Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences' Second Quarter 2019 Earnings Conference Call. My name is Liz 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, Senior Vice President, Investor Relations. Please go ahead..

Daniel O'Day, Chairman and Chief Executive Officer; Johanna Mercier, Chief Commercial Officer; and Robin Washington, Executive Vice President and Chief Financial Officer.

Also in the room are Diana Brainard, Senior Vice President and Head of our HIV and Emerging Viruses Therapeutic Area; and John Sundy, Senior Vice President and Head of our Inflammation Therapeutic Area.

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

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

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

The first one was the pipeline; the second one was optimal commercial delivery that's both for our current products but also as we prepare for some new and important and exciting launches; and then, thirdly, really people, the organization bringing the right team together at the right time for Gilead. And as you can see we've had a very busy quarter.

We've announced key changes this quarter that helped to address really all three of these priorities. And importantly we've made these changes against the backdrop of strong financials and really promising pipeline progress.

So let me say a few words about the major steps we've taken to, first of all, strengthen the pipeline with the Galapagos collaboration; secondly, I want to dive a little bit into the highlights from our current pipeline; and three talk a little bit about the organizational changes as well. So first on Galapagos, it’s fresh news.

Earlier this month we announced an exciting new collaboration with Galapagos. As you know, Galapagos is a highly productive R&D engine. They have seven medicines now in clinical development including filgotinib, which has a very comprehensive of life cycle program.

And they have more than 20 medicines now in preclinical and their model has been very productive at producing new candidates for the clinic every year. And of course with our increased investments we would expect that to even increase in the future.

This is a really unique collaboration because it combines complementary strengths between Gilead and Galapagos and very importantly and, as you know, we structured this to allow Galapagos to remain independent. Many of you know my past. I'm a big believer that innovation requires independence, I think to be preserved.

And the structure of this deal allows us to preserve the great science and talent at Galapagos. They can invest and innovate to accelerate the progress based upon our investments. And in return we have an exclusive access right to their proven drug discovery platform.

All of this I believe will help patients, science, and our business in a very significant way. So I was really pleased this was the first collaboration that I could announce under my tenure and yet, this is still a beginning. We'll continue to explore other ways to strengthen our pipeline and our innovation network in the future.

Secondly, on the pipeline side, this has been an important time for our existing pipeline. Let me touch on a couple of things that speak to our growth potential before handing it over to Johanna.

And there's two things I want to just highlight here, some recent promising HIV data that we presented recently; and secondly, since the last quarter our plans to file filgotinib for approval. So, first of all, we had a terrific week last week at the International AIDS Society Conference on HIV Science.

We were able to present clinical data for our first-in-class HIV capsid inhibitor, the GS-6207. And as you saw the early results support further development as a long-acting therapy that we think will really meet the needs of the community that we serve.

And then we also presented further data on Descovy for PrEP, additional data that reinforces the profile of the Descovy in the PrEP setting. And as you know this is currently under regulatory view in the United States. And we also have plans to file Descovy for PrEP in the EU in the first half of 2020.

We are looking forward to the FDA advisory committee that will be held next week. And overall, we're encouraged by the government's engagement around HIV prevention in many forms.

The advisory committee will be an important opportunity and provide an -- a forum for Gilead to talk about the benefits of Descovy in the prevention setting for a broad population of individuals at risk for HIV. So secondly, on filgotinib, as you know now based upon a meeting with the agency we intend to file for U.S.

approval for filgotinib later this year in rheumatoid arthritis based upon our discussions with the FDA. We will also be filing in the EU really eminently at this stage, so overall very good news on the path for filgotinib.

I had the chance actually recently to attend the EULAR meeting, the Annual European Congress of Rheumatology in Madrid so I can get a first-hand view of the enthusiasm among physicians and thought leaders about the profile of filgotinib and the potential it has to be a best-in-class among the JAK1 inhibitors.

Finally then a few comments about the work we've been doing to build the right team for the future. I'm very pleased to welcome Johanna who you'll hear from next; and Christi Shaw who joins us from Eli Lilly. She will start as CEO of Kite on August 1.

And as you know with Christi's arrival at Kite, Kite will become its own business unit and we remain committed to accelerating the pipeline and maintaining our leadership position in cell therapy. I'd also like to very much extend the thanks to three leaders who will be leaving Gilead, John McHutchison, Gregg Alton and Katie Watson.

John Greg and Katie have all made tremendous contributions that helped to shape today's results that you're seeing and really Gilead's progress over the past many year’s decades in fact. So I'd like to thank them as we transition the team forward for Gilead.

So, in closing, from my side, I just wanted to emphasize how increasingly optimistic I am about the future of Gilead and the potential that it has. This is a unique company. It's a company that cures hepatitis C and transformed HIV. I'm getting an up-close view of the unique strengths that made that possible.

I'm looking forward to working with all the talented people at Gilead as we apply those strengths to the next wave of transformational advances in various diseases. We're making great progress and there's much more to come and I look forward to continuing to share more about my vision for the future later this year as I communicated.

But as you can tell, I'm not waiting for that we're implementing along the course of that strategy with many of the things that you've seen in this past quarter.

So I'd like to thank all of our employees and partners around the world for their dedication and hard work to bench with successful quarter and whose commitment will continue to make us successful in the future. With that, I'd like to turn the call over to Johanna..

Thanks Dan and good afternoon everyone. So although, I'm only one month in I've become to get to know the company the people and I just want to say how impressed I've been by the talent and the strength of the team as well as what we've accomplished so far.

And today I wanted to take the opportunity to maybe highlight two areas that really caught my attention, both of which I believe are real growth opportunities moving forward for Gilead. Those are the strength of our HIV business both in treatment as well as in prevention as well as the potential for filgotinib. So if we start with HIV.

You'll hear from Robin describing in more detail our results for the quarter, but our HIV portfolio have never been stronger. Biktarvy continues to be a very impressive launch. It's on an incredible trajectory. It just hit its first $1 billion quarter in the U.S. for Q2. It's now the number one prescribed regimen in the U.S.

for both naïve and switch patients as well as number one for naïve in switch in Germany, in France and in Spain. We just got reimbursement in Italy and the U.K. in the last two months or so, so more to come on performance there.

As Dan mentioned we had a really strong showing last week at the International AIDS Society Conference presenting research that really demonstrated the breadth of the scientific work across our pipeline from prevention to treatment to cure. This included a couple of new announces of our Descovy for PrEP.

We really believe that Descovy for PrEP could offer important safety advantages over Truvada as it shows superior safety for bone and renal as well as rapid onset and longer duration of preventative therapy than Truvada. These are really clinically meaningful to individuals, physicians and payers for two main reasons.

Individuals at risk of HIV are not patients but they're generally healthy people. So therefore the bar for safety among this population is just so much higher. The second reason is the persistency on PrEP has increased actually similar to that that what we're seeing in HIV treatment patient.

In addition, younger people are initiating this therapy at the time when they're actually building peak bone mass. So overall, people on preventative therapy are on for longer periods of time, which is what makes these results even more compelling. And that's exactly what we heard from physicians at AdBoard last week during the conference.

So we're very excited about what's to come with DESCOVY in PrEP. Dan mentioned that we're under review with the FDA for the prevention of HIV. And for the reasons, I've just shared we really believe it had significant potential to make a difference in the life of a broad population of individuals at risk of HIV.

So that's the first real growth opportunity both in HIV treatment as well as in PrEP. The second one is around filgotinib. I really see commended potential in filgotinib and the teams you can imagine they're really hard at work in preparing the launch of this medicine. It's a high priority for me and the team and the whole organization.

Although, it's a very competitive space and we know that, we truly have an opportunity to make a difference in the lives of people living with RA and potentially even other inflammatory indication as these are just such debilitating diseases. And yes there are numerous treatments on the market for RA.

However, many patients aren't actually helped by the therapies that are currently available. The FINCH studies highlight the strong efficacy and tolerability results of filgotinib in different patient types. Filgotinib a JAK1 specific inhibitor could actually answer a clear unmet need in the marketplace for an efficacious and safe oral agent.

So, still to come on that, and obviously more to come on the filing in the second half of this year. So with that, I really look forward to working with this great team to deliver on the promise of this medicine and to getting to speak with you in more detail in the near future.

I just want to take a moment to thank everyone for such a warm welcome as I've arrived a month ago. And now, I'll turn the call over to Robin.

Robin?.

Thank you, Johanna, and welcome. Good afternoon, everyone. As Dan said in his opening comments, we had a strong quarter led by our HIV franchise, predictable performance in HCV and continued growth of Yescarta. Total revenues for the second quarter were $5.7 billion with non-GAAP diluted earnings per share of $1.82.

This compares to revenues of $5.6 billion, and non-GAAP diluted earnings per share of $1.91 for the same period last year.

Total revenues in non-GAAP earnings per share for the second quarter benefited from an approximately $160 million adjustment for statutory revenue clawback reserve, primarily related to HIV and HCV sales in Europe from prior years, which contributed $0.10 per share.

Non-GAAP earnings per share for the same quarter last year benefited from a settlement of a tax examination, which contributed $0.15 per share. So starting with HIV. Total HIV sales for the second quarter were $4 billion. In the U.S. HIV product sales for the second quarter were $3.2 billion, up 13% year-over-year, and up 14% sequentially.

The year-over-year increase was driven by robust underlying prescription demand growth up 13%. This marks the fifth consecutive quarter in which HIV sales have posted double-digit year-over-year growth. And the first quarter in which Biktarvy surpassed the $1 billion mark, becoming the number one prescribed regimen for all patients.

More than 40% of new patients started on Biktarvy. It is by the growing momentum of Biktarvy, Descovy-based regimens accounted for 83% of our prescription volume for HIV treatment. Sequentially, the increase was primarily driven by the continued uptake of Biktarvy and PrEP and the full quarter impact of price increases taken in March of this year.

In Europe, HIV product sales for the second quarter were $623 million, and benefited approximately $70 million from the adjustment for statutory revenue clawback reserves related to sales meeting in prior years. Excluding the adjustment our HIV product sales in Europe would have slightly declined sequentially.

The year-over-year decline was predictable driven by the broad availability of generic versions of Truvada. We continue to see, however, the impact from generics moderating as the uptake of Descovy-based products progresses. Biktarvy is now available across the EU5 with launches occurring in Italy in June, and in the U.K. in July.

Already in France, Germany and Spain Biktarvy is the number one regimen for naïve and switch patients. With access increasing for Biktarvy, we're optimistic that the declines in our European HIV business will continue to moderate and that our Descovy-based franchise will continue to grow.

Turning to HCV total HCV sales for the second quarter were $842 million. U.S. product sales for the second quarter were $355 million, down 35% year-over-year, and down 10% sequentially. The year-over-year U.S. decline was in line with our expectation and primarily due to competitive dynamics and lower patient starts.

Sequentially, the decrease was primarily due to the Q1 purchasing activity by a state Department of Corrections. As a reminder, we mentioned on our prior call that Q1 U.S. HCV sales were positively impacted by the timing of the state Department of Corrections order.

We're very encouraged by the performance of the Asegua authorized generics, which accounted for more than 25% of our U.S. HCV revenues and continue to improve our HCV competitive positioning.

In Europe, HCV product sales for the second quarter were $277 million and benefited approximately $80 million from the adjustment for statutory revenue claw back reserves related to sales made in prior years. Without the adjustment HCV, product sales would have declined 15% year-over-year and 1% sequentially. Turning to cell therapy.

Worldwide Yescarta sales for the second quarter were $120 million, up 76% year-over-year and 25% sequentially. We were pleased with the steady adoption of Yescarta. Our efforts in the U.S. remain focused on educating providers on the profile of Yescarta and identification of appropriate patients.

Additionally, as the centers for Medicare and Medicaid services looks to finalize the annual Medicare IPPS rule for fiscal year 2020, we continue to engage with agency officials and other stakeholders with the goal of improving Medicare reimbursement and access for patients over 65 years of age.

This remains an area of focus to ensure continued uptake of Yescarta. In Europe, Yescarta has launched in Germany, the U.K., France and Spain among the larger countries. Overall, we have been very impressed with the speed at which countries have provided reimbursement and the pace at which centers are being certified.

Finally, I would like to comment on our cardiovascular products. As expected, we saw generic versions of Letairis introduced during the quarter. Letairis and Ranexa sales totaled $223 million for the second quarter, down 51% year-over-year and down 37% sequentially as a result of competition from generics.

Letairis sales were sequentially higher in the second quarter primarily due to a favorable inventory dynamics compared to a drawdown in Q1. But underlying prescriptions demand is eroding and we anticipate going forward, sales will decline as we absorb the full quarter impact of generics. Now turning to expenses.

Non-GAAP R&D expenses were $916 million for the second quarter, down slightly compared to the same period last year, primarily due to the 2018 impact of our purchase of a priority review voucher largely offset by higher investments to support our cell therapy program.

Non-GAAP SG&A expenses were $1 billion for the second quarter, up 21% compared to the same period last year, primarily due to higher promotional expenses in the U.S. and expenses associated with the expansion of Gilead's business in Japan and China.

Our non-GAAP effective tax rate in the second quarter was 21.5% compared to 13.4 % in the same period last year, which was impacted by a one-time favorable settlement of a tax examination. Moving to the balance sheet.

During the second quarter, we generated $2.2 billion in cash from operations and ended the quarter with $30.2 billion in cash and investments. We repaid $500 million of senior unsecured notes, paid cash dividends of $800 million and repurchased 9 million shares of stock for $588 million.

Moving to our guidance, we are raising our full year net product sales guidance based on favorable demand trends in the first half across our portfolio and the one-time adjustment for Europe statutory revenue claw back reserves. Net product sales are expected to be in the range of $21.6 billion to $22.1 billion.

We are also updating our full year diluted EPS impact of GAAP to non-GAAP adjustments, which are expected to be in the range of $3.90 to $4 a share as a result of the collaboration agreement with Galapagos. All other components of our guidance remained unchanged.

With regard to full year SG&A guidance, we are leaving that unchanged as we prepare for future lunches of filgotinib for rheumatoid arthritis. Our guidance is subject to a number of uncertainties, which are outlined in slides 23 to 24 in our earnings call presentation. So I want to thank everyone very much for joining today's call.

Let's now open up the call for questions.

Operator?.

Today’s question-and-answer session will be conducted electronically. [Operator Instructions] Our first question comes from Matthew Harrison with Morgan Stanley. Your line is now open..

Great. Good afternoon. Thanks for taking the question. I wanted to ask one related to the HIV pipeline.

I noticed that you've got a breakthrough designation on the capsid inhibitor, and I'm just wondering if you could talk a little bit more about the path to registration and how breakthrough enables you to potentially move that product ahead? And if you could just also comment on what you see as the patient opportunity for that product as well?.

Great, Matthew. So, we had Diana here and she will be more than happy to address that..

Yeah. Thanks. Hi, this is Diana Brainard. We're very excited that the FDA recognized the importance of the capsid inhibitor GS-6207 by providing it with breakthrough designation for heavily treatment experienced patients with multidrug resistance. This is a small segment of the HIV population, but represents a really high unmet medical need.

These individuals have limited treatment options due to the resistance they have, and this highlights one of the important components of our capsid inhibitor, which is to say because it is first-in-class, there's no pre-existing resistance to this class and it makes it really a unique compound in that regard and that's part of the value it brings.

Of course the other piece is that it's long-acting. And so we see it as having value across a broad range of patient populations. In terms of the past two registration, what breakthrough designation does is allows us to communicate more frequently and have more dialogue with FDA.

And in fact we have plans to do that in the coming weeks where we'll get more clarity on exactly how we can best move our capsid inhibitor forward in this population as quickly as possible..

Great. Thank You.

Could we have the next?.

Our next question comes from Brian Abrahams with RBC Capital Markets. Your line is now open..

Hi. Thanks very much for taking my question. Maybe another question on the capsid inhibitor.

How important will it be to pair that with additional antiretroviral agents? Can you talk about where you are with respect to development of long-acting forms of internal assets that could potentially pair with 6207? And along those lines, what's your sense at this point kind of mapping the Phase 1 PK data with the Phase 2 of viral decline data as to how often, how frequently you think patients will need to be dosed in order to maintain adequate exposures and still have a small injection volume for that drug? Thanks so much..

Sure. Well, so I think when we talk about developing long-acting regimens, we're envisioning the capsid will need to be partnered with the second agent. And to that end we've got a number of different internal candidates to become partners with capsid and we hope to be rolling that data out and those plans out over the next coming months.

In terms of the frequency of injection. One of the things about capsid that's so exciting is that it’s got picomolar potency, which really makes it in order of magnitude more potent than any other approved antiretroviral and allows us to give the amount of drug needed for very long-term injections.

And so really the frequency of drug injection is going to be dictated in large part by the partner and also by the formulation and we're still gaining clarity on what the initial regimens will look like, but there's a huge potential here for very infrequent dosing..

Our next question comes from Michael Yee with Jefferies. Your line is now open..

Hey thanks for the question. Congrats on a good quarter. I wanted to talk a bit more high level about R&D.

Obviously, John McHutchison not sure if you're in the room but it's been good to spend the years together particularly in the HCV days, but maybe just to comment either from John, but obviously Dan going forward, where the shape of R&D goes from here? What you would like to try to do in the next say 12, 24 months? How oncology plays with that? And then the second part of the question is, since you've done this Galapagos deal, it would seem that that's a big part of early stage discovery, how much of your R&D is early stage discovery? And does that help offset some of that again, sort of, it led to the first question.

Thanks..

Yeah. Thanks Michael. Can I just get some clarity on your second question, sorry, around Galapagos.

I want to make sure I understand what your question was there?.

Yeah.

I guess, if you can quantify or describe how much of your R&D budget I think it's $3.5 billion, $4 billion is early stage discovery, it would seem that Galapagos is going to be either additive to that as resources? Or that that could actually allocate some of your R&D early stage to have them and do some of that and supplement that?.

Okay, thanks. So Michael first of all, thanks a lot, we will certainly pass your good wishes on to John McHutchison. He's got his team here but he's not in the room today, but John has really made tremendous contributions to Gilead and we wish him nothing but the best as he seeks his next challenge.

But let me just comment first on your first question about the shape of R&D next 12 months to 24 months. Well, again I think a lot has happened in the past quarter just to emphasize -- where we stood when we spoke just a few months ago. Certainly, we've had progress on the HIV front, which we just spoke about in the first two questions with Diana.

But we've also gotten much greater clarity around the path forward for Filgotinib. And with that path forward with Filgotinib in rheumatoid arthritis, I remind you we have a very broad and extensive program around Filgotinib and other diseases that's including IBB. And so -- we really have had a good quarter for our internal portfolio.

Now moving forward, I mean, obviously our emphasis is on growth it's on long-term growth. It's on our ability to shape that R&D portfolio into an area where we have a good number of innovative medicines balanced across our stages of development.

As we spoke about last time, one of the areas that we really need to continue to strengthen is our late-stage portfolio as well. And I do think that the collaboration with Galapagos and some of the acceleration of molecules that we have within Gilead will help us to strengthen that late-stage portfolio.

I remind you with Galapagos they have two products that are in later stage; one for IPF and one for osteoarthritis in addition to the broad program around Filgotinib.

But moving forward and more on this Michael later in the year, obviously information with the lead with Filgotinib, the work we have on HIV, long-acting treatments for highly experienced patients in care programs, oncology is a clear focus.

And it certainly is within the cell therapy realm where we've had really some transformational effects on a subset of B-cell lymphomas. And -- our strategy there is to bring it to earlier alliance of therapy with B-cell lymphoma to other hematologic malignancies to potentially solid tumors and to allogeneic.

And then we're bridging that across to a broader oncology portfolio that will continue to advise you on within Gilead and partners that include small molecules and biospecific antibodies that will be focused on really providing significant benefits for patients with high unmet medical needs in oncology. And then finally, of course, liver diseases.

We continue to work in the liver area and Hepatitis B. We have important data readouts on NASH later this year. So, I think, when we sit here in the next couple of quarters a lot of these things are also going to come to more fruition. We'll get a chance to look at what we have in our hands today in terms of late stage -- in terms of our portfolio.

And we'll continue to supplement that with innovation from the outside, innovation network like Galapagos. Secondarily, on Galapagos in particular, I think, it's probably the best way to put it into context and I said this on the call previously with Galapagos, it's with the collaboration with Galapagos we essentially double our research capacity.

And what does that mean? I mean, we've got roughly the same number of scientific colleagues across the two organizations. In fact Galapagos will be increasing their number to get a little closer to what we have at Gilead, but it provides with two sources of early-stage discovery input into our late-stage portfolio.

And I think that's very exciting because if we can get two highly productive research engines speeding the late-stage portfolio that speaks well for kind of the future of our portfolio as we move forward. We haven't really completely disclosed exactly the spending patterns in each of those areas.

I'll suffice it to say that those investments will be driven by the science the decisions on the portfolio will be driven on making sure we keep the bar high for patients and we'll continue to look at other ways to expand that innovation network with early-stage collaborations and deals and when possible late-stage collaborations and deals.

Hopefully, Michael that gives you a little color to so far what I can articulate in the past five months..

I appreciate and look forward to the rest of the year on that. Thanks..

Thanks, Michael..

Our next question comes from the line of Geoff Porges with Leerink. Your line is now open..

Thank you very much and appreciate the question. Dan, there's been a lot of pretty interesting moves in the industry of sort of a macro level companies changing portfolio shifting assets around.

And I realized your focus is primarily been on R&D, but is there anything that you believe you could potentially consider moving out of the company's portfolio? Or do you have any appetite to bring in any macro and products that might be available for any other company's portfolios? And just related to that could you comment on how much of an issue FTC considerations are as you look at outside products given what we've seen so far this year?.

Geoff, yes, I mean I guess just taking a step back about how we look at our approach to M&A overall and our partnerships. Again, I would say that you're right there's a lot of moves in the field. I think what's characterized Gilead is the ability to really focus on the science in a way that's been pretty transformational with HCV and HIV.

And I've commented before on my observation on the quality of the science and the scientists that are here at Gilead and I would only emphasize again after five months. And that's important not only for the science we do within the company, it's also important for how we can evaluate external scientific opportunities.

I can say that as we partner with Galapagos, the respect and admiration from a scientific perspective between Gilead and Galapagos was very high and that's what led me with confidence to move forward with the team in striking that deal. So, we will be driven by science for sure. We'll focus on the areas of expertise that we have today.

I mean that's HIV, oncology, liver disease, inflammation, and the intersections between those two. To your point, I mean I don't think we'll have a one-size-fits-all strategy for bringing innovation into the company. I think that the Galapagos structure was the right structure for that collaboration.

It allowed independence, it allowed us to secure our investment, it allowed us rights to everything that comes out of that investment, and therefore, that collaboration was fit for purpose for that particular transaction. But it doesn't mean that we won't look at different ways of transacting when we look at other opportunities out there.

Some will be more straightforward, particularly, if they come right into our value chain and our distribution chain for our late-stage aspect. On the FTC standpoint, I don't really have a lot of comments there. I think we haven't had any issues right now with FTC and the type of transactions we're going after.

So, I don't have a whole lot of personal insight into that question as well. So, hopefully, that gives you some indication of how we'll continue..

Thanks very much..

Thanks. Geoff..

Our next question comes from the line of Alethia Young with Cantor Fitzgerald. Your line is now open..

Hey guys. Thanks for taking my question. Congrats on the very solid quarter. I just want to talk about trends in Europe.

I'm slightly intrigued by the fact that you guys tend to like -- or able to mitigate kind of the generic pressures seeing from the Biktarvy offset and I just want to get a little bit more color on why you think that's the case? I mean we all know Europe is fairly cost-conscious. And I understand that there's differentiate profile.

But what had really been the driver there that allows you to have growth in Europe your TAF franchise there? Thanks..

So, Alethia I'll take that one. I mean I think it really has been the underlying opportunity that we have with Descovy. We have seen with the Descovy now launch of Biktarvy -- sorry. Biktarvy we've just seen really a moderating of that deceleration.

So, it really speaks to the innovation of the product and the drive and we've seen really solid adoption..

Our next question comes….

Thanks. Yes, let's go to the next one. Thanks, Alethia..

Our next question comes from the line of Carter Gould with UBS. Your line is now open..

Great. Good afternoon. Thanks for taking the question.

Maybe one for I guess Dan or Johanna, can you maybe just to elaborate a bit further on how should we think about PrEP providing another leg of growth for the HIV franchise, particularly, given some of your moves in the quarter, you've improved access in the U.S.? And I guess when you think about Europe some of the historical challenges there? And then I guess a follow-up there just any insight you could provide on what you expect the focus of the AdCom to be for Descovy there? Thank you..

That's great. So, we'll have Johanna pick up on the first aspect to your question Carter and then Diana can talk about the AdCom..

Yes. So, thanks for the question Carter. So, basically in PrEP what you'll see today if you think about our Truvada business, the growth is very solid, it's about a 27% growth year-on-year.

But having said that, there's only about 200,000 individuals that are actually on Truvada and that represents that 20% to 25% of the total potential of individuals that could benefit from prevention treatment and that's where Descovy comes in.

And I do think Descovy, as we talked about earlier on this call, real opportunity in light of the fact that it just has such benefit in the prevention setting for a broad patient population -- a broad population of individuals namely because of its superior safety both on bone and renal as well as the fact that there's rapid onset and longer sustained duration of HIV protection in Truvada.

So, those things will definitely play an important role as we think about our launch for Descovy moving forward in the second half of this year. On the flip side, you talked about a little bit about Europe.

Obviously, Truvada PrEP in Europe is not available in light of the fact that it was genericized, but we will be looking at filing for PrEP in the first half of next year.

And maybe Diana for the?.

Sure. Yes. So, with respect to the AdCom the FDA has the liberty to convene an advisory committee for a number of different reasons. And in this case for Descovy for PrEP, I think it's probably part of a larger effort to increase awareness and signal the commitments of the government to HIV PrEP efforts.

And this is a forum where experts can come together and provide a discourse on the benefits of PrEP and also the trial results of DISCOVER. And as you know we are seeking a broad indication for Descovy for PrEP and our study was conducted in men and transgender women who have sex with men.

And so this will certainly be a topic for discussion as well as the study results themselves and so that's what we're prepared for..

Thank you..

Our next question comes from the line of Umer Raffat with Evercore ISI. Your line is now open..

Hi. Thanks so much for taking my questions. I wanted to focus on two pipeline programs, if I may. First on filgotinib, so based on everything disclosed so far in the pool data, there is no DVT imbalance, and that's very important.

But my question was, what about all thrombotic events? So, for example, the retinal vein occlusion in France too was technically not a DVT. So, what about all thrombotic? Is that still no imbalance at all? That's point number one.

And the second one was on the Galapagos IPF program, we know the Phase II trial there ran -- had a meaningful baseline imbalance on FVC median. And my question is have you analyzed the FVC data on similar sets of FVCs on the placebo arm versus the active arm? Thank you very much..

Thank you, Umer. So, we're going to get John involved here. John, Sundy so, thanks John..

Sure. So, first of all to start off with filgotinib, getting to the issue of -- issues across all thrombotic events, we are still very pleased with the results across all those events, and don't really see anything that would change our perspective on that compared to the specific data that we've presented already.

Moving on to the Galapagos compound, as you might imagine, we looked very carefully at all of the available data in the IPF program. We have quite a bit of experience in IPF ourselves with prior programs at Gilead as well.

And we saw that the data really provided the confidence to Galapagos to be able to move ahead and we share that confidence with them..

Thank you..

Our next question comes from the line of Mohit Bansal with Citi. Your line is now open..

Great. Thanks for taking my question. So quick question on capsid inhibitor, do you think a longer acting agent such as capsid inhibitor could expand to that market, just to say that it is 20%. And then when can we learn more about your plan for capsid in PrEP? Thank you..

Yeah. Before I turn it over to Diana, we'll hear -- I think it's a good question. By the way, we fully intend prior to the capsid to get beyond 20% of the PrEP market with both Truvada and Descovy.

I mean and you're seeing the increase of course quarter-on-quarter there, but also our wraparound programs with the community and really taking this more global. So there's lots of opportunity with the current programs.

Having said that, Diana, if you want to address maybe the capsid for PrEP concept?.

Sure, thing. And I didn't catch the second part of the question, but I'll answer the first part. So Johanna mentioned this large gap between the number of people in the U.S., who are eligible for PrEP and the number of people who are on PrEP. And of course we're trying to close that gap.

But the part of that strategy is going to be having additional options beyond daily PrEP and the capsid inhibitor could be one approach to that. It's got a long-acting potential.

We're looking at preclinical models to assess its efficacy in the PrEP setting, and we're very excited about its potential as our physicians and the community about having this as an option. So we're looking forward to generating the data but that will allow us to get into the clinic with that..

Got it. Very helpful. Thank you..

Thank you..

Our next question comes from the line of Cory Kasimov with JPMorgan. Your line is now open..

Great. Good afternoon. Thanks for taking the questions. So, I guess for Dan, I'm curious how should investors be thinking about building out your management team versus building out the company's capabilities via external BD? In other words, there are clearly some important positions to fill such as a permanent CFO or permanent CSO, et cetera.

So how much are there search for assets and technologies and the search for personnel correlated or mutually exclusive? Obviously I recognize what you recently able to do with Galapagos, but there were some established relationship that was already there. Thanks..

Thanks. I really appreciate the opportunity to answer that. I think they can both very much happen in parallel. I mean I can just articulate that the Galapagos collaboration, for instance. I mean it involved teams of people within our organization that are absolutely dedicated to both the discovery platform aspect of it as well as the clinical programs.

And so, I don't see any slowdown at all in our ability to proceed to have a corporate development during this period when we're still recruiting key individual. First of all Robin is here and very active, so we don't like a CFO by any means, and we'll certainly have a good transition of a CFO before Robin leaves.

And Robin's appetite to continue to grow the portfolio is good.

Isn't it, Robin?.

Very high..

Okay. So that -- we don't settle anything there.

We have a very, very effective Corporate Development team in the organization that Andy filled up over the past couple of years, but the most important thing about the effect in this Corporate Development team is that they're interconnected with all the different respective experts within the organization.

So, Diana's team and John's team, and the other principal TIA heads, and then Billy's team and the entire research organization. So, that machine is still operating at full steam and full effect in this, so I just want you to know that. In the interim, of course, we are then proceeding ahead with Robin's replacement and with John's replacement.

And we look forward to bringing some additional new colleagues into the organization that will also be focused on science and growth and driving the future of Gilead's mission, like we did with Johanna and with Christi so far. Thank you..

Our next question comes from the line of Phil Nadeau with Cowen and Company. Your line is now open..

Good afternoon. Thanks for taking my question. My question's specifically on the recent proposed changes to Medicare and specifically Part D. I'm wondering, if you'd be willing to disclose what proportion of your U.S.

revenue in Q2 came from Part D? And whether given, it's done any preliminary analysis of those changes and their potential impact on your revenue? It seems like based on the pricing of your medicines, you're right around the breakpoint between helping and hurting your revenues.

So I'm curious if you've done any fine analysis to figure what the impact would be?.

You want to start?.

Yes. Let me start, Phil. Let me give you a little context and then I'll turn it over to Robin on some details. So, first of all, I mean, I think, it's important to note that there's a lot of things that have been happening in Washington recently and a lot of things that are still need to be provided clarity with.

What I would say is a couple of things over this past quarter have been very encouraging.

First of all, the work that we've done with the administration on ending the HIV epidemic, our drug donation and ability to get to many, many more patients with HIV, really shows the support we have around increasing those number of individuals that are eligible for PrEP.

The other thing is the Part D protected class rule was a really important patient choice legislation that was upheld and that's -- we think that's good for patients. We also think that supports our portfolio as well.

And then, the other thing that I think is a really ongoing dialogue is the consensus that we have now in such a margin around the need for new solutions and different approaches for CAR T therapies. So I just point to those three things as things that I think have been really encouraging for our portfolio that happened in the past quarter.

Now at the same time we completely accept and understand that there's going to continue to be pressure on drug pricing. I remind you that the vast majority of our business is driven by volume. We're actively involved, of course, in the Part D discussions and where that may go.

We believe in initiatives that supports cap to patient out-of-pocket expenses that help patients at the end of the day and Part D reform and that's where we and others in the industry are rolling our sleeves up on, to be active participants in Part D reform.

Specifically relative to our exposure to Part D, I don't know, I'm going to turn it over to Robin….

Yes..

….and see if she has any other thing she wants to add there..

No, Dan. I think, you've covered a lot of areas. I will only add so that we don't typically disclose the various specific payer mix, I will tell you that, overall, it's a low double-digit percentage.

If you think about Gilead, particularly our HIV, I mean, overall we have a high proportion of public pay rate and we've always come up with innovative programs, as Dan was describing, some that support full access to those patients. So I think that is something that we'll continue to do as we work with Washington..

Thank you, Phil..

Our next question comes from the line of Salim Syed with Mizuho. Your line is now open..

Hey, guys. Thanks for taking the question. Dan I just wanted to talk about hepatitis B, as in boy, for a second. So the beginning of the year before you joined, I believe, some of your colleagues mentioned that Gilead plans to be a leader in hepatitis B. I was wondering if you still maintain that view.

How you prioritize it within the company, versus perhaps oncology or inflammation areas? And if there's any science that you feel like you don't have that’s of interest to you. Thank you..

Thanks. I'm still digging into that a bit, Salim, but it's clear that we have tremendous expertise in our organization and colleagues that are focused on liver disease and, in particular, hepatitis B. It's also clear that our current product Vemlidy is a significant benefit for patients with hepatitis B and underutilized.

So one of the things we're working with Johanna and others on in the organization is, how do we make the current standard of care more available to patients at need and at risk around the world. And that's something you may hear more from us on in the coming quarters.

But relative to your question about the next level of advances in hepatitis B and I also had the experienced to talk to some key thought leaders around us as well. There's no doubt that it's a challenging scientific area to think about coming up with a hep B cure. And yet, I still think there's some very promising scientific avenues.

As you can imagine - I won't comment necessarily on specific technologies that we either have in-house or that we think we may need to partner and to collaborate with. But I wouldn't give you confidence that we know the landscape extraordinarily well, we know the science extraordinarily well.

And like many viral diseases, we may need to think about combination approaches in this area to get to longer duration and sustained responses. But because of the sensitivity of some of those programs, I'm not going to get into more detail.

But suffice it to say that I think, as a company with our type of expertise, that we do need to be on the cutting edge of hep B and we need to be thoughtful about how we approach it and what level of investment we put into it.

But there's no doubt that as long as our scientists think there's an avenue forward we should be -- we should have some concentration in that area..

Great. Thanks so much..

Thanks..

Our next question comes from the line of Hartaj Singh with Oppenheimer. Your line is now open..

Hi, thank you. Thanks for the question. I just had a question on Yescarta. You reported now a good quarter, I think two in a row. I think you had indicated earlier in the year this year that you had over 1,500 patients on the therapy, which had accelerated from the end of 2018.

Could you just give some more color on the dynamics of the patient in the Yescarta and how you're feeling for the rest of the year? Plus also how over the next couple of years, you would start to roll out into your line of therapy as that clinical data retail? Thank you..

Thanks a lot Hartaj. So let me start and then maybe other colleagues want to add a little bit here. So let me just restate my belief that I said on previous quarters that as Gilead think strategically about how to approach and entry into oncology, I think the concept of approaching it with a pioneering technology is a very sensible path forward.

In other words, instead of jumping into where everybody else is right now, really moving to where the treatment paradigm could go, I think makes sense. Now with the pioneering technology comes all with the rewards and risks associated with being on the cutting edge of science.

But I would say that I'm very impressed by the data that's been generated so far from the KITE team and the sustained level of responses we're getting and we'll continue to update you on those responses.

I know again later this year as well on the duration of those responses, but we're seeing a very consistent response in that subset of DLBCL patients.

So in addition to the scientific strength of this and the broader R&D program that I mentioned before about moving into earlier lines of therapy, other hematologic diseases, solid tumors and allogeneic, I would say that there are clearly some near-term factors that can affect the trajectory of Yescarta.

We're carefully monitoring those something I've been personally involved in is some of the discussions around the reimbursement changes. Robin mentioned in her prepared remarks around the Medicare reimbursements and then we're also investigating further patient flow dynamics.

So I think there's no doubt that in the near term with the pioneering technology where hospitals are getting used to how to get reimbursed, CMS is trying to come up with new programs as you've seen published about how to encourage adoption for Medicare patients. There could be some variability if you like on the quarter-to-quarter sales for Yescarta.

But having said that, when I just take a step back and think about the mid- to long-term trajectory of Yescarta and the duration of response in patients, I continue to be very encouraged.

And as the quarters go on, we'll be able to of course provide data for you on the continued profile of Yescarta, just as we did at ASCO of course where we talked about some of the ways to ameliorate some of the initial responses into -- encourage Yescarta and even more patients from an early standpoint.

So that's what I would say so far about Yescarta.

I don't know Robin would you like to add anything on that?.

No. I think you covered all the areas Dan. And as I've said on the call, we also have Europe now. We're very encouraged relative to the receptivity reimbursement and innovative therapies that we're doing very well with our launch there in addition to all the factors that you mentioned in the U.S..

And just maybe one last point on that. So we expect the new Medicare reimbursement role to go into effect in October of this year. So that's obviously going to be a key pivot point for how we see uptake in using Medicare patients.

And we know that the use of Yescarta in Medicare patients also has an influence in centers on how they treat their non-Medicare patients. So lots to continue to innovate here, not just on the science, but also on the reimbursement and access programs, so we're fully committed to that..

Thank you..

Thanks..

And that will conclude today's question-and-answer session. I would like to turn the call back to Sung Lee for closing remarks..

Thank you, Liz. And thank you everyone for joining us. The team here looks forward to providing you an update on our next call..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day..