who switch HIV therapy now switch to Genvoya.

More broadly, Gilead single tablet regimens represented four of the top five most prescribed products across all categories, treatment-naïve, switch and total treated patients. Beyond TAF, Truvada for PrEP continues to be an important option when used as part of a comprehensive strategy to prevent HIV transmission.

We estimate that approximately 136,000 people in the U.S. were using Truvada for PrEP as we exited the second quarter. We are also encouraged to see third-party providers announcing new initiatives on broadening access to PrEP.

Turning to Europe, total HIV and HBV revenues were $732 million in the second quarter, down 3% year-over-year and up 5% sequentially. The year-over-year decrease was driven by negative foreign exchange. The sequential increase was due to robust demand for our HIV therapies. Strong uptake of our TAF franchise continues throughout Europe.

Based on preliminary data for the second quarter, Genvoya is expected to be the most prescribed therapy for both treatment-naïve and switch patients across the top five European markets collectively.

I'm delighted to say that in France, the largest HIV market in Europe, Genvoya became the most prescribed HIV regimen for treatment-naïve and switch patients just four months after launch. Turning to Descovy and Odefsey. We now have these products available in 19 and 16 European countries respectively.

Additional launches are anticipated in 2017 as pricing and reimbursement discussions continue. Guidelines have a significant impact on prescribing patterns. Following the recent inclusion in France, Genvoya is now a preferred regimen in country guidelines in all five of the major European markets. Turning to HCV, total revenues in the U.S.

were $1.9 billion in the second quarter, down 17% year-over-year and up 13% sequentially. The quarter-on-quarter increase was primarily due to a change in inventory and the timing of patient starts. Our market share for the quarter remained high at approximately 80%. HCV patient starts in the first six months were better than we originally anticipated.

As a result, while we still expect a gradual decline over the second half of the year, we estimate total U.S. market starts to be 185,000 to 200,000 for 2017. Approximately 9 million individuals were tested for HCV in 2016, a 15% increase from 2015.

As you may recall, we launched an educational campaign in October of last year to encourage baby boomers to get tested. Our research shows that there has been an 80% increase in HCV antibody screening by baby boomers since the start of this initiative. As testing has increased, so has diagnosis.

Approximately 190,000 people were newly diagnosed with HCV in 2016, a 32% increase from 2015. This reinforces our belief that there is a significant opportunity to treat and cure many HCV infected individuals for years to come.

Gilead is committed to raising disease awareness and urging all individuals at risk for or living with HCV to talk to their health care provider. Turning to Europe, total HCV revenue in the second quarter was $591 million, down 24% year-over-year and up 21% from the previous quarter.

As Robin mentioned, the quarter-on-quarter increase was due to the one-time recognition of a deferred revenue related to an HCV contract. Gilead patient starts were approximately 23,000 for the quarter, as declining trends in early launch countries were offset by the opening of access in other markets.

With the addition of France, Italy and Spain earlier this year, all five major European markets have now agreed to expand access to patients regardless of fibrosis score. This means that there are now 16 European countries that allow patient access regardless of disease severity.

We are seeing rapid uptake of Epclusa, mirroring the same success we had some nine months ago in the U.S. Epclusa is quickly becoming the standard of care for HCV patients with genotypes 2 and 3, and reimbursement has been achieved in 21 countries.

While many people have been diagnosed with HCV and cured, there remain millions of people infected with HCV throughout Europe. In Germany, there are over 100,000 people estimated to be infected with HCV who are unaware that they have the disease.

In partnership with the German Liver Foundation, Gilead has launched its first large multichannel disease awareness campaign to communicate that HCV can affect anyone and encourage all individuals at risk to talk to their health care provider.

Looking to the second half of 2017, and with the launch of Vosevi, we believe that Gilead has the most comprehensive portfolio of products to meet the needs of almost all hepatitis C patients, regardless of disease severity, regardless of genotype and regardless of prior treatment. Finally, as I highlighted last quarter, our U.S.

cardiopulmonary team is delivering consistently impressive results. They embody the same tenets of operational excellence as our HIV and liver teams. Letairis and Ranexa revenue total $430 million for the quarter. I would now like to turn the call over to Norbert..

Thank you, Kevin. Earlier this week we announced the exciting results presented at the IAS meeting in Paris from two Phase 3 studies, studies 1489 and 1490 evaluating a fixed dose combination of B/F/TAF compared to the triple-therapy regimens containing dolutegravir among treatment-naïve patients.

In Study 1489, adults with HIV were randomized to receive B/F/TAF or the fixed-dose combination of abacavir, dolutegravir, lamivudine, and in Study 1490, adults with HIV were randomized to receive B/F/TAF or dolutegravir plus F/TAF.

In both studies, B/F/TAF met its primary objective of non-inferiority as defined by the proportion of patients who achieved biological suppression. There was no treatment-emerging resistance through 48 weeks. B/F/TAF was well tolerated and no patients discontinued study medication due to renal events in either study.

Additionally, no new safety signals were observed, and the nature and incidence of adverse events and laboratory abnormalities was similar among treatment groups with the exception of nausea in Study 1489 which occurred with higher frequency in the abacavir-dolutegravir-lamivudine arm.

It was also reported at the conference that in Study 1489 there were more patient self-reported neurological and constitutional adverse events in the abacavir-dolutegravir-lamivudine arm.

These results reinforce the value of pairing bictegravir, an unboosted integrase inhibitor with a high barrier to resistance, with the demonstrated long-term safety profile of the F/TAF backbone, addressing the limitations of current HIV therapy.

B/F/TAF could represent an important advance in the triple-therapy treatment for a broad range of HIV patients including the aging population and those with mild to moderate renal impairment. Last month, Gilead filed a new drug application for B/F/TAF with the U.S.

Food and Drug Administration based on data from studies 1489 and 1490 and two other ongoing studies evaluating the single-tablet regimen in virologically suppressed patients.

In both these studies, patients were randomized to either switch to B/F/TAF or remain on their existing regimen, which in one study is a triple-therapy regimen containing abacavir-dolutegravir-lamivudine, and the other study, a regimen of two nucleotide reverse transcriptase inhibitors and a boosted protease inhibitor.

We plan to present data from these studies at scientific meetings later this year. In addition to these four studies, we have one other study ongoing where patients on dolutegravir and Descovy are randomized to stay on that regimen or switch to B/F/TAF.

In the European Union, Gilead's marketing authorization application for B/F/TAF was fully validated earlier this month and is now under evaluation by the European Medicines Agency.

With regards to HIV prevention research, we're pleased to report that the DISCOVER trial is now fully enrolled ahead of schedule with more than 5,000 participants across North America and Europe.

The DISCOVER study randomized patients to receive Truvada or Descovy to evaluate whether Descovy is safe and effective at reducing the risk of HIV infection when used as a pre-exposure prophylaxis.

Turning to NASH, two Phase 3 trials, STELLAR 3 and STELLAR 4 are underway, evaluating selonsertib, which is our ASK-1 inhibitor in patients with F3 bridging fibrosis and F4 cirrhosis. Enrollment in these studies is going well, and since initiating the studies in March of this year, we have already screened more than 1,000 patients.

We're confident that these studies will be fully enrolled in the first half of 2018. Recall that in a phase 2 study, selonsertib was shown to reverse fibrosis and decrease fibrosis progression in a dose-dependent manner.

Additionally, two other compounds with different mechanisms of action, an ACC inhibitor, GS-0976, and an FXR agonist GS-9674, are currently in Phase 2 with data readouts anticipated in the second half of this year. We're also exploring combinations of the three agents in Phase 2a studies.

In oncology, a Phase 3 study of andecaliximab, which is our anti-MMP-9 antibody in patients with gastric cancer is ongoing and interim futility analysis from this study will be conducted later this year.

In addition, the Phase 2a study has been initiated to evaluate combinations of our BTK inhibitor, tirabrutinib, with our PI3K inhibitor, idelalisib, and our Syk inhibitor, entospletinib, in combination with obinutuzumab in patients with relapsed refractory CLL. We're also evaluating entospletinib in a Phase 2 study in acute myeloid leukemia.

In inflammation, five Phase 3 studies of filgotinib are ongoing in patients with rheumatoid arthritis, ulcerative colitis and Crohn's disease. We plan to initiate a Phase 2 study with filgotinib in combination with GS-9876, a Syk inhibitor. In summary, significant progress has been made with many of our programs.

Four molecules are continuing in Phase 3, including the Descovy for PrEP, Selonsertib for NASH, filgotinib for rheumatoid arthritis, ulcerative colitis and Crohn's disease, and we expect to see a number of regulatory and clinical milestones in the second half of this year. I would now like to turn over the call to John..

Thanks, Norbert. I'm going to keep my remarks brief so we can get your questions. I do want to emphasize the importance of Norbert's comment a few moments ago. We've made tremendous strides with antiretroviral therapy over the past two decades.

But still today every treatment option available has some compromise, be that a food requirement, the risk of side effects, tolerability, the emergence of viral resistance or a potential interaction with another medication.

Those trade-offs and compromises that people living with HIV and their healthcare providers have to make may be minimized to perhaps the greatest extent possible with B/F/TAF.

This is why we're so encouraged by the data presented at the IAS Conference in Paris this week and by the data in patients switching from other HIV medications that will be presented at scientific meetings later this year.

I'd also like to take this time to congratulate our partner, Janssen, for the positive CHMP opinion on Symtuza, a single-tablet regimen containing darunavir, cobicistat, emtricitabine and tenofovir alafenamide, or TAF.

When approved by the European commission, Symtuza will be the first commercially available STR containing a protease inhibitor, an important option for patients who previously had to consume two or more tablets every day. Turning to HCV, last month the CHMP issued a positive opinion on Gilead's application for marketing authorization for Vosevi.

Then just last week, the U.S. FDA approved Vosevi for the treatment of HCV genotypes 1 through 6 in patients who virus rebounded during or after treatment with an NS5A inhibitor and in patients with genotypes 1a and 3 who have been previously treated with a sofosbuvir-containing regimen.

The approval is three weeks ahead of the PDUFA date and marks Gilead's fourth HCV therapy approval in three-and-a-half years. We commenced our launch plan immediately upon notification by FDA. Bottles of Vosevi were shipped to wholesalers last week and it is now available in pharmacies.

We are aware that prescriptions were written within hours of the approval and are pleased that many patients who have run out of options and are worried about the progression of their liver disease will now have another chance to be cured of their HCV infection.

We had a strong second quarter, and as you heard from Norbert, our pipeline is growing and maturing in HIV, NASH, inflammatory diseases and oncology. We are looking ahead to a number of exciting clinical milestones in the second half of this year and the continued progression of the B/F/TAF regulatory review in the U.S., Europe and other countries.

I want to take this opportunity to thank Gilead's 9.000 employees for the incredible focus, hard work and execution over the first half of this year. In the interest of time. let's now open the call for questions.

Operator?.

Our first question comes from the line of Geoff Meacham with Barclays..

Hey, guys. Thanks for the question and congrats on the quarter. Got one for Kevin or Norbert. So the Genvoya launch continues to look really, really good.

But I wanted to know, now that you have the bictegravir data in hand, one, how are you thinking about positioning relative to Genvoya; and two, is there enough differentiation versus dolutegravir to take share that you didn't get with Genvoya? Thanks..

Hey, Geoff. Thank you for the question. I should say straightaway that not in the room today is Jim Meyers, our Executive Vice President for Commercial Operations, because actually Jim has been in Paris these last few days. He's heading back today and he certainly relayed to us the excitement around Bic/F/TAF.

We've had several key opinion leader advisory boards and I think the data that we've presented them from the first two studies have been exceedingly well received. Having said that, Geoff, we've made a flying start with Genvoya. I don't think we could be happier.

As I said in my script, over half of our patients are now TAF-based in the U.S., and we have a range of different conversions in Europe, but somewhere like Germany, it was our first country, is now upwards of 65%. So we're thrilled with the adoption of Genvoya.

Not only that, Descovy and Odefsey, and as I think I've said in the past, the success of Bic/F/TAF is on the platform of the adoption of Descovy-based regimens. So we consider this a total family. We're still really excited about Bic/F/TAF. Nothing has changed. The data is reinforced so we got tremendous product.

It's a beautiful small pill and we think it can be very strongly additive to our F/TAF portfolio of drugs. So as far as we're concerned, we're now going to be moving to very high gear for the launch of that new regimen come 2018..

Yeah, Geoff, you asked about differentiation from dolutegravir. If you look at the results from Study 1490, the two, so comparing dolutegravir F/TAF to B/F/TAF, the two drugs are virologically identical. Adverse events, laboratory abnormalities are the same, the real differentiation is we have one single pill co-formulated, one co-pay, one pill.

That's the big differentiation from dolutegravir..

Okay. Thanks, guys..

Our next question comes from Matthew Harrison with Morgan Stanley..

So thanks, thanks very much. I was on mute for a second there. I guess if I could ask, you called out, I guess, the broad question here is around what you're seeing in the HCV market and sort of sustainability of the revenues that you've talked about.

And related to that, could you just comment, I think you called out a couple one-time items, but you didn't disclose the size of the inventory or the size of the 1X tenants (31:31). If you'd be willing to just – if you're not willing to disclose that number, could you just give us an idea of the relative size of those? That would be helpful. Thanks..

Hey, Matthew. It's Kevin. I'll kick off and then Robin can add to my comments. We're very pleased that there is this increased number of patients that have started in the first half of the year. I think naturally we were careful and sensitive in going into 2017. A cure market has surprises on the way up and it certainly surprises on the way down.

So I think we took a very careful approach to what might happen in 2017. It is clear that more patients are starting than we had predicted in our guidance, and as I said in my opening remarks, we now think it's going to be in the range of 185,000 to 200,000 patients. So clearly that's very positive.

The other thing I would say is my comments on identifying HCV-infected individuals. If you think about it, as we're treating and curing patients, we want to make sure that the patients infected are coming into the system, albeit that they generally seem to be less ill than they were a few years ago.

But it's important to still keep the movement of patients coming through. And as I said, we still consider this a large market, a very important market for Gilead, albeit that we still think there is a gradual trend down and where that sort of turns the corner or bottoms out, right now, still remains to be seen..

Hi, Matt. And to answer the other part of your question, the specific items that we called out. So on HCV, in the U.S., we did talk about inventory. And I would say that trend is not any different than what we've typically seen in HIV. I think we'd not called them out in the past because we typically had other changes that somewhat masked them.

But with a sequential change or with a sequential kind of stabilization of pricing as well as patient starts and market share, that shift in inventory is just more noticeable. But the same IMA agreements are in place for HIV exists, that the ranges for our overall inventory were maintained quarter-on-quarter.

And keep in mind, with the Epclusa launch last fall, just that ongoing volatility until you get to steady state is what we see the dynamics impacting us where we had kind of an inventory build here, given inventory adjustments the last couple of quarters.

I just want to emphasize that despite the inventory change, that the real underlying driver is just what Kevin talked about in the U.S. It's really increased patient starts, and so the inventory change was just one component of the over-performance.

In EU, the other area we called out was the one-time deferred revenue recognition from a volume-based contract agreement that we had in Italy that expired. So we had been recognizing revenue a little conservative to-date, and so we had a catch-up one-time adjustment. If you take that out, the HCV revenue for Europe sequentially would been about flat..

Great. Thanks very much..

Our next question comes from Geoff Porges with Leerink Partners..

Thanks very much. Two very quick questions. I apologize, but could you, Robin, could you let us know when we should anticipate the first generic Truvada in the U.S.

given your agreement with Teva? At least, can we anticipate that it won't be in the next 18 months? And secondly, Norbert, I'm sure you've looked very hard at the filgotinib clinical experience to-date, and could you comment on whether you've seen any thromboembolic events? Any imbalance in such events? Or whether you believe in any way it's related to JAK kinase inhibition?.

So specifically to the first question, Geoff, it's John Milligan. With regard to generic Truvada, we don't expect generic Truvada in the United States until 2021..

Okay. Thanks. That's very helpful..

Yes, Geoff, we have looked, of course, at our database since the news was announced by Lilly and Incyte, and we have found a total of three thromboembolic events. This is, by the way, in a database of 1,900 patient years of experience. One of the events was, by the investigator said, not related to the study drug because it was recurrent.

This was pulmonary embolism. One of them was unlikely, and one of them was possible. So it's really a small number. And as you also know, thrombolic events, inflammatory conditions in general are not unusual. But I would like to point out, we are, in our filgotinib study, I think we have de-risked the program by pursuing two doses.

This is something that FDA asked us to do. We agreed. And so if there should be a difference between the two doses, we will see it. Geoff, I would like to add another quick – this is more speculation and hypothesis. If you believe that these events that Lilly saw are drug-related, so that's of course a big question, because they saw a total of five..

Yes..

The second is if you then believe that they have to do with high platelet numbers, this then all kind of makes sense because baricitinib makes platelets go up. Filgotinib in contrast shows a platelet decrease. So if this is real and if this is the mechanism, then we should not be seeing this. Again, this is somewhat speculative and hypothesis..

Thanks very much for the two questions..

Our next question comes from Alethia Young with Credit Suisse..

Hey, guys. Thanks for taking my question, and congrats on a very solid quarter. I guess, Kevin, I just want to dig a little bit more into the trends we're seeing in Europe. I saw that Genvoya rose up to the top position in naïves, and I guess I just want to know a little bit more under the hood of what's driving the dynamics there in Europe for HIV.

Thanks..

Hi, Alethia. Thank you for the comments. Yeah, we're delighted with the quarter. I think it was just all round solid across regions, all our products are. I also salute Norbert for some incredible milestones on the R&D front. So we're really pleased with where we are as a company in the middle of the year.

Yes, Genvoya is now starting to exhibit across the countries the same performance that we are having in the U.S. The extreme of that is Germany. We're having very good uptake in Spain and Italy. And of course as I highlighted, France has done extraordinarily well just in four months to become the leading naïve and switch product.

The other thing I should say, Alethia, is that Descovy in itself is doing very, very well in Europe. There are one or two markets that don't have the level of STRs that we have here in the United States, if you take somewhere like Germany.

So Descovy itself is doing very well and we're happy to have that switch from Truvada to Descovy because it's a great platform for B/F/TAF in the future. So I think we're very pleased to be where we are and I only see great momentum across the European countries..

Our next question comes from Brian Skorney with Robert Baird..

Hey, good afternoon, guys. Thanks for taking the question. John, I know if I asked you what company you're going to buy, you'd tell me, but I think the market should keep guessing, so I'm going to ask something else.

The new diagnosis rates in HCV are pretty impressive, but I wonder if you could characterize the trends you're seeing in access in the U.S. and maybe provide some characterization of what type of patients are being diagnosed.

It never seemed like actual patient diagnosed volume is an issue, so are these patients that are being diagnosed or do you think that are accessible from the current payer situation, and is the payer situation improving from your point of view?.

Maybe, Brian, I could start with that. We're not seeing a great deal of change. Pretty much the patients are, if you like, settling down. They are naïve to therapy, lower fibrosis scores. Generally we have about the same access that we had in terms of start of the year. So there has not been any big, fundamental changes.

I think there are still a proportion of patients somewhere in the region of 20% to 25% who do get diagnosed with quite advanced disease. But on a general basis they are fitter than the established patients that were there in doctors' offices and have been sat there for a long time waiting for a new treatment.

So that's kind of bad news/good news because we do eventually believe that they will come through the system and make this a long-term market for us..

I think my question was just really meant more around the new patients are – I mean, are we looking at the spike in patients, are these patients that are diagnosed who are incarcerated, or is it heterogeneous and kind of the standard? So I want to know, is the spike in new diagnosis, is it actually going to pay off or is it in a patient population that's more or less inaccessible to branded products right now?.

Brian, most of the folks who are seeking diagnosis are people who have access to very, very good medical care. This is not about incarceration. The rate of treatment of incarcerated individuals is still exceedingly low in this country, something that we're focusing on but have had very little traction on.

So people who we're seeking, essentially the baby boomers who we're seeking, typically have very good healthcare or Medicare..

Okay, thanks..

And so this a very good, accessible population..

Our next question comes from Robyn Karnauskas with Citibank..

Hi, guys. Thanks for taking my question. Maybe we could just follow-up and ask a little bit more about what's going on in the HIV market and who is switching.

Who is not switching to these new therapies in the United States? And what percentage of switch is coming from Triumeq or Tivicay regimens?.

Hi, Robyn. Nice to hear your voice again. Congratulations on I think the addition to your family..

Thank you..

So great to have you back. Really the results are very positive across the board. As I said, about 30% of switches come to Genvoya. When you start to break down the rest of it, it tends to be kind of a mishmash, a whole bunch of other switches.

In terms of your question about how much of Genvoya comes from non-Gilead regimens, that's just over, that's 10% to 11% and that's stayed fairly constant since we launched Genvoya. So that's all additive to us. It's very positive and I think that will probably stay about where it is. So I wouldn't say there's any particular new dynamics.

The switch continues to be the biggest part of the HIV market and Genvoya is clearly leading the products in the go-to switch regimen.

Overall, I think we're just absolutely delighted that physicians see the benefit of having their patients on long-term TAF-based regimens good for the suppression of HIV and obviously good for their kidneys and good for the bones..

And as a follow up, do you think there's anyone – do you have a sense yet that there's a percentage of people that you will not be able to switch? Or when do you think you'll have a good sense of maybe a part of the market that will not be switching to these new therapies? Will it take the launch of the F/TAF for you to understand that or do you think you kind of have a sense of that right now?.

Well we do hope Genvoya is going to keep going up until we bring in the F/TAF in 2018. Robin, there are certain patients who are just very familiar with their therapies. I dare say there's still going to be some Atripla patients, Stribild patients, Complera patients. They're just comfortable.

Even after discussion with their physician, sometimes patients don't want to switch. And also don't forget, you've got a smaller proportion of patients who are on the PI regimens and sometimes physicians who feel that they perhaps might not be quite as adherent prefer them to be on a PI-based regimen. So there may not be the patients who come across..

Thank you..

Our next question comes from Cory Kasimov with JPMorgan..

Hey. Good afternoon, guys. Thanks for taking the question. Wanted to go back to HIV again. In some of the doublet data that was presented at IAS, there was a very small subset of patients that experienced resistance mutations, secondary to extreme nonadherence.

I'm curious as to your views on this and whether you think it's a meaningful finding or just noise. Thanks..

Yes, Cory, thanks for the question. It's Norbert. There's no doubt that both dolutegravir and 3TC are proven long-term tolerable and safe drugs.

The question that everybody has, are the two by themselves enough to chronically suppress virus replication in a broad patient population irrespective of baseline viral load and irrespective of partial adherence. And I think the data that were presented at IAS, ACTG 5353 has put that into doubt.

Even though these patients were non-adherent, the one especially that developed the 263 mutation, the fact is this is real life. These patients do exist. Not all patients are adherent all the time. And we just have to wait for long-term two-year data to really answer this question.

By the way, if you look at the detailed slides, there were actually five patients that had virological failure if you use the FDA definition of greater than 50 copies per ml at week 24, and it was at week 24 analysis.

So again, we need to see more data and I know that the Phase 3 studies are ongoing, the GEMINI studies and hopefully we'll get the answer from that. But as I said, at this point I have great doubts whether that dolutegravir/3TC is enough to cover a broad patient population..

Cory, it's Kevin here. If you get virological failure and resistance in a controlled clinical setting in a study, then I don't know what might happen in real life.

It's important to say that with the large numbers of HIV patients that are treated these days, many have quite chaotic personal lives in terms of housing and the need for social care, and they are very challenged.

And I think it's important that those type of patients really do get robust therapies that do our very best to avoid them getting into difficult situations of failure..

All right. Great. Thank you..

Our next question comes from Ying Huang with Bank of America Merrill Lynch..

Hey. Good afternoon. Thanks for taking my questions. Maybe first one for Norbert. We heard from some physicians attending IAS this week that there's a small but potentially meaningful difference in CNS studies such as sleep quality or disturbance or insomnia.

How meaningful is that in the real practice? Do you think that you can make a differentiation between bictegravir and the Tivicay or Triumeq regimen? And then secondly, maybe for Kevin, we're expecting AbbVie to obtain FDA approval probably this quarter for their once-daily one pill regimen for HCV.

What's the outlook for market share and also the pricing dynamics once AbbVie enters the market with another one pill once-daily regimen for HCV? Thank you..

Yes. So, Ying, in Study 1489, which was the trial mate to bictegravir B/F/TAF comparison, there were clearly more adverse, self-reported adverse events that had to do with sleep disturbance, nausea, et cetera, on the abacavir-containing arm. But in the second, Study 1490, the incidence was similar.

So our interpretation is that what we are seeing in terms of CNS-related effects and constitutional general well being has to do with abacavir. The comparison of bictegravir to dolutegravir did not really show a difference, and I cannot at this point tell you what bictegravir does in terms of CNS side effects..

Hey, Ying. It's Kevin. In answer to your question, we just don't know. We're just sort of two weeks before their FDA PDUFA date. We'll just have to cross some bridges when we see their label, we see their pricing, we see how they begin to promote the product, perhaps eventually see how they come on the market with their contracting strategies.

So I think there are unknowns, and we'll just have to wait and see. I can only really control the areas that we have with our products, and I think we feel reassured by the portfolio of HCV products. Now we have Vosevi added to that. I think we have a tremendous offering in genotype 1, 2 and 3.

Epclusa, as Robin mentioned, is doing really, really well, both here and now it's coming on-stream in Europe and we'll be able to also help the small number of patients who failed other therapies with Vosevi. So I think we're in a good position, and we're certainly going to continue with our very solid and very substantial promotion of our products..

Ying, I would like to add, if you look at the data on (52:34), they had excellent clinical results in genotype 1 in treatment-naïve very early disease mostly F0 and F1. Actually, 80% of the population was F0 and F1 and in treatment-naïve patients.

But the data in the other genotypes and also in treatment-experienced and cirrhotic patients were less good, particularly if you look at genotype 3 where they compared in eight weeks to 12 weeks to 12 weeks of sofosbuvir/daclatasvir, the regimen that had the most virological failures was the eight weeks of the AbbVie dual followed by the 12 weeks of the AbbVie dual, and the best-performing regimen was actually sofosbuvir/daclatasvir.

So as Kevin said, we just have to really look at what the U.S. label will look like, then we will be in a better position to comment on the competitive nature..

That's very helpful. Thank you..

Our next question comes from Michael Yee with Jefferies..

Hey. Good afternoon. Thanks. I have two R&D questions. One is on filgotinib, where you mentioned there was an interim analysis in UC in the first half of 2018. Can you just remind us a bit on that and what the importance is of that in terms of that interim? And then secondly, on FXR, you have a Phase 2 coming up soon in PBC.

I wanted to understand your confidence in terms of efficacy and differentiation and what you would want to see to move forward in NASH? Thanks..

Yeah, thank you, Michael. No, the interim analysis was not on filgotinib, it was on the MMP9 antibody andecaliximab. And that interim analysis is an analysis when we will have reached 30% of the endpoints, and the endpoint is death. So it's overall survival, and that will happen later this year.

And we have a hazard ratio pre-specified, so it's more a futility analysis. If we don't reach a minimal hazard ratio, then we will probably discontinue the study. But if the DSMB sees that has a ratio reached, they will simply recommended to continue the study. And the second question..

Maybe I'm just reading it wrong on slide 51, and so I'll follow up with you. On the top there it says filgotinib, Phase 3 UC interim. But we'll keep going..

Okay. Yes, we'll follow up with you afterwards. I don't have slide 51. And the other question had is about FXR agonist in PBC. We just have to see what the data looks like. But as you know, or may know, we are differentiated in terms of mechanism because we rely on intestinally generated FGF19 to essentially give you the efficacy.

And we think some the side effects that have been seen with the other FXR agonist may have to do with systemic FXR agonism. It's all hypothesis and the initial data that we have would actually support it. But if we were to see this, we could have an agent that is differentiated from a safety point of view.

And the other thing you may probably also know, the compound that's approved currently has pretty severe limitations with regards to hepatic impairment. I think it has to be given, is it once a week? I don't remember, but it greatly increases the concentration of OCA. So those are the two areas of differentiation..

Okay. Thank you..

Our next question comes from Phil Nadeau with Cowen and Company..

Good afternoon. Thanks for taking my question and congratulations on the beat and raise in the quarter. One question on bictegravir's data that was presented earlier this week.

When GSK was asked about bictegravir this morning, they highlighted the numeric differences in virologic suppression that we're seeing in Study 1490, although those differences weren't statistically significant.

I guess along those lines, one, to what to do you attribute those differences? Two, how successful do you think you'll be in convincing physicians that they are not significant, using things like the missing excluded analysis that you showed in the poster.

And three, do you even expect them to be on the label?.

virological failure due to number one; two, virological failure, discontinued due to lack of efficacy; and number three, and that's the category I want to point your attention to, discontinued for other reasons and last measurement was greater than 50..

Hey, Phil, it's Kevin. Just to also add, the real – the number one headline that is most important to opinion leaders, and therefore the HIV community, is zero resistance. When we have met with our KOLs, that is where they go to first, it's zero resistance, and of course, that is unlike the situation that occurred in ACTG 5353..

Yes, Phil, just another comment. You would of course expect in a large study like this that these random events would equally distribute between the two arms. Well, they didn't. As I said, there were 11 on the bictegravir arm versus three on the other arm. It's purely statistical coincidence and it has no meaning whatsoever clinically..

Got it. That's very helpful. Thanks for taking my question..

Our next question comes from Terence Flynn with Goldman Sachs..

Hi. Thanks for taking the question. Just was wondering, John, if you can give us any update on your latest thoughts on business development, specifically if there have been any changes with respect to either areas of focus or stage of development. Thanks a lot..

Thanks, Terence. So the quick answer is no. There hasn't been any difference in what we're thinking about. So we have been very, very active, as we always are. We have beefed up our groups, as you're aware, so that we can evaluate more different kinds of opportunities.

And so we are working very hard behind the scenes here on a number of things, but I certainly can't direct you to anything specific, other than to say that we're very, very active. And when the things are right for us, we'll announce them. That's all I can say..

Our next question comes from Ian Somaiya with BMO Capital Markets..

Thanks for taking my questions, and congratulations on a great quarter. Really, just a question on the PrEP opportunity. If you could just quantify for us what the opportunity is today, whether it's in patient terms or dollar terms.

And as we think about the DISCOVER study, what does that trial need to show for you to effectively transition these patients from Truvada to Descovy?.

Hi, Ian. It's Kevin. I'll let Norbert answer the question on the DISCOVER study. But in terms just generally, compared to the few years ago, it's quite remarkable now how people are taking on board the benefits of PrEP and obviously avoiding infection. We've seen some remarkable work here in San Francisco.

We see a lot of activity in New York, Miami, and we have taken those signals and put a larger field-based team out there to try and support the education around PrEP. So we're able to visit places now like Atlanta, Washington, DC and many other urban areas. About half of our Truvada sales in the U.S.

are currently coming from PrEP, and we certainly expect that to grow. If you look at our numbers this year compared to 2016, we're about 15% higher in terms of the use of Truvada for PrEP. And the other part of this is, it's not occasional monthly use of Truvada.

We're starting to see persistency at a patient level that is close to matching normal HIV use of Truvada. So we're seeing a chronicity, a regular use among PrEP-using individuals.

And the final thing I would say, Ian, is that we are seeing other parties starting to announce that, for example, retail pharmacies are beginning initiatives that their pharmacist can engage in conversations on PrEP and what PrEP is about and educate people who come into a retail pharmacy to ask about PrEP medication.

So that's also I think part of the momentum and movement that's going on right now..

Yeah, Ian, from a clinical point of view it's very simple. It's a non-inferiority study. We want to simply show that regarding efficacy-wise that F/TAF is the same as Truvada along with improved renal and bone parameters. And then because it's much easier and safer to use, you don't have to monitor creatinine.

You don't have to look for people that are at risk for bone effects. You don't have to measure BMD, that it's a much preferred agent to Truvada. That's essentially what we're showing. That's why it takes 5,000 patients, by the way. It's not a small study to do..

Right.

I guess, Norbert, what I was trying to understand is, is the patient sensitivity any different? Are they more sensitive or less sensitive to the adverse event profile of TAF given that they're – obviously don't carry the infection?.

No. Actually, Ian, so I don't have those data yet, but we answered that question when we did the PrEP studies with Truvada. There was a question that both we and the FDA had and the question was, can you take safety data from HIV-infected individuals and extrapolate the non-HIV infected, and the conclusion was you can't.

So we generated data in about, I can't remember, 25,000 patients total that were not HIV infected, and that database convinced everybody that the safety is the same. There's no difference between HIV infected and non-HIV infected patients..

Our next question comes from Salim Syed with Mizuho..

Hey, guys. Thanks for taking my question and congrats on the quarter. Just on, when we're thinking about the tail for hepatitis C, I don't think (65:47) these numbers in a while but correct me if I'm wrong. There's 1.4 million patients treated and there was 4 million to begin with in the U.S.

and people have previously thought there was 500,000 that are uninsured and untreated.

Of the 2.6 million of which that 500,000 is part of, is there any other patient population as you guys have had more time pass that's not treatable here, or reasonably treatable?.

Hey, Salim. It's Kevin. We've always in the U.S. gone with figures that are about 3 million infected and about 1.5 million that are diagnosed. No, I don't think there's any sort of difference in our opinions of the market. There is a proportion of patients that is uninsured. There are a group of patients that are incarcerated.

As John said earlier, we see very little treatment. We continue to have conversations with the various states around their systems of incarceration, but there doesn't seem to be much momentum about that. We talked in the past about obviously the VA. The VA has been incredibly proactive. They've dedicated money.

We are hearing, we don't have direct data, but we're hearing that it is slowing down a little bit like the general market, but they continue their efforts to outbound information and try and get people into the system. They're incredibly enthusiastic to try and heal their veterans.

And there's the continuation, as John said, of the commercial markets and we certainly are doing our part to try and highlight to patients the need to be tested and that there are very comprehensive ways of curing the disease.

So I think for us to continue to do that at some point, at some point, there will be some equilibrium and that will still be a lot of patients. And with a incredible treatment that cures, payers, providers will be motivated to use therapies.

So I don't think there has been any big ahas for us or particular opening of new patient groups in the past 12 months..

Okay. Great. Thank you..

Our next question comes from the line of Carter Gould with UBS..

Good afternoon, guys. Thanks for taking the question. I guess, Kevin, on the Get Tested campaign, is the expectation that screening volumes will still continue to grow meaningfully? Or should we expect that impact to plateau, and is it safe to say that program will continue unchanged when AbbVie enters the market? Thank you..

Good question. Carter. I don't know what way. We could go higher. We always feel that part of our role in the areas, in our large areas that we operate is to provide education.

As a reminder, our baby boomer campaign is not aired as much as our Harvoni campaign, but I think in general terms, yes we feel that it is important to continue to highlight that baby boomers potentially who have been in a situation of risk, that they might go and ask for a test and be screened and find out their status.

Let's not forget that that principle is backed by the CDC and there is Gilead and there are many other parties that support baby boomers finding out their HCV status, and if they are positive, then to take the steps forward. So yes, we feel that as the leader in HCV, it is part and parcel of the role we play..

Thank you..

And that concludes today's question-and-answer session. I'd like to turn the call back to Mr. Lee for any closing remarks..

Great. 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..