Gilead Sciences, Inc. (GILD) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the First Quarter 2020 Gilead Sciences Earnings Conference Call. At this time, all participants are in a listen-only mode [Operator Instructions]. Please be advised that today’s conference is being recorded [Operator Instructions]. It is now my pleasure to introduce Senior Director of Investor Relations, Doug Maffei.

Thank you, Andrew, and good afternoon, everyone. Just after market closed today, we issued a press release with earnings results for first quarter 2020. The press release and detailed slides are available on the Investor Relations section of the Gilead Web site. The speakers on today's call will be Daniel O'Day, Chairman and Chief Executive Officer and Andrew Dickinson, Chief Financial Officer. Also on the will be Johanna Mercier, Chief Commercial Officer; Merdad Parsey, Chief Medical Officer; Christi Shaw, Chief Executive Officer of Kite; and Diana Brainard, SVP and Head of HIV and Emerging Viruses Therapeutic Area. Before we begin with our prepared comments, let me remind you that we will be making forward-looking statements, including risks and uncertainties related to the impact of the COVID-19 pandemic on Gilead's business and results of operations. Plans and expectations with regards to products, product candidates, financial projections and the use of capital and 2020 financial guidance, all of which involve certain assumptions, risks and uncertainties beyond our control and could cause actual results to differ materially from these statements. A description of these risks can be found in the earnings press release and our latest SEC disclosure documents. All forward-looking statements are based on the information currently available to Gilead, and Gilead assumes no obligation to update any such forward-looking statement. 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 Gilead Web site. I will now turn the call over to Dan.

Thank you very much, Doug, and good afternoon, everyone. Well, as you can imagine it's been an extraordinary week for Gilead given the terrific news on our investigational antiviral drug Remdesivir. The news shared yesterday that the data showed the potential of Remdesivir to help ease some of the burden of the pandemic, is the outcome that we had all hoped would be possible. We're incredibly humbled to think about what this news could mean for patients and communities. I'd like to start by sharing my thanks to everyone who has helped to bring Remdesivir to this point, including all those involved in the collaborative clinical trials, the trial investigators, governments, hospitals and above all, the patients who participated. I want to acknowledge our internal teams that have been working day and night on Remdesivir for the past three months, following many years of research long before the outbreak began. Because of their Remdesivir news, the original focus for today's call has somewhat shifted. I'm sure you have a lot of questions on the results and the next steps. We'll provide an overview of what was a strong first quarter for Gilead, but with an abbreviated set of opening comments so we can leave more time for questions. I'll speak briefly about the quarter and Remdesivir before turning the call over to Andy to discuss financial details and the impact of COVID-19 on our business. As Doug noted in the opening, Christie, Joanna, Mehrdad and Diana have joined us today to answer your questions at the end of the call. Gilead has been built to withstand significant challenge. There's a short-term uncertainty for all of us, but the solid foundations that Gilead has laid over the past 30 years and our focus on transformational therapeutics give us confidence in the long-term durability of the business. We'll do our best to provide you with a clear picture of where we are and what we expect as far as the near-term impact of COVID-19, while acknowledging that, as we all know, these are uncertain times with many unknowns, not least of which is how long the pandemic will last. So, turning to the quarter. I'll use the framework we introduced at the start of the year with the three pillars that will shape our future; our strong core business, our internal pipeline and supplemental growth opportunities that are being enabled through our strategies. Our performance in the first quarter demonstrated the strength of our foundational business once again with double-digit growth in HIV. We reached and in fact exceeded all of our targets. Revenues for our HIV franchise were up 14% year-over-year. This was driven by both treatment and prevention as Biktarvy remain the number one prescribed HIV regimen in the U. S. during the quarter and approximately 38% of individuals on PrEP are now taking Descovy. What I would say in general about where we stand in HIV is this. We are very confident in the underlying competitiveness of our products and our position as the leader in HIV. Completing the picture in our core antivirals business, we saw sustained revenues from our HCV franchise in the last quarter. Since the introduction of authorized generics in the U. S. we've regained market share and now hold around 61% of share through Asegua and Gilead. So moving from our core business to advancing our pipeline, I’ll provide just a brief overview. More detailed information is available as part of our first quarter earnings materials in the investor relations sections of our Web site. Filgotinib, as you're aware, is under regulatory review in the United States, Europe and Japan as a potential treatment for rheumatoid arthritis. Our teams are preparing for a competitive launch and remain in close contact with regulators to understand the effect COVID-19 could have on reviewed timelines. In HIV, we made progress across our pipeline, sharing important data at the virtual CROI conference. With our innovative long-acting anti viral and HIV cure programs, reinforcing our long term commitment to people living with HIV. In cell therapy, the FDA accepted Kite BLA, for KTE-X19 as a treatment for relapsed and refractory mantle cell lymphoma during the first quarter and granted a priority review designation. As you might recall, the European Medicines Agency validated our application in January. This represents really important progress patients with relapsed refractory mantle cell lymphoma, a rare form of non-Hodgkins lymphoma, are in need of new therapies. If approved, Kite would be the first company with two cell therapies on the market. So I’ve touched on our strong core business and advancing our pipeline. Now I want to say a few words about the work we are doing to expand our pipeline through business development, including of course the acquisition of Forty Seven completed earlier this month. Acquiring Forty Seven is a great early example of our strategy in action. We said we would build on our core area of expertise, which as you know are virology and immuno-modulation that we would keep a high bar and then our business development efforts will focus on clinical stage assets, such as magrolimab, which we gained as a part of this acquisition. We're working to integrate the teams in the program. It’s a joint effort which I'm leading with Mark McCamish, the CEO of Forty Seven with the objectives of keeping things moving smoothly with magrolimab and defining a working model that supports continued innovation. Next month researchers will present data on our next generation cancer therapies virtually at ASCO, including magrolimab and a number of abstracts that highlight the Kite cell therapy portfolio. The presentations at ASCO underscore the strength of our scientific approach in immunooncology, and we look forward to sharing this latest research. Beyond Forty Seven, our business development team remains as active as ever. In the last month, we've announced three partnerships, a collaboration with Second Genome to identify biomarkers and potential new drug targets in inflammation, a licensing agreement between Kite and Teneobio covering a dual targeting CAR-T therapies, and a three year collaboration with oNKo-innate to discover cancer immunotherapies. Overall, we continue to maintain our momentum and I'm pleased with all the progress we've made this quarter. I'll now turn to Remdesivir. The study results shared yesterday from the randomized placebo controlled Phase 3 NIAID study and from our own open label Phase 3 SIMPLE study in patients with severe disease, are important progress as we seek to understand the role that Remdesivir might play in easing the burden of COVID-19 around the world. These trials are part of a suite of clinical trials investigating the effects of Remdesivir. We designed the clinical research program to ask multiple questions in parallel, including what groups of patients are most likely to respond and when to treat and for how long. Various study designs were used from placebo controlled to open label to answer very specific questions in each case. We expected that the answers would emerge around the same time and that taken together, they would form a clear picture of how Remdesivir might best be used for patients. Yesterday, we answered important questions with the initial results of the NIAID trial and SIMPLE trials. The NIAID data demonstrated that patients with COVID-19 who received Remdesivir recovered faster than similar patients who received placebo. The results from the Gilead-sponsored SIMPLE study address a critical question about dosing. The data from the first of the SIMPLE studies showed similar clinical improvements in patients with severe symptoms with COVID-19 regardless of whether they received 5 or 10 days of treatment. The ability to shorten duration for severely ill patients is very important. It means patients can go home earlier, hospital resources can be freed up and it has a positive impact of course on our supply. We had calculated having 1.5 million doses by the end of May, amounting to 140,000 treatment courses at a 10 day treatment duration. The Gilead SIMPLE study suggests we may now be able to significantly increase the number of courses available with a 5 day treatment duration for certain patients. As we announced previously, we are donating our entire existing supply, frankly because this is the right thing to do at this time and the human health need in the pandemic. As you know, we've been ramping up production since January. We’ve significantly reduced lead times and expanded our global network of partners. As additional raw materials come available, we'll have an exponential increase in supplies towards the latter half of this year. We hope to have produced enough supplies to treat over a million patients by year end. We are also working to build a global consortium of pharmaceutical and chemical manufacturers to expand global capacity and production. It will be essential for countries to work together to create enough supply for people all over the world, and we look forward to these collaborative efforts. For access and allocation, we'll work closely with government and healthcare system to provide access. We intend to allocate our available supply based on guiding principles that aim to direct global access for appropriate patients in urgent need of treatment. We recognize there's a lot of work left to be done and a long way to go in finding medical solutions to end the pandemic, and we'll continue to work with regulatory authorities and the best path forward for Remdesivir. At the same time, all of us at Gilead are relieved and grateful that our efforts in Remdesivir have led to this important progress at a time when we all need a beacon of hope. Before I turn the call over to Andy, I want to re reiterate how grateful we are for the partnership with many groups outside Gilead to support the work on Remdesivir. Our collaboration throughout this pandemic has been critical [Technical Difficulty].

Sounds like we lost Dan. I'll just finish Dan's comments. We also want to say how proud we are of the way our employees have demonstrated such dedication to meeting the needs of patients those with COVID-19, as well as those with conditions, including HIV, viral hepatitis and cancer who depend on us for their medications. So with that, I will turn to our financial comments and then we'll move to Q&A. Good afternoon, everyone. My name is Andrew Dickinson. I'm the company's CFO. Before I start, I'd also like to acknowledge the incredible work of our 12,000 employees and what they're doing during these challenging times. Their dedication and resilience is really inspiring. In addition from the outset, I'd like to emphasize that our core business is very strong, durable, and provides a solid foundation to navigate the current environment. We continue to have confidence in 2020 and beyond. The pandemic has not diminished that view at all, and we remain confident in our long term outlook. I'd like to first briefly share some commentary on our very strong first quarter results. And I'll remind you that the earnings materials posted on our Web site can help all of the details, including preliminary color on the impact of COVID-19 on our business to date, as well as our preliminary expectations for the coming months. We are happy to walk through the results and the impact of COVID-19 on our business today in detail during the Q&A session. Starting with our revenues for the quarter. Total revenues for the first quarter were $5.5 billion with non-GAAP earnings of $1.68 per diluted share. This compares to revenue of $5.3 billion with non-GAAP earnings of $1.67 per diluted share for the same period last year. Product sales for the first quarter were $5.5 billion, down 6% sequentially and up 5% year-over-year. I'd like to call out that we believe approximately $200 million of revenues were pulled forward in Q1, primarily for our HIV franchise due to the COVID-19 pandemic across the U. S. and Europe. This was the result of payers and pharmacies providing greater access to medicines by allowing 90 day refills and in some cases, early refills among other operators. We expect this to reverse itself out over subsequent quarters. Now, turning to our expenses, non-GAAP R&D expense was $1 billion for the quarter, up 8% compared to the same period last year, primarily due to the ramp up of Remdesivir, including manufacturing scale up and clinical trial costs. Non-GAAP SG&A expense was $1.1 billion, up 4% compared to the same period last year, primarily due to higher promotional expenses in the United States related to our HIV products. As Dan highlighted, we completed our acquisition of Forty Seven this month. We currently expect to incur approximately $120 million in expenses this year related to Forty Seven, primarily in research and development. In addition, I'd like to highlight that the acquisition qualifies as an asset acquisition. And as a result, we currently expect to incur approximately $4.8 billion in GAAP R&D expense, primarily related to in process research and development. Turning to our strong balance sheet. During the quarter, we generated $1.4 billion in cash from operations. We ended the quarter with $24.3 billion in cash and marketable debt securities. We repaid $500 million of debt, paid cash dividends of $874 million and repurchased $19 million shares of stock for $1.3 billion. I want to note that we paid approximately $4.9 billion in cash upon closing the Forty Seven in April. Our strong balance sheet and disciplined allocation of capital has positioned us to continue to grow and build our business despite current environment and associated risks. We remain very confident in the durability of our business, and expect to generate significant operating cash flow during 2020. I'll turn now to COVID-19 and its impact on our business. Like others, we have anticipated that there could be a short-term financial impact to our company and to the sector as a whole. We continue to carefully review our results to assess the potential magnitude of that impact. Towards the end of the quarter ending April, we did begin to see some effects on our business, primarily as fewer patients access healthcare and the number of new starts in HCV and HIV prevention began to slow. However, to-date, the overall effect on our business has been modest and it remains unclear what the ultimate impact will be. Given this significant uncertainty regarding the duration and magnitude of the COVID-19 pandemic, we are actively planning for a number of scenarios. And we'd like to focus on our base case assumptions today, which we are making from data drawn from a number of sources, including epidemiologists, economists and public health officials. First, these base case assumptions suggest the pandemic will peak between March and July. We would point the recent data from Johns Hopkins would show trends reflecting a slowing of the rate of new cases since late March in the United States, and a declining number of new patients in some critically affected regions of the world. Second, if the virus returns in the fall or winter, the impact will be lessened due to preparedness and hopefully the emergence of therapeutics, including potentially our own Remdesivir. Third, the global economy will begin recovery late in Q2 and a return to the pre-COVID dynamics will be underway by year end. We have of course considered external views that anticipate more or -- and less favorable scenarios, but we believe this base case provides the best foundation at this time to plan in this uncertain situation. Let me share a few qualitative perspectives on potential business implications of this scenario. Please bear in mind the forward-looking statement disclosures we shared at the beginning of the call. I'd also like to highlight again that we have added significant commentary throughout the investor presentation that's posted on our Web site and we would encourage you to review those materials. There are three key takeaways from our perspective; first, we had a very strong quarter; second, to-date, the impact on our business has been modest; and third, we remain very confident in our long-term outlook. That said, on the commercial side driven by lessened healthcare provider access and fewer patient visits, we may see revenues adversely impacted in Q2 and potentially beyond. This would likely be different across our franchises with our HCV franchise disproportionately affected due to the acute care nature of the therapy. We believe that the majority of any revenue decrease in HCV revenue due to the pandemic could be recouped in a warehousing type effect later in 2020 or into 2021. In HIV, early signals suggest that switches both for treatment and prevention patients maybe impacted by COVID-19 as people defer healthcare visits. Specifically, in April, we are observing reductions in Descovy for PrEP initiations and lower switch volume. PrEP refills may also be effected, but it's still too early to fully understand any trends here. In contrast, our HIV treatment business is less likely to be significantly impacted as we believe patients will continue to prioritize refilling their prescriptions and access their physicians through telemedicine. In cell therapy, reduced access to authorized treatment centers could unfortunately result in critically ill patients having access challenges, which would impact the business. Turning to clinical development. Like many others in our industry, we are pausing enrollment for most trials. The exception to this is studies where patient outcomes are critically impacted, such as trials of our HIV Capsid inhibitor in heavily pretreated individuals who have few other treatment options and some of our study programs that have enrolled patients with cancer who are critically ill. Enrollment in these studies is at the discretion of the investigators. Overall, we expect reduced clinical development expenses in the short term. In addition, the dynamic could lead to delays and potential approvals for pipeline assets over the longer run. With challenge brings opportunity to help. And as Dan described earlier, we are excited by emerging results in Remdesivir as a potential therapy for COVID-19. As we ramp up further development and manufacturing of Remdesivir, we will incur additional costs beyond those forecasts the beginning of the year. The magnitude of this investment is dependent on the continued evolution of the data, the duration of the pandemic and other factors. The potential range of this investment for 2020 is up to $1 billion and the accounting treatment of this investment is dependent upon a number of factors, including potential regulatory approvals. We’re authorized by regulatory authorities that Gilead will focus on making Remdesivir both accessible and affordable to governments and patients around the world. Given the continued uncertainty in the trajectory of the pandemic and in Remdesivir clinical data, it's premature to define what the right post donation business model is to create a sustainable long term supply for global needs. In the context of strong underlying business and Q1 results, we will continue to monitor the situation and expect to provide additional insights and outlook on our Q2 earnings call. I'd like to close by thanking our team for their extraordinary efforts and for delivering a very strong first quarter during these challenging times. We can now turn the call over to Q&A. Operator?

Thank you [Operator instructions]. And our first question comes from the line of Michael Yee with Jefferies.

So my question is for you guys on Remdesivir as it relates to [Technical Difficulty]. One, can you just describe the inputs into how to think about what revenue [impact] [ph] to the positive Remdesivir could have this year [Technical Difficulty] what are the impacts on that, inputs into that? And on expenses you guys obviously don't [Technical Difficulty] guidance you kind of walk through that, you described [Technical Difficulty] dollars for Remdesivir. Maybe just walk through the inputs there and how to think about why would it be on the lower end and a comment on that, because [indiscernible] model you're [Technical Difficulty]? Thanks.

Thanks, Michael. Appreciate the questions and sorry guys that I got cut off there before. Thanks, Andy, for picking up. I want to conclude with my comments is probably the most important comment is to really thank the colleagues throughout Gilead that are working on Remdesivir and non-Remdesivir projects alike, they've really kept the momentum going in quarter one. And I'm humbled and proud to be working with them. So Michael, thank you for the call. On the revenue side, it is just as Andy mentioned also and I mentioned, it's too premature. You know there's a lot of moving parts right now. Our focus will be on making sure we come up with a sustainable model that allows us to provide Remdesivir to patients around the globe that is intent on providing access and affordability. We're just now going through the clinical data, the demand scenarios, the regulatory approvals, all these things are essential for us to put inputs into our plan about how that will work post the donation. So we can't really give more insight into that at this stage, but certainly when we can we will. On the expense side, Andy, I mean, obviously you had mentioned already that up to $1 billion and unclear on how the accounting will occur. But perhaps you want to add something else to Michael's question.

At this point, it's too early to tell you where that's going to [fall on the] [ph] P&L because there’re number of scenarios. Those expenses could fall into cost of goods sold. As you know, there could be R&D expenses and in some scenarios, a portion of them could also be SG&A expenses. So at a high level, the expenses that we're referencing as you would expect come from manufacturing predominantly and to a lesser extent clinical trials. And I think that's our best good faith estimate at this time based on what we know in terms of the expenses that we see as we ramp up over the year. And we'll do everything we can to provide more color and commentary in particular on our Q2 earnings call.

I appreciate it. [A billion] [ph] of expenses and not knowing the revenue, its an interesting position. Appreciate it. Thank you.

Our next question comes from the line of Cory Kasimov with JP Morgan.

I wanted to also ask on Remdesivir, no surprise. I was wondering if you could talk about the formulation work that's underway to potentially develop an oral and/or an inhaled version of the product. How far along might you be on this front and when can we expect to see something more there?

Thanks Corey. I'll start it out and maybe others on the call want to add. But our focus, as you can imagine since January, has been on ramping up the supply, particularly so that we have the lyophilized version that's appropriate for an intravenous administration, the clinical program, all of that. So, it's really where we have been. At the same time though, we have had a team just as with everything with this program, including the supply we've had teams that have been really since the very day one in January have been focusing on success. And so if successful, how else could we potentially develop this medicine? I think that's been taken into account from the totality of the clinical trial program, looking at those critical, severe and moderate patients. But likewise, we've done the same thing with other alternative delivery mechanisms, presuming success that might make it more convenient for patients or allowed us to broaden the patient groups that could benefit from a successful antiviral. And that work is, as you can imagine, still early. But we can say a couple of things. It's not, this particular medicine, because it's heavily first half metabolized in the liver, is not really appropriate as an oral formulation. We've known that for years, probably a decade. But we are looking into things like subcutaneous formulations and potentially inhaled formulations. And although, it's too premature to give you timelines on that, rest assured that we've been actively working on those. And as soon as we can give some timelines, we will see now particularly because of the efficacy that we've seen this week, we'll continue to pursue those with a great sense of urgency. But timeline is a little premature. Just know that we've been working on it now for several months. I don't know Merdad, if you want to add anything. You’re okay, good. Merdad is okay. Okay, Cory, I know you need more, but we'll give you more as soon as we can.

Thank you. And our next question comes from the line of Brian Abrahams with RBC Capital Markets.

Two questions on Remdesivir if I could and appreciate all the work that you guys are doing to bring this treatment to patients, first off on the NIAID study. Can you give us any sense of the proportion of patients who are involved in the interim? Is there any additional update that we should be expecting that could be a gating factor to availability, and your level of confidence that differences and baseline risk factors didn't influence those results as may have happened in the China study? And then secondly, related to supply, any particular subsets of patients across the studies where you may be seeing the most optimal benefits where you might consider working regulators to direct the [indiscernible] while you're scaling up? Thanks.

Just to be clear on your second one related to supply, you said is there any subset of patients. Can you just complete that one more time?

Yes, any subset of patients where you might be seeing more benefits, more optimal benefits across the study, where you might consider working with regulators to try and direct the [indiscernible] initially as supply gets [Multiple Speakers]...

I get it . In terms of like an allocation. Yes, with limited allocation or limited [Multiple Speakers]…

Exactly…

Yes, got it. Okay, I'm going to turn it over to Merdad and I'll let Merdad take a stab at both of those.

On the first question, we've not seen a lot of the baseline demography and the sorts of data that would help in terms of answering your question on the NIAID study. So I think we're all going to have to wait for those data to get published and put out for us all for review. So, I think that's pending and we'll look for that to come out. In terms of patient subsets, I think our data and if you look at who's been enrolled in the trials overall, I think we're clearly looking at the hospitalized patient population and we're looking at patients who are requiring supplemental oxygen is the primary population that we're after, including those that may either become ventilated or may start out mechanically ventilated. Certainly, our data support that from our open label trials, the NIAID study enrolled that breadth of patients but we have not seen subgroup analyses of the different patient populations to give you clarity there. But we believe it'll be in that fairly broad population early on.

Thank you. And our next question comes from the line of Geoff Meacham with Bank of America.

Just want to say great job for the whole team really for Remdesivir development. A couple of points here on COVID-19. Have you guys looked at other nukes for earlier stage patients? Just thinking about 938 or [indiscernible]. I know you guys have a lot probably that is there that could be more applicable to some mild to moderate patients. And then on Remdesivir access, is there a model to license out IP and their manufacturing? I'm just thinking about how to accelerate perhaps broader access outside the U. S. Thank you.

Yes, thanks so much, Jeff for the thoughts. Everybody at Gilead will appreciate your sentiment. Let's start with COVID and the other nukes. I didn't know whether Merdad or Andy you want to handle that, I'm not sure how you want to.

Sure. I think right now. This is Merdad again, Jeff. Thanks for the question. Right now, we do believe that Remdesivir is the best molecule and has the best potency against the coronavirus. Anything we do we look at and you know both we and others have been looking for other molecules that could have potency here. But Remdesivir is certainly the most potent molecule that we have and that's been our focus. We'll certainly keep looking there. One of the reasons we are focused on looking at alternative formulations for Remdesivir is to address the question that you asked is just how can we get to other patient populations who may benefit from the drug as outpatients, for example. And I think in the short run, I believe that that's going to be the -- short to medium-term, I think that will be the best approach for us to go. And then I think your second question was about manufacturing, right?

Yes.

I mean, Andy, maybe you want take this question as well, because you’re leading the group on this.

On the manufacturing side, I'd say a couple of things at a high level. Again, our primary focus is on providing access to patients around the world. So, just like we did with our HIV medicines and HCV medicines, we are deeply focused on this. We have two separate work streams. One is working on our internal supply chain and making sure that we have the robust supply of starting materials, intermediate and a strong manufacturing consortium to build with companies around the world. You've seen some of the references to that in Dan, CEO's letters and I would expect it will provide some additional information over the coming weeks and months. We do have a second work stream, where we are in discussions with large sophisticated companies around the globe exploring the potential for other companies to help establish separate end-to-end manufacturing supply chains. The difficulty there, as you might imagine, is that given the scarcity of some of the starting materials, we want to make sure that we don't do anything to impact our supply chain, given that that is the quickest route to getting product to patients who need it all around the world. But we are looking at alternatives. It's too early to give you any specific guidance or to tell you where we're going to land on it. But we are working with a number of companies around the world that you and others know well to see what we could do together and if there's an opportunity to benefit patients in that way. So I'll leave it at that and then we will see…

That's great Andy, and appreciate your leadership there with your business development head on, working with manufacturing. I would just add that we've been a student of other small molecules in this type of setting, whether it's [Tamiflu] in the past and some of the scale up and stockpiling that occurred there, or students of our own work, if you like, within our HIV portfolio between the developed and the developing world. So we're putting all that knowledge to work as we think about moving fast and wide in terms of our ability to produce supply, but also thinking very thoughtfully about a global footprint here, which would allow for this to, as Andy said, have different geographic representation, which we think is going to be really important. So more to come on that but we've had teams really focused on that day and night for the past several months, just to give you an idea of that.

Thank you. And our next question comes from the line of Geoffrey Porges with SVB Leerink.

Thank you very much, and echo the comments and appreciate all the great communication as well from down on down. So on Remdesivir, I'll ask a controversial question, that's no surprise. But Dan, Gilead has generated effective returns for investors and effective return on capital from treating hepatitis C and potentially nearly eliminating hepatitis C from treating HIV and turning it into a chronic disease, and to building a really important global stockpile of antiviral for influenza. So, what's special about COVID. Should we assume that the capital returns with the profitability for providing global treatment for COVID long-term after the first 200,000 or 300,000 courses of provided on a donation basis. Should we assume the returns are going to be similar to the returns that you've generated in other parts of the business? And then just quickly, can you give us an filgotinib? And can you launch this on a virtual basis or do you expect to be out of the virtual basis by the time that approval comes?

So, Johanna, I’ll let you handle the filgotinib. But let me start with your first question, Jeff and thanks again. Obviously, we are conscious of the fact that this is unique and this is different. You mentioned some parallels to HIV, HCV even Tamiflu. But there's been no other time like this in the history of the planet than any of us have been alive. In terms of the far reaching effect of this pandemic, both medically from a patient perspective most importantly but also economically. And so I think there is no guidebook out there. There is no rulebook out there, other than that we need to be very thoughtful about how we can make sure we provide access of our medicines to patients around the globe. And do that in a sustainable way for the company for you as shareholders and we acknowledge that. And so points well taken and I would, I guess the short answer to your question is, I don't think there is a precedent to this. And so we understand our responsibility and we understand our responsibility to arrive at different audiences as we approach this. So, we'll be working back with you and we'll certainly be getting feedback from different individuals as we evolve this and as we understand for data around this. But rest assured, we understand our responsibility. With that I'm going to turn it over to Johanna please to talk a little bit filgotinib.

So, Geoffrey, I think just a quick update on filgo. We basically have hired all of our home office personnelj, both from a commercial medical standpoint, we've hired our sales leadership, field leadership as well and we're monitoring the situation really closely to be honest with you, because nobody really knows when this ends or what's the new normal and when not begin. And so we're just kind of monitoring that and planning for success to be honest with you to make sure that we are ready for launch for the second half of 2020 across all of the markets where we hope to get regulatory approval with the U. S., Japan, as well as Europe towards the end of this year. I think from a virtual launch standpoint, I think those are considerations that we're looking at in scenario planning and we haven't made a decision obviously that will be linked to the timing of this pandemic. Having said that, I will also tell you that a lot of our teams are doing virtual right now, many of the markets are doing remote detailing, virtual speaker programs, et cetera. And working through this environment despite obviously the opposites and patients not being open at this point in time. So, we're working through all that and looking at the different scenarios. But I think we need to know a little bit more information on the timing of this pandemic and how that plays out towards the end of this year.

Thank you. And our next question comes from the line of Matthew Harrison with Morgan Stanley.

I'm going to ask two on HIV. One, can you just talk a little bit about PrEP conversion with Descovy? I think you said you were 38%, which is actually fairly close to the target you guys were talking about. Do you think you can do better than that or not this year? And then I also noticed in the back of the slides, you were talking about a long acting Biktarvy that you’re putting into clinical studies. Maybe you could comment on that. Thanks.

Thank you so much Matthew for the comments. So Joanna, why don't you start and perhaps Diana can add on the development side.

So HIV overall business have of course another solid quarter again this year. It's the eighth consecutive quarter of double-digit growth, and that's obviously driven by both the treatment and the PrEP business. So your question specific to Descovy. Yes, so we just hit 38%. And so, tracking exactly to our plan, right. We had said anywhere between 40% to 45% towards the end of this year. So, we feel confident with that number. Obviously, as Andy mentioned in his opening comments, there has been a little bit of a slowdown from a switch standpoint in the PrEP market for obvious reasons, because patients are not going there to the physicians offices. But it's modest thus far and we think a lot of those will be able to recoup towards the end of this year, when the pandemic does left. So, we feel still very confident that, yes, we think we're going to be in the range of that 40%, 45% that we had originally set out and maybe even, if all goes well and we can get out of this pandemic a little bit earlier, maybe a little bit north of that. So Diana, maybe to address the long acting.

So, as you probably know, we're really pursuing multiple shots on goals for developing a partner for capsid inhibitor. We are looking at molecules across different classes, and part of that is looking at the integrase inhibitor class, and we've got really what's the best-in-class, ideal integrase inhibitor right now with Biktarvy. And so, one of our efforts has been in formulating that such that it could be a long-acting injectable and that potential sort of first-generation partner for capsid inhibitor. We've made a lot of progress. As you know, we've got a great formulation team here and we're on the verge of getting that into the clinic. Now, most Phase 1 centers globally really have been shut down or paused. So, the timing there is a little bit uncertain but we're ready and hoping to have data by the end of the year.

Our next question comes from the line of Umer Raffat with Evercore.

Dan, we really admire Gilead’s efforts during the pandemic and the drug donations et cetera. But as we go beyond that, it does seem like there will be a commercial business in the broader COVID landscape. And I don't want to peg you to $1 number but I do want to ask this. Do you envision Gilead’s product offerings for COVID been beyond them Remdesivir? For example, PI combinations and/or even partnering with vaccine companies of sorts. I'm just trying to understand how you envision this category for Gilead, if I may. And Merdad, if I may ask you a quick two part question. First, do you have a certain lung concentrations in mind that you're targeting, and is that much less than the 20 micro molar as laid out in the New England Journal paper? And do you have any data from humans on what lung concentrations are we actually seeing with Remdesivir with the dose that’s in the clinic? Thank you so much.

Getting back to Remdesivir and I would see this playing out over time. Again, I'm going to have to come back to some of the basis of what I said before, which is we really need some time now to reflect upon a very volatile changing situation to determine, both on a clinical side, regulatory side and pandemic side, epidemiology, what's the right sustainable model is. Rest assured that we'll come back to you as soon as we can digest that and as soon as actually a little bit more time passes, which was also one of the important reasons for the donation to allow us to obtain more information as well, what that sustainable plan a model is. But I'll just make a couple of comments on what we said in the results, so record Dr. Fauci yesterday, which is with the NIAID results and the highly statistically significant reduction in time to recovery, this now changes the landscape of your life for drug development within COVID-19. Being that one has to now think about comparing to Remdesivir and/or looking at adding to Remdesivir, which I think is exactly what the NIAID trial is going to do now. And I'm sure all of our collaborators within the drug development space, we have been working with them, we're going to continue to work with them on the most thoughtful hypotheses around how we might be fitter, just as one reflects upon the HIV building decades ago, that Remdesivir become kind of the base therapy and one looks to try to improve symptomology improvements, mortality improvements, expanding patient populations. And so that is yet another factor that will go into how we determine how best to create a sustainable solution for Remdesivir. But clearly, all those things we have been thinking about and now we have to accelerate now that we have these trial results. So, more to come on that. I will have, Merdad, you answer the lung question, if you could, please for Umer.

So what I would say is the concentration that we're looking for, as you know, we think our EASL50 in human cells is in the 10s of nanomolar range, and we know our serum concentration gets in the micromolar range. And so we should be more than adequately covered by achieving those levels with the current dosing paradigm that we have, probably by an order of magnitude or two. And certainly in the serum and based on model data in nonhuman primates, as well as mice, we see more than adequate concentrations getting into the lung of those animals and in vivo efficacy in those animals. And I think, the clinical benefits we're seeing suggests that, that's exactly what's happening in humans as well. So I think we're pretty comfortable with where we are in terms of both dosing and exposure, including in the lung.

Our next question comes from the line of Alethia Young from Cantor Fitzgerald.

Thanks for taking my question, and thank you for your contribution in solving the world's problems. Maybe just one and a half from me. Were you surprised just with Remdesivir kind of working as it did with an antiretroviral that you kind of think that you might need to have people kind of earlier on virus for it to work, and do you think it worked better there? And then the second question is just a little bit around HIV. Are you seeing buying patterns changing in the public market? So like the Medicaid, the presence, et cetera, et cetera. Thanks.

Thanks a lot again for your comments. I'm going to turn the first question over to Mehrdad and the second one over to Joanna. But just as I do on your first question, and I think Merdad can fill in the details here. But, there's been a surprising consistency across all the different data elements in our clinical program from compassionate use, to interrogating what we know about the China trial, to the severe trial to the NIAID trial. And I think that is maybe not something that's completely well understood out there. And I think, Merdad, it’s a part of your response, I think it'd be helpful for you to reflect upon that as well, if it's okay.

No, of course. I think, Alethia, we all were using the parallel construct of influenza for our thinking around Remdesivir, which was, you got to get in really early, given the viral kinetics and influenza and getting into late probably won't have much of an impact. And I remember at investor call a couple of months ago where I said that as well, and that was certainly our expectation. However, the wild card here and I think we're still learning is what are the viral kinetics in patients with this virus? How long does that last? And how quickly does it go up? And how quickly can we have an impact on it? So, I think the data or the data essentially that we are seeing efficacy across both patient populations, but also across trials that are really all tracking in the same direction as Dan alluded to. So even if you look at for the China data, the hazard ratios for improvement are consistently positive. The study was underpowered and I think the hazard ratios we’ll probably see from the NIAID study, are going to be in the same ballpark. But with an appropriate sample size, they're highly statistically significant. Similarly, I think when we look at the mortality data, when we look at all of those different factors, this virus seems to be behaving differently. Remdesivir seems to be having efficacy in relatively broad patient population. And so, I think we're learning as we go. We'll learn more as more data are generated. We have our moderate data coming up where we’ll be looking at an even less severely ill patient population. So there will be more data coming out in that population that may add to our knowledge base here to understand the spectrum. And as we talked about earlier, understanding the efficacy in the subgroups and the NIAID study will be really interesting in this and we don't have that information yet. So, I think all of those data will contribute to our overall understanding of how early do you need to be in new patients who have symptoms for less time do better. Those are certainly the trends. But there certainly seems to be benefit even in patients who have longer duration of symptoms right now. So, I'll hand it off to Johanna for the HIV question.

So Alethia, just a couple of things. We have a couple of moving pieces in the first quarter for HIV. So, I just want to -- because it's not just one piece that's making the difference here. And so the first one is obviously your seasonal inventory. So there’s Q4 load off and then Q1 draw down, so that's definitely happening in Q1. Then we also had towards late March, like I'm sure many did as well, the prescription, number of days for prescription rise and inventories rise towards the end of March. We've had a bit of a mix of those two things. And specifically to government channels that you're asking the buying pattern, we do normally seem to run a little bit more of a higher mix towards government channels in the first quarter, and that obviously may negatively impacts our payer mix. So that is definitely happening in the first quarter of this year.

Our next question comes from the line of Mohit Bansal with Citigroup.

Great, thanks for taking my question. And I would also add my appreciation for your efforts against COVID-19. A quick one from my side, if you can help me. If you can update us on your collaboration programs with Galapagos timelines at this point, both for IPF as well as osteoarthritis, and specifically on osteoarthritis program? How important is it for Gilead to see the improvement in pain than we see the data for you to take a decision to opt in there? Thank you.

So with the IPF program, there is a scheduled interim analysis that will be coming up early next year and we think things will stay on track. Again, I'll put some error bars around the pandemic, but I don't think that should be impacted at least today. So, that will be something that we’ll be clearly looking forward to and will be important to how we proceed there. In terms of the osteoarthritis, it's a great question. I think while seeing structural improvement is going to be really important and interesting. Certainly, thus far the regulatory guidance has included looking at symptoms like pain for improvement. So we can push on that. Obviously, if we see special improvement and we haven't been powered for example for pain then we'll have to look at that and think about what the implications of that are and discuss it with the regulators. So, I think what we'll be looking for is directionality on all the endpoints that we will be measuring to make a smart decision in terms of moving forward with that program.

Our next question comes from the line of Robyn Karnauskas with SunTrust.

Hey, guys thanks for taking my questions. And again, great work on all the things you're doing to help it help us with COVID. So, there's a lot of talk about the Remdesivir being approved for emergency use, and can you just clarify. Does that mean that at that point in time versus now where it's compassionate you actually could charge for the drug? And when you say affordable, does that mean a positive margin for the product? And lastly, from a science point of view, help me understand what would it take first in these drugs, or your drug on top of other drugs to work in a ventilator patient do you think theoretically? Thank you.

So, I'll turn the ventilator question over to Merdad in just a second, but thanks. So to clarify the EUA. So, yes, I mean, under an emergency use authorization, one could charge for the product. We made a decision, as you know, to donate 1.5 million vials, which has the entirety of our supplies through the early summer and that's for a variety of uses, right. I mean that's for clinical trials as one would expect not to charge for those of course, compassionate use, [EAP] in other countries, but also available is that supply for regulatory approvals around the world, and then we'll allocate accordingly as those regulatory approvals come online. So yes, it is possible to charge. I would just say that our goal here is to get a full approval for Remdesivir. We feel the data supports that and then EUA therefore is a step to really a more formalized approval. The reason the agency and we are talking about that is these are extraordinary times. So, weeks would make a difference to be able to get medicine to patients by enacting an EUA, if that's what the FDA chooses to do prior to another form of approval. And so it's a step wise approach, which allows us to immediately address these humanitarian needs, while still pursuing all the aspects of a normal approval, which we are doing with the FDA. So, I think that's probably the most important point. And again, I know Robyn and trust us. We will be answering your questions on the sustainable model for Remdesivir in the future, in the near future. We just don't have the answers yet and we -- but we deeply respect and appreciate the fact that when we get into millions of doses, we have to have a sustainable economic model that works here and that achieves access to affordability to patients around the world. So, more to come on that. If I could turn it over to Merdad on the ventilated treatment approach.

The criticality of this comes down to a timing question. It really comes down to how long is viral replication ongoing in the lungs of patients, and how quickly do patients deteriorate to needing mechanical ventilation. Certainly, what we're seeing is that, patients are very, very rapidly deteriorating, some patients deteriorate rapidly. And so getting them into viral therapy in that timeframe where it seems that there's still viral replication going on certainly seems to be benefiting those patients. And probably what's going on and this is speculation on my part is by limiting the viral replication, you're going to limit the inflammation, you're going to reduce the number of people who develop lung injury, and you're going to get them off the ventilator faster. So, the discharge rates that we're seeing where the people are being discharged four days earlier, for example, in NIAID study underlying that are patients who are deescalate their need for oxygenation and that leads them to getting on to room air more quickly. And I think -- so there's a time element in all of this that I think is probably where we're benefiting these patients. Certainly if you talk about people who've been ventilated for a week or two weeks, there the question of whether an antiviral would be beneficial, I think seems more difficult to tie into what's going on. But again, it comes down to understand the viral kinetics here and that's a work in progress, I think for all of us.

Our next question comes from the line of Salim Syed with Mizuho.

Hey guys, thanks so much for the question. And I echo all my peer’s comments on the great work you guys have done on Remdesivir. Dan, maybe just one for me, a high level of question here around your involvement, maybe with folks in Washington, you're discussions there. So obviously, biotech for some time has been about, from Washington perspective about drug pricing and the rhetoric has been pretty negative. I'm wondering if the rhetoric has changed at all in your view, which is when you're dealing with folks there, how it's particularly changed given -- and you guys are still key to this from Remdesivir and the solution to COVID-19?

Yes, these are unusual times for all of us, I'm sure in all of your areas of interest, as well as ours. And so what I can say is that I think people have come together in a variety of ways, and certainly that's also occurred to a certain degree in Washington. And I've spent a decent amount of time in Washington over the past several months, certainly, before the shelter in place. And I think even then, there is some change in the rhetoric. I think for highly innovative research based companies that have immediately kind of shifted their efforts to solutions on the coronavirus, it's pretty impressive actually to many of the peers in the industry, that I stay in very close touch with have spared no expense to kind of pivot and shift. So I think at the end of the day, I think this will certainly help the industry’s reputation, I think the ability to solve a human crisis like this, because of the decades of investments and the at risk investments that's done by so many companies, people I think will -- and the general public will see that. And whether that's treatment, different types of treatments or vaccines, I think that will be the case. But certainly to your point, I think the tone is different in Washington. I think people are very appreciative and concerned about finding solutions here, and it's brought us all together, which I think is a good thing. I'm not suggesting that, there won't continue to be focus and pressure on drug pricing. Of course, there will be. And we continue to work appropriately to make sure that, in particular the patients that are bearing the brunt sometimes of some of the pharmaceutical pricing that legislation is put into place that supports that and improve that for patients and that we lean in as an industry and as a company to give more that flows through to patients. So all of those principles I think still apply, but it's being done now in a way where we can have an appreciation for the innovation that the industry brings. So more to come. And a lot is still to happen this year with the election coming up and with other things. But, I think from a Gilead perspective, we stay focused on innovative medicines and making sure we have access programs on leaning into legislation that supports the innovative industry and that supports reducing patient out of pocket costs, and that will be our focus accordingly, Salim. So hope that gives a little bit of a insight.

Thank you. Our next question comes from the line of Tyler Van Buren with Piper Sandler.

Thanks for everything that you're doing, and have a couple more Remdesivir questions of course. Given your experience, your expertise in viral infections and all the natural history that you guys are collecting in real time. Want to ask you about your best, latest thoughts on the nature of COVID-19 recurrence. Your base case assumes a peak potentially by July return in the fall and winter but a lower impact. So, is it possible provide a rough quantification of what that lower impact might be? And then also in subsequent years, is this something that you would expect in that base case to peter out or to be with us for potentially the next decade or two? And then the second question is just following up on your earlier comments on FDA interactions and potential pathways to approval, which was helpful. Have you guys had labeling discussions? Is there any color you could provide there?

On Remdesivir, right?

Yes.

Thanks, Tyler, again, for the comments and I might ask if Andy and Merdad want comment on the first question. Let me start with the second. So, yes, we've been in constant dialog with the agency on Remdesivir. I just have to really also say how thankful we are for the FDA and other members of the government, the coronavirus task force that have really made themselves available, really literally all the time when we need them and vice versa. So, it's been a very good collaborative relationship. In terms of Remdesivir and the interactions with the FDA, I mean, we have been working with them on the submission. They've been open to receiving parts of the submission, which has been very helpful under a normal process, plus there's the whole EUA process that kind of goes on top of that. So yes, the answer is and you can imagine that obviously, that's been going on for weeks and actually a couple of months now. But in the past 48 hours, it's increased in intensity. So, we are and the team is in constant kind of information exchange with the agency right now, and they're getting information from us. So obviously from NIH on the NIAID trial and there's a big sense of urgency here. I think the FDA understands the importance of reacting quickly to this. And so, it's intense right now. And we think the FDA will move quite quickly on the decision on the labeling side. So, back to the lower impact of the base case. I don't know Merdad, from a scientific perspective or Andy, if you want to provide any other -- I think, we don't have a crystal ball like it’s…

Yes, I think -- and Tyler, we are as much a consumer as others. I think we are -- obviously our data, our snapshot into what's going on. But we use for on modeling, we use the external epidemiology data and use that right now to get the broader picture. So, I don't think we have any unique insights today that don't rely on the same sources that everyone else. So that's I think where we are. Obviously, as we capture more data and maybe that would change, but today I think that's where we are. And I'll just echo what Dan said. This has been an unprecedented time in terms of our interactions with the regulators, both here in the U. S., as well as outside the U. S. It's been really impressive and truly collaborative working with NIH and the FDA in parallel over the past couple of months and we talk constantly, and the same is true with EMA, same as true is Japan, where we're talking to all the regulators in parallel. So it's been a pretty unique situation and I think everyone understands the gravity. So, that's been very helpful in moving forward collaboratively.

Our last question comes from the line of Phil Nadeau with Cowen and Company.

Two more questions on Remdesivir. The first is on the upcoming data from the SIMPLE trial, the modern trial due in May. Can you remind us how the enrollment criteria and endpoint definitions deferred between the NIAID trial and that upcoming data set? And so should we expect similar data or are there notable differences? And then second, just a follow up question on Tyler's on the FDA approval pathway. Dan, your answer to Tyler's question suggests that you may not need any more data to get a formal FDA approval. The NIAID trial might be sufficient. Is that your current understanding of your FDA dialog?

Yes, I'll let Merdad also discuss. So, yes I just -- look, the discussions are still ongoing in terms of what's required for a formal approval. What I meant to infer earlier is that the NIAID data are demonstrates safety and efficacy at a highly statistical level, which is usually the barrier for a full approval. So, that's what we're working with them on. And I don't want to get ahead of the agency on that, if that's okay. But again I do believe that there is most likely kind of a two step process that potentially in the UAE being granted and then moving on to the full approval. Having said that, can I turn to Merdad or Diana, so Merdad, okay on the first question.

Yes, I was actually going to see if Diana wanted to answer that question…

Okay, yes, that’s great. Diana, thank you.

So, in terms of endpoints, the NIAID study looks at time to clinical recovery, use 7 point retinal scale, and the ordinal scale is really tracking throughout most of the major clinical trials right now. But as our understanding of the disease has evolved the types of endpoints using that scale has evolved. And so, NIAID changed to time to clinical recovery, which basically means no longer requiring medical care within the hospital, getting off of oxygen or live discharge. In our moderate study, we're looking -- we're using the ordinal scale as well, but we're looking at the day 11 distribution along that ordinal scale. So, similar to what we did in our severe study, but looking at day 11 instead of day 14, recognizing that we're looking at a population that's less sick. So the modern study is looking at patients who are hospitalized, but they're not hypoxic, they're not requiring oxygen. The NIAID study enroll patients from starting their but all way through mechanical ventilation. So, slightly different end points for slightly different patient populations and most importantly, really looking at different questions. We're looking at treatment duration, they're looking at primary safety and efficacy with the placebo control.

That's helpful. Thank you.

Thanks a lot, Phil. So with that, I think we'll turn the call over to Doug to close. But, let me just say, thank you very much to all of you. And we really appreciate your trust and confidence in Gilead, and we'll continue to do our best throughout what we do for patients and certainly for COVID-19. So with that, Doug, do you want to have a last word?

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

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