吉利德科學 (GILD) 2001 Q1 法說會逐字稿

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Ladies and gentlemen, thank you for standing by. Welcome to the Gilead Sciences first quarter 2001 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press the 1 followed by the 4 on your pushbutton phone. As a reminder, this conference call is being recorded, Thursday, April 26, 2001. The speakers for the day are Sharon Surrey-Barbari, vice president and CFO; John C. Martin, president and chief executive officer; Mark L. Perry, executive vice president of Operations for Gilead Sciences. I'd now like to turn the call over to Mrs. Surrey-Barbari, please go ahead ma'am.

Good afternoon and welcome to Gilead's first quarter conference call. We issued a press release this afternoon providing results for the first quarter ended March 31, 2001, and describing the company's quarterly highlights, which is also available on our website. Joining me on today's call are John Martin, president and CEO; Mark Perry, executive vice president of Operations; and John Milligan, 2 vice president of Corporate Development. I will begin the call by briefly reviewing the first quarter financial. Then, John Martin will take you through the corporate highlights for the quarter, including anticipated milestones in our development programs. And finally, Mark will provide you with an update on tenofovir DF for HIV. We will keep our comments relatively brief to allow time at the end of this call to answer your questions. Before we begin, I have three items of note to cover with you. First, let me start with the standard Safe Harbor statement. I'd like to remind you that we will be making forward-looking statements relating to financial results and clinical and regulatory developments. These statements are subject to the occurrence of many events outside of Gilead's control and are subject to various risks that could cause our result to differ materially from those expressed in any forward-looking statement. I refer you to our publicly filed SEC disclosure document for a detailed description of the risk factors affecting our business. Included in the company's financial statements for the first quarter of 2000 and 2001 is the effect of the adoption of two new accounting pronouncements, both of which are accounted for as a cumulative 3 effect of a change in accounting principle. [Effected] January 1, 2001, Gilead adopted the Financial Accounting Standards for statement numbers 133 and 138 or FAS 133/138. Under the accounting method preferred by the FASB, we have

revised the value of the warrant we hold in a nonpublic company. Any future change in the value of this warrant will be recognized as an operating gain or loss in future periods. In addition, in the first quarter 2000, Gilead adopted the revenue recognition method preferred by the SEC Staff Accounting Bulletin 101 or SAB 101. Under SAB 101, the company recorded a one-time cumulative effect of a change in accounting principle related to the contract revenue previously recognized in prior periods under 3 collaborative agreements. I'd also like to remind you that all share and net loss per share data have been adjusted to give effect to the company's two-for-one stock split which occurred in February. Now for Gilead's earnings. In the first quarter, the company reported a net loss of $21.7 million or 23 cents per share, including the impact of FAS 133 and 138. The quarter loss for 2001 compares with a net loss for the first quarter of 2000 of $16.9 million or 4 19 cents per share, including the impact of the adoption of SAB 101. The first call analyst consensus for the first quarter of 2001 was a loss of 35 cents per share. The difference between our quarterly results and the first call consensus is primarily a result of better than expected AmBisome revenue and slightly lower than anticipated R&D expenditures. Revenues for the first quarter 2001 totaled $57.8 million, a 21%

increase over the same period last year. For the first quarter of 2001, Gilead reported revenues from net product sales of $45.1 million. Sales of AmBisome were $41.9 million for the quarter, a 21% increase over the same period in 2000. Excluding the impact of the decline in foreign currencies relative to the US dollar, AmBisome sales grew by 29% when compared to the first quarter of 2000. The remainder of product revenues is from the sale of Gilead's two products for the treatment of AIDS related opportunistic infections, DaunoXome for Kaposi's sarcoma and VISTIDE for the treatment of CMV retinitis. For the first quarter of 2001, Gilead recognized net royalty revenues of $6.2 million compared to $8 million for the same quarter in 2000. AmBisome royalties for the first quarter were $3.8 million and Tamiflu royalties were $2.1 5 million. Other royalties include payments from Pharmacia Corporation for ex-US sales of Vistide. The decrease in royalty revenues from the first quarter of last year is primarily the result of a decrease in royalties received on sales of Tamiflu. As you may know, the 2000-2001 winter flu season was the lightest in at least 6 years, and our lower royalties reflect this decreased incidence rate. Despite the light flu season, total Tamiflu prescriptions in the 2000-2001 US flu season were about 685,000 according to IMS data equivalent to the 1999-2000 season. For the first quarter of 2001, Gilead recognized net contract revenues of $6.6 million. This compares to $3.3 million in contract revenue for the same quarter in 2000. The contract revenue in 2001 includes a milestone payment from Roche of $2

million for the regulatory filing in Europe of Tamiflu for the use in the prevention of influenza A and B. Now, I would like to share with you Gilead's expense information for the first quarter 2001. Cost of goods was $10.6 million for the first quarter of 2001, about 23.5% of net product sales, compared to 21.9% in the same quarter in 2000. For the quarter, the increase in the cost of goods as a percentage of 6 sale is largely driven by a significant increase in sales to Fujisawa, our marketing partner in the US and Canada. Under the terms of our agreement with Fujisawa, Gilead supplies AmBisome at manufacturing cost. Research and development expenses were $51.1 million for the first quarter of 2001, up 95% compared to the same quarter in 2000. The increase in spending in R&D for the first quarter of 2001 is partly attributable to the recognition of $10.6 million of a $13 million up-front payment to Cubist Pharmaceuticals related to the daptomycin licensing agreement. The balance of this up-front payment will be amortized over a 5-year period. In addition, the increased R&D spending was attributable to development cost for tenofovir DF for HIV and adefovir dipivoxil for HBV, both of which are in advanced Phase III clinical development. SG&A in the first quarter of 2001 was $21.9 million, up from $18 million in the first quarter of 2000. The balance sheet at March 31, 2001, shows $483.8

million in cash, cash equivalents, and marketable securities. Now, I would like to review and reiterate the guidance we gave in January on our projected AmBisome performance and operating expenses for the full year 2001. As you know, we will pick the opportunity at each quarterly 7 earnings conference call to update our guidance as appropriate. We continue to project a full year increase in AmBisome sales over 2000 level of 10%, assuming European currencies remain at their then current rate of exchange. Our guidance for R&D spending at the beginning of this year was a range of $160-$170 million. We reiterate this full year guidance, but advise you that we expect a higher level of spending will occur in the first half of the year. This higher level of spending is associated with the daptomycin licensing agreement and the initiation of the tenofovir extended access programs. We still expect SG&A expenses to fall within the $105-$115 million range for the full year 2001. The main driver of this expense was our planned increase in US and European sale forces and promotional activities in anticipation of the launch of tenofovir DF. In summary, as Gilead moves through the year, the company will continue to make the investments we believe necessary, to continue building a strong and independent global business, promoting our current product lines and preparing for the launch of tenofovir. We remain confident in the company's ability to achieve profitability in 2002. This concludes the 8 earnings reporting section of this conference call, and at this point, I'd like to turn the call over to John who will review the corporate highlights for the first quarter and discuss anticipated milestones for the remainder of 2001.

Thank you Sharon and good afternoon everyone. First, I will review highlights from the first quarter of 2001 and describe some of the milestones we anticipate in the coming months. Then, Mark Perry will provide you with an update on tenofovir, our exciting product for HIV, nearing commercialization. Last week, we announced the appointment of Cordell Hull to the Board of Directors. Mr. Hull will also serve as chairman of Gilead's Audit Committee. He is the co-founder, chairman, and CEO of InfrastructureWorld Inc., a business-to-business portal for the global infrastructure community. Previously, he was also with Bechtel for over 25 years. As we move toward profitability, Gilead will benefit from Mr. Hull's skills and insight resulting from his broad business experience and financial expertise. Jim Denny who was the chairman of Gilead's Audit Committee recently accepted the position as chairman of Gilead's Board of 9 Directors. In February of this year, Gilead's stockholders approved an increase in the number of authorized shares of the company's common stock from $100 to $500 million. The approval enabled Gilead to complete a two-for-one stock split of their common stock later that month. As a result of the stock split, the number of outstanding shares of Gilead's common stock increased to approximately $95 million. I will now turn to our products. AmBisome, our life saving treatment for systemic fungal infection, remains our current cornerstone product with a 21% growth in revenues compared to the first quarter of 2000. Continued ex-US sales growth is an indication of AmBisome's value as a potent antifungal and a result of the strong relationships that our sales force had developed with high-prescribing physician. Additional marketing experiences and product label expansion have enhanced our AmBisome franchise. In December 2000, AmBisome was approved in France

for the empiric treatment of suspected fungal infection in febrile leukopenia. In the first quarter of this year, the French authorities recognized the importance of this approval by classifying AmBisome as an important improvement in therapeutic efficacy and/or safety, which is 10 level II of the improved medical benefit notification hospital scale. Not many products have this level of grading, and importantly it is not held by any of AmBisome's competitors. During 2001, we expect to achieve several additional AmBisome milestones. We anticipate approval from German regulatory authorities during the third quarter to market AmBisome for the fever of unknown origin and to complete new product registrations in Taiwan, Singapore, Malaysia, and Saudi Arabia. Additionally, our ex-US sales and marketing organization will be working to expand AmBisome's use in new market segments, including the ICU and as prophylaxis in the transplant setting. In North America, we also continue to see increasing market share for AmBisome across all parameters, specifically [dollars], vials, and milligrams. The best measure of AmBisome's market penetration, market share as measured by milligrams sold has increased by 10% first quarter 2001, over first quarter 2000, to an overall market share of 33% versus 47% for Abelcet, Elan Corporation's product, which is a lipid complex of amphotericin B. We attribute this US growth to the strong head-to-head data published last year showing a 11 safety advantage for AmBisome compared to Abelcet. Our first quarter results with AmBisome

indicate that we are on track to achieve our growth target, our target growth in revenues of 10% in 2001. During the past flu season, Tamiflu dominated the neuraminidase inhibitor market with greater than 90% market share. Unit sales were equivalent to last season despite this season being the lightest for influenza incident for at least the past 6 years. Our partner, Roche, has made some great strides over the last few months, which should allow them to build on their success with Tamiflu today. In the US, the label has been expanded to include treatment of children and prevention of influenza in adults. The pediatric formulation for children aged 1 and older was launched during the first quarter. Data on the successful prevention of influenza following exposure to an adult person was published in the Journal of the American Medical Association. Pricing approval in February allowed for the launch of Tamiflu in Japan, a potentially large market for the treatment of influenza. Also in February, Roche resubmitted a marketing authorization application for Tamiflu to European authorities. This application proposes indications for the treatment of 12 children and adults and prevention in adolescents and adults resulting in a first quarter milestone payment to Gilead. Because the review process in Europe is expected to take one year, this approval will most likely occur at the end of the next flu season. Turning now to our hepatitis B program, last week Dr. Benhamou from France, presented 48-week interim data from an ongoing open-label study on lamivudine-resistant HBV patients co-infected with HIV. This presentation occurred at the 36th annual meeting of the European Association for the study of the liver,

which took place in Prague. These data increase our confidence in the emerging positive efficacy, safety, and resistance profile of adefovir dipivoxil. Twenty-nine patients in the study received adefovir dipivoxil 10 mg once daily for 48 weeks. These patients showed a mean reduction in HBV DNA from baseline of 4.01 logs with a highly significant p value of less than 0.0001. Importantly, Dr. Benhamou reported that adefovir dipivoxil 10 mg once daily for 48 weeks was not associated with significant changes in renal function. These results are significant, given the high incidence of resistance to lamivudine in patients treated for HBV and in particular, 13 patients co-infected with HIV and HBV. The final patients in our two pivotal studies of adefovir dipivoxil reached the 48 week endpoint next month. As a result, we expect to begin presenting results during the second half of this year. Pending positive outcomes for these pivotal studies, NDA and MAA filings should occur during the first half of 2002. Finally, I'd like to provide you with a clinical update on the most recent addition to Gilead's products pipeline, Cidecin, the first of a new class of investigational antibiotic drugs called lipopeptides. Cidecin has been developed by Cubist Pharmaceuticals for the treatment of serious and life threatening infections called gram-positive bacteria. As you know, we licensed the European rights to Cidecin in January. Cubist is responsible for completing the ongoing development programs for Cidecin. We are responsible for regulatory filings throughout

Europe where our sales force will be marketing the [drug]. We are very pleased to add Cidecin to our product portfolio, giving us the opportunity to further leverage the expertise of our European sales and marketing organizations. Earlier this month, Cubist presented data from its clinical trial Study [9901] examining the safety and 14 efficacy of Cidecin in the treatment of 562 patients aged 18 to 85 years with complicated skin and soft tissue infections caused by gram-positive bacteria. This study was an international multicenter randomized evaluator-blinded study. They were presented in April at the 11th European Congress of clinical microbiology and infectious diseases in Istanbul, Turkey. In summary, the results showed that Cidecin achieved the required protocol designed endpoint of statistical equivalents to the standard of care comparator agents. In addition, the incidents of total adverse events were similar in both arms of the trial. Importantly, preliminary analysis of the data revealed that patients administered Cidecin required fewer days of intravenous antibiotic therapy than patients receiving the comparator agent. If this is confirmed in other clinical trials, treatment with Cidecin could potentially reduce health care [falling]. Cubist is conducting additional phase III trials to evaluate Cidecin's safety and efficacy as a treatment for complicated skin and soft tissue infections, community acquired pneumonia, and complicated urinary tract infections. Their plan is to complete all of the 15 pivotal studies required for registration in United States by the end of this year and to file a new drug application in the United States in mid 2002. Gilead will determine the timing of the European filings later this year, but we

anticipate following a similar schedule. Given the successful completion of our pivotal studies for tenofovir, the overall management of this program is being turned over to our commercial group. Therefore, I will now turn over the call to Mark Perry to give you an update on our important progress with tenofovir.

Thank you John. I am very pleased to provide you with an update on our recent clinical successes with tenofovir, as well as share with you our anticipated filing timeline and some of our prelaunch activities already under way. We are very confident in the profile of tenofovir based primarily on the efficacy and safety data generated in Study 902 and Study 907. We are pleased to announce that we are in the final stages of compiling these data in the filing packages, which we will be submitting to US and European regulatory authorities next month. We expect to receive a six-month review in the US, which should allow for approval of 16 tenofovir shortly before the year-end. The data package that we will submit includes 24-week safety and efficacy data from Study 907, which was [unblended] in February and met all of our expectations for this product. Study 907 is an intensification trial of 552 treatment-experienced patients. In summary, the preliminary results show that tenofovir DF achieved its primary efficacy endpoint, significant reduction of HIV RNA level following the 24 week placebo controlled portion of the study. Treatment of these patients with 300 mg of tenofovir once daily was associated with statistically significant HIV RNA decrease in mean DAVG 24, a 0.61 log compared to a decrease of 0.03 log in the placebo group with a highly significant p value of less than 0.0001. This viral load production equates to an approximate 75% reduction in circulating virus. Additionally, 45% of patients treated with tenofovir DF achieved HIV RNA reductions below 400 copies/mL compared to 13% in the placebo group. We also saw a specifically significant increase in CD4 cell counts in the tenofovir-treated patients in this study. These results are particularly encouraging considering

the [study and how] difficult to treat patients, 17 almost all of who had developed viral resistance to other agents. Prior to enrollment, patients in Study 907 had received antiretroviral therapy for a mean duration of 5.4 years, and 94% of patients had evidence of nucleoside reverse transcriptase inhibitor resistance mutation. The safety profile of tenofovir DF continues to look very clean with the incidence of grade III and IV lab abnormalities and clinical adverse event similar between the treatment and the placebo arms of the study. In addition, the study had an extremely low discontinuation rate of 6% among patients in both arms of the study. Coupled with data from our 48-week Study 902, which was announced and presented in detail last year, as well as a safety database on more than 900 patients treated with tenofovir 300 mg, now I have the results in hand required to support our regulatory filings. In addition to the progress we achieved with Study 907, we are happy to announce the competition of enrolment in January of Study 903 with 601 treatment-naïve patients. Study 903 is a 48-week randomized, double-blind multicenter active controlled trial which is designed to compare the safety and tolerability of two treatment regimen, tenofovir DF, 18 efavirenz, and lamivudine versus stavudine, efavirenz, and lamivudine. Study 903 will serve as a confirmatory study for traditional approval. In addition, it will provide comparative safety and efficacy data for tenofovir in treatment-naïve patients, which we will use to expand the market for tenofovir. We expect to release data from study 903 in the first half of 2002. Because of the substantial medical need for agents active against resistant virus, we have initiated an expanded access program with tenofovir in the US and Europe. Tenofovir is now available to patients in the US, UK, and France, and we expect to initiate programs in Germany,

Italy, Spain, and Canada as we receive regulatory clearance. Today, we have received a strong [level] of interest from the medical community and are currently registering physicians and beginning to enroll patients. On Tuesday, we were pleased to announce the entry criteria in the US has been broadened to make tenofovir available to patients with HIV infections regardless of their CD4 cell count or viral load. This change reflects our confidence in the profile of tenofovir and our expectation of launching the product prior to year-end. As we stated in our prior conference call, Gilead is 19 being reimbursed for tenofovir under the expanded access programs in France and the United Kingdom. This reimbursement is in the range of $4500 to $5000 for one year of therapy. We have successfully scaled up our manufacturing of tenofovir to commercial quantities and can confidently provide the drug to meet the anticipated demand. In addition to meeting an important medical need in this window period prior to approval, the expanded access program will allow physicians in our major markets around the world to become familiar with the profile and the use of tenofovir. In anticipation of the potential approval of tenofovir, we have initiated a commercialization program designed to ensure a rapid and successful launch of the product in the US and Europe. The US, where the HIV treating community is highly concentrated, we can effectively reach our target audience by increasing our current sales force of 30 reps, who are currently marketing AmBisome, VISTIDE, and DaunoXome, to approximately 60 reps. We are on target to have these additional representatives hired and trained by the third quarter, but [_______________] when we launch tenofovir. In Europe, where we would expect the 20 launch of tenofovir 3 to 6 months after the US launch, we are hiring experienced product managers in each country to help refine our launch strategy. We currently have 85 representatives in the five major countries of Europe for marketing AmBisome and DaunoXome. We anticipate increase in this force by

approximately 50% later this year towards the end of the year. Building on our [_______________] sales and marketing organization, we are confident in our abilities to successfully launch and market tenofovir in the US and Europe. In closing, thank you for joining us today. 2001 promises to be a pivotal year for Gilead, and we thank you for your continuing support.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, you will need to press the 1 followed by the 4 on your push button phone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered, and you wish to withdraw your polling request, you may do so by pressing the 1 followed by the 3 on your push button phone. If you are using a speakerphone, please pick up you handset before entering the numbers. One moment 21 please for the first question. Once again ladies and gentlemen, if you do have a question, press the 1 followed by the 4 at this time. Lee [_______________] with UBS Warburg, please go ahead with your question.

Yes, it is Geoffrey Harris and Lee [_______________] from UBS Warburg. Two questions on AmBisome. I was wondering if you could give a little bit more color on why you think the growth was so strong in the first quarter? And then secondly, given the growth rate in the +20% range in the first quarter, why the conservatism of only 10% guidance for the full year? And then just a follow on question on tenofovir. Are you confident in the year-end approval process, given the current slowdown at the FDA that we're seeing across the board with many companies? Thank-you.

Geoffrey, it's Mark Perry. I'll try to address all of those. The strongest growth we saw in AmBisome over the last quarter was in the UK, Spain, and in the US, and as you will recall in our product sales line, we include sales to [put these all] at a wholesale price so that the US sales didn't show up on our product sales line, and it's a reflection we think of the 22 continuing efforts by our marketing subsidiaries and partners to leverage the data we have on AmBisome. We are continuing to see growth in that product in selected markets particularly based on the new data that has come out of the last year. I think it's nice to be called conservative. We have seen in the past, the cyclical nature of AmBisome sales with a higher sales in the first and second quarter. Third quarter is always quite a bit lower primarily because of summer issues, and the fourth quarter, although higher than the third quarter, is lower than the first and the second, and it could have to do with the timing of bone marrow transplant operations, but we are not sure of what the impact is there. So in any event, we in seeing the big increase in the first quarter, I don't think you can extrapolate throughout the full year, and that's why we are sticking with our guidance there on AmBisome, but I have to say we're very comfortable with it. Finally, on tenofovir, we are absolutely confident on the timeline.

Is that based on something from the FDA specific guidance or? 23

It is based on our ongoing dialogue with the FDA over the past, really over the past 9 months, leading up to this filing which we will make next month, and their commitment to act within 6 months under the PDUFA deadline to act within 6 months of the filing. And we've talked specifically about what the process will be post filing in terms of safety updating and that sort of things. I think we have a very clear timeline established with the reviewing group of the FDA.

Great. Thank-you very much and congratulations.

Thank-you.

The next question comes from [_______________] with Lehman Brothers. Please go ahead with your questions.

Hi. It is still [_______________] actually. Let's see, do you guys have any estimate of how many quarters you will be profitable next year?

Yeah, this is Mark. We haven't made that estimate, and it's obviously driven by how quickly the ramp-up is in tenofovir 24 sales. All we have said is that we expect to be profitable for the full year, and obviously that's going to be towards the end of the year, but we haven't made a projection in which quarters will be profitable.

Great. Could you give us a sense as you go to market tenofovir, how would you address, I think, the difference in people's mind between the numbers that one gets in a phase I, II trial of an HIV drug in naïve patients for a drop in viral load over the first week or two versus the kind of phase III trial that you did, which to my mind suppresses the apparent efficacy of the drug at least numerically, and I think this is probably not just a Wall Street issue, but may be an issue for you in the market. How do you plan to address that?

The ultimate way to address that, of course, Joe, is our 903 data which won't be out until the first half of 2002, and so we will have that data out as quickly as we can once we are on the market and, of course, file that for traditional approval. In the meantime, we do have phase I data and short-term phase I data that shows greater than a one log drop 25 [_______________] therapy, which we do hope to be able to market off of the news and through scientific presentations as well, but beyond that Joe, it's going to be putting the data we have from 902 and 907 in context with the nature of the patients that were in that study, and I think the medical community understands the difficulty of treating that patient group, and there are a few studies although not many of other agents in that kind of setting where I'd say we probably have the most powerful antiviral effect on any of them in the setting of having treatment-experienced patients. So that's going to be our challenge from the marketing point of view at least until we have naive data available.

You can't pick up a newspaper these days without seeing a new story about the demand for HIV drugs in Africa. There are a lot of moving parts and this is obviously a great deal of [flux], but tenofovir has a profile that would make it pretty attractive in that sort of market or [call it if you] will. How do you guys see that hitting you, and what are your plans to deal with those intellectual property issues and those market issues? 26

Hi, Joe. It's John. You know what the point that [_______________] pointed out, tenofovir does have a great, the great profile we have for the US and Europe applies [obviously] worldwide, and what you are referring to is to [believe] this drug to work against resistant virus and have a long lasting effect, in other words, resistance comes up slowly, and those distinguishing properties which is giving us obviously a lot of momentum now in the markets that will be selling the drug in, our properties ultimately could make it very attractive as a product for other parts of the world. So we continue to be involved and follow the situation. We are obviously some distance away time-wise from needing to make the drug available at these places, and the situation evolves on a day-to-day basis, we will be a part of that when the time is appropriate.

Okay. In your discussions with the FDA, do you think that there is, is there any inclination on the [drug] agency to ask you to take an early look at Study 903, or do you think you would just run that out 48 weeks.

Our expectation is that we 27 will keep that study blinded, not do an early look and run it out for the full 48 weeks before doing the analysis. We have a very strong data package that we put together for the FDA

Great. Thanks so much.

The next question comes from Franklin Berger with JP Morgan. Please go ahead with your questions.

Good afternoon. Congratulations on a good quarter.

Thanks.

I was interested in the reimbursement rate that was mentioned in the expanded access. I would like a little more insight as to what you think that might be reflective of going forward in your pricing issues, and if you could just give us a touch more detail on the safety area regarding tenofovir DF, I would really appreciate that.

Hi, Frank. This is Mark. I will try to take the first one. Our price, the only markets that we're pricing for in expanded 28 access are France and the UK. The price is 15 euros a day in France and 9 pounds sterling, I think in the UK, roughly equivalent pricing and translates to about 4500 and 4800 depending on the day you pick your exchange rate, annual cost of therapy. That's obviously above the cost of the reverse transcriptase inhibitor class and below the cost of the protease inhibitor class, and obviously we haven't set a price yet commercially. We think that you can't go up basically from an expanded access or compassionate use price. You can only go down. So I would say this price sets the outer limit in what we can price tenofovir at commercially. It does give you an indication of our expectation to premium price of the product relative to the class we are in, the reverse transcriptase inhibitor class. That answers your questions. I know it does not give you the [_______________] number you want.

That's sufficient. Thank-you.

[_______________] do you want to take that, Sir?

Yeah, I would say the 29 safety profile of this drug and the data we have accumulated [_______________] is very good. The package we are putting together to file both in the US and Europe has a large number of patients treated for significant length of time. Moreover, Mark earlier mentioned the safety update that we will be submitting to the US, and our expectation by then is to have well over 500 patients treated for a year with this product.

The next question comes from Tim Wilson with Bear Stearns. Please go ahead with your question.

Thanks very much. My congratulations as well. Two questions. First of all, is there any ceiling on the tenofovir expanded access program in terms of the number of patients? Obviously in the US, your not being reimbursement could be potentially costly. Now, you have opened it out to oldcomers regardless of viral load and CD4 [_______________]. How many patients do you think you will get onto that program by, for example, the time of the panel meeting? That is question one. Question two relates to adefovir. In your press release, you said that electrolyte imbalances were normal. You said there were no significant, I think, the 30 word was clinical or laboratory abnormalities. Did you see any grade I, grade II proteinuria, creatinine elevations at all in that data set?

Tim, it is Mark. I will try the first one. There are no limits in the US in our expanded access program other than the fact that patients have failed other regimens now, and there are no numerical limits, nor are those really practical in the US. There are no limits in the UK or France, of course while we do get reimbursed. In some of the other European countries in effect what we are doing is a clinical protocol, and there will be numerical limits on the number of patients enrolled. We don't have a handle really on what the ultimate enrollments are going to be in these programs. The reason we have opened them up broadly at this point is (a) we have drug supply and (b) we have confidence in the timeline. Frankly, some of the other areas obviously are cost associated, particularly with the US program and not an insignificant cost. We think it is a very good investment in the product in terms of getting broad exposure to the drug both with physicians and patients and creating a sort of a built-in market once the drug is approved. Of course, the 31 patients will transfer over to paying customers once the drug is approved. So I guess now that we have eliminated and addressed our supply constraints, we don't have a concern about the program growing quickly, but we don't have a projection either. That is probably not the entire answer you want, and I think I will turn it over to John on the adefovir question.

Just before we go on to adefovir, can I just follow up on that Mark?

Sure.

You just implied maybe that the decision to expand this to oldcomers regardless of CD4 or viral load, is a supply constraint issue. Is that the issue or is it the ongoing dialogue with the FDA?

Yeah, it is really both, and we have been talking to the [FDA], AIDS amnesty community for really a year and half to two years about tenofovir. There has been a lot of excitement about the drug and therefore pressure on us to make it available. We've waited until we are completely comfortable with both the profile of drug from a safety point of view and 32 our filing timeline, and at that time when we launched the [_______________] by the time we launched it, it was January. We still have supply constraints, and we are quite comfortable. We will have those results by midyear, and in fact we have now resolved the [system out of] getting batches. They validated, and we are at that point now, and really the third point is that we continue to gain comfort in our timelines with the FDA, and of course being weeks away from filing now, we know exactly where we are.

Just to add to that, Tim, you may recall that from 907, the discontinuation rate in those [_______________] patients was 6% at 24 weeks. So, there's really no economic reason to not put the drug out there since they will become paying customers once the drug is approved. Moreover, the medical need is just to clear, and so there is a lot of momentum behind this program to make it broadly available, and now that we are capable doing that, we are very pleased to be able to be in a position to in fact do it. Ready to move on to adefovir?.

Yeah. That's great. Adefovir. 33

Okay. Yeah, the reason this 48 week data is so important is that these patients coming into the study have normal renal function. We actually have open-label data in well over a 100 patients treated long-term, for up to two years even, but those are transplant patients who have in many cases are on renotoxic drugs or have compromised renal function, and therefore, it is really hard to know whether or not the safety profile is as good as it appears to be in those patients, so we have to note, I am not sure about grade I because we find that grade I [_______________] close to normal range so you see normal fluctuation into that, but we see no nephrotoxicity with adefovir in these patients where we have had to take patients off drug. We have been able to continue to treat patients through the whole period of time.

And, you haven't seen any creatinine elevations or proteinuria that continue, in other words, [_______________].

That's correct.

Thank-you very much guys. Well done.

[_______________] 34 [_______________]. We have had no persistent evidence of any toxicity.

The next question comes from Scott Stromatt with CE Unterberg, Towbin. Please go ahead with your questions.

Good afternoon. Could you go over the details on the royalty from AmBisome from Fujisawa and for Tamiflu from Roche?

Could you clarify it a little bit better. What your question is? Are you asking what the royalty rates is or?

No, the royalty amount.

Oh, the royalty amount. Okay. The royalty amount, I believe, was 3.

3.8 for AmBisome.

And 2.1 for Tamiflu.

2.1. Okay. Thank-you.

The next 35 question comes from John [_______________] with Prudential Securities. Please go ahead with your questions.

Hi. This is [_______________] with John [_______________]. I was wondering if you could go back to the tenofovir expanded access program, give us a little more color as far as the interest, number of patients enrolled, centers involved before you opened up the expanded access program and afterwards?

Yeah, I'll try to take that. We don't have specific numbers to provide. We announced the program in January, and there was a two or three months lead time in the US of getting [_______________] committee approvals for each investigator getting [_______________] does not have investigators. By the time you actually get patients enrolled, it's generally two or three months. That was our experience with adefovir. That's has been our experience with tenofovir. We have a handful of patients enrolled. It's probably under 100 at this point in the US. Similarly in France and the UK, we probably have similar numbers in those two 36 countries as well. We don't plan to give regular updates on the enrollment numbers there, but it's just starting out at this point, so there is no meaningful numbers to give you.

So, but the interest is there?

We see very strong interest from the medical community. We have had hundreds of physicians who have requested the materials and begun to sign up.

Okay. Great. Thanks.

The next question comes from Steve Harr with Robertson Stephens. Please go ahead with your questions.

Good afternoon and thanks for taking my call. On AmBisome, was there any inventory stocking over the past quarter to account for some of the surge in revenue?

Yes. With respect to Fujisawa, yes. In part, their sales increases related to them increasing their stocking level, as well as actual product demand in the market place. 37

Can you quantify some of the wholesale stocking, both from Fujisawa and in Europe, to try to give us a better sense of [_______________] market use?

No, we can't quantify that for you at this time.

Okay. A kind of a more philosophical question. There is a lot of activity in the AIDS community recently. First was Africa, and now once the real costs of a lot of the drugs have been elucidated on pricing for the US, and do you think there is going to be a pricing pressure in the US market for these AIDS drugs going forward?

I will give you my personal reaction; this is Mark Perry. I don't believe it's going to affect pricing in the US, but we can't be 100% sure of that. There has been, both in the US and the major countries of Europe, there has been full funding of AIDS drugs, full reimbursement really since the early days of the epidemic, and we don't anticipate that there is going to be any restriction on reimbursement. Pricing has become more of an issue in some 38 European countries, but that's independent of what's been going on in the third world. It really has to do with health care systems in each of those countries, and we expect we will be in a situation where we will be negotiating prices in several countries in Europe, prior to launch. But I think it's pretty much a free pricing market in the US and in the most largest European market, France. The impact, if any, of what's going on in Africa, obviously we haven't seen any yet with the other companies outside of those jurisdictions, and I don't think we are going to see that on pricing on AIDS drugs, but again that's just my speculation. Do you have anything to add to that John?

In any of the costs, where have you booked the costs for the expanded access patients?

Sure. That's in our R&D.

And then the France and UK pricing. That'll be booked as?

Product revenue.

Okay.

In fact, we have a tiny bit 39 of product revenue this first quarter from the France and UK programs.

Okay. And how much was that?

We haven't broken that out. Probably won't be going forward.

Alright, thank-you.

Next question comes from Blake [_______________] with [_______________] Capital. Please go ahead with your questions.

Yeah, just a couple of questions on tenofovir, and I joined the call late, so I apologize if this is going over stuff you have already talked about, but with respect to the 903 study, have you identified when that data will be presented and perhaps where it might be presented?

All we have said, Blake, is that we are going to probably release that in the second half of 2002. We don't know ourselves what the timing is going to be exactly or what the best conference might be. My guess is, we 40 will probably find a way to release the top line data from that study before we present it at scientific conference.

The second half of 2002?

I'm sorry. I missed out. The first half of 2002.

Okay, first half of 2002. The second question is do you think that the panel is going to be necessary for tenofovir?

Most likely, it's really, depending on how you define it, it's really in a new class. The nucleoside reverse transcriptase inhibitors, and I think the FDA has been very careful to both to air any concerns about the drug and to sort of protect itself to have panel meetings in all those circumstances. We certainly would like to believe we would have a panel meeting. We can't be sure of that. That's probably going to be something like four months after we file so that we put it out in the September-October time frame.

Okay. And then 41 the last question is just with respect to manufacturing capacity, could you just maybe comment on your comfort level with the manufacturing capacity for tenofovir, given the [_______________] program, and then the near-term launch or the near-term potential launch over the next year or so or year and half?

We still, you know, we use third party suppliers, and we feel very confident with their capacity to deal with substantial demands for tenofovir, and we have three suppliers lined up for API and then we are using one and looking to qualify a second supplier for the finished product.

And when do you expect to have that second one qualified?

End of the year.

Great. Thanks very much.

Ladies and gentlemen, if there are any additional questions, please press the 1 followed by the 4 at this time. Mr. Perry, there are no further questions at this time. Please continue with the 42 presentation and your closing remarks.

Okay. Thank-you very much to everyone for joining us today. If you have any questions that weren't answered here, I would be happy to go into more detail with you, one on one. Please contact Susan Hubbard at 650-522-5715 to set up a call or a meeting. Thanks again.

Ladies and gentlemen, that does conclude our conference for today. You may all disconnect and thank you for participating.