Oct 18, 2007
Executives
John Martin - President and CEO John Milligan - COO and CFO Norbert Bischofberger - EVP,R&D and CSO Kevin Young - EVP, Commercial Matt Howe - VP of Finance Susan Hubbard - VP of IR
Analysts
Meg Malloy - Goldman Sachs Thomas Wei -Piper Jaffray Mark Schoenebaum - Bear Stearns Geoffrey Porges - Bernstein Yaron Werber - Citigroup Bret Holley - CIBC World Markets Geoff Meacham - JP Morgan Michael Aberman - Credit Suisse William Ho - Banc of AmericaSecurities Sapna Srivastava - Morgan Stanley Joel Sendek - Lazard CapitalMarkets
Operator
Ladies and gentlemen, thank youfor standing by, and welcome to the Gilead Sciences Third Quarter 2007 EarningsCall. At this time, all participants are in a listen-only mode.
Later we willconduct a question-and-answer session. As a reminder this conference call isbeing recorded today, October 18th, 2007.
Your speakers for today are JohnMilligan, Chief Operating Officer and Chief Financial Officer; John Martin,President and Chief Executive Officer, Norbert Bischofberger, Executive VicePresident of Research and Development and Chief Scientific Officer and KevinYoung, Executive Vice President of Commercial Operations. I would now like to turn the callover to Dr.
Milligan. Please go ahead, sir.
John Milligan
Good afternoon and welcome to Gilead's third quarter 2007 earnings conference call. Weissued a press release this afternoon providing results for the third quarterended September 30th, 2007 describing the company's quarterly highlights.
Thispress release is also available on our website at www.gilead.com. Also joining us on today’s callare Matt Howe, Vice President of Finance and Susan Hubbard, Vice President ofInvestor Relations.
I’ll begin the call by reviewingthe third quarter financial results and then I will provide updated financialguidance for 2007. John Martin, Norbert Bischofberger and Kevin Young will takeyou through the corporate and product-related highlights for the quarter and wewill allow time at the end of this call to answer your questions.
First, I’d like to remind youthat we’d be making statements related to future events, expectations, trends,objectives, and financial results that constitute forward-looking statementswithin the meaning of the Private Securities Act of 1995. These statements arebased on certain assumptions and are subject to a number of risks anduncertainties that could cause our actual results to differ materially fromthose expressed in any forward-looking statement.
I refer you to our Form 10-Q forthe second quarter ended June 30, 2007, subsequent press releases and otherpublicly filed SEC disclosure documents for detailed description of the risk factorsaffecting our business. In addition, please note that weundertake no obligation to update or revise these forward-looking statements.We will be making certain references to financial measures that are on anon-GAAP basis.
We provide reconciliation between GAAP and non-GAAP on ourwebsite. The third quarter of 2007 wasanother very successful quarter for Gilead.Total revenues for the third quarter of 2007 were again over $1 billion, drivenby record quarterly product sales of $962 million, a 44% increase compared toproduct sales from the third quarter of 2006.
HIV product sales totaled $806million for the third quarter of 2007, driven primarily by the continued stronguptake of ATRIPLA in the United States,as well as strong growth of Truvada in Europe.We generated approximately $251 million of operating cash flow during the thirdquarter of 2007. Operating expenses continued to demonstrate controlled growth,as we continue to implement and execute strategies to grow revenues and cashflow, progress our research and development program, and to expand our salesand marketing infrastructure.
Now, turning to the specificresults for the third quarter. Our third quarter 2007 net income was $398million, or $0.42 per share on a fully diluted basis.
Our third quarter 2006net loss effect was $52 million, which included the $356 million in-processR&D charge related to our acquisition of Corus Pharma Inc. Non-GAAP net income per share forthe third quarter of 2007, excluding the impact of after tax stock-basedcompensation expense was $0.45 per share on fully diluted basis.
A 30% increaseover the third quarter 2006 non-GAAP net income per share of $0.34 per share,which excluded both after tax stock-based compensation expenses at both thequarter in-process R&D charge. Now, turning to revenues.
Totalrevenue for the third quarter of 2007 was $1 billion, an increase of 41% fromtotal revenues of $749 million from the third quarter of 2006. This performanceis driven primarily by a 44% increase in our product sales, as well as the 23%increase in our royalty, contract and other revenues compared to third quarterof 2006.
Product sales were a record $962million for the third quarter of 2007, marking four years of consecutivequarterly product sales growth. Product sales for the third quarter increasedsequentially by 6%, at our HIV Franchise, as well as Hepsera and AmBisomeproduct sales continue to grow.
Royalty, contract, and otherrevenues decreased sequentially by 32% due primarily to the seasonality ofinfluenza, and as resulting effect on Tamiflu sales and royalties, which I willdiscuss later. Now turning to product sales, HIVproduct sales grew to $806 million for the third quarter of 2007, up 45% from$557 million from the third quarter of 2006, and up 6% sequentially from thesecond quarter of 2007.
Truvada sales were $409 million for the third quarterof 2007, up 32% compared to the third quarter of 2006 and up 6% sequentiallyfrom the second quarter of 2007. Truvada sales accounted for approximatelyhalf of our total HIV franchisees sales on third quarter of 2007.
In the U.S., Truvada sales were $207million for the third quarter of 2007, up 3% compared to the third quarter of2006. Sequentially, U.S.sales were up 11% as Truvada continued to hold its place at the NRTI backboneof choice in combination with protease inhibitors.
In Europe,Truvada sales for the third quarter of 2007 were $184 million, an increase of83% compared to the third quarter of 2006, and an increase of 6% compared to thesecond quarter of 2007. Strong sales volume growth in Europe was a key driver of the increased Truvada sales.Additionally, $11 million of the Truvada sales increases due to the strength ofthe underlying European currencies when compared to the same period last year.
Based on the review of recentlyavailable sales data in France,we are confirming there has been an increased level of parallel trade activitywithin this region, where certain wholesalers are purchasing and perhapsholding in their inventory of HIV products with the expectations ofre-exporting them to other countries at higher prices. We currently do not know if thislevel of buying is material; however, it may result in normally highervolatility to our sales growth in the next few quarters, especially forTruvada.
We will be implementing a supplymanagement system in Franceto manage the orders of Truvada and Viread effective December 1st of this year,with the intent of ensuring adequate and appropriate supply to the Frenchdomestic market. Because of the timing of theimplementation of this management system, we do not anticipate any materialimpact to our sales in the European Union in the fourth quarter this year, andwill continue to monitor and analyze the situation closely as we move into2008.
In Latin America, Truvada sales for the third quarter of 2007 decreased by$9 million when compared to the second quarter of 2007, primarily due to largeMexican government tender order in the second quarter of 2007. Atripla contributed $241 millionto our third quarter HIV product sales as demand for this product continued torise.
Atripla sales accounted for 30% of our total HIV franchise sales in thethird quarter of 2007. Sustiva portion of Atripla saleswas $89 million in the third quarter of 2007, which, as you know, carries azero product gross margin since our joint venture purchases of Sustiva fromBristol-Myers Squibb, at BMS' net selling price of Sustiva in United States.
Viread sales were $149 millionfor the third quarter of 2007, down 30% from the same period last year, anddown 4% sequentially. Third quarter 2007 Viread sales in both the United Salesand Europe decreased by 12% compared to the same period last year, but wererelatively flat sequentially from second quarter of 2007, as Viread continuesto play an important role for patients in later lines of therapy.
Outside of the U.S and Europe,third quarter 2007 Viread sales decreased by 60% compared to the same periodlast year, and decreased by 30% sequentially due primarily to cyclical buyingpatterns in Latin America. Hepsera for the treatment ofchronic hepatitis B generated sales of $79 million in the third quarter of2007, a 44% increase compared to the third quarter of 2006, and a 5% increasesequentially.
In the United States, Hepsera salesincreased by 38% when compared to the third quarter of 2006, or sequentiallyflat. In the third quarter of 2007, there was a slight reduction in Hepserainventory held at the wholesalers, but the inventory level remained within ourcontractual ban.
Third quarter of 2007; Hepserasales in the EU increased by 44% when compared to the same period last year,and by 7% sequentially as we continue to experience sales volume growth acrossthe territory. And finally, sales of AmBisomewere $69 million for the third quarter of 2007, an increase of 24% over thesame period of 2006, and an increase of 6% sequentially.
The increase in AmBisome sales inthe third quarter of 2007 compared to the same quarter in 2006, drivenprimarily by sales volume growth in Europe and Australia as well as the weakerU.S. dollar, which contributed to an additional $4 million in revenue whencompared to the same period last year.
Compared to the same period lastyear, our royalty, contract, and other revenues for the third quarter of 2007increased by 23%, but decreased by $46 million or 32% sequentially. Sequential decrease was primarilydriven by the seasonal nature of Tamiflu, royalty revenues recognized fromTamiflu sale, made by Roche as well as a lower level of pandemic purposesduring the quarter.
Royalties received from Roche inthe third quarter of 2007 was $77 million. These royalties, which are paid onequarter in arrears, reflected royalty rate of approximately 22% as applied toRoche and sales of Tamiflu during the second quarter of 2007.
As you may have seen, Rochereported their third quarter 2007 earnings on Tuesday of this week, with 257million Swiss francs or approximately $212 million reported in Tamiflu sale.We, therefore, expected the Tamiflu royalty revenue that we will report in thefourth quarter will be at a rate of approximately 22% of that figure. Turning to product gross margin;Non-GAAP product gross margin for the third quarter of 2007, which excludesstock-based compensation expense, was approximately 80% compared to non-GAAPproduct gross margin of approximately 84% for the same quarter of 2006 and 80%for the second quarter of 2007.
The lower product gross margincompared to same period last year was primarily due to the higherproportionally Atripla sales, which have a lower product gross margin due tothe Sustiva portion at zero gross margin. Now turning to expenses; Non-GAAPR&D expenses for the third quarter of 2007, which excludes stock-basedcompensation expense, were $122 million.
This is an increase of 52% from $80million in the same period last year and a $3 million or 2% increase in thesecond quarter of 2007, primarily as a result of the increased competition andbenefits related to higher headcount, as well as increased clinical studyexpenses related to our respiratory and cardiovascular franchises which weacquired in the later part of 2006. In the third quarter of 2007, wealso paid $5 million up-front license fee to Parion Sciences, which wasincluded in R&D expenses.
Non-GAAP SG&A expenses forthe third quarter of 2007, which includes stock based compensation were $148million, an increase of 27% compared to $117 million at the same period lastyear, due primarily to increased competition benefits related to increasedheadcount, increased marketing and promotional expenses, as well as, otherconsulting and supportive services related to our cardiovascular franchise. On a sequential basis, non-GAAPSG&A expenses for the third quarter of 2007 decreased by 6% from $158million in the second quarter of 2007 due primarily to decrease promotionalexpenses.
The second quarter of 2007, we incurred higher promotional expensesrelated to launch of Letairis pulmonary arterial hypertension in June 2007. In terms of foreign exchangeimpact, $25 million of our product sales increased in the third, our productsales increased in the third quarter 2007 was due to the strength of theunderlying European currency when compared with same period last year, and $3million when compared to the second quarter of this year.
This favorable impacttakes in account our hedging activities. On pre-tax earning, foreignexchange had a net favorable impact of $17 million in the third quarter of 2007when compared to the same period last year and $1 million net favorable impactwhen compared to the second quarter of 2007.
This favorable impact takes intoaccount the product sales and expenses generated outside the United States, as well as, ourhedging activity. Our tax rate for the thirdquarter of 2007 was 30.8%.
Our tax-rate for the third quarter of 2006, beforethe Corus acquisition related in-process R&D expenses 31.8%. The lower taxrate was primarily driven by increased earnings and lower tax jurisdiction.
Sequentially, our third quarter2007 tax rate increased from 28.5% in the second quarter of 2007, due primarilyto the finalization of certain purchase accounting adjustments in the secondquarter of 2007. And finally, I would like to turnto our cash position and operating cash flow to highlight our cash flowperformance for the quarter.
Our balance sheet at September 30th, 2007 showstotal cash, cash equivalents and marketable securities of $2.2 billion. This isan increase of $231 million when compared to the balance of $2 billion at June30th, 2007.
The increase during the third quarter of 2007 was primarilyattributable to $251 million of operating cash flow generated during thequarter. We continue to actively evaluatein a strategic way to use our cash and investments, including potentialopportunities to in-license or acquired products, to complement our owninternal efforts, as well as other strategies to enhance stockholder value,including future additional share repurchase program.
Now, I would like to turn to ourfinancial guidance for the full year of 2007. You can locate all of ourguidance for the 2007 year on Gilead'scorporate website.
We are very pleased with the sequential quarter-over-quartergrowth in our product revenue, which is in line with our expectation. Therefore, we now expect ourproduct sales for 2007 to be at the upper end of our guidance range of $2.6billion to $2.7 billion, which includes approximately $15 million of estimatedU.S.
Letairis for 2007, which Kevin will give more color on later in the call. This product revenue guidance isfor direct product build only and does not include royalty revenue or contractand other revenue.
This guidance also does not include any revenues generatedfrom a triple sale in the European Union, and we expect the approval too late,and up in the year that will push any potential country launches this earlypart of 2008. As a reminder, the expenseguidance we are updating today will be non-GAAP, which excludes the impact ofstock-based compensation expense.
First, we are lowering our non-GAAP R&Dexpense guidance from a range of $500 million to $520 million to range of $490to $500 million, based in large part the delayed expenses associated withcertain clinical programs. In particular, the Phase III Elvitegravir for HIVstudy for which we don’t expect to begin enrolling patients until the firsthalf of next year, as well as lower than expected hiring.
Regarding non-GAAP SG&Aexpenses, we are tightening our guidance to a range of $590 million to $600million from a range of $580 million to $600 million. We expect to end 2007 atthe upper end of this range due to the impact of the weaker U.S.
dollar on aninternational foreign currency denominated operating expense, which we do nothedge, and the acquisition cost associated with the cork Ireland manufacturing facility. Regarding stock-basedcompensation expense, we are reiterating the 2007 fully diluted EPS impact tobe in the range of $0.13 to $0.15 per share on a split adjusted basis.
We arealso reiterating our non-GAAP product gross margin guidance range of 78% to 80%for 2007. And finally, we are also reiterating our tax rate guidance of 29% to30% for 2007.
In conclusion, our solidoperating performance continues to be a validation of significant efforts madeby the more than 2800 Gilead employees aroundthe world. Each employees played integral part in executing on the strategy,implemented by the company for growing revenues and operating cash flows,including making prudent investments in both our research and developmentefforts, as well as our sales and marketing efforts.
At this point, I would like toturn the call over to John Martin, who will review our corporate milestones forthe third quarter of 2007.
John Martin
Thank you, John. Good afternoon,everyone, and thank you for joining us today.
We are pleased to summarize foryou Gilead's accomplishments during the thirdquarter of this year, as well as several important recent events. I will startby reviewing our corporate milestones for the quarters, then Norbert willprovide an update on our research and development programs, and then Kevin willreview our commercial efforts.
First, I am very pleased towelcome Caroline Dorsa to the Gileadmanagement team as Senior Vice President and Chief Financial Officer. Carolinebrings extensive pharmaceutical industry to Gilead.She spent 20 years at Merck & Co., most recently in the role of VicePresident and Treasurer with responsibility for the company's treasury, tax,portfolio management and investor relations functions, as well as financialcontrollership of Merck Research Laboratories and Merck's manufacturingdivision.
Caroline joined Gileadfrom Avaya, a global provider of business communication systems, where she wasSenior Vice President and Chief Financial Officer. In her new role at Gilead, Caroline will have responsibility for thecompany's finance and investor relations functions.
Caroline will officiallyjoin Gilead in early November reporting toJohn Milligan. As you know in March of thisyear, John was appointed to the role of Chief Operating Officer continuing toserve in the interim as CFO.
A role I held for the past five years. I wouldpersonally like to thank John for his many significant contributions as CFO.Following Caroline's appointment, John in his continuing role of ChiefOperating Officer will oversee Gilead'scommercial organization, manufacturing, finance and business operations.
While Kevin and Norbert willexpand on our research, development and commercial milestones later in thecall, there are few key events I would like to take a moment to highlight. Earlier today, we along with ourpartners Bristol-Myers Squibb and Merck were very pleased to announce that theCommittee from additional products for human use issued a positive opinion onthe marketing authorization application of the Atripla in Europe.We anticipate that the European Commission approval may occur prior to the endof this year.
In addition, to further Atripla'scommercial registration in additional marketplaces, we announced yesterday thatHealth Canada approved Atripla for the treatment of HIV infection in adults. We anticipate the product to beavailable within the Canadian pharmacy distribution system by early next week.
With regard to our hepatitis Bfranchise, just last week we completed several regulatory filings for Vireadfor chronic hepatitis B in adults for the United States and the European Union,as well as Canada, Australia and New Zealand. We also expect to file in Turkeybefore year end.
These filings were supported bydata from two pivotal studies, Study 102 and Study 103 comparing Viread toHepsera in both “e”antigen positive and “e” antigen negative patients. We will present detailed datafrom both of the pivotal studies at the upcoming American Association for theStudy of Liver Diseases Conference taking place in Boston from November 2nd through 6th.
The third quarter also marks thefirst full quarter after the U.S.launch of Letairis. The launch date is proceeding in line with our expectations,with a very favorable initial response from the trading community both to thelabel and to the programs we are quick in place to ensure access to theproduct.
Kevin will expand on this topic,and to the insights we are gaining into this market a little later in the call. On the business developmentfront, in early September, we completed the acquisition of a former Nycomedmanufacturing plant in Cork Ireland.
This new facility will beused for solid dose manufacturing of Gilead’s current and future products,while our existing team in Dublinwill continue to manage customer operations and distribution activities. This marks Gilead’ssix successful acquisitions since the company's conception and further extendsour broad worldwide operations.
I would like to take this momentto welcome the Nycomed employees to Gilead. To further build upon ourrespiratory franchise, in July of this year, we announced the partnership withDurham, North Carolina-based Parion Sciences, branching Gileadworldwide commercialization rights to P-680, an epithelial sodium channel forENaC inhibitor discovered by Parion.
P-680 is being developed for thetreatment of certain pulmonary diseases, including cystic fibrosis, chronicobstructive pulmonary disease and non-CF bronchiectasis. Parion will performthe R&D-enabling studies for P-680, and will transition developmentresponsibilities to Gilead during the Phase Iclinical trial period.
With regards to Tamiflu, as JohnMilligan mentioned earlier, Roche released their third quarter financialresults on Tuesday of this week. They've reported third quarter Tamiflu salesof 257 million Swiss francs, and increased their guidance to close to 1.6billion Swiss francs for pandemic sales only for the full year 2007.
On their call, Roche stated thatthey could not provide any guidance at this point for potential 2008 pandemicorders. Finally, as you know, last yearthe CDC introduced new guidelines recommending routine HIV testing in the U.S.for all individuals between the ages of 13 and 64 years of age.
Diagnosing those infected withHIV would ultimately reduce the number of new infections, and give bettertreatment outcomes. I would like to give a briefupdate on the status of the adoption of these recommendations.
Seven states Illinois,Maine, New Hampshire,Louisiana, New Mexico,Iowa and most recently California have already signed into lawlegislation designed to remove some of the barriers to HIV testing, such asrequirements around informed written consent and pre-test counseling. And several other states havelegislation or regulatory actions pending, including North Carolina and Massachusetts.We are encouraged by this progress, and believe that other states will alsopursue changes to allow for voluntary opt out routine HIV screening over time,consistent with the CDC’s recommendations.
Additionally in Washington DC,congresswoman matching Walters legislation, which would expand HIV screening inthe federal proofing setting has passed the first hurdle of house approval inSeptember of this year, and has now moved on to the senate for its review. Beyond the testing initiatives,we are closely monitoring the impact of the Ryan White CARE reauthorization,last December, which we allocated some funding or antiretrovirals to thosestates [hit] by new incidences of HIV.
The new finding is having apositive impact as it begins to reach those states. South Carolina recently announced that it nolonger has a white list for its AIDS Drug Assistance program.
And North Carolina was ableto raise the income threshold for its eligibility. A move anticipated to bring100s of more patients on to treatment.
These actions can be directly measuredby the fact that many patients who have been in need of receiving free drugthrough our patient assistance program have either transitioned, or aretransitioning to care under their respective [PDAC] programs. We are greatly encouraged by theprogress being made to all HIV infected individuals diagnosed, and on treatmentboth of which will help to stop the spread of the still deadly disease.
And webelieve that with the profile Gileadantiretrovirals we will be in a key position to continue to help to manypatients in this country living with HIV, who need treatment. At this point, I will turn thecall over to Norbert to discuss our research and development milestones for thequarter.
Norbert?
Norbert Bischofberger
Thank you, John. In the thirdquarter of this year, Gilead achieved toseveral significant research and development milestones, further advancing ourpipeline programs.
Importantly, on the antiviral front, and as John highlightedearlier, we are very pleased that the CHMP they have recommended that Atriplabe approved in European Union. The recommended indication is forthe treatment of HIV infections in adults with virological suppression on theircurrent combination antiretrovirals therapy.
This indication is supported alongwith other data from earlier studies and patient experience in the US by positive 24 week data from a studyconducted jointly by BMS and Gilead called the07 free study, in which approximately 300 patients who were virologicallysuppressed at entry were either switched to Atripla or maintained on theirstable baseline therapy. Data from this study have been accepted as a latebreaker presentation at the upcoming 11th European AIDS conference taken placein Madrid,October 24 through 27.
We are excited about the CHMPpositive opinion, and we are in discussion with the CHMP regarding therequirement for data leading to an expansion of the indication to treatmentnaïve patients. Turning now to Elvitegravir or GS9137 as it was called previously.
As we discussed on the last earnings call,due to the availability of novel classes of antiretrovirals with demonstrativeantiviral activity in treatment-experienced-patients, we will be conducting ourPhase III studies versus an active comparator. With raltegravir's in the USjust last week, we are preparing to initiate the two Phase III pivotal studiesboth of which will be head-to-head non-inferiority studies versusraltegravir's.
The specifics of the Phase III program are being currentlydiscussed with FDA and European regulatory authorities. Once agreement has beenreached and following raltegravir's commercial availability, we will workrapidly to produce the blinded study drug supply necessary, and we willconcurrently work to get study sites up and running.
One Phase III study wouldbe conducted primarily in the United Statesand one primarily in Europe. We would anticipate dosing thefirst patent in this program in the first half of next year.
At theInterscience conference on antimicrobial agent and chemotherapy in Chicago in September, wepresented data on a compound from our internal research efforts, GS-9148 theprodrug of which is called GS-9131. GS-9131 is a novel nucleotideanalog, designed to deliver high intracellular concentrations of the activemolecule allowing for lower dosage with higher potency.
In addition, thecompound possesses a differentiated resistance profile with activity againstnucleoside resistant strains of HIV harboring the K65R, M184B and multiple TAMmutations. Based on this excitingpreclinical profile of GS 9131, we initiated and have now completed the Phase Isingle-dose pharmacokinetic study in the healthy volunteers.
This studyconfirms the preclinical results of delivery of high intracellularconcentrations of the compound at low dosage of GS 9131. As a result, we arenow finalizing the details of the Phase I/II protocols.
This study will likelyevaluate GS 9131 in treatment experienced patients, HIV infected patients withconfirmed NRTI resistance. We expect this study to begin early next year.
Turning now to HCV; as weannounced previously our novel non-nucleotide polymerase inhibitor GS 9190 iscurrently in a Phase 1ab study in HCV infected patients. In the first singledose part of this study, GS 9190 demonstrated encouraging pharmacokineticsexposure and antiviral activity.
The second multiple dose part of this study isdesigned to enroll 60 HCV infected patients in total and access the safety,tolerability, pharmacokinetics and antiviral activity of ascending doses of GS9190, both once and twice daily for eight days. Monitoring for QTC prolongationis standard test for cardiovascular safety was one of the safety assessmentsincluded in this study, along with other standard safety assessments.
In the second multiple dosecohort, a potential QTC signal was observed, although the data are very limitedand non conclusive. Therefore, before escalating to the next higher dose, wedecided to conduct a pilot QTC study in healthy volunteers.
The study has begunand we should have results prior to the end of the year. So while this has caused a delayin the program, we are hopeful that we will be able to resume dosing of GS 9190in HCV infected patients next year.
Also, we will be able to present data fromboth the complete single dose and the first two multiple dose cohort at theASLD conference in November. In addition to 9190, which is anHCV polymerase inhibitor, we are making significant progress with our internalprotease inhibitor research efforts with interesting lead compounds,progressing into preclinical evaluation.
Also, our research collaboration withboth Achillion and Genelabs continue, and we hope that development candidateemerge from those efforts in the relatively nearly future. Another novel nuclear typeproduct from our research efforts, making its way into clinical evaluation is9191, which has demonstrated activity in a preclinical model or papillomavirus.Based on these data, we have begun dosing patient with perineum HPV infectionsin a Phase I safety and efficiency study of GS 9190 ointment.
This will be boththe strength and schedule escalation study conducted in United States. It is estimated thatapproximately 1% of the sexual active adults in the United States have HPV relatedgenital warts.
And while a number of options exeunt for patients, includingboth pharmacological and the bladder therapies, there remains significant roomfor improvement and an opportunity, particularly for the topical ointment thatis well tolerated and enhances the rate of complete clearance of genital warts. Under respiratory franchisesfront, as you know we presented detailed data from the second of two phasestudies of two pivotal studies aztreonam lysine for inhalation, AIR-CF1 at theNACF meeting which took place in Anaheim earlier this month.
This studyevaluated the safety and efficiency of aztreonam lysine for inhalation versusplacebo over 28 days in patient with cystic fibrosis. The study met its primaryefficacy end point of change from baseline in respiratory symptoms, as assessedby CFQR a patient reported outcome tool used to measure health related qualityof life for people with CF.
Aztreonam lysine for inhalation patients alsoexperienced significant improvements at day 28 in respiratory function, asmeasured by FEV1 with a mean treatment related improvement of 10.3% versusplacebo. We believe this is particularly impressive due to the more advancedstage of this population, as compared to earlier registrational studiesconducted with Tobi.
In addition an update from ourstudy AIR-CF3 was presented during a plenary presentation at the NACFconference by Dr. Felix Ratjen who is Head of Respiratory Medicine at thehospital for Sick Children, and Professor of Paediatrics at the University of Toronto.
In AIR-CF3 the extensionstudies for patients who participated in our two pivotal phase III studies.Patient received repeated courses of 28 day treatment with aztreonam lysine forinhalation three times daily, followed by 28 days of alternative therapies. The result from this studydemonstrate that following the first three 28 day courses of treatment withaztreonam lysine, patients continue to have similar response in FEV1 scores, aswell as in symptoms as measured by CFQR, as we have seen in the placebo controlstudy.
With positive results, we nowhave in hand from both pivotal studies and the growing body of data we havefrom our extension study; we remain on track to file the drug application inthe U.S.for aztreonam lysine for inhalation for cystic fibrosis patients withpseudomonas infection before the end of this year. We plan to have furtherdiscussions with the European regulators to define a path for filing there aswell and we'll provide you with an update after we have more clarity.
We also presented data at theNACF conference on [GS9310/11], formally known an Corus 1040, which is aproprietary formulation of combination tobramycin and fosfomycin forinhalation, demonstrating the compounds activity against pathogens commonlyfound in cystic fibrosis and bronchiectasis. Based on these and otherpreclinical study results, we initiated and completed a single Phase I study inhealthy volunteers, and have begun enrolling patients with either cysticfibrosis or bronchiectasis in two Phase II studies.
Currently, there are no approvedinhaled antibody therapies for bronchiectasis to represent a clear unmetmedical need, and due to emerging resistance to existing compounds for thetreatment of infections associated with CF. There is a need for newantibacterial therapies to treat respiratory infections in CF.
Ultimately,should the data support its use in cystic fibrosis, we would anticipate thatthis compound could be used as a TOBI replacement in those alternating monthsbetween treatment with aztreonam lysine for inhalation. Now a brief update on the PhaseIII program for Darusentan in resistant hypertension.
We are making steadyprogress in getting additional sites on board for both 311, 312 studies, whichwe believe will significantly impact the rate of patient enrollment in bothstudies. At this point, our goal is tocomplete enrollment in both of these studies in the first half of 2009 withdata available from these studies later that year.
With regard to 9219, our novelnucleotide analog that has shown evidence of anticancer activity in preclinicalstudies. We are currently screening patients with non-Hodgkin's lymphoma andchronic lymphocytic leukemia for enrollment in a Phase I study of 9219 atcancer centers in United States.
Based on the outcome from Phase Istudies, we will make a decision about the development of potentialcommercialization path for this compound. In summary, I am proud of themainly research, development and regulatory advancements we've achieved overthis quarter.
We have many exciting opportunities to work on over the course ofthe coming years and we look forward to keeping you updated on our progress. With that, I will now turn thecall over to Kevin Young to discuss our commercial efforts.
Kevin?
Kevin Young
Thank you, Norbert, and goodafternoon everyone. To begin the commercial update, I would like to start withour antiviral franchise, which is comprised of our HIV and HBV marketedproducts.
For the analysis of our marketshare data in the U.S. and Europe, we rely on the most up-to-date third-party dataavailable to us in each market.
As a remainder, this data lacks our financialresults by one quarter. Our U.S.
HIV franchiseperformance continued to achieve significant milestones in Q3. And I would liketo start by highlighting a few of those achievements.
In just one year since itslaunch, we are approaching 1-in-4 antiretroviral treated patients now takingAtripla. Eight out of every 10 new antiretroviral-treated patients begantherapy on a Truvada-based regimen, either, Atripla or Truvada.
Truvada grew quarter-over-quarterand continues to be the NRTI backbone of choice when prescribed with proteaseinhibitors. We anticipate both future growthin our HIV franchise to come from both Atripla and Truvada.
Almost two-thirds of all treatedpatients received tenofovir molecule and Gilead'sHIV franchise continued to have the two most prescribed an NRTI brands and twomost prescribed molecules widening their respective leads over competitiveproducts. I would now like to provide moredetails around those very impressive commercial headlines.
Gilead'sHIV franchise achieved a 50% share of NRTI TRx market share, with nearly 40%share coming from total Truvada, Atripla and Truvada. The ratio of total Truvada toEpzicom in TRx share continued to widen and rose to 4.1 to 1 in the thirdquarter of 2007.
And Combivir share continued to steadily decline. Over 120,000 patients receivedAtripla as of the end of the second quarter of 2007.
This represented 24% ofall patients taking antiretrovirals at this time. The uptake of Atriplacontinued to be driven predominantly from switches after level of 60% duringthe second quarter 2007.
Importantly, approximately halfof the switches came from antiretroviral regimens not containing tenofovir orFTC. 26% of all switches to Atripla inthe second quarter of 2007 were from Combivir containing regimens, mostly fromCombivir plus Sustiva.
Importantly, approximately 24% of Combivir plus Sustivapatient population has been switched since the launch of Atripla. At the end of the second quarter,there were approximately 167,000 patients receiving Truvada, which represented33% of all patients treated with antiretrovirals.
Truvada remained the mostprescribed brand in HIV, and was the leading NRT backbone with all threeleading third agents, Sustiva, Reyataz and Kaletra and across all patient demographics. Of the patients being treatedwith antiretrovirals 65% of all treated patients of 332,000 patients receivedit not only a molecule, in one of its three forms namely Atripla, Truvada orViread.
Finally, the cost of the new CDCguidelines on simplification of therapy brought by our products, a number ofpatients being treated with antiviral therapy in the US at the end of the second quarterof this year, grew by an impressive 10% over the last 12 months, and isestimated to be just 510,000 patients. The news of legislated change to stateloss on HIV testing, referred to earlier by John Martin, bodes well for thecontinued flow of new patients and the opportunity for Gileadto impact both the treatment and transmission of HIV.
Additionally, the approval ofAtripla in Canada isexciting news for our young organization based outside of Toronto, Ontario. In August, Truvada, gainedreimbursement in Ontario the last prudentialapproval needed in Canada,and we have seen a significant ramp-up in sales.
Equally, we believe Atriplahas an important role to play in the treatment of Canadian HIV patients. Onceit follows a similar reimbursement cost into 2008.
We look forward to workingwith our partner BMS in ensuring rapid access to Atripla. Turning to our HIV franchiseperformance in Europe; as John Martinhighlighted earlier, we are very pleased with the CHMP's recommendation for theapproval of Atripla by the European Commission.
Once approved, we anticipatelaunching Atripla in the UKand Germany in early Januarynext year, with the rest of Europe rolling outupon the completion of pricing and reimbursement negotiations. Atripla will be marketed byGilead and BMS in the big five European countries plus Island, and by Gilead emerge in all of the markets.
With regard to the European HIVmarket dynamics, the total number of patients treated with antiretroviraltherapy in the big five European countries increased to approximately 247,000. Truvada continued to be theleading branded NRTI across all big five European markets with approximately33% of all treated patients receiving Truvada.
Approximately 81,000 patientswere on a Truvada-based therapy. Combivir switches stillrepresents significant opportunity as approximately 44,000 patients remained onCombivir-based regimens in the big five EU countries.
Use of Truvada accounted for 50%of new starts in treatment-naïve patients during the second quarter. Truvada plusSustiva continued to extend its leads for patients initiating therapy, growingto 24% of new patient market share followed by Truvada plus Kaletra up 13%.
Similar to the US we see opportunities to grow atthe European HIV market. This will require both renewed efforts on changingpublic policies and national legislation around testing and linkage to care,especially, in light of the significant demographic changes taking place acrossEurope.
In this respect an important symposiumwill be taking place in Brusselslater this year. We need to get our all key HIV stake holders to discuss the importanceof testing.
This parallel is a similar event that took place in Washington DCin 2006. Finally, as you may know theEuropean AIDS Clinical Society Conference, EACS will kick-off next week in Madrid, Spain.Various studies highlighting the use of Gileadproducts will be feature of the conference.
Dr. Martin Fisher of Brighton and Sussex University Hospital, UK will present the 48 week datafrom the SWEET study.
One year results confirm that switching from Combivir toTruvada provides an easier regimen that maintains biological control andresults in protection from limb fat loss. Turning briefly to our hepatitisfranchise; during the third quarter 2007 in the United States, Hepsera continued tobe the leading antiviral agent for the treatment of chronic hepatitis B.
In thethird quarter of 2007, Hepsera continued its track record of postedquarter-on-quarter growth in total prescriptions, since its launch in 2002, aswell as solid year-over-year growth of 8% of the third quarter of 2006. As of the end of September 2007,Hepsera maintained its place as market leader with a total prescription markershare of just over 46%.
Importantly, in patients new totherapy, Hepsera continued to be the therapeutic charge with the 38% marketshare. In the Gilead territories outsidethe US,Hepsera continued to grow significantly as awareness of chronic hepatitis Bincreased.
In the European continent as a whole, approximately 9 million peopleare estimated to be infected with HPV, with only 25% of those being diagnosed,and less than 15% of the diagnosed population currently receiving treatments. Hepsera has continued its strongrevenue contributions outside the United States with sales of $47million in the third quarter, up an impressive 48% over the same period oneyear ago.
The American Association for theStudy of Liver Diseases Conference will be held from November 2nd,through the 6th, in Boston.We will be presenting data from both pivotal studies for Viread and HBV. But inaddition, the conference will showcase some interesting data, supporting theuse of antiviral agents in the treatments of hepatitis.
Commercially, we are in high gearplanning to a 2008 launch of Viread and HBV, which is pending regulatoryapproval in Europe and the US.We believe that we both have the infrastructure and the expertise, based uponfive years of Hepsera promotion, to bring a best-in-class product to market. Moreover, what is especiallyexciting for the Gilead organization outside North America, is that given, thatthe European filing is Type II variation, which is highly likely that we willreceive approval in Europe prior to the U.S., where we are anticipating astandard review.
Now turning to our cardiovascularfranchise and Letairis for the treatment of pulmonary arterial hypertension orPAH. Having completed the first full quarter post launch, I am pleased to saythat the uptake of Letairis, along with physician and patient interest in theproduct has been excellent and has met our pre-approval expectations.
As you know Letairis, as an ERA,is in the class of agents known to be teratogenic in animals. Therefore, everypatient is required to be enrolled in a risk minimization action plan or riskmap.
The goal of such a program is to monitor and track patients ensuring thatmonthly testing of liver function occurs and that for woman, a child bearingcapacity, monthly pregnancy testing also takes place. This requires a verycareful process of record keeping and clearance, all steps of which aredesigned are approved by the FDA.
We also put in place for thelaunch of Letairis the Comprehensive Letairis Educational Access Program,otherwise known as LEAP, to coordinate risk map activities and Emtriva patientsto specialty pharmacy. Strong demand we have had for Letairis has challengedthe third party resources we initially put in place to administer our LEAPprogram.
As a result we have recently made a number of structural changesdesigned to streamline the process, and improve the physician and patientexperience with starting on Letairis. Our decision to price Letairis is parityto [TriClear] applicable to both dosage strengths has accelerated the overallpayer coverage picture.
Currently, 49 of 50 statemedicade plans are now reimbursing Letairis. Three of the largest pharmacybenefit managers Caremark, Medco and Express Groups, representing upwards of a180 million lives are covering Letairis on their respective nationalformularies at a level on par with TriClear.
Nine of the top 20 managed careplans have given Letairis full approval with an equivalent tearing of theTriClear. The remaining are listing Letairis on an interim basis pending formalreview.
And finally, while as MedicarePart D plans have six months to review the listing of a new drug, Letairis isalready being covered on an interim basis by many plans, again at an equivalentlevel to that of TriClear. At this early stage in the launchof Letairis we have decided that we will not be sharing patient numbers.
Atthis point we do not believe this will be a reliable or accurate predictor forany type of trend analysis for the product. However, it’s important to providesome points as to the quality of our launch.
We have over 2500 physiciansenrolled in our lead program. It equates over 60% of our calculated totalprescribing potential for Letairis, and is a lead indicator of intend toprescribe.
Almost two thirds of the enrolling physicians are pulmonologists.Over 450 physicians have prescribed Letairis to date, with over 20% of thosehave prescribed Letairis for five or more patients. The top 25 physiciansrepresenting the large PAH treatment centers have enrolled in LEAP, and haveprescribed Letairis for over 17 patients on average.
Of the time, but at theend of the third quarter, our year-to-date sales of Letairis are just over $6million. The patients that started onLetairis are predominantly coming from three main buckets.
Treatment naïve orpatients nutratherapy, patients that have experienced elevated liver enzymesthat were on TriClear, as well as both the patients that transitioned from thediscontinuation of (inaudible). In summary, even though it isvery early in the launch of Letairis, it appears that the promotional platformwe have laid down, namely a comprehensive clinical and safety profile, togetherwith strong and differentiated product labeling, is a step towards reaching ouraspiration of Letairis being the first line ERA choice.
There will furtheropportunity to highlight the features of Letairis at the upcoming CHEST meetingin Chicago, later this month, with data from the longer-term follow-up ofpatients in ARIES-E). The data demonstrates that the efficacy of Letairis wassustained in patients treated from mean exposure about to 76 weeks.
Overall, I would like to thankthe Gilead worldwide commercial organizationfor its results in Q3 adding some wavering commitments to help patients. I will now turn the call over tothe operator to begin the quarter-and-answer portion of the call.
Operator?
Operator
(Operator Instructions) Your first question comes from theline of Meg Malloy with Goldman Sachs. Please proceed.
Meg Malloy - GoldmanSachs
Thanks very much, and thanks for such a comprehensiveoverview. Just a question in terms of Atripla in Europe, I guess, could youelaborate on your understanding of the protease inhibitor preferences for firstline and sort of the big five, and I guess particularly in the UK and Germany where you are likely tolaunch first?
Kevin Young
Hi Meg, it's Kevin speaking. As you know, I answered this inthe past.
There is sort of a mix of NRTI protease sort of split. So, it mixedacross the European countries.
If you look generally, France and Italy are more predominantly PImarkets. UK and Spain are more predominantly NNRTI markets and Germanyis kind of in the middle with the fairly equal split between the two.
So, we certainly think that Atripla is applicable to all ofthose markets. We think the label is strong in terms of allowing us to switchpatients.
So, we are as committed to Atripla in all of those big five, but thesplit of NNRTI to PI does vary across the courtiers.
Meg Malloy - GoldmanSachs
Thanks much.
John Milligan
And Meg, this is John. I just wanted a little color on that;I think that was fairly vague but accurate.
I would say that the UK and Spainis going to point more than half more than half of the patients on NNRTI, whileGermanyis just below half on NNRTI, so it just gives you a little bit quantificationthere.
Meg Malloy - GoldmanSachs
Thanks.
Operator
Your next question comes from the line of Thomas Wei withPiper Jaffray. Please proceed.
Thomas Wei -PiperJaffray
Thanks. A question on the U.S.
HIV sales and one on theinternational sales, can you help us understand how much of the growth in theU.S. HIV sales on a sequential basis were related to recovery in the non-retailsales ordering patterns?
And then on the French stock piling situation, can you helpus understand a little better what the impact has been to-date. Should weinterpret that that means that demand in Europeso far has been overstated by this, as the fact, and by how much?
Kevin Young
Hi, Thomas, I will take the first question in terms ofnon-retail. I wouldn't call a recovery, but we had a very good non-retailquarter.
It was basically exactly in line with the retailer prescription date,so there was a very good matching within this quarter. In terms of sales relative to the first quarter, you knowthat we did have a large first quarter for non-retail and that's primarilybecause of the buying patterns.
As you know, non-retail is basically a sale. So, it's a saleamong whole distribution of buying points, and primarily the non-retail largeamounts in the first quarter was caused by the Florida ADAP, which is onepurchase point, which applies for the whole of Florida.
We continue to see Floridaorder throughout the rest of the year to date, but that was an especially largeorder in Q1. What happens in Q4 and Q1 2008 remains to be seen.
John Milligan
Tom, this is John Milligan. With regard to your questionabout the wholesalers in France, a couple of things to say about that, what youmight have noticed and what we have noticed is that sales in Germany, we arenot growing as much as we had anticipated based on the retail -- based on ourdata about where the prescriptions are going.
And sales in Francewere exceeding those sales levels based on the prescription data we are gettingthere as well, which indicated to us that our sales from France were going into Germany. So, we are effectivelyrecording a lower sales price than we would have otherwise based on the productdemand and the individual country.
So, we have given notice and are implementing a differentdistribution system to try to ensure adequate supplies for France and to make sure that theproduct ends up in an appropriate country. So, in watching the sales and in watching the prescription,it is certainly possible that there is additional inventory that's in placewith these different wholesalers to move product from France to Germany, but it's very difficultfor us to know the magnitude of those sales.
I am sorry, all those stockpiles,if any. There must be some inventory.
We know that. And also theimpact of the distribution change could also allow for some stock piling tooccur in the future.
And so these are the things that are unknown to us rightnow. It will take place[intra-quarter] which so hopefully any buy-in and sell-out would occur mostlywithin the fourth quarter, but we don't know the magnitude, nor do we know whatthe demand would be like, and to complicate things further to get into nextyear we will be launching Atripla in the Germany which will create a furtheruncertainty as to where product would end up with anywhere.
So, it’s animperfect system much unlike the US, we have very difficult timegetting paid. We do know the trends and we are working hard to try to identifythis to the best of our ability under the current situation with the data gapswe have.
Thomas Wei -Piper Jaffray
Thank you.
Operator
Your next question comes from theline of Mark Schoenebaum with Bear Stearns. Please proceed.
Mark Schoenebaum - Bear Stearns
Hi, thank you very much fortaking my question, and congratulations on another good quarter. I was justwondering John, Norbert maybe you can just, there is some confusion aboutexactly what the indication was for the European label over Atripla.
Is itreally indicated for true naïves? Can you explain the label and do you thinkit’s going to have any material impact on demand if in fact it’s not trulyindicated for true naïve can you just clarify that for us?
John Martin
I’ll quickly answer the questionhow we got to the label because it’s fairly straight forward, even though it'smay be a little bit confusing when you read it. And then Kevin can talk aboutcommercial implications.
So, as you know we had this issue in the EuropeanUnion about different labeling, so Truvada is indicated to be taken with foodwhereas efavirenz is indicated to be taken on an empty stomach at bedtime. And we recommended Atriplasimilarly to be taken on an empty stomach at bed time like efavirenz, but thatled us and [the regulators] a little bit in search for data that would indicatethat this, the fact that you now don’t take Truvada portion with food that itwouldn’t lead to an adverse clinical outcome.
And the data that we had, theonly control study that we had where Atripla was used, was this 073 study andthen the 073 study basically we took patients at base line that were suppressedon their current heart regimen and randomize them to continue to (inaudible)those switch to Atripla. And really, the indications completely reflect thebase line of those patients.
So, it's indicated in patientsthat are suppressed at their current regimen at base line and those patientsthen can be switch to Atripla. So, that’s how we got here.
And as said inportion of my conference call, we’re now working with regulators to look forwhat data would be adequate to really extend the indication to naïve patientsas well. And Kevin how do you, answer thequestion about the impact?
Kevin Young
Hi Mark. From a commercial pointof view, when the promotion does begin early next year, very comfortable withthe label that we've been given, the label actually allows us to ask for anypatient in terms of a switch situation where they are stabilized on otherantivirals.
Just as a reminder, when you lookat total patients on antivirals the vast majority certain 90% are patientsalready on antiviral therapy about 10% on new patients any point in time. So,we really are playing in the majority of the market with this label.
So, we’llbe leading out with Atripla and we think it has all the potential that we wouldlike. And secondly, don’t forget that,we always do two product details.
So, we'll lead out with Atripla and then wefollow up with Truvada and of course Truvada is there to be used in the naïvesetting, whether it would be for NNRTI or the PI patient or indeed to follow onfrom Atripla where patient passes resistance ultimately to Atripla and thenmove on to the PI treatment regimen
Mark Schoenebaum - Bear Stearns
Okay, thank you. May I ask afollow up?
Kevin Young
Go ahead.
Mark Schoenebaum - Bear Stearns
Okay. Just on the Hepatitis Cprogram 9190 can you provide us anymore details about the QT effect that yousaw and if not will those data be presented at the labor meeting and wereleased the QT study data to the street by the end of the year?
And thanksvery much.
John Martin
Yes. So, may be I should back up.As you know part of the routine pre-clinical evaluation is evaluation for HERGinhibition, the potassium channel that plays a role in QTC elongation.
Weobserve that a very high dose is 9190, somewhat inhibits to HERG channel butour calculations point to that, we have about 100 fold or more safety margin. Nevertheless, the regulatoryauthorities felt that we should include QTC monitoring in our Phase I study,which we did.
Unfortunately, since these were three sites, they used different equipments,et cetera. We ended up with data where there could be a potential signal but Iwant to just clearly say, we did not see a QTC signal but unfortunately, wealso can't say we didn't see one.
So, we were really in thesituation where we felt in the interest of patients to be safe and not runningthe risk we will do a pilot QTC study, which is fairly easy to do in about twoto three months period. We will not have to final data at ASLD but we hopeshortly thereafter in the middle of December we should have the final data fromthis QTC study and then if does it looks clean, we will move on with thecurrent HCV study next year.
Mark Schoenebaum - Bear Stearns
Okay, great. Thanks a lotcongrats.
Operator
Your next question comes from the line of Geoffrey Porgeswith Bernstein. Please proceed.
Geoffrey Porges - Bernstein
Thanks very much for taking thequestion. Couple of question, first on the 10% patient growth that youhighlighted in the HIV market in the U.S.
Kevin could you just tell you whetherthat - how closely is that correlated with the change that you have seen in California or Illinoisand the other states? What does the trend look like when you look at otherpatient number data or script number in those states and is that really tightlycorrelated or something else going on?
And then secondly, if you could justtalk a little bit more about Letairis. I think you said that it was 6million year-to-date and just wondering if could give us a sense of how much ofthe sort of initial free good is included in the cost of goods line that weshould be thinking about as we think about the evolution of that market?Thanks.
Kevin Young
Well, Geoff your first question about the impact of thedifferent legislation that’s occurring, I mean effectively that impacted uszero. Many of the laws that have signed and sign of the place have not yettaken effect.
For example, the Californialegislation will take effect on January 1st of 2008. And what we do think is helping with the growth of patientsof course is just initiative and the educational awareness about the importanceof testing a different population, but we don’t yet have any way to quantifythat across the United States and really I think the legislator barrierscontinue to be formidable from the states.
If you notice with exception of legislation path, pending inMassachusetts,we don’t have as much traction in these costs that we'd like to, yes there arestill great opportunities before us there. The second question was regard to the cost of goods linerelating to Letairis and how that would flow through there?
So with regard tocost of goods it doesn’t show up in the cost of goods line, in fact its - itsan expense associated with the Letairis program, so it doesn’t have COGS impactat this point in time, right, its just like I never will going forward.
Geoffrey Porges - Bernstein
Could you give perhaps so much of the preliminary to theSG&A line then?
John Milligan
Yes.
Kevin Young
Yes. And in terms of the program itself, Geoff we are nowphasing that out so that will be going away here in the fourth quarter.
So,that was basically something that we always decided that would be around towardthe initial uptake of the product, but it will be going away in this quarter.
Geoffrey Porges - Bernstein
Could you tell us what SG&A would be if you netted thatout?
John Milligan
Good question. I don't know that's off the top of my head,Geoff.
We can, we'll have to track it down. I am not sure that we tracked itdown that easily, but we'll work on that.
Geoffrey Porges - Bernstein
Okay. Thanks.
Operator
Your next question comes from the line of Yaron Werber withthe Citigroup. Please proceed.
Yaron Werber -Citigroup
Yeah. Hi, good afternoon.
Thanks for taking my question. Ihave two questions just to clarify and if I just I am repeating previousquestion, I just want an extra clarification on what specifically you areseeing in terms of the inventory patterns in Europe with regard to Truvada andspecifically Viread and given Emtriva was a bit weak.
So if I look in my modeloverall I am looking at roughly almost a 400 basis points or 450 basis pointsdecline quarter-over-quarter. So could you just, if you don't mind help us understand, areyou comfortable that Q2 was a good gauge of demand and if not should we belooking at Q1 as a trend of the earliest possible kind of beginning of wherethe real demand were?
And then the follow-up question is, can you explain to uswhat you are seeing in terms of actual patient growth in Europe?You mentioned it's 10% in the U.S.What do you think in Europe, is there a moveto treating patients earlier in diagnostic earlier as well? Thanks.
John Milligan
Yeah so, Yaron, that's a good question about the demand inEurope and so what we haven't seen in fact, what we think of seeing is revenuesthat are somewhat lower than demand and the reason for that of course isbecause we are selling product into Francethat's going into Germany. So, as it relates to total amount of euros we receive it hasbeen, disproportionate the number of patients coming on in Germany.
So it’s a little bit lightcompared to that. And that could be offset slightly by any inventory, which isto build up.
We don’t know what the magnitude of that is. So, I can franklythink that this quarter is a pretty reasonably quarter for judging demand andwe are monitoring that to make sure that surely its going to take at least onemore quarter if not more to understand that.
Yaron Werber -Citigroup
Thank you.
Kevin Young
It’s Kevin. I don’t have the numbers at my fingertips forthe overall growth of patients in Europe.
ButI do recall it’s slightly less than here in the U.S.because of course the U.S.is a little bit ahead in terms of testing and linkage to care. But undoubtedly,we think there are growth opportunities there, there is a lot of movement ofinfected patients around here right now and we think that’s very solid for ourunderlying business.
Yaron Werber -Citigroup
Can I just follow up John on your earlier points? So shouldwe assume that Q2 then, the trends in Europe perhaps had some inventory build,is the current quarter is the real demand in Q3?
John Milligan
We started to see this in Q1 to a great extent. So, what’shappening, people are buying Truvada in France and Viread to some extent andreselling it predominantly in Germany,but also in Eastern Europe as well.
So we knowthose two things. And we are trying to figure out also, because we can’t trackeverything, and because it doesn’t match up entirely with the script in Germany.We don’t know how much went into Eastern Europe,which where there a considerable sales and how much is sitting in warehouse.
And also much like the United States the script demand isnot perfect. So, this is the uncertainty that we are dealing with right now.So, it seems to us that Q2 is a pretty reasonable profit for the growth and weare monitoring that very closely.
And then of course as we put these newmanagement systems in place, there are contractual obligations to allow peopletime before we can completely change the distribution model. And so that maycreate an opportunity for somebody to buy and [keep forward] and that's what Iam largely concerned about.
Yaron Werber -Citigroup
Okay. Great, thank you.
Operator
Your next question comes from the line of Bret Holley withCIBC World Markets. Please proceed.
Bret Holley - CIBCWorld Markets
Yeah, hi, thanks for taking the question. Kevin, I am littlebit intrigue about something you said that you expected a standard review forViread and HPV.
And I guess just on the backdrop of the other antiretroviralsfor HPV being approved on a six months review. Have you requested the sixmonths review, or is that now something you are even interested in?
Kevin Young
We have requested a priority review yes, as we always doroutinely with our antiretrovirals, some preliminary unofficial conversationsthat we had with the agency would led us to believe that this was probablygoing to be a standard review. And I want to tell you the main argument in support of thatnotion is that Viread is essentially available on the market.
And so, there isnot an unmet medical need.
Bret Holley - CIBCWorld Markets
Okay, thank you.
Operator
Your next question comes from the line of Geoff Meacham withJP Morgan. Please proceed.
Geoff Meacham - JPMorgan
Hi guys, congrats on the quarter. I have one question foryou on Letairis, your competitors have been focusing a lot on the FDA review,the documents posted online for Letairis.
My question is how comfortable areyou with the data supporting once daily dosing and what's the risk that thepeak-trough study suggest BID dosing, I guess when that prints data maybe 2009?
Kevin Young
Yes, I want to tell you the issue about or the concern aboutpeak-trough comes from antihypertensive medications where if you take the drug,the effect, which is blood pressure lowering is very dependent on drug levels.And once the drug has disappeared, your pharmacological effect may havedisappeared. Our endpoint that we looked at was six-minute walk.
Now,six-minute walk takes about 12 weeks to lead up to. You have to dose for 12weeks before you can really see the effect.
And I do not really understand therationale for why somebody would say that that effect could disappear within 12hours when the drug levels are lower, but nevertheless, there is apost-marketing commitment that we agreed on and we are going to do the studyand I am very, very confident that the outcome of that study will be that thetrough six-minute-walk test is exactly the same as the peak.
John Milligan
Now they start during the -- in the field visits, but I havemade and I think my colleagues have made. I haven't (inaudible) any doubtsabout this been a once-daily drug.
Geoff Meacham - JPMorgan
Okay. And the one follow-up if I may, Kevin, I guess this isfor you.
You mentioned that WHO or you mentioned the screening guideline inyour prepared remarks. Just wondering if you can give us a sense for what theconsent procedure is in the screening process for maybe the big five Europeancountries, and then if there is any action near term, what timelines could yougive for consensus opinion for broader screening in Europe?
Kevin Young
I don't have a country-by-country, it's a great question andprocess, you don't find that information, don’t have it country-by-country, butthe need for kind of written consent is kind of standard from a patient rightpoint of view. I think the challenge in Europeis that you generally need a complete national change, it's not a region-by-region,basically a country has to change some legislation and certainly change thatguideline.
So, you have to tackle that. We have been I think professionallyfacilitating is to get the parties together to stop talking about that, and Ithink as some of the European countries try to meet the challenges of some ofthe new populations that they are seeing in that countries, I think HIVcarriers are going up back upon their [radars].
Geoff Meacham - JPMorgan
Okay. Thank you.
Operator
Your next question comes from the line of Michael Abermanwith Credit Suisse. Please proceed.
Michael Aberman -Credit Suisse
Hey guys, thanks. A lot of my questions were alreadyanswered, but perhaps a quick question on the integrase inhibitor.
Can you justtalk to us about your strategy in the naive populations, are you going to planto do studies with the novel boosting agent or are you still planning in naiveuse a protease inhibitors for boosting?
Kevin Young
Yes, I indicated the first think of course we are going todo is look at treatment experience patient simply to build up safety databaseand get some more experience, and after that absolutely we will go into naivepatients, that can be done either with using retonovir as the booster. Ofcourse, we have to talk to agencies about their concern with regards toprotease inhibitor resistance development when use retonovir without any otherprotease inhibitor, but also we are thinking about using other boosters that donot have anti-protease inhibitor activity.
Michael Aberman -Credit Suisse
Do you have candidates for that, or is that something that’searly on?
John Martin
It's something we are thinking about at this point. It'searly in the thought process in research, nothing in development yet.
Michael Aberman -Credit Suisse
And from a strategic standpoint for Letairis, how are youthinking about the potential and what are the advantages of lack of druginteractions? How are you thinking about potential combination therapies?
John Martin
I am sorry. Say that again.
Michael Aberman -Credit Suisse
For Letairis, I mean, are you thinking about combinationtherapies, like Truvada?
Kevin Young
We're certainly thinking in terms of Phase IV clinicalstudies, something that we are evaluating right now. Clearly, without thatinteraction it makes for the ideal partner with the PDE-5.
And PDE-5 is apopular used sildenafil and we are waiting to see the news from the tadalafilfirst study, so we will see what results they bring. So, I think we have a goodpartner opportunity first and foremost, I think that's basically in the clinic.
John Martin
And we are also in the process of carrying out a wholenumber of other drug interaction studies that we will include in the label. Asyou know, we only had two originally when we filed.
But we will have many morecoming.
Michael Aberman -Credit Suisse
Okay. Great.
Thanks again.
Operator
Your next question comes from the line William Ho with Banc of America Securities. Please proceed.
WilliamHo - Banc of AmericaSecurities
Hey, guys. Thanks for taking my call or my question.
Most ofthem might have been answered, except maybe you can answer one question. Withrespect to the foreign exchange and your benefit, you indicated that you had afavorable benefit relative to third quarter of last year.
But was there much ofa difference between the second quarter and the third quarter this year?
John Martin
No. William, there is about $1 million difference overallbetween the difference in revenues and the difference in expenses.
So it'sfairly small quarter-over-quarter.
WilliamHo - Banc of AmericaSecurities
Okay. Great.
Thank you.
Operator
Your next question comes from the line of Sapna Srivastava.Please proceed
Sapna Srivastava -Morgan Stanley
I have two quick questions. The first one is on Letairis.
Ifyou could just comment, and I don’t know if you will, but you did not have athree month program as to what that revenue number could have looked like, andif you are going to continue that program in the fourth quarter? And secondly,just on HIV on the CDC recommendation, you said that seven states are removingbarriers.
Could you just also give some color on how many states currently donot have any barriers, and how many states need to work on removing the barriersthey recently have?
John Milligan
Certainly in terms of the three-month drug, we aren'tstating how many patients received that and neither are we exactly stating thedate at which that program will finish. What we are saying is broadly in this quarter,in the fourth quarter that we will no longer be supplying that for the startuppatients.
Sapna Srivastava -Morgan Stanley
But you will be continuing it into some part of the fourthquarter for the existing patients?
John Milligan
Any patient who has started on drug, absolutely, we arecommitted to giving that one month of course, yes.
Sapna Srivastava - Morgan Stanley
Okay.
John Martin
Sapna, regarding your second question on the state there;There were initially 37 of the 50 states that had some form of legislationwhich was a barrier to easy testing of HIV patients. So we now have legislationpassed in eight different states.
So that means that the remaining 29 stillhave those laws. And the states that have them or the states where HIV patientsare; and those states that don’t have them, there is typically very-very lowlevels of HIV patients.
So it is the most important states that have them.
Sapna Srivastava -Morgan Stanley
New York and Florida?
John Martin
Yes.
Sapna Srivastava - MorganStanley
Okay. Thank you.
Operator
At this time there is time forone additional question. Your next question comes from the line of Joel Sendekwith Lazard Capital Markets.
Please proceed.
Joel Sendek - Lazard Capital Markets
Hi thanks. Just have a financialquestion on Atripla.
For clarification did you see that $89 million is this theeither portion of the 241?
John Milligan
That’s correct, $89 million.
Joel Sendek - Lazard Capital Markets
And that comes to 37%, I wasunder the impression that the split was 33%, will that changequarter-to-quarter?
John Milligan
It's always been a 37.63 plusmore or less with minor variations on that.
Susan Hubbard
Yes, the aggregate of the pricingto the individual composite.
Joel Sendek - Lazard Capital Markets
Okay. All right, great, thanksguys.
John Milligan
So, that’s not a change, it'salways been the same.
Joel Sendek - Lazard Capital Markets
May be I had it wrong, thanks.And then quickly on (inaudible), can you give us any more feel for the numberof patients, you said you have more sites up but can you give us any feelingfor the patients that you have enrolled so far.
John Martin
No it's really, I hate to dothat, it's too early because we are really now in the process of gearing up toenrolling, getting more sites up and running particularly outside the UnitedStates in South America and Europe where enrollment has been highertraditionally per site than in the US. And so, I think enrollment will greatlyaccelerate.
Susan Hubbard
That’s really why we laid out the2009 timeline for completion of enrollment, still pretty early in that process.
Joel Sendek - Lazard Capital Markets
Okay, great. Thank you very much.
Operator
Dr. Milligan, there is no moretime for questions.
John Milligan
Thank you, operator and I want tothank everybody for joining us today. And I think it has been a very excitingthird quarter for us.
So, we've got new product filed, new products moving intothe clinic and have executed on overall commercial goals. So, I think it willbe great excitement over the rest of this year and we look forward to sharingthe results with you on our next quarterly call.
Thank you.
Operator
Ladies and gentlemen, thisconcludes the presentations, you may now disconnect. Thank you and have a goodday.