Gilead Sciences Inc

NASDAQ:GILD

Earnings Call Transcript 2017-Q4

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences Fourth Quarter 2017 Earnings Conference Call. My name is Candice 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 Sung Lee, Vice President of Investor Relations. Please go ahead.

[Sung Lee, Gilead Sciences, Inc.]

Thank you, Candice, and good afternoon everyone. Just aftermarket close today, we issued a press release with earnings results for the fourth quarter and full year 2017. The press release and detailed slides are available on the Investor Relations section of the Gilead website.

The speakers on today's call will be John Milligan, President and Chief Executive Officer; Robin Washington, Executive Vice President and Chief Financial Officer, and Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer. Also in the room with us for the Q&A session is Andrew Chang, Executive Vice President, Clinical Research and Development Operations.

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 which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the latest SEC disclosure documents and recent press releases. In addition, Gilead does not undertake any obligation to update any forward-looking statements made during this call.

Non-GAAP financial measures will be used to help you understand the company's underlying business performance. The GAAP to non-GAAP reconciliations are provided in the earnings press release as well as on the Gilead website.

I will now turn the call over to Robin.

[Robin L. Washington, Gilead Sciences, Inc.]

Thank you, Sung, and good afternoon everyone. We are pleased to share our results for the fourth quarter and full year 2017 and provide 2018 guidance. I'll first review the financial results and commercial highlights for the quarter. Norbert will discuss progress made in R&D, and John will make a few closing comments.

2017 was marked by operational excellence across the business. During the year, we raised net product revenue guidance as we observed strong performances across our HIV and cardiopulmonary franchises. We continued to execute on and maximize the opportunity in HCV in a changing competitive landscape. We made two strategic acquisitions, Kite and Cell Design Labs, positioning us as an industry leader in cell therapy.

Furthermore, we launched two new products, Yescarta, the first cell therapy approved for the treatment of adult patients with relapsed or refractory large B-cell lymphoma, and Vosevi, an important option for HCV patients who could not be cured with other therapies.

Turning to the financials. For the fourth quarter 2017, total revenues were $5.9 billion with non-GAAP diluted earnings per share of $1.78. For the full year 2017, total revenues were $26.1 billion with non-GAAP diluted earnings of $8.84 per share. Product sales for the fourth quarter were $5.8 billion and $25.7 billion for the full year. HIV and HBV product sales for the full year 2017 were $14.2 billion compared to $12.9 billion in 2016. The increase was primarily due to the strong uptake of our TAF-based regimens which now account for 62% of Gilead's total HIV prescription volume in the U.S.

At the end of 2017, Genvoya remained the most prescribed HIV therapy for treatment naive and switch patients in the U.S. and across the top five European markets. Genvoya represents the most successful HIV launch in the U.S. and is the first HIV product to reach $3 billion in annual sales.

In Europe, sales of our TAF-based regimens continue to grow, while generic TDF and TDF/FTC are available in several countries. Truvada for PrEP has remained a growth driver for Gilead. At the end of last year, approximately 153,000 people in the U.S. were taking Truvada for this indication, representing a greater than fivefold increase since January 2015. HCV product sales were $9.1 billion compared to $14.8 billion in 2016. The arrival of new competition, along with fewer patient starts, contributed to the year-over-year decline.

As we have noted in the past, HCV revenues are driven by four variables: patient starts, net pricing, market share and treatment duration. Treatment duration has stabilized as a variable, and pricing of all regimens has gravitated towards the eight-week regimen price. We anticipate both pricing and market share to stabilize by mid 2018 with more predictable but slightly declining patient starts moving forward.

Finally, other product sales were $2.3 billion compared to $2.2 billion in 2016. This represents the outstanding performance of the cardiovascular franchise. Ranexa and Letairis together generated $1.6 billion in revenue in 2017. As a reminder, the patent for ambrisentan in the U.S. will expire in July of 2018.

Turning to expenses for the full year 2017. Non-GAAP R&D expenses were $3.3 billion, and SG&A expenses were $3.4 billion, both of which were in line with expectations. With the recent enactment of the Tax Cuts and Jobs Act or tax reform, we recorded a provisional estimated GAAP charge of $5.5 billion or $4.16 per share in the fourth quarter of 2017. This will be payable over the next eight years and has been excluded from our non-GAAP results for the fourth quarter and full year.

Tax reform will have a positive impact on Gilead's earnings by lowering our global effective tax rate and increasing our financial flexibility as a result of our ability to repatriate our ex-U.S. cash over time. While the Tax Cuts and Jobs Act does not fundamentally change our capital allocation priorities, it does enable Gilead to invest in sustainable long-term value-creating opportunities, which include investing in R&D, expanding U.S.-based manufacturing, and creating additional jobs in the U.S.

Moving to our balance sheet. Our business continues to deliver strong operating cash flows. We generated $11.9 billion in cash from operations for the full year 2017 and ended the year with $36.7 billion in cash and investments. In conjunction with the Kite acquisition, we issued $3 billion senior unsecured notes and $6 billion term loan facilities, of which we repaid $1.5 billion in the fourth quarter 2017.

For the full year, we paid cash dividends of $2.7 billion and repurchased 13 million shares of stock for $954 million. Earlier today, we announced a 10% increase in our quarterly dividend from $0.52 to $0.57 per share, which will become effective in the first quarter of 2018. This increase underscores the confidence of the board and management in the strength of the business and future cash flows.

Our capital allocation priorities going forward include; investment in research and development along with M&A and partnerships to augment our pipeline, delevering our capital structure, continued growth of our dividend over time and share repurchases to maintain our current share count.

Finally, I would like to cover our full-year 2018 non-GAAP financial guidance, summarized on slides 33 through 37 in the earnings presentation available on our corporate website. Net product sales are expected to be in the range of $20 billion to $21 billion. Further details on our HCV sales and loss of exclusivity of ambrisentan, tenofovir DF and FTC in Europe can be found on slides 34 through 36.

Our guidance is subject to a number of uncertainties including the accuracy of our assumptions about HCV market share; the accuracy of our estimates for HCV patient starts in 2018; unanticipated pricing pressures from payers and competitors in the HCV market; lower than expected market share and greater price erosion resulting from the sale of generic versions of TDF; the fixed-dose combination of FTC/TDF; and the fixed-dose combination of FTC/TDF/efavirenz outside the U.S.; slower than anticipated growth in our HIV franchise; a greater than expected adoption of generic versions of ambrisentan for PAH in the U.S.; a larger than anticipated shift in payer mix to more highly discounted payer segments such as PHS, FSS, Medicaid and the VA; as well as volatility in foreign currency exchange rates.

Non-GAAP product gross margins are expected to be in the range of 85% to 87%. We expect our non-GAAP R&D expenses to be in the range of $3.4 billion to $3.6 billion. We also expect our non-GAAP SG&A expenses to be in the range of $3.4 billion to $3.6 billion.

For the full year, our non-GAAP effective tax rate is expected to be in the range of 21% to 23%, which reflects the effect of the recently enacted U.S. tax reform. We anticipate the full-year diluted EPS impact of acquisition-related stock-based compensation and other expenses to be in the range of $1.41 to $1.51 per share.

As we begin 2018, we remain committed to being an operationally and financially efficient organization that generates high operating margins.

I will now turn the call over to Norbert.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Thank you, Robin. As I look across our numerous research and development programs, I'm excited about the potential we have to advance treatments for a variety of diseases where significant unmet medical need exists. I will spend the next few minutes detailing our progress in HIV, liver disease, inflammation and oncology and discuss some of the key milestones we anticipate in 2018.

Beginning with HIV, we anticipate U.S. FDA approval of BIC/F/TAF, our latest once-daily single-tablet regimen for the treatment of HIV infection in adults with PDUFA action date this coming Monday, February 12. The new drug application is supported by data from four ongoing Phase 3 studies in a total of 2,400 people, studies 1489 and 1490 in treatment-naïve HIV-infected adults and studies 1844 and 1878 in virally suppressed adults.

BIC/F/TAF met its primary objective of non-inferiority at 48 weeks across all four studies and no participants failed BIC/F/TAF for treatment-emergent virological resistance. Additional clinical trials of BIC/F/TAF are ongoing, including a dedicated study in women as well as a study in adolescents living with HIV. We plan to present data from these studies at scientific conferences in 2018.

We continue to invest in research for next generation HIV therapies including long-acting injectables for preventional treatment, therapies for treatment-resistant patients and approaches that could potentially cure HIV. We have filed an IND for our long-acting capsid inhibitor and plan to initiate clinical testing this quarter.

With regards to HIV prevention research, we expect to have data from the DISCOVER study next year. This Phase 3 trial, randomized patients will receive Truvada or Descovy to evaluate whether Descovy is safe and effective at reducing the risk of HIV infection when used as pre-exposure prophylaxis.

Moving to NASH, there are two ongoing Phase 3 trials, STELLAR 3 and STELLAR 4, evaluating selonsertib, our ASK1 inhibitor, in patients with F3 bridging fibrosis and F4 cirrhosis. Patients with an F4 fibrosis cohort are at highest risk of clinical adverse events and therefore represent the group with the greatest unmet medical need. STELLAR 4 is now fully enrolled, and STELLAR 3 will be fully enrolled in the next few months. Data will be available in 2019, and if positive, will form the basis for our regulatory filings.

Additionally, we're conducting small Phase 2 combination studies of selonsertib with Gilead's ACC inhibitor, GS-0976, and the selective non-steroidal FXR agonist GS-9674 in patients with NASH. Phase 2 data of GS-0976 in monotherapy presented at the Liver Meeting in October showed significant reduction in measures of liver fat and certain biomarkers of liver fibrosis compared to placebo.

Data from these combination studies will be presented at the European Association for the Study of the Liver Annual Meeting in April, and we are in the process of initiating a larger Phase 2 combination study this year.

We also made great progress in inflammation. Five Phase 3 studies of filgotinib are ongoing in patients with rheumatoid arthritis, ulcerative colitis and Crohn's disease. Three studies, FINCH 1, 2 and 3, are being conducted in rheumatoid arthritis. The FINCH 2 study is fully enrolled, and we anticipate data from this study in the second half of 2018. FINCH 2 compared filgotinib to placebo each added to conventional disease-modifying antiarrhythmic drugs, or DMARDs, in patients who have had inadequate response to biologics.

Other studies in rheumatoid arthritis include FINCH 1, a 52-week randomized study comparing filgotinib plus methotrexate to adalimumab plus methotrexate to methotrexate alone in patients who have had inadequate response to methotrexate. And FINCH 3, a 52-week randomized study comparing filgotinib alone to methotrexate alone to the combination of filgotinib plus methotrexate in methotrexate-naive patients. We anticipate the FINCH 1 and FINCH 3 studies to be fully enrolled later this year.

Filgotinib is also being investigated in five additional Phase 2 studies in other inflammatory diseases, namely psoriatic arthritis, ankylosing spondylitis, lupus, Sjogren's syndrome, and uveitis and we should have data available from some of these studies later this year.

In addition just last month, we filed an IND on an internally developed small molecule with a novel mechanism of action for inflammatory conditions, and we will initiate clinical development in the coming months.

Moving to oncology, a randomized controlled Phase 3 study of andecaliximab, our anti-MMP9 antibody in combination with modified FOLFOX6 in gastric cancer is ongoing, and entering futility analysis for this study was conducted by an independent data monitoring committee in the second half of 2017, and the DMC recommended that the study continue.

Additionally, we're conducting a Phase 2 study in gastric cancer of andecaliximab in combination with nivolumab versus nivolumab alone. This study will be completed this quarter, and we plan to present the data at a future scientific conference.

In cell therapy, long term data from our pivotal ZUMA-1 study of Yescarta in patients with refractory large B-cell lymphoma were presented at the American Hematology Society Meeting and published concurrently in the New England Journal of Medicine in December. In this updated analysis, with a minimum follow up of one year and a median follow up of 15.4 months after a single infusion of Yescarta, 42% of the patients continued to respond to therapy with 40% continuing to have a complete response. We anticipate having two-year data from the ZUMA-1 study later this year.

Additional studies are underway including ZUMA-7, a Phase 3 randomized study comparing Yescarta to the standard of care in second-line treatment of patients with diffuse large B-cell lymphoma. Data are expected in 2020.

Also underway is ZUMA-6, a Phase 1/2 combination study of Yescarta with atezolizumab, an anti-PD-L1 antibody, and a Phase 1 study of a KITE-585, a CAR T-cell therapy engineered to target B-cell maturation antigen in patients with relapsed or refractory multiple myeloma.

Phase 1 results from the ZUMA-3 study of KTE-C19 in 24 adults with relapsed or refractory B-cell acute lymphoblastic leukemia were also presented at ASH. KTE-C19 is the same anti-CD19 CAR T construct as Axi-cel, but is manufactured through a slightly different process. With a minimum of eight weeks of follow up, 17 of the 24 participants will receive the single infusion of KTE-C19, achieved complete remission in 21 of the 24 participants at no detectable disease.

I hope I've conveyed my excitement about the pipeline programs we have across Gilead's therapeutic areas. In summary, pending the results of ongoing studies that will read out in 2018 and 2019, we could be in a position to file as many as four NDAs or BLAs next year.

I would now like to turn over the call to John. John?

[John F. Milligan, Gilead Sciences, Inc.]

Thanks, Norbert. I'd like to make a few comments about the year that has just ended and where we will focus in 2018. As Robin mentioned, Yescarta was approved by the FDA in October of 2017. We are greatly encouraged by an initial response we have seen from the healthcare and patient communities in recognition of the life-saving potential for people with aggressive large B-cell lymphomas who have run out of options. We have authorized 28 cancer centers to date, and each center is now certified to administer Yescarta to patients.

Given the promise of Yescarta and the significant patient need, we are actively working on training and certifying additional centers on the risk, evaluation and mitigation strategy and the Kite Connect process. By mid-2018, we anticipate there will be enough centers certified to treat 80% of Yescarta-eligible patients.

We're very excited about the present opportunity with Yescarta, and as Norbert mentioned, we are enrolling clinical studies to expand the label to earlier lines of therapy and exploring combination therapy with other in immuno-oncology agents.

We are also working to improve CAR T therapies and are acquiring next generation technology in the belief that we will be able to develop cellular therapies that can achieve greater responses, lessen side effects and increase the types of malignancies that can be treated.

For example, the acquisition of Cell Design Labs gives us access to proprietary technology platforms that will augment and accelerate these efforts, along with the dedicated research team who, in collaboration with the Kite team, will help us drive next generation CAR T therapies into the clinic more quickly. The future is incredibly bright for cellular therapy and we are very excited to be at the forefront of the field.

Over the past three decades, Gilead's relentless scientific pursuit of better HIV treatments has led to a range of options to help address the diverse needs of people living with HIV. Once approved, BIC/F/TAF will offer people an important new single-tablet regimen option, both to those newly diagnosed with HIV and those who may desire or need to switch from their current multi-tablet regimen or single-tablet regimen. BIC/F/TAF represents Gilead's sixth single-tablet regimen, and with the approval of Symtuza in the EU by our partner, Janssen, the fourth containing TAF.

With the approval of BIC/F/TAF, there will be TAF-containing single-table regimens available for patients containing each of the major third agents, including unboosted and boosted integrase inhibitors, a boosted protease inhibitor and an NNRTI. We are deeply committed to continuing to innovate in the field of HIV treatment, particularly for the population of people who have been living with HIV for a long time and whose treatment needs have changed as they have aged.

The advancement of clinical trials for selonsertib and filgotinib has positioned Gilead as a leader in NASH and inflammatory diseases. In NASH, the rapid enrollment of patients has put Gilead in the lead in the development of treatments for patients with the most severe form of the disease. If selonsertib clinical studies read out positively in early 2019, Gilead will then be in a position to launch the first therapy for NASH in 2020.

We continue to be enthusiastic about filgotinib. In the ongoing Phase 3 studies, we are looking to see if the potential safety and efficacy advantages of a selective JAK1 inhibitor seen in pre-clinical and early clinical studies are borne out in these trials. In addition, Gilead's exploring five additional indications beyond rheumatoid arthritis, ulcerative colitis and Crohn's disease.

As we enter 2018, we see that the market dynamics in HCV are stabilizing. Since the launch of sofosbuvir in 2013, we've seen multiple competitors come to market and we've launched three of our own new HCV therapies. With the launch of each new product – the launch of each new product was disruptive, leading to lower prices and shortened treatment duration, both highly beneficial to patients and payers.

Going forward, we don't see any new HCV product launches disrupting the market. This leaves two remaining variables, the number of patients to start therapy each year and market share versus our competitors. As Robin mentioned, we've set patient starts to continue to decline, although more slowly than in the past, and market share versus our competitors is expected to stabilize by the middle of this year.

Given these changes, Gilead's HCV revenue should be a more predictable, albeit smaller, piece of our financial story. By removing most of the overhang of declining HCV revenues going forward, we can focus on the positive financial trends driven by the continued uptake of TAF-containing regimens and short-term and long-term growth through Yescarta, selonsertib and filgotinib.

We've been open about our desire to increase our pipeline through acquisitions and partnerships with other companies, as we continue to actively seek new therapeutic advancements and technologies. We have both the financial strength and internal capability to aggressively pursue opportunities when we see them.

I am more excited than ever about the future of Gilead as we extend our efforts to help new groups of people with difficult diseases. I would like to take this opportunity to thank our employees for their dedication and service. It's because of your belief in our mission that we're able to reach millions of people with our life-saving medicines.

Thank you for your time today, and let's now open the call for questions. Operator?

[Operator]

Thank you. And our first question comes from Geoff Meacham of Barclays. Your line is now open.

[Geoff Meacham, Barclays Capital, Inc.]

Afternoon, guys. Thanks for the question and all the detail. So, John, when I look at hep C trends which could trough this year and they're offset by a positive impact from HIV, Yescarta and the pipeline, it looks like you guys could get back to growth exiting this year and maybe even going into 2019. How important is that to Gilead overall or do you view these franchises and moving parts more independently? Thanks.

[John F. Milligan, Gilead Sciences, Inc.]

Thanks, Geoff. Thanks for the questions. So of course we view all our franchises independently, but taken as a whole, that makes Gilead. And so we do think that it's important that we're able to stabilize HCV revenues and it's important that we be able to talk about the company with the future dynamics that I think will drive us. We're clearly very excited about TAF-based regimens. We're very eager to get Bictegravir F/TAF launched. That will be another positive momentum going forward. As Norbert mentioned, we could file up to four NDA and BLAs going forward.

So I think after years of having to be defensive about HCV revenues declining, it's very nice to be on the other side of that and talk about the positive trends going forward and we hope that that will dominate the conversation throughout the year much as it did at the beginning of the year, beginning with JPMorgan.

[Operator]

Thank you. And our next question comes from Michael Yee of Jefferies. Your line is now open.

[Michael J. Yee, Jefferies LLC]

Hey. Thanks for the question. Good afternoon. Appreciate those comments as well. Following along that, I guess when you think about the slope of your revenues this year and your commentary about stabilization, thinking about the decline of hep C in the first half of the year and revenue growth with your other products, do you think that you would trough out this year and that you'd see yourself as a growing product franchise by the end of this year?

[Robin L. Washington, Gilead Sciences, Inc.]

Hi, Michael. This is Robin. I mean, yes, I mean as John mentioned and I mentioned, we do see the HCV market dynamics stabilizing and removing that overhang. We do think that with our new HIV FTR launch of bictegravir – (29:42) BIC/F/TAF, as well as our other franchise, that we do overall see ourselves as a growth story. Even if you look at page 34 in our guidance, you can see overall our HCV franchise is expected to grow. And that's growth along with the LOE ex-U.S., as well as to taken to account our other franchise with Letairis. We're still showing overall growth in those core franchises over and above hepatitis C.

[Operator]

Thank you. And our next question comes from Brian Abrahams of RBC Capital Markets. Your line is now open.

[Brian Abrahams, RBC Capital Markets LLC]

Hi. Thanks very much for taking my question. In the CAR T space, obviously we've seen some consolidation lately. I'm just curious coming out of the CDL acquisition now, where should we look for your focus of investments going forward in technology enhancements that are going to be the most important for long-term competitive positioning, enhancement of delivery and expansion into additional populations from here? Thanks.

[John F. Milligan, Gilead Sciences, Inc.]

Yes. Hi, Brian. It's John. So just a couple of comments on where we're going to go next. Without giving you any specifics, we have been fairly open in our conversations that we do think that there are additional technologies we want to use to enhance the capabilities we have, including gene editing technology. That's something we've talked about previously.

Obviously, there are several areas where we want to try to figure out where we could be more effective. One is increasing the number of targets that we can go at, so we're looking at additional targets. We are looking at ways that we can perhaps move from autologous to allogeneic or sort of universal donor CAR T. So that's technology that Kite was working on, and that we will continue to work on. Gene editing plays into that in some areas.

And then of course, anything that we could use to try to lessen the side effects of CAR T would be important to us. So we're looking at technologies, thoughts on how we could have perhaps a lower cytokine release syndrome, perhaps decrease the neurotoxicity associated with this. So all of these things are important to us, and we're very, very actively looking at these technologies right now.

[Operator]

Thank you. And our next question comes from Robyn Karnauskas with Citi. Your line is now open.

[Robyn Karnauskas, Citigroup Global Markets, Inc.]

Hi, guys. Thanks for taking my question. So, if I remember correctly, back when you used to launch your HIV products, it would take a long time to get on the guidelines and it's a guideline-driven market, and then with Genvoya, that was extremely different. So do you have any sense with BIC/F/TAF whether or not we could see that hitting the guidelines sooner than expected, and what motivated the guidelines to change so quickly with Genvoya? Thanks.

[Andrew Cheng, Gilead Sciences, Inc.]

Hi, Robyn. It's Andrew Cheng speaking. So I think you're right. When we look back at the time that Genvoya was put on the DHHS guidelines in less than two weeks after approval, I think as it's difficult to surmise what drove them to do that. But one can take a look at the clinical profile and the differentiation versus TDF-based regimens that we saw in our registrational package, and that may have played a role in that.

In terms of the role of BIC/F/TAF and one thinks going forward, I think continuing what we've seen already with TAF-based regimens and how they've impacted HIV treatment throughout the United States, it seems reasonable that these will be adopted in the guidelines. Now the timeliness of which are, as you're driving at, are difficult to say. I think that we don't want to overcommit in terms of – they have a process in place and we look forward to working with them to get the BIC/F/TAF on the guidelines as soon as possible.

[John F. Milligan, Gilead Sciences, Inc.]

Go ahead, Norbert.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

I would like to reiterate what Andrew said. It used to take a long time many years ago, but in the case of Genvoya, it took exactly two weeks. So it's not true anymore that it takes a long time for it to get on the guidelines.

[John F. Milligan, Gilead Sciences, Inc.]

Yes. It is a more dynamic process, and of course we also benefit that F/TAF are viewed very favorably within the guidelines, and so that is a big help for us as we launch BIC/F/TAF.

[Operator]

Thank you. And our next question comes from Geoffrey Porges of Leerink. Your line is now open.

[Geoffrey C. Porges, Leerink Partners LLC]

Thanks very much, and I'll just ask a couple related questions below the line if I may, Robin. Your tax outlook is significantly better than we expected and that you've had before. Can you tell us what you view the sustainability of that tax rate? And as you move capital onshore and invest in manufacturing, can that come down any further from the range you're indicating for 2018? And then a similar question just related about operating margins. Looks like you're guiding to about 50% in 2018. Is that a stable number? Or do you think that that could come under further pressure as you ramp up R&D? Thanks.

[Robin L. Washington, Gilead Sciences, Inc.]

Sure, Geoff. So to answer your first question, I do believe the range that I provided for you for tax rates are stable. I don't know if it's – it's not necessarily the overall mix, per se, of our revenue. To some extent, it is that. But I think with that lower U.S. tax rate and the fact that we've already seen a significant mix shift because of our HCV revenues declining, more revenues in the U.S., I do believe that's sustainable longer term. It's very fortuitous for us from a timeframe standpoint because with that shift, our rate would have creeped up pretty significantly in 2018 compared to 2017.

Relative to operating margin, I'd say we're a little higher than you project overall but still remain an industry leading. I do feel the 50% plus is sustainable for us. We are in investment mode when you think about R&D, et cetera, so, and we're several large Phase 3 trials, launching BIC/F/TAF, but obviously a lot of incremental opportunities going forward. So I would say yes, sustainable, and I think we'd aspire to see it even rise higher over time.

[Operator]

Thank you. And our next question comes from Matthew Harrison of Morgan Stanley. Your line is now open.

[Matthew K. Harrison, Morgan Stanley & Co. LLC]

Great. Thanks for taking the question. Norbert, I wanted to ask you a question on NASH. You highlighted both the STELLAR studies and the ACC, but you didn't talk a lot about the FXR. In your slides here, it says you had an interim on PBC and you completed the Phase 2 NASH study. Any comments on the profile there, if that's panning out as you had expected with lower rates of itching and some other differentiation versus some of the competitors in the market?

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Yeah, Matt, thanks for the question. So the reason is simply that the FXR agonist is somewhat behind the ACC inhibitor. We both present, so the Phase 2 result, studies are just wrapping up. We're looking at the data and we intend to submit this to an upcoming conference, a liver conference. You will then see the results. So just to remind you with our FXR agonist, the hypothesis was that we don't want a high systemic exposure with the FXR agonist. So it got restricted or got focused mechanism of action that releases FGF19 that then goes into the circulation and provides the efficacy. So you will see the completed Phase 2 study at an upcoming conference.

[Operator]

Thank you. And our next question comes from Phil Nadeau of Cowen & Company. Your line is now open.

[Phil Nadeau, Cowen & Co. LLC]

Good afternoon. Thanks for taking my question. I had a question on shifting market share in both HIV and HCV. So in HCV, you talk about a $4.3 billion to $4.6 billion year-over-year decrease because of competitive issues. Can you give us some idea of what type of share shift you anticipate in that guidance? And then similarly in HIV, you talk about a $1.2 billion to $1.5 billion increase. What type of share do you think you'll be able to take back with the Bictegravir combination pill? And what's assumed in that guidance? Thank you.

[Robin L. Washington, Gilead Sciences, Inc.]

Phil, maybe I'll cover HCV and we'll have John cover HCV. But you know as we said, I think if you compare and take a look at our Q4 revenues of $2.3 billion relative to all the other players, our share is, we've done very well. And in 2018, it's reflective of that continued market share position. I don't want to get into specific percentages, and I think there will be puts and takes across the various markets, but we're very confident that with our product portfolio that we believe we can maintain market leadership position.

In the U.S., the market has moved towards more parity access, which we prefer, right, because it really leaves the prescribing decisions with doctors and patients. And we have been able to maintain parity or preferred access across the majority of the counts overall. So we believe that, yes, we think our share position bodes very well for 2018.

[Operator]

Thank you.

[John F. Milligan, Gilead Sciences, Inc.]

I'm sorry. Phil had a two-part question, so we'll answer the HIV question. Thanks, operator. So you asked about market share for HIV. I will say that I'm going to talk about market share specifically, but I can tell you in the U.S., we expect to maintain our market share.

There are obviously some changes due to generic TDF in the United States. I don't think that will affect us very much, as Truvada is still protected. We do think that we can gain that growth that you mentioned through switches from protease inhibitors, so multi-tablet regimens and of course switches from single-tablet regimens. So we think there's enough switching business and then treatment-naive business in there for Bictegravir and additional growth in Genvoya that we'll do quite well in those areas.

In the European Union, however, we do think with the entry of generics in 2018, both TDF and TDF/FTC and of course TDF/FTC/efavirenz, as Robin mentioned, that we will see some temporary decrease in market share and then long term growth getting beyond this year due to the approvals of B/F/TAF, Bictegravir/F/TAF, which will occur later in the year allowing us to launch in these various countries.

As we mentioned in some of our slides, we have seen incredible uptake of both Descovy and Genvoya across parts of the European Union. I think that bodes very well long term for TAF regimens, and so we're very, very enthusiastic and confident about that franchise there.

[Operator]

Thank you. And our next question comes from Umer Raffat of Evercore. Your line is now open.

[Umer Raffat, Evercore ISI]

Hi, guys. Thanks so much for taking my question. Norbert, I wanted to drill down your STELLAR 4 trial in NASH. And my question is, what do you expect the placebo arm to track at on the percentage of patients that will have a one-stage improvement? And I'm also curious what level of visibility do you have on the ongoing STELLAR 3 and STELLAR 4 trials on the pooled event rate on a blinded basis? Thank you.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Yes. So, Umer, the only thing I can point to is the Phase 2 study that we have done. I think I'm very confident we will repeat those numbers. Of course, they won't be exactly the same. As you may remember, the total N was somewhat small, but we saw a difference between placebo and the high-dose active arm at 20%. And we would be very happy with that because, as you know, the endpoint is fibrosis. Something that improves fibrosis or prevents fibrosis progression, that will be a tremendous asset and contribution to the healthcare system.

So the other study, I can tell you we of course are looking in an ongoing blinded way at safety, and I can tell you this, the compound is very safe. We are not seeing anything that would concern us, either laboratory abnormalities or adverse events or discontinuation rates. But having that said, I want to make sure that everybody understands we're blinded to the study. So it's a placebo-controlled study, but in the blinded data set, there is nothing that would concern us.

[Operator]

Thank you. And our next question comes from Terence Flynn of Goldman Sachs. Your line is now open.

[Terence Flynn, Goldman Sachs & Co. LLC]

Hi. Thanks for taking the question. Maybe just one for me on Yescarta. Just wondering if you can talk to us about how important being first to market is in your view given potential entry of a third player next year? And then in your guidance, can you give us any color in terms of what you assume for second half of the year in Yescarta? Is there inflection or a step-up? Or should we just assume a steady Eddie here? Thanks.

[John F. Milligan, Gilead Sciences, Inc.]

I do think first mover is very important with this area because it allows us to develop this rapport and relationship with the different cancer centers. And so I think a first mover advantage is important in this area. I'm not going to say that it's everything, but of course we have a second entry and then a third entry. You leaped right to the third, but we're expecting a second entry of course in Novartis.

And so I do think that is important so that we have the connectivity, we get through the paperwork, the REMS program. This has to be duplicated for each individual agent coming to market, and so it is more difficult to get the attention of the centers once they have something that works very, very well, which we hope they believe they have in Yescarta. So I think that is an important thing to consider.

You mentioned an inflection point, and as we mentioned on the call, we are now getting centers up and running. We have 28 centers currently that are up and now certified to prescribe Yescarta. We hope to have about 80% of the population by the midpoint in this year. And so I think what we're seeing with these centers is, as they get better at handling both the patients and the payment aspect of this, because that is a negotiation between the center and the payers themselves. As they get that down, it gets easier to bring in new patients, and so we do see a slowly growing momentum in each center as they get up and going.

So obviously, the second half of the year will be a lot better for enrolling patients than the first half of this year. But I don't see it a major inflection point, but just a growing building of patients over time, so that as we exit 2018, we should have a pretty good handle on what the typical flow rate at each center is and what they can handle.

[Operator]

Thank you. And our next question comes from Alethia Young of Credit Suisse. Your line is now open.

[Alethia Young, Credit Suisse Securities (NYSE:USA) LLC]

Hey, guys. Thanks for taking my question, and just one on Bictegravir switches. I know Atripla is still the number three regimen in the United States. So I'm trying to figure out like is it more an education with the doctors or is it finding the patients and bringing them back to therapy to encourage them to move to bictegravir versus Atripla thing?

[Andrew Cheng, Gilead Sciences, Inc.]

So, Alethia, it's Andrew. So I think it's a combination. When you look at the registrational studies that support the filing package, we had patients who were switching from protease-based inhibitors or multi-tablet regimens, which are – and keep in mind that protease inhibitors are no longer guideline for first-line regimens in the United States, and we have patients switching from Triumeq or the components of which. And so these two groups are probably the groups of individuals that we'll see a lot of the switches from overall as we launch the product.

[Operator]

Thank you. And our next question comes from Ian Somaiya of BMO Capital Markets. Your line is now open.

[M. Ian Somaiya, BMO Capital Markets (United States)]

Thank you, and thanks for taking my question. Just a question on Yescarta. I was just trying to maybe, just would love to get your help on putting that 80% number into actual patient – 80% into actual patient numbers, how many patients does that represent? And as you think about eligibility, are there differences in eligibility as you think about the three different CAR T offerings?

[John F. Milligan, Gilead Sciences, Inc.]

So, Ian, I mean we think there's about 7,500 patients in the United States, so 80% of that is well over 5,000 patients. So it's a pretty good number of patients, far more than we would be able to treat this year for example, given our manufacturing capacity. So the 80% is also really something that we're thinking about geographically. You go to a lot of the big centers and there are a lot of people who may be eligible for Yescarta but are just in areas of the country where it's impractical or unlikely a center would be sent up, and so they would have to travel. So in fact, we think geographically it will be a bigger coverage than that. I'm sorry. Overall, it will be a bigger coverage than that but just sort of geographically if you look at it, it will cover about 80% of lives, so that's why we're keeping that at that number.

The second part of the question was, I forgot. It was about the – I'm sorry, Ian, I forgot the second part of your question.

[Robin L. Washington, Gilead Sciences, Inc.]

I think you answered it.

[John F. Milligan, Gilead Sciences, Inc.]

Hopefully I answered it. Okay. We'll move on, operator.

[Operator]

Thank you. And our next question comes from Jim Birchenough of Wells Fargo Securities. Your line is now open.

[Jim Birchenough, Wells Fargo Securities LLC]

Yes. Hi, guys, and congrats on the progress. Just a question on the broader solid tumor opportunity for cell therapy and whether you feel like you've got the assets internally from Kite and from Cell Design Labs to have solid tumor success, and what are the timeliness for generating some solid tumor cell therapy data? Thanks.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Yes so, Jim, I don't think we have everything that we need, and as John said, one thing missing is gene editing, but we are talking to companies and we will do more collaborative deals in that space. I would say it's early with solid tumors, that the problem with solid tumors, or the challenge I would say, is finding a tumor-specific antigen that is not expressed on normal cells. That is by the way a reason why we're excited about CDL, the synNotch technology. Essentially, it needs two antigens in order for the T-cell to get activated, so it gives you much broader specificity if you can go after two cells. Both have to be present at the same time in the same cell surface.

But on the other hand, it's really, it's early days I would say, but it's exciting and that's where the real opportunity lies for cell therapy, I mean, the real commercial opportunity. And you could, for instance, go after neoantigens, you could do shared antigens, and we have announced one study that is ongoing with MAGE A3, A6 with the Rosenberg Group at the NCI. And so that's the opportunity. So you will see more in that space coming from Gilead in the coming years.

[John F. Milligan, Gilead Sciences, Inc.]

And I would say, Jim, we're going to spread out our bets a little bit, investing in various different technologies, because it's hard to predict which of these will have the breadth to be important and also the specificity and depth of response that's going to be important. So we'll be spreading our bets out there. We do think there's hopeful signs in the solid tumor area, but we've not yet – don't have much. It's not the similar kind of situation as it was with CD19.

And, Ian, I remembered the question you asked about the label and how the differences between the different labels. And clearly, we don't know what the groups have asked for in terms of labeling, but currently from what we see in the clinical studies, I don't anticipate the labels will be all that different going forward. But that could be a differentiating feature as it always is in medicine and that could lead to better access if the labels were truly differentiated from one another. Sorry, I forgot that at the time.

[Operator]

Thank you. And our next question comes from Cory Kasimov of JPMorgan. Your line is now open.

[Cory W. Kasimov, JPMorgan Securities LLC]

Hey, great. Good afternoon, guys. Thanks for taking the question. I wanted to ask about your BCMA program. Can you talk about how you see potential differentiation here versus others in development? And will you be using the same manufacturing process as Yescarta or are there any new procedures being implemented as you have new CARs entering the clinic? Thanks.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Yes hi, Cory. It's really too early to say what the differentiating features will be. We are currently doing dose escalation and it's really a Phase 1, Phase 2 study and we just have to see what the results are and how they compare to the competitors' products. And yes, we're using the same construct, so it's CDZ and – (51:12) CD28 costimulatory domain with an extracellular binding domain that's different, probably, from the competitors. We don't know that.

[John F. Milligan, Gilead Sciences, Inc.]

Yes. And in terms of the manufacturing process, it's not exactly the same as Yescarta. So we are working out unique manufacturing processes for each of these, so it will be different. We haven't determined exactly how different at the moment.

[Operator]

Thank you. And our final question comes from the line of Ying Huang of Bank of America. Your line is now open.

[Ying Huang, Bank of America Merrill Lynch]

Hi. Thanks for taking the question. Maybe a quick one for Norbert. I didn't see you including on the filgotinib male subject safety study in the timeline for 2018 to 2019, the slide deck. And then secondly, maybe another question on the pricing dynamics in HIV market. After you launch B/F/TAF in the U.S., do you expect your competitor GSK to use pricing as a potential weapon to keep its share? Thank you.

[Norbert W. Bischofberger, Gilead Sciences, Inc.]

Yes, Ying. Thanks for the question. That's very observant of you that you have not seen the study. Yes, so we are performing a safety study. As you know, there was a safety signal in pre-clinical studies and in order to justify the 200 milligram dose, which is the higher dose that we're using in this study, we were asked by FDA to perform this study. So the study is enrolling and the reason why we don't have any timelines in it is simply we don't know yet. It's too early. So we have sites up and running. It's somewhat slow, always at the start. We just simply, it's impossible to predict what the exact timelines are.

[John F. Milligan, Gilead Sciences, Inc.]

And your second study was do we expect our competitors to lower prices. That has never happened in the field of HIV, but I don't know what even GSK are planning. That's all I can tell you.

[Operator]

Thank you, and our next question comes from Hartaj Singh of Oppenheimer. Your line is now open.

[Hartaj Singh, Oppenheimer & Co., Inc.]

Yeah, hi there. Thanks for the question. I just had a quick question on PrEP with Truvada. It's becoming a fairly decent sized portion of your business and you did indicate that DISCOVERY is now fully enrolled. Can you just talk a little bit about the dynamics for how you see Truvada playing out and then how would you see Descovy kind of rolling into that in the future? Thank you.

[Andrew Cheng, Gilead Sciences, Inc.]

So maybe – it's Andrew – so I'll just start with the first thing which is that the Descovy study is fully enrolled. It was fully enrolled in Q2 of 2017, so we expect to have results sometime in 2019. But keep in mind that it's an event-driven study so the exact timelines are slightly hard to predict this far out. It's not like our, let's say, the Bictegravir trials, which were 48-week studies that once we have our last patient, we can mark those, block those out.

Now in terms of the dynamics of how we see Truvada and Descovy interplay, I think it's difficult to say without the results of the trials to understand the differences, although it wouldn't be unreasonable to think about looking at the dynamics in play that we've seen with HIV treatment, where safety has been a very important factor in driving the switch from TDF-based regimens to TAF ones.

[John F. Milligan, Gilead Sciences, Inc.]

And I just want to add one bit of data to that, which is if we look at that typical patient who's taking Truvada today, for PrEP, they take it nearly on the frequency with people who take long-term HIV therapy, so about the same number of pills taken per year. So the exposure to TDF would be significant and would carry many of the same risks as TDF was for HIV-infected patients. So TAF may be a better option, particularly given that these patients are not HIV infected, and we think that could be an opportunity as well.

[Operator]

Thank you. And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Sung Lee for any closing remarks.

[Sung Lee, Gilead Sciences, Inc.]

Great. Thank you, Candice, and thank you all for joining us today. We appreciate your continued interest in Gilead, and the team here looks forward to providing you with updates on our future progress.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.