Gilead Sciences, Inc. (GILD) Q2 2013 Earnings Conference Call July 25, 2013 4:30 PM ET
Patrick O'Brien – Vice President-Investor Relations
Robin Washington – Senior Vice President and Chief Financial Officer
John Martin – Chairman and Chief Executive Officer
Norbert Bischofberger – Executive Vice President, Research and Development and Chief Scientific Officer
Kevin Young – Executive Vice President-Commercial Operations
John Milligan - President and Chief Operating Officer
Geoffrey Meacham – JPMorgan
Mark Schoenebaum - ISI Group
Geoffrey Porges - Sanford Bernstein
Matthew Roden – UBS Securities
Rachel McMinn - Bank of America Merrill Lynch
Yaron Werber – Citi
Brian Abrahams – Wells Fargo Securities
Michael Yee - RBC Capital Markets
Robyn Karnauskas - Deutsche Bank
Ian Somaiya – Piper Jaferry
Phil Nadeau - Cowen & Company
Brian Skorney – Robert W. Baird
Howard Liang – Leerink
Terence Flynn – Goldman Sachs
Joel Sendek - Stifel Nicolaus
Jason Kolbert - Maxim Group
Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences Second Quarter 2013 Earnings Conference Call. My name is Phil 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.
Thank you, Phil. Good afternoon, everyone. We issued a press release this afternoon providing earnings results for the second 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 Chief Executive Officer, 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 and 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.
Thank you, Patrick, and thank you all for joining us. We are very pleased with our strong operating results for the second quarter, delivering product sales of $2.7 billion, an increase of 14% year-over-year and 11% sequentially and non-GAAP EPS of $0.50 per share. The U.S. contributed $1.6 billion to product sales, up 20% year-over-year driven by strong underlying demand across all therapeutic areas including the continued uptake of Complera and Stribild, our combined sales grew 11% over the previous quarter.
The launch of Stribild continues to go well. Strong prescription demand was partially offset by a reduction in wholesales inventory levels as Stribild was added to our existing inventory management agreements during the second quarter. Atripla, Complera and Stribild were the number one, two and three most prescribed HIV regimens for treatment naïve patients in the U.S. Overall, major wholesaler inventory levels remain consistent quarter-over-quarter while sub-wholesaler inventories rebounded after a strong -- after a drawdown in the first quarter.
ADAP purchasing was robust in the second quarter and we are encouraged by the recent communications to states for their remaining funding allocation for the 2013 ADAP fiscal year. However, we anticipate a moderating of ADAP purchasing during the second half of 2013, given sequestration and strong purchasing during the first half of the year. Turning to Europe. We executed solidly with product sales of $818 million, up 7% year-over-year excluding the effects of FX. Driven by increased demand and purchasing in advance of the summer holidays.
One quarter following the launch in all big side EU markets as the player uptake continues to expand and is now the second most prescribed regimen for treatment naïve patients. On May 28, the European Commission approved Stribild and we were able to launch in the UK and Germany in the following weeks.
Turning briefly to operating expenses, our combined R&D and SG&A spending were up approximately $70 million quarter over quarter. R&D spending in the first half of the year was driven predominantly by progression of clinical development activities in liver disease in oncology. We anticipate this level of spending to continue in the second half of the year. Additionally, we expect a ramp in SG&A expenses in the second half of the year as we prepare for the anticipated commercial 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 Norbert.
Thank you, Robin. I’m pleased with the rapid progress across all our R&D programs and the high level of productivity. A large number of clinical development candidates are now being advanced from IND to Phase 1, 2 and 3 clinical development. First, a quick update on HIV. The two phase 3 studies evaluating TAF, Gilead’s novel product of Tenofovir are consequently 50% enrolled. These two studies are identical in design, evaluating Stribild through a single tablet regimen of elvitegravir, cobi, emtricitabine and TAF in in treatment naïve for HIV infected patients. We expect to complete enrolment of these two studies by the end of this year.
In our cardiovascular clinical development program, a number of datasets from various Phase 3 clinical tries will mature over the next 12 months, including three studies evaluating the efficacy and safety of Ranolazine in Type 2 diabetes, a study evaluating the use of Ranolazine to decrease the rate of revascularization and hospital readmission following Percutaneous Coronary Intervention, and the ambition study which evaluates the utility of upfront combination therapy for PAH with Letairis and Tadalafil compared to mono-therapy with Letairis or Tadalafil alone. We look forward to sharing these data with you as they become available.
I will focus my remaining remarks on our hematology and hepatitis C development activities. Starting with hepatitis C. New drug applications for Sofosbuvir have now been filed in the United States, Canada, the European Union, Switzerland, Turkey and Australia. We received notification from US FDA that the Sofosbuvir application has been assigned priority review with a PDUFA date of December 8. More recently, we were also informed that Sofosbuvir will be discussed at the Antiviral Drugs Advisory Committee Meeting scheduled for October 25.
Following approximately one year behind the Sofosbuvir single agent is the Sofosbuvir Ledipasvir fixed-dose combination which was granted breakthrough designation by the US Food and Drug Administration. Phase 2 results from the LONESTAR Study reported in a press release on May 2 2013, show that the fixed-dose combination resulted in 100% and 95% SVRs when used for eight weeks with and without ribavirin respectively. And it resulted in 95% cure rates when dosed for 12 weeks in difficult to treat previous protease inhibitor failure patients, half of who have cirrhosis.
The three pivotal studies that will support the marketing authorization applications of the fixed dose combinations in genotype 1 patients, IM-1, IM-2 and IM-3 are now fully enrolled. As a reminder, both IM-1 and IM-2 are identical in design, with four arms comparing 24 weeks of the fixed-dose combination to 12 weeks, each with and without ribavirin. IM-1 is productive in treatment naïve patients and IM-2 in treatment experienced patients. IM-3 is three arm study in treatment naïve patients comparing 12 weeks of the fixed-dose combination to eight weeks of the fixed-dose combination with and without ribavirin. The primary efficacy endpoint in these three SVR12 and the results from ION-2 and ION-3 should be available in the fourth quarter of this year. The SVR12 data from ION-1 is expected to become available in the first quarter of 2014 and thus we are on track to file for regulatory approvals in the second quarter of 2014.
At the last earnings call, we provided an update on our Japan Sofosbuvir development strategy for genotype 2 patients which represent about 25% of the HCV infected patients in Japan. This registrational program entails a single 12-week interferon free study of Sofosbuvir in in combination with ribavirin. And the first patient in this study was dosed just last week. We now also have agreement with the Japanese regulatory authority on a strategy in genotype 1 patients. The pivotal study would be a two arm study of the fixed dose combination with and without ribavirin for 12 weeks. And we plan to enroll the first patient in this study in the fourth quarter of this year.
We have also recently started our Japan office in Tokyo. Gilead Sciences K.K. would be lead our newly appointed President, Mr. [Uji Orihoma]. [Uji] has over 30 years experience in the Japanese pharmaceutical industry previously holding general management positions at Amgen and Teva. We anticipate adding additional staff over the coming months especially in the clinical development area as we execute the Phase 3 studies.
GS-5816 our pan-genotypic NS5A inhibitor is advancing in two Phase 2 studies. One study evaluates 12 weeks of treatment of GS-5816 and Sofosbuvir and in genotype 1 through genotype 6 treatment naïve patients. And the other study evaluates 12 weeks of treatment of GS-5816 and sofosbuvir with and without ribavarin in genotype 3 treatment experienced patients of whom 50% have cirrhosis. Initial data from these two Phase 2 studies are anticipated later this year and based on those results we will make a decision about moving the fixed dose combination of GS-5816 and Sofosbuvir in to Phase III clinical development.
AASLD will be held of November 1 through 5 in Washington DC. Close to 60 abstracts were submitted to this meeting by Gilead or Gilead collaborators. The title of the abstracts will be published in a few weeks from now on the AASLD website. These submissions cover clinical, virology, pharmacodynamic, pharmacoeconomic and health outcomes of Sofosbuvir to Sofosbuvir/ Ledipasvir specific dose combinations and GS-5816 as well as updates on Viread and TAF for hepatitis B. In particular, abstracts of the safety and efficacy of Sofosbuvir and ribavirin in pre-liver transplant, post-liver transplant and HIV co-infected patients are included.
Turning now to oncology. A number of presentations and posters in ASCO further define the profile of Idelalisib in B-cell malignancies. One presentation which was highlighted at an ASCO press briefing, described the efficacy and safety of idelalisib monotherapy in patients with relapsed or refractory CLL. In this study, treatment with idelalisib resulted in deep and durable lymph node responses with a median progression free survival of 17.1 months.
Another presentation was on the combination use of idelalisib and rituximab in elderly treatment naive CLL SLL patients. In this study, the overall response rate was 97% and the Kaplan-Meier estimate of progression-free survival at 24 months was 93%. Importantly, patients with (inaudible), and those with the (inaudible) all responded. In both studies, grade 3 or higher treatment-emergent adverse events or laboratory abnormalities were diarrhea, pneumonia, transaminase elevations and neutropenia.
At the International Conference for Malignant Lymphoma Meeting in Lugano last month, the results from study 101-09 in 125 indolent NHL patients were presented. The patients in this study represent a significant unmet need with few if any treatment options. They were doubly refractory to both rituximab and alkylating-agent. The median number of prior therapies was four and the majority of patients were refractory to the standard regimens and to their last therapeutic regimen. Treatment with idelalisib resulted in an overall response rate of 54%, a median duration of response of 11.9 months and the progression-free survival of 11.4 months.
Responses of broadly similar magnitude were seen across all subgroups, including folicular lymphoma, small cell lymphocytic lymphoma, Waldenström macroglobuminia and marginal zone lymphoma. The main toxicities were diarrhea and transaminase elevations. Five Phase III studies of idelalisib in indolent NHL and CLL are ongoing. One of these studies, study 116 comparing rituximab plus idelalisib to rituximab A plus placebo in relapsed CLL is now close to screening. It will be fully enrolled in August and an event driven interim analysis is anticipated to be conducted in the fourth quarter of this year.
Based on the very encouraging Phase II data in CLL and indolent NHL, particularly study 101-09 in double refractory indolent NHL patients, discussions have been initiated with U.S. FDA and a number of European regulatory agencies. As a result of the feedback received, we intend to file marketing authorization applications for idelalisib as a treatment for indolent NHL in both the U.S. and European Union in the fourth quarter of 2013. The outcome of the interim analysis of study 116 will guide our strategy for pursuing the near term filing for CLL also.
In addition to the clinical studies evaluating idelalisib in England NHL and CLL, GS-9973 a specific inhibitor of idelalisib is being studied for safety and efficacy in patients with relapsed or refractory B-cell malignancies by itself and in combination with idelalisib. GS-9820 and backup PI3K delta inhibitor is in Phase I testing in B-cell malignancies. And our recently acquired JAK 1, 2 inhibitor Momelotinib has been successfully reformulated and we’re currently in discussions with regulatory authorities regarding the specifics of the myelofibrosis Phase 3 program.
In summary, as we move into the second half of the year, we are delighted with the progress on all fronts across Gilead. Our key development programs are making significant progress. Marketing authorization applications for sofosbuvir have been submitted. And we will have a US advisory committee meeting on October 25 and a PDUFA date of December 8. In addition, we're planning on two additional NDA, MAA filings over the next 10 months, one on Idelalisib for indolent MHL in the fourth quarter of this year and one on sofosbuvir sofosbuvir/ledipasvir fixed dose combination in the second quarter of next year.
We will now open the call to questions. Operator?
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