Sung Lee - Gilead Sciences, Inc. Robin L. Washington - Gilead Sciences, Inc. Laura Hamill - Gilead Sciences, Inc. John G. McHutchison, AO, MD - Gilead Sciences, Inc. John F. Milligan, PhD - Gilead Sciences, Inc..

Geoff Meacham - Barclays Capital, Inc. Brian Abrahams - RBC Capital Markets LLC Michael J. Yee - Jefferies LLC Matthew K. Harrison - Morgan Stanley & Co. LLC Geoffrey C. Porges - Leerink Partners LLC Greg Harrison - Citigroup Global Markets, Inc. Umer Raffat - Evercore Group LLC Alethia Young - Cantor Fitzgerald Phil Nadeau - Cowen & Co. LLC Cory W.

Kasimov - JPMorgan Securities LLC Terence Flynn - Goldman Sachs & Co. LLC Ying Huang - Bank of America Merrill Lynch Steven Seedhouse - Raymond James & Associates, Inc..

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences Third Quarter 2018 Earnings Conference Call. My name is Cherie, and I will be your conference operator today. At this time, all participants are in a listen-only mode, and as a reminder, this conference call is being recorded.

I would now like to turn the call over to Sung Lee, Vice President of Investor Relations. Please go ahead..

Thank you, Cherie, and good afternoon, everyone. Just after market close today, we issued a press release with earnings results for the third quarter 2018. The press release and detailed slides are available on the Investor Relations section of the Gilead website.

The speakers on today's call will be Robin Washington, Executive Vice President and Chief Financial Officer; Laura Hamill, Executive Vice President, Worldwide Commercial Operations; John McHutchison, Chief Scientific Officer and Head of Research and Development; and John Milligan, President and Chief Executive Officer.

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

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

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

Thank you, Sung, and good afternoon, everyone. We are pleased to share our financial results for the third quarter of 2018. Before I get into the financial results and commercial highlights for the quarter, I'd like to welcome Laura Hamill, who recently joined Gilead as Executive Vice President, Worldwide Commercial Operations.

We are glad to have this key position filled, and are excited to have Laura on our team. Laura is quickly becoming familiar with our business and has already provided significant commercial expertise on several strategic fronts.

You'll hear from Laura in a few minutes followed by John McHutchison with an update on our R&D efforts and then John Milligan with a few closing comments. We had very strong execution in the third quarter, during which our HIV franchise achieved record quarterly sales.

HCV revenues continued to be more predictable and in line with our expectations, and further progress was made in cell therapy, including the approval of Yescarta in Europe. Total revenues for the third quarter were $5.6 billion with non-GAAP diluted earnings per share of $1.84.

This compares to total revenues of $6.5 billion and non-GAAP diluted earnings per share of $2.27 for the same period last year. Starting with HIV, product sales for the third quarter were $3.7 billion, up 12% year-over-year and 2% sequentially.

The year-over-year increase was primarily due to the continued strong uptake of Genvoya and Odefsey, and the rapid adoption of Biktarvy. With 19% year-over-year revenue growth and 11% year-over-year prescription growth, our U.S.

HIV business continues to reflect strong underlying demand for Descovy-based regimens, which now account for 74% of Gilead's total U.S. HIV prescription volume. Sequentially, U.S. HIV sales were up 5%, reflecting strong demand for Biktarvy.

Payer mix in the third quarter was similar to the second quarter, where it was approximately equally split between private pay and government segments.

In the second full quarter since its FDA approval in February, Biktarvy generated $375 million in sales in the U.S., becoming the number one prescribed regimen for both treatment-naïve and switch patients. Biktarvy is on track to overtake Genvoya as the most successful launch in HIV history, as measured by the first 12 months of product sales.

Approximately 85% of Biktarvy's U.S. prescriptions came from switches. Of these switches, approximately one quarter came from regimens containing dolutegravir. Truvada for PrEP continued to grow. We estimate that more than 193,000 individuals were taking Truvada for PrEP as we exited the quarter.

Early performance indicators for the HIV prevention and Truvada for PrEP television campaigns launched in the second quarter are encouraging.

Since the launch of these campaigns, we've seen active engagement with campaign-related websites and a nearly 50% increase in the number of weekly new subscribers compared to the pre-campaign averages earlier in the year. Turning to Europe, HIV sales were down 11% year-over-year, primarily due to the availability of generics in several markets.

The decline was partially offset by the continued uptake of our Descovy-based regimens which now comprise approximately 70% of our HIV product revenues in Europe.

As anticipated, we saw a sequential decline in sales in the third quarter, primarily due to the additional impact of generics in certain countries and the seasonal impact of holiday schedules in various countries. To date, in some countries, the impact from generics has not been as significant as expected.

Since receiving marketing authorization from European Commission in June, Biktarvy has launched in Germany and some of the smaller countries in the EU. In Germany, we are seeing great early uptake where Biktarvy is tracking at least as well as Genvoya for the same period after approval.

Also, Biktarvy is already among the top five most prescribed regimens for both treatment-naïve and switch patients, with about a third of the switches coming from dolutegravir-containing regimens. Genvoya remained the number one prescribed regimen for treatment-naïve and switch patients in the EU5 collectively for the sixth consecutive quarter.

Turning to HIV (sic) [HCV] (07:29), product sales for the third quarter were $902 million, down 59% year-over-year and down 10% sequentially. To date, our performance in the HCV market continued to align with our expectations of gradual sequential declines with fewer patients seeking treatment.

In September, we announced plans to launch authorized generic versions of Epclusa and Harvoni in the United States in January 2019 through a newly created subsidiary, Asegua Therapeutics LLC. The list prices of the authorized generics will be comparable to the current net prices of the branded versions.

We believe these authorized generics could reduce out-of-pocket expenses for patients, increase pricing transparency, and open up access to our HCV medicines for patients covered by Medicaid.

This solution allows us to quickly introduce a lower-priced alternative to our HCV medications without significant disruption to the healthcare system or our business. Turning to our cell therapy franchise, sales of Yescarta were $75 million for the third quarter, up 10% sequentially.

We are pleased with the progress we made with Yescarta since its approval by the U.S. FDA one year ago. We now have 64 centers certified to provide treatment for Yescarta.

As we continue to see patient inflows at certified centers, we have also observed variability in volume as some centers enthusiastically embraced this novel therapy and others adopt treatment more slowly. We've turned our focus to working with centers to enhance patient flows.

We are also educating community oncologists about cell therapy and how they can connect their patients to cancer centers for appropriate treatment. We expect to see continued demand as our certified centers gain broader experience with Yescarta and community oncologists become increasingly aware of this life-saving therapy.

Recently, CMS approved an NTAP, new technology add-on payment, to assist the reimbursement of CAR T therapy within the hospital setting while we await the creation of a CAR T-specific DRG through CMS.

We're very encouraged with the speed in which CMS has recognized the value of Yescarta for cancer patients who have run out of treatment options in relapsed/refractory DLBCL. We look forward to working with CMS to create a dedicated DRG code reflective of the value Yescarta brings to patients.

As I previously mentioned, Yescarta was approved in the EU towards the end of August. We are working diligently across Europe to certify approximately 20 centers by the end of 2018. We are pleased with the progress and commercial performance seen to date with Yescarta, which is consistent with our expectations.

Going forward, we anticipate a steady and measured launch as reimbursement, referrals and center logistics improve to accommodate more patients. Turning to our cardiovascular products, Letairis and Ranexa generated sales of $241 million and $178 million, respectively, in the third quarter. While the U.S.

patent for ambrisentan, the active agent in Letairis, expired in July of this year, we have not seen any impact to our sales as a result of the loss of exclusivity because the single-shared REMS program necessary to allow generic ambrisentan to launch has not yet been FDA approved.

There is no specific PDUFA date associated with this approval and the timeline for FDA action is unknown. As we look ahead, we anticipate Letairis sales to continue for the remainder of this year. However, sales beyond this timeframe are uncertain.

Now turning to expenses, non-GAAP R&D expenses were $844 million for the third quarter, up 13% compared to the same period last year. Non-GAAP SG&A expenses were $852 million for the third quarter, up 6% compared to the same period last year.

The increases in both non-GAAP R&D expenses and SG&A expenses were primarily due to higher costs to support the growth of our business following the acquisition of Kite. Our non-GAAP effective tax rate in the third quarter was 19.9% compared to 25.7% in the same period last year, primarily due to reduction of the U.S.

corporate tax rate as a result of Tax Reform. On a sequential basis, our non-GAAP effective tax rate was higher compared to the second quarter rate of 13.4% due to a favorable settlement of a tax examination in the second quarter. Moving to our balance sheet, as of September 30, 2018, we had $30.8 billion of cash and investments.

During the third quarter, we generated $2.2 billion in operating cash flow, repaid $1.8 billion senior notes upon maturity, paid cash dividends of $742 million, and repurchased approximately 6 million shares of stock for $449 million.

The year is progressing consistent with our expectations, with the exception of the durability of Letairis revenues and the lower impact of HIV generics. The combined benefit from these two exceptions is approximately $400 million. Therefore, we are raising our full-year net product sales guidance.

Net product sales are expected to be in the range of $20.8 billion to $21.3 billion. Our guidance is subject to a number of uncertainties which are outlined in slide 35 of our earnings call presentation. For the full-year, our non-GAAP effective tax rate is expected to be in the range of 18% to 20%.

All other components of our guidance remain unchanged. I will now turn the call over to Laura..

Thank you, Robin, and good afternoon. I'm thrilled to be part of the Gilead team and appreciate how welcoming everyone has been during my first six weeks as I'm getting to know the critical success factors for our current and future therapies.

I've had the opportunity to learn more about Gilead's portfolio by participating in several therapeutic advisory board meetings, scientific conferences, visiting some of our cancer institutions that are providing treatments with Yescarta, and engaging with many passionate Gilead employees.

The commercial and field teams have a deep commitment to support healthcare providers as they meet the needs of patients around the world. It's a privilege to be joining Gilead at this time with the introduction of Yescarta as well as Biktarvy, which is on track for an outstanding launch. We are continuing to shift treatment paradigms.

I also want to acknowledge the innovative approach the team has taken in the United States to increase access to our hepatitis C treatments. Next year, our subsidiary, Asegua, will launch authorized generic versions of Harvoni and Epclusa, a medication we believe has a unique clinical profile as a pan-genotypic and pan-fibrotic single-tablet regimen.

As we prepare for our next set of launches, we will bring our deep expertise in building new markets, as well as capabilities to compete in existing markets with many therapeutic options. The teams around the world are motivated by Gilead's mission to bring innovative medicine to more than 13 million patients with life-threatening illnesses.

I look forward to sharing our commercial progress with you during our next quarterly update, and will now turn the call over to John McHutchison..

our FXR agonist, GS-9674; our ASK1 inhibitor, selonsertib; and our ACC inhibitor, GS-0976. We will also present baseline data from the STELLAR 3 and STELLAR 4, our two ongoing Phase 3 trials evaluating selonsertib as monotherapy that describe the potential role and sequence of non-invasive tests and their ability to diagnose advanced fibrosis.

Currently, liver biopsy, which is the standard method to diagnose advanced fibrosis, poses challenges to timely and efficient diagnosis and treatment of patients with this disease. Before we move on from NASH, I'd like to remind you that we anticipate data readouts from STELLAR 3 and STELLAR 4 in the first half of 2019.

We are also pleased to share that the Phase 2b ATLAS study of various combination two-drug regimen in patients with NASH and advanced fibrosis has now closed screening. We are presenting data from a Phase 2 trial evaluating our FXR agonist in primary sclerosing cholangitis.

This is a rare serious disease that causes progressive inflammation and scarring of the bile ducts which can lead to cirrhosis and its complications, including liver failure. There are currently no effective treatment options available for these patients.

And finally at The Liver Meeting, we will also share data from Gilead's ongoing programs directed at achieving functional cure of chronic hepatitis B infected patients.

GS-9688, an investigational oral selective toll-like receptor 8 agonist is the subject of several studies to be presented, including the first in human, and Phase 1b results evaluating the drug in patients with chronic hepatitis B. Turning to cell therapy, we continue to make great scientific progress also during the quarter.

In August, we announced that European Commission granted Marketing Authorization for Yescarta as a treatment for adult patients with relapsed or refractory diffuse large B-cell lymphoma and primary mediastinal large B-cell lymphoma, after two or more lines of systemic therapy.

We are making progress in reaching patients with other forms of B-cell malignancies also, with Yescarta and KTE-X19. Registrational Phase 2 trials are ongoing with Yescarta in relapsed and refractory indolent NHL or non-Hodgkin's lymphoma and with KTE-X19 in relapsed and refractory mantle cell lymphoma and adult ALL.

We expect to announce additional data and trial updates from our cell therapy program at the American Society of Hematology Annual Meeting, ASH, which begins December 1 in San Diego. We will share more information with you next month when those meeting abstracts are published.

Separately in oncology, we discontinued the development of andecaliximab, an investigational anti-MMP9 antibody, in gastric cancer, after a Phase 3 study showed a lack of overall survival benefit to primary endpoint. These data are consistent with the results we're seeing with andecaliximab in other therapeutic programs.

We continue to pursue additional technologies and approaches that will allow us to remain the leader in cell therapy.

Earlier this month, we announced another research collaboration and license agreement with HiFiBiO Therapeutics to develop technologies supporting the discovery of neoantigen-reactive T cell receptors for the potential treatment of various cancers, particularly solid tumors.

Through this collaboration, we intend to adapt HiFiBiO's proprietary single-cell technology platform to create a high throughput approach that will potentially allow for in-depth screening of TCR repertoires from patient samples to identify both shared antigen and neoantigen TCRs for use in adoptive T cell therapy.

Neoantigens arise from tumor-specific mutations that are unique to each patient's cancer, offering the potential for more targeted anti-tumor activity. This area of research has the potential to transform the way we might be able to treat many solid tumors.

I would like to also note that these kinds of scientific collaborations are not limited to cell therapy. In September, we entered into a strategic collaboration with Precision BioSciences to develop therapies targeting the in vivo elimination of HBV or hepatitis B virus with Precision's proprietary genome editing platform, ARCUS.

We are committed to developing therapies that achieve a functional cure for patients with chronic hepatitis B virus. We are excited about the potential of genome editing and Precision's ARCUS technology, which has already demonstrated promising in vitro activity.

We have achieved a great deal across our R&D organization this quarter, and I am confident we will continue to make significant progress throughout the rest of the year.

I'm excited about the strength and diversity of our pipeline, as described today, the breakthrough work we are doing in cell therapy and the cutting-edge research we are doing to advance curative therapies, both for hepatitis B and HIV-infected patients.

I want to take the opportunity to thank our R&D organization and all of our employees for their incredible focus, hard work and execution. So, thank you all, and now I'd like to turn the call over to John Milligan..

Thank you, John. Good afternoon, everyone. As we approach the end of the year and head into 2019, we have many reasons to feel confident about the strength of our business and the future of our company. Our long-term leadership in HIV continues.

We're having a terrific launch with Biktarvy, which is exceeding our high expectations and is on track to become the most successful ever in HIV through the first year of sales.

We also have compelling evidence correlating the use of Truvada for PrEP with declines in new infections in the United States, further demonstrating its importance as an effective, public health intervention in the ongoing efforts to meaningfully decrease new infections.

While great progress has been made in both treatment and prevention over the last two decades, we believe there is still plenty of room for innovation in HIV. We are pursuing research that could help patients who have run out of options as a result of viral resistance or who may need less frequent dosing than afforded by a daily pill.

And finally, we hope that our research may one day help lead to a cure, completely removing the virus from patients once and for all, as we did for patients in HCV. In HCV, we continue to innovate to expand access and support efforts toward elimination of the virus from the human population.

In January, just over five years after the launch of Sovaldi, our newly-formed subsidiary, Asegua, will launch authorized generic versions of Epclusa and Harvoni in the United States.

We believe this will help reduce out-of-pocket expenses for many patients, increase price transparency and open up access to our HCV medicines for patients covered by Medicaid, without disruption to the broader healthcare environment.

One year after the acquisition of Kite, Gilead is the leader in cell therapy and Yescarta access for people with relapsed/refractory DLBCL is now established in over 60 centers in the United States.

Yescarta has shown an unprecedented duration of response in clinical studies, and we have now treated nearly 700 patients across clinical trials and commercial use.

The high percentage of patients showing a durable response following the single cellular fusion gives us a glimpse into the potential of cellular therapy to radically change the cancer treatment paradigm in the future, perhaps across many different tumor types.

Over the last year, we have established six technology product-based partnerships that will allow us to build on our leadership position in cell therapy and transform the treatment of cancer. We have a maturing pipeline and are now beginning to see the first of many Phase 3 readouts of filgotinib in inflammation.

We are pleased that the efficacy and safety of filgotinib looks to be consistent with the datasets from the long-term Phase 2 studies and believe filgotinib shows great promise to help patients in a number of different indications. Finally, Gilead has dedicated enormous resources to understanding the biology and pathology of NASH.

These efforts are paying off with three compounds in the clinic, including an extensive array of Phase 2 combination studies. Next year, we'll see the first Phase 3 readouts of selonsertib as the STELLAR 3 and STELLAR 4 clinical studies are completed and unblinded.

We look forward to seeing the data, and our teams are hard at work preparing for the launch of selonsertib into this brand new disease area. The work of Gilead goes on, even as I prepare to depart at the end of the year. To everyone who has supported us in our mission over the years, thank you.

I have every confidence in my team's ability to continue the work of bringing forward therapeutics that dramatically improve lives. To Gilead's more than 11,000 employees, I also want to thank you. It's been a privilege to be your leader for the last three years and to work with you for the last 29.

It's been deeply gratifying to be part of a company that has brought life-saving treatments to 10 million people around the globe. I look forward to watching the continued evolution of Gilead and the extraordinary things I know you will accomplish. So, let's open it up for questions.

Operator?.

Thank you. Ladies and gentlemen, today's question-and-answer session will be conducted electronically. Our first question comes from Geoff Meacham with Barclays..

Good afternoon, everyone. Thanks for the question. John, really will miss your leadership and I want to add congrats also to Laura on the new role..

Thank you..

Just had a few on HIV.

If you guys could give any more perspective on switches to Biktarvy, beyond dolutegravir, are you seeing switches from generic regimens as well? And then on PrEP, I know you don't have data yet, but what's the initial thought on positioning for Descovy over Truvada and how do you think that plays out following the Truvada LOE? Thank you..

So, in terms of the switches, Geoff, as I mentioned, we are seeing that the majority of the Biktarvy prescriptions are coming from switches, about 85% to be exact. And approximately a quarter of those are coming from dolutegravir-containing regimens. There is also about 25% coming from Genvoya as well. So (35:57) balance.

Then the latter half of your question, Geoff, if you can repeat it?.

Descovy for PrEP..

Oh, Descovy for PrEP. (36:05), John..

Yes. John here. Look, the question of Descovy versus Truvada for PrEP, people who are healthy, which the people who are taking PrEP are, deserve and want the easiest and safest and best tolerated medication. So, that is Descovy. So I think that's a pretty straightforward answer to that question..

Thank you. Our next question comes from Brian Abrahams with RBC Capital Markets..

Hey, guys. Thanks very much for taking my question and congrats on the quarter.

On filgotinib with the Phase 3 starting to rollout, I was wondering if you could provide your latest views on what you see is the key differentiating features or indications, and maybe walk us through your latest plans in how you're thinking about building out a commercial infrastructure in inflammation, particularly with some of the new leadership now in place.

Thanks..

So I'll start first. So, after attending ACR this week and being at the meeting, it's clear that the efficacy that we are generating in multiple inflammatory diseases with filgotinib is as good or if not better than any other drug in the class, and equivalent to the biologics.

And that holds true for FINCH 2 where we just saw the most difficult patients to treat, the biologic non-responders, inadequate responder patients where our ACR20 rates in people who had received three or more biologics previously was over 70%, just over 70%.

So, I think efficacy wise, we are as good if not better than anything else out there in the class.

Safety wise, we continue to see the differentiation based upon the lab parameters, the lack of anemia, the lack of effect on platelets and when we look at other clinical events such as thromboembolic events and other events, we are not seeing anything difference.

We have to see that safety benefit and advantage hold up in the subsequent Phase 3 clinical programs. The same as the other diseases. We are seeing those benefits as well. So, I'll hand it over to the other folks about the commercial build out, et cetera..

So, hi. This is Laura.

I would say on the commercial structure, we will build a commercial field team that is competitive across all indications and as you know, we are aware of the investment that's necessary to compete in this market and we will be reaching consumers in innovative ways to make sure that they are aware of the profile that we'll be able to bring to the market to help them..

Thank you. Our next question comes from Michael Yee with Jefferies..

Thanks. Appreciate the question. And, John, I'm sure we all heard the emotion in the voice, so we appreciate all the work you've done and for all the years.

I guess my question is, it feels like the Street has two uncertainties; one is a bit on hep C and one is, I guess, to an extent, an update on the new leadership that would give people confidence going forward. Perhaps you can give a comment as to your confidence around the U.S.

hep C market stabilizing and whether there's any changes and how did authorized generic helps that, if at all. And then if you can make a comment on where we stand on the leadership change, I think that would help people as well. Thanks..

Yeah, hi, Michael. So let's just – talking about the U.S. hep C market, what we have seen through the course of the year is a fairly stable pricing environment but, of course, declining patient numbers, particularly in the commercial markets and to some extent the Medicare markets.

So we think the authorized generic will actually boost us for the future because number one, it provides more transparency, which is good for everybody. It will take away some of the pain of the co-pays that are provided, especially into the Medicare population.

But most importantly, it'll open up access for us into the Medicaid population, which is the largest growing segment of patients for the future. So we think that all this will enhance our ability to compete for the future and really help stabilize this market going into 2019 and beyond. So all-in-all, a very positive thing for us.

With regard to the CEO search, I really can't say anything specific, other than to say there are many candidates who are very interested. The process is moving along quickly, and we certainly hope to have somebody announced before the end of the year..

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

Great. Good afternoon. Thanks for taking the question. I had one related to some of the Kite programs. I noticed in the slides you indicated that you'd be making a decision on your BCMA CAR, whether to move into a registrational study in the fourth quarter.

I'm just wondering what data you're waiting for to make that decision and how you're going to communicate that decision. Thanks..

Sure. Hi, Michael..

Matt, this is Matt..

Matt, sorry. Look, yes, it's unchanged. We are waiting for data from the Phase 1b trial, which is looking at escalating dose cohorts of the safety and efficacy in myeloma patients of KITE-585. And then we'll announce the start of a Phase 2 trial if the data supports that.

So no change to what we've said previously and we're in the process of that right now..

Thank you. Our next question comes from Geoffrey Porges with Leerink..

Thank you very much. And, John, I just want to congratulate you on all the accomplishments over those 29 years. I'm sure if you have any free time, John McHutchison might lend you his AO (42:13) for a bit of travel. I just wanted to ask John McHutchison a little bit about a couple of pipeline contingencies. First, you mentioned the MANTA study.

And obviously, you'll have the three FINCH studies by the – in the first half of the year.

Is it possible that, that filing could be delayed until 2020? Or is there any way you could start filing with the clinical data and then append the MANTA data to the filing? And then secondly, will you have a chance to look at the interim data from the combination NASH study and then potentially contemplate pivotal trials to some combination earlier than the 48-week data? Thanks..

Yeah..

Thank you, Geoff. Starting with MANTA, great question. We have spent an inordinate amount of effort trying to enhance the enrollment in the MANTA study. It's too early to gauge the effectiveness of those modifications to inclusion criteria, et cetera. I think we'll provide an update in the future when we can have more clarity about the timeline.

I will say we are having discussions internally and with regulators about different options, as one of which you outlined as well. And as you know in various parts of the world, you can file and you can file updates at various different times of the review process. So each region and each area is different.

So we're having all of these discussions and spending a lot of my effort and a lot of the team's effort on that as well. In terms of the ATLAS, your second question, in terms of the ATLAS Phase 2b 350 patient NASH combination study, yes, we will take a look at week 24. And week 24 look we're allowed to do in the statistical analysis plan.

It's not biopsy-driven and it's driven by MRA FibroScan, lab tests, MRI-PDFF. So we will be able to have a look. And if there's clear separation without biopsy, we can decide to move early into Phase 3 if we're convinced that's the right thing to do..

Thank you. Our next question comes from Robyn Karnauskas with Citi..

Hi. This is Greg Harrison on for Robyn. Thank you for taking the question.

So in hep B, given the Arrowhead data we've seen recently, do you think that you need an S antigen component in your combos? Or are you satisfied with what you have internally?.

I don't think we're ever satisfied with what we have internally. And we have a number of internal programs that are looking at interfering in S in various different ways, either by direct mechanisms or through induction of HBV-specific immunity.

And we are also always looking for what we think is additionally valuable to what we are doing internally, externally as well. We are watching the siRNA field closely also and aware of what Arrowhead's done. We look forward to seeing the data presented in full at AASLD..

Thank you. Our next question comes from Umer Raffat with Evercore..

Hi, guys. Thanks for taking my question. And John, wanted to extend our congratulations on all of your's and Gilead's success over the years. My question was perhaps two-fold.

One, going forward for the new CEO, is there specific expectations that the board has set? May that be on specific M&A targets, dollar size, number of transactions? Just wanted to get a flavor for the direction for the company and board's expectations. And then secondly on CAR T, we heard your commentary on the variability in adoption.

And my question is, Street has a 50% growth over the next four quarters for Yescarta franchise.

And given how important a launch it is, my question is, do you remain confident in that type of growth trajectory?.

So first let me start with the specific criteria for a new CEO. No, that's not typically how things are done. There are conversations and looking at different strategies that a new CEO could bring to Gilead. But, no, there are no specific targets or directions that were given by the board. So secondly, and question about CAR T is a good one.

So if you think about CAR T and you think about the shift in paradigm that has to occur in a treatment center to adopt it, it requires lots of collaboration across multiple departments. It requires novel ways of thinking about billing and treating patients. And it takes time for these centers to come up to speed.

The centers that were early adopters of CAR T and are still the biggest users of Yescarta, have a lot of experience and have kind of worked out the treatment, and frankly, business paradigm of cellular therapy. And that's where we're seeing the majority of our success today.

The middle adopters and now the late adopters are the groups that are really trying to figure out how to make this work within their institution and how to make this business model work for their hospital in particular and that can take some time.

So what we would expect is that as these centers start to treat, as they work out how to build the commercial plans, as they figure out how to get reimbursement for Medicare patients, this will grow over time. And, of course, we'll see some centers that have greater adoption and some that have less.

So, I do think that with the data that are emerging on CAR T with the growing body of evidence that a high percentage of patients can have very durable responses, this is something that will grow to become of importance in all 60 centers that we're in. But it is going to take some time to get the growth rate that we need.

I won't comment to any specifics. But I am very confident that as we get better at this, as the medical practice gets better, as we get better at managing some of the side effects around this, and then importantly in the future, as we get a DRG code, this will grow into a very important business for Gilead.

And it will be very, very important for patients who have run out of options..

Thank you. Our next question comes from Alethia Young with Cantor Fitzgerald..

Hey, guys. Thanks for taking my question. Congrats on Biktarvy. And John, you certainly will be missed and we truly enjoyed seeing your leadership over such a long tenure. I guess I have a question on HIV and generics in Europe.

You said obviously you've seen some impact and there actually have been some countries where you haven't thought – you thought you would see impact and didn't. So, can you talk a little bit more about those certain dynamics there? Thanks..

Sure, Alethia. Congrats on your new role as well. Yeah, we continue to see adoption of generics across Europe. I think what we're seeing is differentiation across the different countries relative to timing and the uptake of generics. We talked about the uptake of Descovy. That continues to go really well and we think that's thwarting some of that uptake.

Particularly in Italy and UK, we're just not seeing the uptake of generics as quickly as we thought they would take hold. And that's something that we've factored into our guidance to the tune of $100 million.

I think even in 2019, we'll continue to see uptakes of generics but with the launch of Biktarvy, et cetera, we think we'll be well competitively positioned and think all the benefits of Descovy will help us to continue to grow share in our ex-U.S. markets..

Thank you. Our next question comes from Phil Nadeau with Cowen..

Good afternoon. John, let me add my congratulations on all that you've accomplished and best of luck on your next act. My question is on the guidance. It looks like that even at the top end of the guidance, you're projecting a sequentially down quarter in Q4.

I'm curious to get a little bit more information on what elements do you think are going to have a quarter-over-quarter decline? Is that HCV? Is that EU HIV? Any information you could give us would be appreciated. Thanks..

Sure, Phil. I won't go – again, we kind of gave a base of our guidance. First, let me just say we're really very satisfied with how the year has gone and the ability to raise guidance at this point.

Everything that we've talked about from HIV being a growth franchise to HCV stabilizing, Yescarta continuing to have a nice slow and steady build, I mean I think overall, all of our franchises are performing very well. There's a couple of dynamics. You mentioned a few.

One HCV, as we said, while stabilizing, we do continue to see declines in patient starts because that's the primary driver. Recall we talked last quarter about a price freeze for the next six months, which if you think about a typical Q4, we sometimes see inventory build in Q4 in advance of that price increase.

And I'm not saying we won't have any inventory build, some of that is just part of supply chain, but we do anticipate that there may be a little less. And as I mentioned, the other driver of our raise in guidance was Letairis and the LOE, which is here. We haven't seen any impacts. That could happen, right.

So we are providing a range of guidance but we're very confident with our ability to meet the guidance and hope to overachieve it..

Thank you. Our next question comes from Cory Kasimov with JPMorgan..

Hey. Good afternoon, guys. Thanks for taking my question. I guess first to John, congrats again on a really great run. So I guess my question is on Biktarvy on the heels of another really impressive quarter for the product.

I'm just curious if there was any meaningful contribution from inventory build or any other type of one-time item? Or is this really all just demand-driven? Thanks..

Hi, Cory. Great question. No, our sequential growth was all demand driven.

We didn't see really any change in inventory and as you're probably recalling last quarter, I talked about the fact that we were at a 50/50 payer mix between commercial and government and there was the chance that that would have shifted back to what we've traditionally seen, 45% commercial, 55% government. But we didn't see that.

And these payer mix percentages do fluctuate quarter-to-quarter really depending on the buying patterns from government payers, such as ADAP. So, overall, a strong demand-driven quarter for Biktarvy and HIV overall, no impact from inventory or payer mix..

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

Hi. Thanks for taking the question. Maybe just a couple of follow-ups on Biktarvy and the TAF portfolio.

First, can you just comment on European pricing dynamics for Biktarvy now that you're a little bit further in and maybe help us think about that heading into 2019? And then can you guys disclose total TAF volume in Europe right now? I know you give us that for the U.S., but just wondering where it stands in Europe? Thank you..

Yeah, Terence, it's hard to talk about volume because of generics. We do talk about TAF or Descovy based as a percentage of revenue, and it's about 70% of revenues in U.S. Pricing really hasn't been a barrier, keep in mind we price – our Descovy regimens are pretty much priced similar to Stribild, et cetera, in the way of (54:39) Biktarvy.

So it's really been good overall uptake. I think we'll always see competitiveness in European pricing, but that's something that we're used to. So, it really fundamentally has been just the desire from more and more patients who want to move to Descovy-based regimens that has been driving our performance offset by the adoption of generics..

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

Hi. Thanks for taking my questions, and congrats to John as well. So, first one on Yescarta, I think, Robin, you mentioned that now you do have this new technology add-on payment.

I was wondering how much that helps the adoption for Yescarta under that? And how much is this financial loss is actually stopping the centers from adopting Yescarta? And then secondly, we noticed that you have exclusive status with Express Scripts for 2019 and Mavyret from AbbVie was excluded.

Does that mean there is additional pricing concessional rebate provided by Gilead? Thank you..

So, let me start with the prior question, Ying. I think as always is our case, we are always working and negotiating with payers.

I can't talk specifically to the details of the contract, but we are happy that we have reached the formulary ranking with Express Scripts, and it's something that we've talked all about that we continue to be out there competing in this marketplace. There's us and Mavyret, and we continue to do well.

I think to your other question relative to Yescarta, yeah, the NTAP as I said, it's a start. As we understand it, it's about 50% of reimbursement. To sit and tell you what every hospital makes or doesn't make, that's very hard for me to comment on. That's very dependent on their relationship with the payers, et cetera.

So, I can't give you more details on that. I do think the NTAP is a start, and we are working very, very diligently and hard to continue to show the value of this treatment, and hopefully eventually see DRG specifics for CAR T therapy..

Thank you. And our final question comes from Steven Seedhouse with Raymond James..

Hi. Thank you for taking the question. Just on NASH, understanding the hope is obviously that both STELLAR 3 and STELLAR 4 succeed.

I'm curious if there is a viable filing strategy or path forward for either monotherapy or combination therapies for selonsertib in basically refined fibrosis subset of NASH patients if one of those two Phase 3 trial hits the primary endpoint or have you designed the clinical program such that both Phase 3 trials need to work to move selonsertib forward? Thank you..

So, it's a good question regarding the STELLAR programs, and I think the answer to your question lies in the STELLAR programs where our discussions with regulators were around both trials independently, but I think everybody understands that a third of patients with F3 really have F4, and a third of patients with F4 have F3.

So, if for example there was a situation where one trial was positive and one trial was negative, we would be able to look at different subgroups of patients, but that would be a completely unscripted discussion that would just depend on what the data looked like at that time..

Thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Sung Lee for any closing remarks..

Thank you, Cherie 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, and have a wonderful day..