Gilead Sciences' CEO Discusses Q1 2013 Results - Earnings Call Transcript

Seeking Alpha

Gilead Sciences, Inc. (GILD)

Q1 2013 Earnings Call

May 2, 2013 4:30 pm ET

Executives

Patrick O'Brien – Vice President-Investor Relations

Robin L. Washington – Senior Vice President and Chief Financial Officer

John C. Martin – Chairman and Chief Executive Officer

Norbert W. Bischofberger – Executive Vice President, Research and Development and Chief Scientific Officer

Kevin Young – Executive Vice President-Commercial Operations

Analysts

Geoffrey Meacham – JPMorgan

Wesley Nurss – ISI Group

Matthew Roden – UBS Securities

Rachel McMinn – Bank of America Merrill Lynch

Yaron Werber – Citigroup

Michael J. Yee – RBC Capital Markets LLC

Geoffrey Porges – Sanford Bernstein

Brian Abrahams – Wells Fargo Securities LLC

Robyn Karnauskas – Deutsche Bank

Marshall Urist – Morgan Stanley

Phil Nadeau – Cowen & Company

Jim Birchenough – BMO Capital Markets

Jason Kolbert – Maxim Group

Ravi Mehrotra – Credit Suisse Securities LLC

Terence Flynn – Goldman Sachs & Co.

Howard Liang – Leerink Swann LLC

Josh E. Schimmer – Lazard Capital Markets LLC

Thomas A. Wei – Jefferies LLC

Alan Carr – Needham & Co.

Joel D. Sendek – Stifel, Nicolaus & Co., Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences' First Quarter 2013 Earnings Conference Call. My name is Shevalye, and I'll 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 Patrick O'Brien, Vice President of Investor Relations. Please go ahead.

Patrick O'Brien

Thank you, Shevalye. Good afternoon, everyone. We issued a press release this afternoon providing earnings results for the first quarter, which is available on our website where you can also find detailed slides that support today's call.

For our prepared remarks and Q&A, I'm joined by our Chairman and CEO, John Martin; our President and Chief Operating Officer, John Milligan; our Executive Vice President of Research and Development, Norbert Bischofberger; our Executive Vice President of Commercial Operations, Kevin Young; and our Chief Financial Officer, Robin Washington.

Before we begin with our formal remarks, we want to remind you that we will be making forward-looking statements including plans and expectations with respect to our product candidates, financial projections, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause our 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.

We will also be using non-GAAP financial measures to help you understand our underlying business performance. The GAAP to non-GAAP reconciliations are provided in our press release as well as on our website.

I would now like to turn the call over to Robin Washington.

Robin L. Washington

Thank you, Patrick and thank you all for joining us. Earlier today, we reported solid first quarter 2013 financial results. Product sales were $2.4 billion and non-GAAP EPS was $0.48 per share. In the U.S., underlying demand was healthy across all products. The launches of our two newest single tablet regimen, Complera and Stribild continued to go well with combined sales of almost $200 million. ADAP purchasing in the first quarter was strong consistent with expectations of the last quarter of an ADAP fiscal year.

During our fourth quarter call, we highlighted that approximately $80 million to $100 million of our Q4 revenue was related to strategic purchases ahead of demand. In the first quarter, wholesalers and sub-wholesales inventory levels were drawn down reversing the inventory build taken in anticipation of January 1, 2013 price increases. We also saw minimal VA orders during the first quarter. The inventory draw down in purchasing activity from the VA resulted in a sequential decline in U.S. in that product revenue. In Europe, we continue to execute strongly with the year-on-year growth of 7%.

Eviplera is now reimbursed in 20 countries outside the U.S. and performing particularly well in the key HIV market of France. We have just recently launched Eviplera in Spain and Italy and early adoption signals are encouraging.

Turing to expenses, R&D expenses were up approximately $50 million sequentially as we continue to invest in our pipeline where we have experienced rapid progression of many Phase 3 studies in liver disease and oncology. While SG&A expenses were flat quarter-over-quarter, we expect expenses to increase during the remainder of the year as we prepare for the launch of sofosbuvir. Finally, we are reiterating full-year guidance for 2013 as we remain confident in our core business and ability to continue to execute.

I will now turn the call over to John Martin.

John C. Martin

Thank you, Robin. I will summarize a few top line items. For HIV, data from the Phase 2 study of evaluating TAF, Gilead’s next-generation nucleotide reverse transcriptase inhibitor will present at Cory. The data indicates that a TAF containing regimen had comparable efficacy to a TDF or Viread containing regimen that show less decrease in bone mineral density and less creatinine increase.

Based on these data, we have initiated two identically designed Phase 3 studies evaluating SkyBuilt compared to a single tablet regimen where 300 milligrams of TDF is replaced by 10 milligrams of TAF. Also, these studies are currently enrolling, at the same time, we are also evaluating TAF in a Phase 2 dose ranging study for the potential treatment of hepatitis B infection.

The development of our novel hepatitis C therapies continues at a rapid pace. In February, we announced top line results from the four Phase 3 study of sofosbuvir. The NDA for Sofosbuvir was submitted to FDA on April 8 filed certainly thereafter by submission to the European MAA on April 17. Further regulatory submissions are planned. We thank our investigators and medical collaborators for supporting this timeline with rapid enrollment in the Phase 3 studies.

All four Phase 3 Sofosbuvir studies were presented last week at EASL and concurrently published online in New England Journal of Medicine. These studies show that Sofosbuvir plus ribavirin when dose for either 12 weeks or 16 weeks resulted in high cure rates in genotype 2 and 3 infectant, treatment naïve and treatment experienced patients. Additionally, Sofosbuvir used in combination with peginterferon and ribavirin for 12 weeks, resulted in overall cure rates of 90% in genotype 1, 4, 5, and 6 in effective patients.

In these pivotal studies, there was no evidence of resistance development and Sofosbuvir was safe and well tolerated. Hepatitis C represents a sizable opportunity in Asia, particularly Japan. Our decision to establish a Gilead presence in Japan has resulted in a hiring process for General Manager and other staff.

I’m pleased to report that we now have agreement with the Japanese regulatory agency PMDA to begin Sofosbuvir plus ribavirin Phase 3 study in genotype 2 affected patients, which represents an unmet medical need of over 200,000 individuals. This single arm study will begin in this quarter, and we’ll evaluate a 12-week treatment durations.

Discussions about study designs for genotype 1 patients are still on going with PMDA. Norbert will now provide you an update on some of our other development programs including the Sofosbuvir/ledipasvir to fix those combination for Hepatitis C virus. Norbert?

Norbert W. Bischofberger

Thank you, John. Before I elaborate on some of our development programs, I would like to provide a few comments on the complete response letters on Elvitegravir and Cobi that we received from FDA last week. These complete response letters arose out of an FDA pre-approval inspection for Cobi and Elvitegravir of our Foster City site. In Foster City, we perform analytical method development and validation, stability testing, and management of the contract manufacturers for all our products.

This in Spectrum, focused on the works that supported the NDAs for Elvitegravir and Cobi and on general GMP. The 483 that was issued noted deficiencies in test methods, specification of instruments used, laboratory records, control and test procedures, stability testing, and laboratory controllers.

The 483 observations are specifically related to Elvitegravir, Cobi and Stribild, Complera, Atripla, and Truvada. We will assist the potential impact of any of these observations and it will find the potential impact, we’re confident that we can address the issue successfully.

Multiple R&D programs are advancing across all our therapeutic areas. We know that it’s been studied for type 2 diabetes and as an adjunct to percutaneous coronary intervention in four Phase 3 studies. Idelalisib is being evaluated in five Phase 3 studies in CLL and indolent iNHL, a number of presentations on Idelalisib have been accepted to the upcoming ASCO Meeting in Chicago later this month, including data on upfront European CLL.

In addition, we have now completed the initial analysis of study l01-09, which is a single arm study of Idelalisib in 125 indolent iNHL patients, refractory to both CD-20 antibody and alkylator therapy, and this analysis includes a central review of the CT scans to access efficacy. The safety data response rates and duration of response from this study will be presented as a late breaker at the upcoming 11 th Conference on Malignant Lymphoma in Lugano, Switzerland in June.

Simtuzumab, the first biologics product candidate is being evaluated for its potential utility in liver fibrosis, pulmonary fibrosis, myelofibrosis and two solid tumors. We did have a disappointed result in our respiratory area. Cayston was evaluated in two separate Phase III studies as a treatment for gram-negative infections in non-cystic fibrosis bronchitis. The primary end point was a patient reported outcome measure. One study unfortunately missed its primary end point and the other study showed a statistically significant, but not clinically meaningful effect. Consequently we will discontinue further development of Cayston for bronchitis.

As John indicated, sofosbuvir proceeded rapidly in development resulting in regulatory submission in U.S. and European Union in April at the same time rapid progress was also made with the fixed dose combination of sofosbuvir and ledipasvir our NS5A inhibitor. We now have two Phase III studies ongoing in genotype 1 infected patients, ION-1 and ION-2. ION-1 evaluates the fixed dose combination with and without Ribavirin for 12 and 24 weeks in 800 treatment naïve patients, 20% of whom had cirrhosis.

In this study, enrollment was initially limited to 200 of the 800 brain patients in order to conduct an interim analysis. In March the Data and Safety Monitoring reviewed SVR-4 data on the 100 patients from the 12-week treatment arms and safety data from all 200 patients, based on the observation that the SVR-4 rate exceeded the predefined threshold of 60% and there was no safety issues of concern, the Data Safety Monitoring Board recommended continuation of enrollment.

Screening for ION-1 finished last week, and enrollment of all 800 patients should be complete by the end of this month. In ION-2, treatment experienced patients are randomized to one of four arms to receive the fixed dose combination with and without Ribavirin for 24 weeks and with Ribavirin for 12 weeks. Two of the arms are identical, that is 24 weeks of treatment without Ribavirin. The protocol specified however that one of these 24-week arms could be converted to a 12-week arm, if supported by Phase II data from a cohort in the LONESTAR study.

That LONESTAR cohort included 40 genotype 1 HCV infected patients, who had previously failed protease from tanning peg/riba regimen and importantly, 22 of these 40 patients have cirrhosis. 19 of the 40 patients were treated with the fixed dose combination without Ribavirin and 21 patients were treated with fixed dose combination with Ribavirin, both for 12 weeks.

As outlined in the press release issued this morning, 38 of the 40 treatment experienced patients are 95% achieved in SVR-4, once cirrhotic patient in the sofosbuvir, ledipasvir are in relapse and one patient in the sofosbuvir, ledipasvir, ribavirin arm was last to follow up. This result allowed for modification of one of the 24 weeks, fixed dose arm of ION-2 and ION-2 is now like ION-1, a four-arm study of sofosbuvir/ledipasvir fixed-dose combination with and without ribavirin for 12 weeks and 24 weeks. And ION-2 is now fully enrolled.

Finally, as we also announced in today’s press release, the initiation of a Phase 3 study ION-3. The rationale for this study is based on data from another three cohorts in the LONESTAR study, which compared sofosbuvir/ledipasvir fixed-dose combination dose for 12 weeks to fixed dose combination with and without ribavirin dose for only 8 weeks. In this study, 40 of 41 patients in the 8 week arms achieved an SVR8 with one patient relapsing in the non-ribavirin containing arm.

ION-3 will be an open-label, randomized, three arm non-inferiority study comparing to fixed-dose combination dose for 12 weeks to the fixed-dose combination with and without ribavirin dose for 8 weeks in genotype 1 infected treatment-naïve, non-cirrhotic patients.

If these LONESTAR data are confirmed in this larger study, this would significantly advance patient care by providing high SVR rates with the use of a single tablet regimen or the sofosbuvir/ledipasvir fixed-dose combination with ribavarin with only 8 weeks of therapy. The Phase 3 program evaluating sofosbuvir/ledipasvir is ongoing and we’re on track to submit regulatory filings within one year of the sofosbuvir submissions.

In summary, we’re making rapid progress in the development of simple, short and all of therapies and real excited to bring these new treatments to the patients. I will now open the call for Q&A. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Geoff Meacham with JPMorgan. Please proceed.

Geoffrey Meacham – JPMorgan

Hi good afternoon guys. Thanks for taking my question and congrats on the LONESTAR data. I have one question two-part, one for Kevin since COMPLERA and STRIBILD are becoming more meaningful, is there anything you can speak to in terms of the mix of purchases by ADAP and other bulk. And then the second part of the single question is LONESTAR for Norbert, any notable on the safety side or on the one relapse in the age decline? Thanks.

Kevin Young

Good afternoon Geoff, it’s Kevin here. As described by Robin and as we said out front in our fourth quarter results, we did have significant purchase ahead of demand at year end and that’s reflected in our performance in the first quarter. Now of course, these purchases that’s sub-hosting a level, sometimes smaller wholesalers AGAP VA, tend to favor the very high volume antiviral products. So primarily Truvada followed by Atripla and some Viread. So you can see there was less effects and extremely good growth in our new single-tablet regimen as you point out, Complera and Stribild. But when people typically buy-in whether that be commercial buyers or whether that be federal buyers, they typically go for the large volume items that move very quickly. And hence that’s, first and foremost, Truvada and secondly, Atripla.

Unidentified Company Representative

So, Jeff, with regards to the other question, there was nothing really remarkable about safety. I think you know in the placebo control study of sofosbuvir, there was really – the safety was very similar to placebo and adding 585 to that doesn’t change it in anyway. The other thing you asked is there anything remarkable, the answer is no, we just had one relapse. But I have you tell you, I again have to emphasize, this is in my mind the first time that in oral regimen is tested in a severely difficult to treat population, we have both previous PI failures and cirrhotic patients 22 of them and if you just look at that cohort 12 weeks of treatment with or without ribavirin cured 20 of them. One was is a relapse and one was lost to follow up. So it’s 21 out of 22 or 20 out of 22 depending on how you count. It’s pretty remarkable.

Geoffrey Meacham – JPMorgan

Okay. Thank you.

Operator

Your next question comes from the line of Mark Schoenebaum with ISI Group. Please proceed.

Wesley Nurss – ISI Group

Hey, everyone. This is Wes sitting in for Mark. I have two commercial questions. The first one is, how many patients do you estimate both in the U.S. as well as developed Europe that are diagnosed and under the active care of HCV treating physician today? And my second question is when you initially launched Sofosbuvir, you will have the indications in the G1 population for 7977 plus peg/riba, what’s your view on the uptake and do you expect patients to wait for the orals or do you suspect that uptick for this regimen will be fast? Thank you.

Kevin Young

Hey, Wes, it’s Kevin here. Thanks for the questions. We’re still honing the number of patients currently under care from active HCV treatise and I think that’s something that as we get towards launch that we can talk a little bit more about. It’s obviously a very, very key figure. I think we’re going to able to get that with some more data that we’re collecting. There isn’t a really high quality database in HCV like we’ve had for a number of years with (inaudible) it’s called in HIV and we are working quite hard to try and develop that. So we want to make sure the quality of the data is good before we really firm up that number. In terms of launching, the nice thing is that we’re going to be able to launch Sofosbuvir with either riba or peg/riba in three genotypes. I think there maybe some opinion leaders who are really on the cusp and particularly involved in the clinical studies who might wait for the all oral. But our sense is that 12 weeks with interferon is a great step change to what they have today. And I think we expect the physicians will get on and treat their patients particularly when the need is high, when they have more advanced disease. So we certainly think that, that 12-weeks with PEG-riba is very attractive and we’re going to be fully promoting them as well. So it’s not as though Gilead is going to be holding back at all.

Norbert W. Bischofberger

Mark, I would like to add something, we talked obviously to a lot of KOLs, people that treat a lot of hepatitis C patients, and they told us when we ask the patients, they will tell you that 12-weeks is very acceptable to them, whereas if you would tell them, it’s 24 or possibly depending on what response that it’s still be even 48 weeks, that’s a lot less emotionally acceptable.

Wesley Nurss – ISI Group

Appreciate it, thank you.

Operator

Your next question comes from the line of Matt Roden with UBS Securities. Please proceed.

Matthew Roden – UBS Securities

Thanks very much for taking my question, and congrats on the LONESTAR. So first just a question on duration of therapy, in addition to these 8-week duration data amongst, you also have a six-week arm of electron, but we’re talking about moving into Phase III with this 8-week duration. Have you seen the data from electrons that’s considered as part of the plan? And then related for John, should we expect to see any compassionate use programs for Sofosbuvir in Europe, if so what would a reasonable timeframe?

Norbert W. Bischofberger

Yeah. So Matt, I’ll answer the first question, those data were still emerging, but the reason why we feel comfortable that 8-weeks is probably the lower limit for particular discombination, ledipasvir comes number one modeling studies that we ourselves have done in the quantum energy. You may remember that was a study that was interrupted kind of in the middle and some people had reached 6 weeks, others had 9 weeks. And clearly, if you model that, and all the biodynamics, it’s easily admissible that 8-weeks is the limit and the other things. This was independently confirmed. There was a paper end of last year by posts, very interesting. He came to the same conclusion that eight weeks is probably the limit. You may have also seen there was another presentation by [epochl.com], they modeled their own regimen they came to the conclusion that 12 weeks is probably the limit.

John F. Milligan

Matt, it’s John F. Milligan. You asked about compassion. You said I think they take that three year up. So now that the FDA filing is in, the DMA filings is in we are going to open up some compassion used for example, we will be opening up an ATU program in France. And this will be restricted to patients with very high unmet medical needs; those are in prior or post transplantation situations. And there’s limited compassion and access for people who have that similar needs in other countries as well. So we’ll be limited, but it will be available for patients who really severely need the drug.

Norbert W. Bischofberger

Thanks and congrats on all the progress.

John F. Milligan

Thanks.

Operator

Your next question comes from the line of Rachel McMinn with Bank of America, Merrill Lynch. Please go ahead.

Rachel McMinn – Bank of America Merrill Lynch

Thanks. I wanted to follow up on the aid we’ve seen as well. I mean I think most physicians would argue that ribavarin, if it needs to be in there is not attractive throughout the 12 on top of this and 12 regressions that would be preferred rather than shortening therapy with riba. Do you have any plans to throw in, a third DAA and I guess what would that be, are we looking at 5A16 or 9669? And then just a quick financial, could you quantify the VA, lack of purchasing and how we should we think about that and is that coming in 2Q for example? Thank you.

Unidentified Company Representative

So Rachel, I’ll answer the first question. That’s exactly what we’re doing. So we have once co-redundant in (inaudible) a bit softer year, Ledipasvir, ribavarin six weeks and we plan doing an additional cohorts in LONESTAR to look, essentially six weeks of replacing ribavirin in this triple combination, that’s…

Rachel McMinn – Bank of America Merrill Lynch

What are you replacing?

Unidentified Company Representative

With 9669. 5885 is 5816 is a little bit behind (inaudible) in the second half of this year.

Unidentified Company Representative

On your question about the VA, just to take one step back VA purchased through our major wholesalers, obviously the major wholesalers we have inventory management agreements, and in both the fourth quarter and first quarter we stayed within those inventory management agreements, but of course we don’t control anything below the major wholesalers, hence the variable VA purchase. In terms of the fourth quarter, it was very sizable well on the way to be almost a double quarter. I don’t know whether they were buying because they were worried about 2013, and they all of the budget worries, but certainly it was a very sizable purchase.

There has been some purchase, but absolutely it’s a minimal level in the first quarter and I think we would expect to go back second and third quarter although we don’t know, but I think we would expect to go back to normality now, fourth and first quarter would kind of almost even out. Typically, we get every quarter central purchase, and then we also get regional purchase from the mail order centers divisions from VA. So I think our general sense is that normality would come back as we move through the year.

Operator

Okay. Thank you. Your next question comes from the line of Yaron Werber with Citi. Please proceed.

Yaron Werber – Citigroup

Hey, thanks for taking my question. Honestly, congrats on the fantastic LONESTAR data. So, Norbert, I have a question for you and I’m going to sneak in if you don’t mind another kind of broader picture question, but just to understand, IM3, what’s the non-inferiority margin that you’re looking for in the powering between the 8-week and the 12-week? And then I have a kind of a broader Hep-C question, Hep-C commercial question.

Norbert W. Bischofberger

So Yaron, just to be clear, it’s actually a three-step comparison and this is statistically gated analysis, the first comparison is you’ve compared to 12-week on to a historically control of 60% and the assumption is going to be superior. If that’s the case, you do the second comparison 12-week versus the two 8-weeks, the margin is 8% and the third comparison is the (inaudible) as you’ll remember what margin they were. So it’s called a gated step-wise statistical analysis approach. And again the assumption is we’re going to beat the 60% is going on control.

Yaron Werber – Citigroup

Okay, and then a kind of a bigger question is if you looked at about 85,000 patients who were treated in 2012 by our estimates with Incivek and Victrelis globally in genotype 1 alone. So one would imagine, based on all the doc checks, that you guys are going to replace that pretty quickly and then grow into genotype 2-3, which is another about 30% expansion to the market. I mean so – do you think there’s enough capacity and can you really get sort of over 100,000 patients that quickly?

Kevin Young

Hey, Yaron, it’s Kevin. So let me go back a little bit historically. So in heyday of PEG-Intron and Pegasys, there was something close to about 150,000 patients treated per year in the U.S. that’s our Gilead estimation. Pre the introduction of the new purchases that drop down into about the 60,000 level, as you say, it’s kickback up, we think in totality it’s about 100,000 when you think about old genotypes and old treatment approaches in 2012. And we think it can head back to that [circa] 150,000 level once we’ve had the new agents, not just Gilead’s, but all the new agents onto the market and we certainly think, because historically Europe at 150,000 that there is the capacity there. We’re going to be taking GS-7977 not only to current HCV prescribers, but we are going to be try to broaden that into the more general gastro and of course into some of the physicians in the infectious disease setting. So I think it’s reasonable to presume that we can certainly go back to the levels of treating patients with that at the top of the pegylated interferon treatment days.

Yaron Werber – Citigroup

Thank you.

Operator

Your next question comes from the line of Michael Yee with RBC Capital Markets. Please proceed

Michael J. Yee – RBC Capital Markets LLC

Hey, thanks. A question on some of the details around the 43, maybe you could just give us some comfort about why you’re so confident there will be no issue there, and more importantly, whether or not you can still get approval for drugs such as [cystoscopy] or even with outstanding are they manufactured at the same site et cetera, just a little more comfort there.

And then, on the ION-3, you said you have this non-inferiority margins. Presumably if they’re replicated of LONESTAR, which was about 5% margin, I mean, do you file all that and they approved both 8 and 12 week regimens and how would that impact when you’re thinking about utilization.

Unidentified Company Representative

Yes, it makes a lot of confront around the (inaudible) really comes from the fact that we look the details of the 483’s diesel, all things we can take care of, it’s going to be some work and some effort of course. But people have been working actually 24/7 since the FDA inspection started. So I have great comfort that we will overcome this little setback and you don’t know…?

Unidentified Company Representative

Regarding the 8 versus 1, so what exactly the package that we’re going to file to (inaudible) is going to look like the paint really on the how fast we can (inaudible) this study. At this point, I can’t tell you what the weight limiting study as it could be IM1 that has a 24 week treatment depending on how fast it involves. So if the – our overall goal would be to (inaudible) tool, lining 3, at the same time – I think it will be a great example as it has an eight weeks data in the later, so we can promote them and price them accordingly.

Michael J. Yee – RBC Capital Markets LLC

Okay, can you just confirm that you can get drugs approved even with a 43 outstanding or you just – okay.

Unidentified Company Representative

That’s slightly in…

Operator

Thanks. Your next question comes from Geoffrey Porges from Bernstein. Please proceed.

Geoffrey Porges – Sanford Bernstein

Thanks very much for taking the question and also congratulations. So venturing the dangerous territory here and how is carrier thinking about the economic value of Sofosbuvir. You now have a lot of evidence that, you add those end profile, it’s much lower from an existing therapy. The treatment duration is shorter and your efficacy is higher. How much should we be thinking about pricing being referential to the existing products and how much should we be thinking about it being based on the overall value that encompasses the savings and cost from reduced management of (inaudible) and the savings and cost in terms of the cost of cures. Where on that spectrum should we be thinking about it.

Kevin Young

Hey, Jeff, it’s Kevin. As you can imagine, I can’t get too specific on the direction of the question.

Geoffrey Porges – Sanford Bernstein

Are you sure about that?

Kevin Young

We’ve got a lot of considerations, I think actually a lot of good considerations to go through in our pricing descriptions here being ready for launch. Obviously, there is the spread from (inaudible) today just on its on $60,000 and then obviously up to circa $90,000 when you add in peg/riba certainly for the genotype 1. So we’ve got – we’ve got to consider that. We got to consider Europe versus the U.S. and then with our latest news and of course is just phase 2 data, we wanted reproduced in phase 3. We’ve got the additional very exciting possibility of an 8 week treatment course. So we’re going to take all of those into consideration. I can’t really be anymore specific than that, but pretty exciting alternatives that we’ve got there.

Geoffrey Porges – Sanford Bernstein

Okay. Thank you. Well, try and pass those comments carefully.

Operator

Your next question comes from the line of Brian Abraham with Wells Fargo. Please proceed.

Brian Abrahams – Wells Fargo Securities LLC

Hi, thanks for taking my question and my congrats on LONESTAR data as well. Obviously LONESTAR was done at a single standard, just wondering how well you think the patients here represent the broader population, any differences to what you might see from the multi-center U.S. study. And then just real quick, do you think 7077 will be discussed at an FDA panel? Thanks.

Unidentified Company Representative

Yeah, so, Brian, I think that the LONESTAR population is very represent of it top to U.S.. Actually if we look at things like BMI raise, CC, it’s genotype, it’s actually a little bit tougher, I think we will get somewhat of an easier population actually in a larger Phase III study. Also again, I have to say that the population that was in the cirrhotics, that’s just a really difficult to treat previous the (inaudible) mostly and probably, I don’t know the genotype, but I am sure it’s mostly TTs or CTs. And cirrhosis it can’t get any more difficult than that. And the other (inaudible) question?

Brian Abrahams – Wells Fargo Securities LLC

The FDA panel for 7077?

Unidentified Company Representative

So we might have an – well, it’s not of course we haven’t been informed about it or anything, you might have seen it’s public information there is one schedule demand of our Advisory Committee meeting end of October (inaudible), and typically no wouldn’t be surprised, if we have one because it’s the first TAF compound but again we know at this point whether it will move apart.

Brian Abrahams – Wells Fargo Securities LLC

Thanks.

Operator

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank. Please proceed.

Robyn Karnauskas – Deutsche Bank

Hi, guys. Thanks for taking my question and again congrats on all the positive happy news. I guess I wanted to ask about HIV, so a couple of things, just how do we think about modeling HIV given Stribild and Complera are doing so well. And specifically you have some slides that talk about switching from your current products, how much of the Truvada decline this quarter was due to switching? How do we think about the study run rate, and then how do we think about Stribild and Complera,? How much uptake are those drugs having amongst ADAP and VA given those areas are price sensitive. Thanks.

Unidentified Company Representative

Well, good question, Robin, I will try and break it down a little bit. We are pleased with the progress of Complera and Stribild, nearly $200 million in the quarter was really great progress. One thing that wasn’t in the script, Complera is now the number two regimen of all regimen, so number one is, Atripla, and number two is now Complera, which is pretty impressive.

Actually Eviplera is the number three regimen in new patients in our early launch markets of the UK, France, and Germany, so we’re very pleased with how these new STRs are coming through. And as you say, they have an effect on the mix of our HIV problem specifically Truvada and Atripla.

We are seeing as you can see from the pie chart some switch from Atripla particular with Complera, because that’s an NNRTI switch. And I think about Stribild is, I think really for the first time we are starting to see a conversion of the protease inhibitor market, and I would say probably that’s the older protease inhibitors, but I think you’re now starting to see us trend away from the protease inhibitor products.

I should add that, we don’t have a switch label we promote Complera and Stribild for new patients, but you can see that about two-thirds of patients are coming from Switch. So I think there will be a gradual kind of takedown of Atripla, but probably a little bit more of a steeper conversion of the Truvada patients, because Truvada is used a lot with the protease inhibitor, and the Integrase inhibitor, the integrity of patients. So you can see that conversion going as well.

Robyn Karnauskas – Deutsche Bank

Great. And the ADAPs and the Vas as far as their interested in these more defensive drugs?

Unidentified Company Representative

Yeah, I mean we’ve got complete coverage of both COMPLERA and STRIBILD. STRIBILD was very quick after launch in an ADAP which now got freedom to using the VA actually was recently out on a field visit in the VA, in the VA center. What’s nice about STRIBILD in the VA is that protease inhibitors are often being used quite extensively because of the cycle social complications of the veteran patients. So we’d would like to think that STRIBILD would do quite well in offsetting.

Robyn Karnauskas – Deutsche Bank

Thank you.

Operator

Your next question comes from the line of Marshall Urist with Morgan Stanley. Please proceed.

Marshall Urist – Morgan Stanley

Hey guys, thanks for taking the question. So first just for Norbert, we’ll love to hear you’re your thoughts – a few more thoughts on the LONESTAR subset that you mentioned and get your thoughts on whether or not that data suggest that you’re going to need riba in that patient population and kind of what – how the cirrhotic fell out, I guess 22 cirrhotic you said fell out between the two arms. And then just related to that on oncology, when could we hear about whether or not your thoughts on the kind of regulatory quality of the data and whether or not this might offer an accelerated approval path. Thanks.

Norbert W. Bischofberger

So Marshall, it’s really what – I have to say we’re very excited about the data and on the other hand all that you have say is, it’s more numbers. And that’s the reason why we’re repeating the drugs study in the bigger, larger 600 patients and clearly we would have to do a larger study in cirrhotic patients that we’ve answered a question to ribavirin or not. As I said we have one single rate (inaudible) and that was on ribavirin continuing on, but you can’t really make any conclusion on the name of one. And secondly, so the data that we’re seeing on Idelalisib is encouraging, but as you might expect, it’s still emerging particularly the duration of response data it’s a capital admire approach and of course the longer you follow patients the more clearer it becomes what the duration of respond is, but we will initiate a process if the data continued to look good to talk to regulatory authorities about the acceptability of the volume. We will do that again if the data holds up.

Marshall Urist – Morgan Stanley

Right, thank you.

Operator

Your next question comes from the line of the Phil Nadeau with Cowen & Company. Please proceed.

Phil Nadeau – Cowen & Company

Good afternoon and thanks for taking my question, I was wondering, if you can give us an update on the dispute with Roche over Sofosbuvir. In particular, in the commercialization agreement that was or the development agreement that was signed between Pharmasset and Roche, it provided for arbitration as the means for settling the dispute. Could you give us some sense when arbitration could start in this manner? Thank you.

John F. Milligan, PhD

Hi Phil, it’s John Milligan, yeah, so you’re right there was arbitration clause in that agreement, which is why we’re – the dispute is being held under arbitration. It’s a little bit difficult to predict when it’s going to start for the arbitrators themselves. We’ll have to set the final schedule for arbitration depending on their personal schedule and various other things. We do think it’s unlikely that a decision in this arbitration would be reached in 2013, but beyond that, I can’t give you any further guidance on the process.

Phil Nadeau – Cowen & Company

John, have you gone through arbitration? I don’t know that that’s ever been officially confirmed. Have the two parties now agreed to identify some arbitrators?

John C. Martin

Yes.

Phil Nadeau – Cowen & Company

Okay, thank you.

Operator

Your next question comes from the line of Jim Birchenough with BMO Capital. Please proceed.

Jim Birchenough – BMO Capital Markets

Yeah, hi, guys. So two questions; one, just on the HCV market dynamics, can you talk about whether you’ve got any initiatives currently to try and broaden the treatable population either in terms of identifying patients who are not diagnosed or providing access to patients who are indigent or do not have good access to care? Second question just on the oncology side of it, any comments on the combination of PI3 kinase inhibitor with the Syk inhibitor, some enthusiasm in the clinical community and just wondering when we might see some data from that program and whether you may be excited about that more than the single agent PI3 kinase inhibitor? Thanks.

Kevin Young

Hi, Jim, it’s Kevin here. No, we’re not doing anything active, if you like, in the external market at the moment. We are concentrating on all our planning around building our field force and then activities, educational activities in and around the launch, so that’s really where our focus is. There maybe options for us immediately pre-launch, but I think we are a great believer at Gilead that if you have very high quality day turn, you have a good package inserts, then you are in good shape to educate at the time of launch and always when you get our approval, so all our work right now is internal to the company.

John C. Martin

And, Jim, regarding the (inaudible) great combinations, you are right, there is a lot of excitement in the scientific medical community, it comes from an in vitro study, where it was really spectacular, if you add one and the other and two together, that two together are highly synergetic. So what we’re doing right now in a Phase II study, we’re establishing the activity of the Syk inhibitor in various piece of malignancies. And once we have seen that these sick inhibitor itself works and remember this has been shown by other companies that Syk inhibition does work against Billion cell, and I believe just a combination of idol in this Syk inhibitor. And the timeframe is sometime, I don’t think we will give you not much this year, but sometime next year.

Operator

And…

John C. Martin

Thanks go ahead.

Operator

Your next question comes from the line Jason Kolbert with Maxim Group. Please proceed.

Jason Kolbert – Maxim Group

Hi, guys. Thank you so much and congratulations on the data. Can you expand a little bit on what the plan is exactly for Japan now that Gilead is making the decision to do with themselves. And help me understand how you be go through the clinical trial processes at MOHW, do you use harmonization approach utilizing U.S. and EU data? Thank you.

John C. Martin

Yeah, hi, Jason. So as you know or may know about 25% roughly of the Hepatitis C invite the patients in Japan on genotype 2. And we have now agreement based on the very high response rates we have seen in genotype 2 and on 3 studies. cirrhotics and non-cirrhotic do a simple, single arm study in Japan of 12 weeks durations of sofosbuvir and ribavirin. We have done the PK bridging study already, and so we have agreement that study should initiate in this quarter. So it’s a very simple approach. We are still talking to the regulatory authorities about the process in genotype 1. But this is what we’re going to do in genotype 2. I would like to point out one other thing is that we really don’t have any competition in genotype 2. There is no other interferon-free regimen either available or in advanced clinical development for Japan.

Kevin Young

And I’d just add, Jason, in terms of building out our operating affiliate, the good thing here is that it will be a very targeted operation. We don’t intend taking our HIV products back. We have a very good partnership right now with Japan Tobacco we are going to continue that run into the future. So this is going to be a very specific build out, first and foremost, the hepatitis C launch and then of course we’ll have a wonderful opportunity to add our oncology products on to that, because all of those will be available to launch Gilead in the Japanese market.

Operator

Your next question comes from the line of Ravi Mehrotra with Credit Suisse. Please proceed.

Ravi Mehrotra – Credit Suisse Securities LLC

Hi, thanks for taking my question, and this one is for you, Kevin. Goes back to the comments you were making about the 150,000 patients. You’ve historically seen max out in the ACV market, which I guess was 99, 2003. Was that because of the treatment infrastructure and the requirements of a interferon base regimen or was that 150,000 because there is just demand for 150,000 and there was capacity for more if needed?

Kevin Young

It’s a good question, Ravi. I think it’s a bit of both. There certainly was, I think, the treated capacity there, the physician willingness, the physician number and the ability in terms of timing that practice to do it. If you look at the slope that eventually gets to the (inaudible) which is 2010 before the two new protease came out, it’s fairly steep and I think that demonstrates the challenges around delivering 24 to 48 weeks of interferon. I do think the practices got kind of used to it as we know many patients couldn’t either start or indeed just couldn’t do it even by motivated patients. So I think I do believe the capacity is there. I think the current standard at the time just became too much of a burden.

Ravi Mehrotra – Credit Suisse Securities LLC

Thank you.

Operator

Your next question comes from the line of Terence Flynn with Goldman Sachs. Please proceed.

Terence Flynn – Goldman Sachs & Co.

Hi, thanks for taking the questions. Just first I was wondering there was some discussion at EASL about mixing and matching the various DAAs starting in 2014 in the G1 population. I was just wondering how you guys think about that and as we think about 2014 numbers for sofo. And then the second question, just any update on the second phase II trial of TAF with Prezista, when we might see data there? Thank you.

Kevin Young

Hey, Terence, it’s Kevin. I think it’s beyond us to predict what physicians will do when there are a number of alternatives, obviously, we’ll be promoting according to our label with pegylated interferon and ribavirin 1 and then in twos and threes just with ribavirin. The one sort of experienced comment I would give you is, I do think it tends to be the opinion leaders who might experiment. Obviously, again, as I said earlier, they are on the cutting edge and they often worked with several of the compounds in development. So I think if there is any mix or matching of agents, I think it will be primarily in the tier centers, lessen the general gastro office.

Unidentified Company Representative

In terms of regarding their second Phase II study that’s six months behind the first study and the reason is as you mean – if you use integrated inhibitors, the time to undertake stability is extremely fast, whereas if you use proteins, it takes much longer. You can’t use it 24 week end point beaches people who have not have reached undetectable yet, they really have to go out to 48 weeks. Why that is, I don’t know. But that’s the observation.

Terence Flynn – Goldman Sachs & Co.

Great, thanks.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann. Please proceed.

Howard Liang – Leerink Swann LLC

Oh, thanks very much. I have a specific question about a study that was referenced in some of the usual presentation; I mean it’s called the Waylan’s Study for genotype 3, 24 weeks of ribavarin or 12 weeks of sofosbuvir/ribavirin and type interferon. Can you confirm that this study is ongoing and when we will get data?

Unidentified Company Representative

Yes. So we have a cohort done October – the name of it is – what did you say the name is?

Unidentified Company Representative

Waylon’s.

Unidentified Company Representative

Waylon’s, yeah I absolutely know it. And so Waylon’s is actually a different study. Waylon’s is exactly, in phenotype 2 that uses so fast, that be ribavirin, even for 12 weeks in genotype 2 and 24 weeks in genotype 3. But we have another study ongoing with Eric Lawitz. I think it’s called [low start] 2, if I’m not mistaken and that study will actually look at pink, Riba, sofosbuvir for 12 weeks in phenotype 2 and 3. And I have to look up what the – so the Waylan’s data should become available sometime later this year and the LONESTAR tool data (inaudible) I don’t know what the exact timelines are.

Operator

Your next question comes from the line of Josh Schimmer with Lazard Capital Markets. Please proceed.

Josh E. Schimmer – Lazard Capital Markets LLC

Thanks. Good afternoon. I appreciate you taking the question. If there is an FDA panel on sofosbuvir, what are your expectations for the topics that would likely be discussed there? Thanks.

Unidentified Company Representative

Well, so Josh, obviously we asked this to ourselves and after thinking about it we always come to the conclusion there is no need for a panel, but if you – since you asked me the question, I think the real only open question that one can debate is what’s the optimal treatment duration in genotype 3. It’s not 12 weeks. It’s probably more. It’s 16 weeks and it’s even more than that. Unfortunately, the data that we’ll have to support anything other than 12 weeks or 16 weeks will be limited to none. So that’s the only thing I can really think of, and maybe there was even some other discussion about specific labeling, you know what recommendation do you make into label for somebody who is genotype 3 and say all these things like that.

Unidentified Company Representative

Yeah, I’d also as a non-scientist might add Norbert that there could well be some discussions well around specific populations like the current infected like the liver transplant patient as well. Yeah, I’ve mentioned that will be of a great interest to the (inaudible).

Josh E. Schimmer – Lazard Capital Markets LLC

Great. Thank you very much.

Operator

Mr. O'Brien, we have time for one more question, comes from the line of Thomas Wei of Jefferies & Company. Please proceed.

Thomas A. Wei – Jefferies LLC

Thanks for squeezing me in. I just had a question on capacity and a question on price. On capacity with the 150,000 I guess, we're on a line thinking why couldn't it be way over 150,000? Who could it not be multiple folds when the treatment duration is going from what was 48 weeks at that time with difficult to manage regimens here 8 weeks of simple oral centric patient away type regimen. And then on pricing, I wanted to find out when you've looked at the average all-in cost of treatment with the current PI regimens and include things like number of physician visits and EPO use and management of the rash, and et cetera, et cetera, what does the $90,000 cost go to?

John F. Milligan

Well, I’m going to probably disappoint you Thomas, I’m afraid on both accounts. I mean you asked a question why, and I think it’s the question we ask ourselves as well, and it’s very, very difficult to pin that down.

I think a good rule of thumb to start is that 150,000 patients. Just where it might go north of that, I think is quite difficult to estimate. In terms of, do you go beyond into levels of pricing beyond 90,000, again we’ll have to – we’re going to think very carefully about this. I think there was some interesting work in EASL, one from the NRC Group and then you have some work from Dr. Dieterich in New York who even went as far up to I think $195,000 all in when you think about all of the supportive care that's currently used.

I think that's an incredible extreme and I wouldn't at all guide you to that level. We just want to find a place that warrants the break through nature of 7977 whilst balances, the views of the payor, we’ve got to take those into account that we treat as many patients as possible and it’s finding the happy medium.

Thomas A. Wei – Jefferies LLC

Thanks, that’s very helpful.

Operator

Your next question comes from the line Alan Carr with Needham & Co. Please proceed.

Alan Carr – Needham & Co.

(Inaudible) what your sense of growth in the number of diagnosed HCV patients in an annual basis and how much is – how much of an impact is both CDC recommendations or screening baby boomers head, and I was also wondering if you can give us an update on that pan-genotypic effort with 5816, when that might start and then finish with phase 2? Thanks.

Unidentified Company Representative

Alan, I think we probably think about the proxy of HIV and you’ve got to take general recommendations kind of a CDC level or NIH level. They’ve got to work their way down into the real office situation. So I think it’s going to take a while for them to become common practices as we’ve seen with testing for HIV. I do think one thing that will be helpful when we launched and a number of other companies are bringing new products to markets is I think the general news about the opportunity to cure HCV will get out there and I think that’s going to raise the awareness and I think that’s probably going to have a mobilizing effect on certain patient categories to be asking around having their HCV treated. So, I think there is some opportunities, but generally we find that it’s a gradual effect to transfer a federal guidance into real life office mechanics.

John C. Martin

And Norbert, the second part with the pan-genotypic…?

Norbert W. Bischofberger

The GS-5816, yeah, so, you may know we have presented two posters at EASL; one on human PK and one under virology. So it’s a very nice comp and it’s currently in Phase 2a, single-dose, single-agent viral dynamic study in various genotypes and we can initiate the larger Phase 2 study in the fall or in the second half focusing, of course, on genotype 3, because that right now seems to be the only suboptimally addressed genotype really within our efforts.

Alan Carr – Needham & Co.

Okay. Thanks very much.

Operator

And at this time we do have one final question in queue. It comes from the line of Joel Sendek with Stifel Nicolaus. Please proceed.

Joel D. Sendek – Stifel, Nicolaus & Co., Inc.

I wanted to follow-up on what you just said, Norbert. I mean, do you have any plans in place to do another genotype 3 study to test different combinations, just to get the SVR rate up to where it is with the other genotypes? And then, just quickly on the SG&A’s band for the year; you said it’s going to go up, like up gradually during the year or should we back-end load it? Thanks.

Norbert W. Bischofberger

Yeah, so just to be clear, we’re doing a number of things in genotype 3. So, I mentioned already, we’re going to extend treatment duration with sofosbuvir riba to 24 weeks. We’re also doing a peg/riba sofosbuvir for 12-week regimen and all in various cohorts. And we're also testing right now in ELECTRON in a total of 50 patients the sofosbuvir/ledipasvir fixed-dose combination. Again, based on purely virological consideration, I would expect that that should be suboptimal, but you shouldn't be too smart in this business, you never know. But if that fails, then we would of course do 5816 sofosbuvir fixed-dose combination in genotype 3. I'm sure that will take care of it and we will get response rates that are comparably high to what we're getting right now in genotype 1 with sofosbuvir/ledipasvir. And Robin…

Robin L. Washington

So, Joe, to your second question on SG&A, the biggest component of the increase we anticipate is going to be related to the launch preparation and that would probably be more back-end loaded. There are components, the geographic expansion in Asia, just general infrastructure, just given our growth as well as legal and some bad debt that would be pretty consistent across the remaining three quarters.

Joel D. Sendek – Stifel, Nicolaus & Co., Inc.

Okay, thank you.

Operator

At this time we have exhausted all questions in queue. I would like to hand the conference back over to Mr. O'Brien for closing remarks.

Patrick O'Brien

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 in our future projects. Thanks much.

Operator:

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may now all disconnect. Have a great day.



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