吉利德科學 (GILD) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Gilead Sciences 1st quarter 2003 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 do have a question, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

As a reminder, this conference call is being recorded, Wednesday, April 23rd, 2003.

Your speakers for the day are John Milligan, Senior Vice President and CFO, and Mark Perry, Executive Vice President of Operations.

I would like now to turn the call over to Dr. Milligan.

Please go ahead, sir.

Good afternoon and welcome to the Gilead's 1st quarter 2003 conference call.

We issued a press release this afternoon providing results for the quarter ended March 31st, 2003 and described the company's quarterly highlights.

This press release, along with the additional financial and statistical information that will be discussed on the call today can be found on our website at www.Gilead.com.

Speaking with me today is Mark Perry, Executive Vice President of Operations and we're pleased to be joined by Mr. James Denny, Gilead's Chairman of the Board who is in town for our Board of Directors' meeting today.

Also joining us in the room is Susan Hubbard, Director of Investor Relations.

Dr. John Martin will not join us on the call today.

He earlier today underwent minor surgery to repair a detached retina.

We're pleased to say that John has successfully completed the surgery, is home resting comfortably and will join us in the not too distant future.

I will begin the call by reviewing the 1st quarter financials then Mark Perry will take you through the corporate highlights for the quarter.

And we'll keep our comments relatively brief to allow time at the end of the call to answer your questions.

First, let me start with the standard safe harbor statement.

I would like to remind you that we will be making forward-looking statements relating to the financial results and clinical and regulatory developments.

These statements are subject to the occurrences of many events outside of Gilead's control and are subject to various risks that could cause our results to differ materially from those expressed in any forward-looking statements.

I refer you to our publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business.

Gilead had a strong financial performance during the 1st quarter, sales and gross margins and operating cash flow improved significantly.

Product sales are up over 120% compared to the same period last year.

Gross margins expanded by over three percentage points and cash flow operations $44 million.

We also completed the acquisition of Triangle Pharmaceutical in January.

The final purchase price was $525.2 million which includes deal costs, severance and stock options in addition to the cost of acquiring all the outstanding shares of Triangle.

Now turning to the specific results for the quarter.

For the 1st quarter 2003 the company reported a net loss of $438.1 million, or $2.21 per share.

This includes the impact of a one-time charge for research and development associated with the acquisition of Triangle Pharmaceuticals.

This compares to a net loss in the 1st quarter of 2002 of $3.8 million or $0.02 per share.

Excluding the impact of the R&D charge, non-GAAP earnings were $50.5 million or $0.24 per share.

The first call analysts consensus for the 1st quarter of 2003 not including the charge for R&D was earnings of $0.15 per diluted share, $0.09 per share less than the none GAAP results.

This positive variance is primarily a result of better than expected total product revenues driven by sales of Viread and lower than anticipated spending.

Total revenues for the 1st quarter 2003 were $165.1 million, representing a 111% increase over the same period last year.

Net product revenues of $156 million drove most of the increase during the 1st quarter, comparing favorably with the 1st quarter last year when we reported $70.7 million in net product revenues.

The primary driver of Gilead's revenue growth is expanded sales of Viread for the treatment of HIV.

Viread revenues grew to $107.3 million, an increase of over 290% compared to the 1st quarter of 2002.

The U.S. accounted for $68.9 million in sales with revenues outside of the U.S. of $38.4 million.

These sales were driven primarily by sales in Europe where we enjoy rapid volume expansion and a favorable foreign currency environment.

For the 1st quarter 2003 volume in Europe grew by 39% compared to the 4th quarter of last year.

Foreign exchange also contributed higher revenues due to the strengthening euro, favorably impacting Viread's top line by $3.8 million compared to the 1st quarter of 2002.

Global Viread performance improved by 26% on a revenue basis, and by 25% on a volume basis, compared to the 4th quarter of 2002.

Hepsera revenues have continued to grow as well.

In the second full quarter of the market, sales for Hepsera for the treatment of chronic hepatitis B were $5.8 million.

Sales of AmBisome were $4.1 million for the quarter, a 3% increase over the same period in 2002.

This result was driven primarily by a favorable foreign exchange environment which offset lower volumes.

The total foreign exchange impact on AmBisome sales were $6.1 million compared to the same quarter last year, while volume declined by approximately 10%.

For the 1st quarter of 2003, Gilead recognized net royalty revenues of $7.4 million compared to $5.4 million for the same quarter in 2002.

Tamiflu royalties were $4.3 million and AmBisome royalties from Fujisawa, for sales in U.S. for the first quarter were $2.7 million.

I would like to provide insight into why the Tamiflu royalty rate for the 1st quarter was lower than some external estimates.

In our contract with Roche royalty rates are driven by two variables: Net revenues and cost of goods sold.

As many of you are aware, Roche experienced significant production problems with Tamiflu last year which resulted in a product recall.

This recall had an adverse impact on gross margins and a corresponding adverse impact on our royalty rates.

Looking forward, Roche anticipates that the cost of goods will continue to exceed the contractual threshold and as a result royalty rates for Tamiflu are estimated to average 7% during 2003.

For the 1st quarter of 2003, Gilead recognized net contract revenue of $1.8 million.

This compares to $2.3 million in contract revenue for the same quarter of 2002.

Gross margins expanded to 86.3%, up approximately three percentage points compared to the 1st quarter last year.

This improvement was largely driven by a favorable product mix as Viread with higher margins than AmBisome accounted for more than 68% of our product sales.

The favorable current environment also contributed to the gross margin improvement.

Now turning to expenses.

Total spending was below our previous guidance on an annual run rate basis.

The primary driver of this favorability were lower head count and timing of various R&D and sales and marketing programs.

Research and development expenses were $41.1 million for the 1st quarter of 2003, up 23% compared to the same quarter of 2002.

The increase in R&D expenses for the 1st quarter is primarily attributable to the clinical trials associated with the development of Emtricitabine for HIV.

One of the drug candidates in Triangle's antiviral drug portfolio.

Triangle related R&D spending during the 1st quarter total approximately $8.5 million the bulk of the spending associated with Emtricitabine.

SG&A expenses in the 1st quarter of 2003 were $47.6 million, up 20% from $39.8 million in the same quarter of 2002.

The increase in spending in SG&A for the 1st quarter of 2002 is primarily attributable to Gilead's increased global marketing efforts to support the commercial launches of Viread and Hepsera.

G&A expenses associated with Triangle's operations and additional infrastructure investments to support our growth.

The total Triangle related impact on SG&A spending was approximately $1.2 million during the 1st quarter.

On an annual run rate basis, SG&A spending would be below our previous guidance for the full year 2002.

This is primarily a timing issue with regard to certain expenses, including the postponement of two major conferences and lower than expected head count in the 1st quarter.

We expect expenses will ramp up as we offer our expansion of the sales force in the second quarter, and an increase in promotional programs through the the year for Viread, Hepsera and Emtricitabine.

The last item on the income statement I would like to discuss is the a favorable foreign exchange impact during the quarter due primarily to the strengthening Euro relative to the dollar, the total net impact of foreign exchange on our earnings for the first quarter was $3.3 million compared to the same quarter last year.

Turning to the cash flow statement and balance sheet, I would like to highlight the strong cash flow performance for the quarter.

Operating cash flow improved to $20.9 million for the 1st quarter, compared with cash used in operations of $23.1 million for the same period last year.

This marks Gilead's third consecutive quarter of positive cash flow from operations.

As a result of this improvement, total cash, cash equivalents and marketable securities is now in excess of $612 million.

Now I would like to provide guidance for 2003.

During our last quarter we had just completed our Triangle acquisition and were not in a position to provide integrated guidance.

Today we'd like to updateour guidance for the Triangle and Gilead combined company.

Starting with revenue, we are increasing our guidance for Gilead based on solid year-to-date results and favorable market trends.

Our new forecast is $475 to $500 million dollars, up from our previous guidance of $425 to $475 million.

For AmBisome, however, we remain cautious due to the increasingly competetive landscape, in particular the launch of [INAUDIBLE] and Europe.

As a result, we are maintaining our guidance of AmBisome to $160 to $170 million for the full year.

We will not be providing guidance on Hepsera or on potential revenues from Emtricitabine at this time.

We reiterate our contract revenues for the year expected to be in the range of $4 to $6 million dollars spread fairly evenly quarter over quarter.

Product gross margins are projected to be approximately 84% to 86% for the full year 2003.

This guidance is unchanged from last quarter.

While our margins are slightly higher than this during the 1st quarter, we anticipate that margins will moderate slightly during the remainder of the year as government mandated price reductions for Viread in Europe during the second half of the year offset favorable product mix.

Now turning to spending, we are raising our guidance for R&D spending in 2003 to the range of $210 to $230 million.

This increase in spending is principally associated with the addition of the product development programs for Triangle.

We are lowering our guidance for SG&A spending for 2003 to a range of $240 to $260 million, down from our previous guidance of $250 to $270 million.

Interest expense for the year will be approximately $19 million.

This reflects interest costs associated with our 2% and 5% convertible notes.

We will not, however, provide any guidance on interest income which depends primarily on the future of unpredictable interest rates.

And finally, because of our ability to utilize our NOLs we reiterate our previous guidance for our tax rate which we expect to be in the mid single digits for the year.

In summary, Gilead had a strong financial quarter based on increased product sales and controlled expenses .

Looking ahead, Gilead will continue to make investments we believe necessary to promote our product and to build a strong and independent global business.

This concludes the earnings reporting section of the conference call.

At this point, I'd like to turn the call over to Mark Perry to give you commercial and corporate highlights for the year.

Thank you, John.

Good afternoon everyone, and thank you for joining us.

We are pleased to share with you today Gilead's many accomplishments in the first quarter of 2003.

I'll begin by briefly reviewing our business highlights and then our commercial and pipeline products and cover our goals for the coming months.

Gilead had a very productive 1st quarter, executing on many important milestones both in the U.S. and internationally.

Fuled by the continued commercial success of Viread, we believe that we're well positioned to achieve our ambitious financial and operating goals for 2003 while building a anti-infective franchise that is stronger than ever.

As you know in January we acquired Triangle Pharmaceuticals, expanding our development pipeline and bringing us FTC or Emtricitabine, a late stage product under regulatory review in the U.S. and Europe for the treatment of HIV.

Triangle also brings us several pipeline products under development for Hepatitis B and HIV.

We've completed integration of the Triangle employees in sight into the Gilead organization.

I would also like to talk briefly about our commitment to global health.

In an effort to address the need for access to HIV treatments in developing parts of the world, we announced the commencement of the Gilead access program a few weeks ago on the morning we had the honor of opening the NASDAQ stock market.

Under this program, we will provide access to Viread at our direct cost to every country in Africa, and in 15 additional countries in other parts of the world, classified as least developed by the United Nations.

We have already recieved applications requesting Viread from several countries.

With its efficacy, strong safety profile and simple one tablet, once-daily dosing Viread has an attractive profile for use in developing parts of the world.

We are proud to be part of the effort to address the global HIV epidemic.

Turning to our commercial operations, Viread sales in the 1st quarter total of $107.3 million, including $68.9 million in the U.S. and $38.4 million in sales from outside the U.S., including Europe and Australia.

We are pleased with the 1st quarter results and believe we are on track to achieve Viread sales in the range of $475 to $500 million for the full year, as John described earlier.

In the U.S., for the week ended April 11th, 2003, Viread new prescription market share for the NRTI class was 17.7% and total market share for this class increased to 16.8%.

By both measures, Viread market share now exceeds that of all of the approved NRTIs except 3TC and Stavudine.

And we are within a few percentage points of these market leaders.

We estimate that there are about 100,000 patients in Viread currently in the U.S.

Resulting in the U.S. patient share of about 30%.

Viread's profile continues to be one of the best of any anti-retro viral on the market.

Based on the clinical data we have generated, Viread's advocacy, safety, tolerability, convenience and resistance profile support its use in all stages of a patients HIV disease.

To sustain the rapid growth of Viread, and to support the launch of FTC later this year, this past quarter we realigned our sales force so that there are now 65 sales reps supported by eight medical science liaisons dedicated to our HIV franchise.

In addition, we've created a second sales force of 20 reps to focus on Hepsera and promote AmBisome.

Their promotional efforts are augmented by three medical science liaisons who are dedicated to Hepsera.

We have completed the recruiting for these positions and the new members of our sales force are in our offices for training this week.

At the retrovirus conference in February, we presented important 96-week data from study 903, an ongoing clinical study in 600 treatment naive patients, comparing Viread to BMS's D4T.

With a background therapy of GFK's Lamivudine and BMS's Stavidine.

The efficacy data from both arms of the study are in process, showing that the Viread and D4T arms reduced HIV RNA to less than 400 copies per milliliter and 82 and 78% of patients respectively, using the most conservative missing-equals-failure analysis. 78 and 74% of patients achieved HIV RNA less than 50 copies per milliliter.

Excluding missing data, 96 and 93% of patients in te Viread and D4T arms achieved HIV RNA less than 400 copies, and 92 and 88% of patients achieved HIV RNA less than 50 copies.

Immunilogical benefit is also clear in the study.

Patients in both arms of the study experienced substantial increases in mean CD4 cell counts.

From the baseline mean of 276 to 537 cells per millimeter in the Viread arm and from the baseline mean of 283 to 549 cells in the Stavidine arm.

These CD4 cell count levels are nearing those of the healthy non-infected population.

The two arms deferred significantly however on safety parameters specifically regarding D4Ts effects on levels of triglycerides and cholesterol when compared with the Viread arm of the study.

In addition, the study showed that patients recieving Varead through 96 weeks has significantly fewer adverse events associated with mitochondrial toxicity which is associated with a painful condition of peripheral neuropathy, compared to patients receiving d42.

These safety differences have long-term consequences and also affect patient quality of life.

This in turn can cause [INAUDIBLE] issues and negatively impact therapeutic outcomes.

We believe 903 is the first study of its size that is of this size and duration.

We will continue to follow all patients out to 144 weeks to further evaluate both arms with respect to efficacy, safety and resistence development.

In February of this year, we received a positive opinion from the European CPMP to expand the indication of Viread to include use in anti-retro viral naive patients.

We expect the 48 week data from study 903 which we submitted to both the FDA and the EMEA to be included in both Viread labels later this year.

We believe we can leverage these data to continue to drive Viread growth both by taking additional market share from D4T and by targeting the more vulnerable nucleocyte analogs particularly ADT and its combination formulations.

We will continue to generate additional data to support the growth of Viread, looking at specific combinations including both Viread and FTC or Emtricitabine to prepare for the launch of FTC in the second half of this year.

In particular we plan to initiate a study in treatment naive HIV infected patients comparing the individual components of Virad and FTC head-to-head with [INAUDIBLE] with [INAUDIBLE] in both arms of the study.

The details of the study are in development and we'll update you as they are finalized.

We plan to have a significant commercial and scientific presence at all of the important 2003 HIV conferences, including the international AIDS society meeting in July in Paris and [INAUDIBLE] In September.

We're currently launching Hepsera in Europe and we expect the timing of the roll-out will be similar to what we experience with Viread.

In April, we launch in France, Germany and in the United Kingdom.

We anticipate the launches will be followed by an important European market: Spain, Portugal, Greece and Italy where we expect to obtain pricing late in 2003 and into 2004.

In addition, applications are under review in Canada, Australia, Switzerland and Turkey.

Countries where we have retained rights for the drug.

In the United States through April 1, Hepsera has garnered 36.6% of the new prescription market and 32.2% of the total prescription market relative to the other antiviral on the market, Lamivudine.

At the end of the first quarter, we believe there are approximately 4,100 patients on Hepsera in the U.S.

We reported U.S. sales for the 1st quarter of 5.8 million dollars, we're very pleased with the performance of Hepsera this early in the launch.

Results from the 48 week pivotal data from studies 437 and 438 were published in the New England Journal of Medicine in late February providing us with a additional tool we can use to educate physicians on the clinical benefits of treatment with Hepsera.

While the European Association for the Study of Liver conference in Istanbul was canceled due to the prospect of war, we were able to leverage the viral hepatitis symposium earlier this month to present 7 Hepsera abstracts, including 96 week efficacy and safety results from study 438.

Study 438 is a randomized double blind placebo controlled clinical trial with 186 patients with HB endogin negative chronic Hepatitis B and compensated liver function.

To evaluate the long term safety and efficacy of Hepsera, patients in this study will receive Hepsera for a total of five years.

This is the largest placebo controlled clinical trial in any Hepatitis B agent in H B antigen-negative patients.

The 96 week data shows that Hepsera reduces liver damage and improves liver function in more than 70% of the patients with E antigen negative disease.

Commercially, while the majority of U.S. sales to date are either in Lamivudine failures or in combination with Lamivudine.

We are seeing a gradual increase in first line use as well as proactive switching from Lamivudine to Hepsera.

The 96-week data will be important in changing the way this disease is treated from a disease of the liver to a viral disease as the treatment for -- treatment pyridine and has developed for HIV.

Our data show that driving down HPV to viral load with Hepsera therapy can have a long term positive impact in the function of the liver.

As we announced at launch, the wholesale acquisition cost for Hepsera in the U.S. is $5,300 per year or approximately $440 per month.

For patients with Hepatitis B in the U.S. about 78% of prescriptions are covered by private third party payers, about 12% covered by Medicaid and approximately 10% fall into other categories, primarily self-pay.

Exfactory pricing in Europe in countries where Hepsera has launched specifically Germany, France and the UK, ranges from approximately $5,800 to $6,500 a year, with Germany at the high end.

We expect pricing to be lower in the other European countries.

In December of this year, Glaxo, Smith Kline was our marketing partners for territories outside of North America, Australia and Europe initiated a 480 patient Phase III study necessary for approval in China.

GSK completed enrollment in the 1st quarter, underscoring their experience in the market and the urgent need for new treatments for chronic Hepatitis B in the Asian territories.

We expect Hepsera will be launched in the important countries of Taiwan, Korea, Japan and China, as well as in other countries GSK is responsible for by late 2004 and into 2005.

Moving to AmBisome, performance of this product is in line with our guidance that we gave in our conference call in January. 1st quarter sales were 41.1 million, an increase of 3% over the same quarter in 2002.

Or a slight decrease after taking into account the foreign exchange impact.

Due to increasing competition emerging in the antifungal market particularly with Pfizer's U.S. and European introduction of [INAUDIBLE] late last year, we focused on protecting our market share in Europe where AmBisome is considered the gold standard antifungal.

We've begun enrolling patients in a multinational study known as the AmBisome study evaluating the use of AmBisome earlier in treatment and at a high loading dose to determine its impact on improving survival.

In addition to the AmBisome study, we have an active phase four program in place supporting key opinion leaders who are including AmBisome in new research study.

Turning briefly to Tamiflu, Tamiflu is now approved in all major markets, including the U.S., Japan and the European Union.

The incidence of the flu in the U.S. and Europe was mild to moderate.

The territory hit the hardest this year was Japan where the incidence was very high, and Roche reported that it was temporarily unable to meet demand.

We understand that Roche has resolved the supply issue and has drug in the channel as the season winds down.

Roche estimates that between October 2002 and March 2003, 4.8 million individuals were treated with Tamiflu worldwide.

As you know, Gilead receives royalty from the net worldwide sales of Tamiflu on a one quarter lag basis, therefore we will report royalties in the second quarter of 2003 for Roche sales in the 1st quarter.

Now turning to the product pipeline, the Triangle pharmaceuticals acquisition, completed on January 23rd brings to Gilead a pipeline of products, including FTC or Emtricitabine a drug under regulatory review in the U.S. and Europe for treatment of HIV.

In the U.S. the FDAs [INAUDIBLE] deadline for review of the FTC marketing application is July 3rd, 2003.

We will actively promote FTC following approval and launch in the U.S., focusing on the strength of the data demonstratig the product with reliable once daily dosing is comparable in efficacy and safety to 3TC and superior to d4T based on head-to-head clinical studies.

Under its agreement with Triangle, Abott is manufacturing FTC for the launch, we are working to transition the manufacturing to Glead's third party commercial drug suppliers to meet our longer term FTC needs.

We believe that we can effectively promote both Viread and FTC as stand-alone products based on their individual attributes and synergies setting the stage of the introduction of the co-formulated product.

As you know, since the announcement of our intent to acquire Triangle, we've worked on a coformulated once daily tablet of Viread and FTC.

We now have a viable formulation and will begin stability and PK testing of the combination pill in the near future.

We believe we are on track for a early 2005 U.S. approval and launch of the coformulated product.

FTC is also in the development for chronic Hepatitis B. We expect to see data from the ongoing Phase III study around the end of this year.

Earlier stage Triangle products include Amdoxovir or DAPD, a nucleoside analog in phase 2 clinical studies for the treatment of HIV and Clevudine or L-FMAU a nucleoside analog in Phase I-2 studies for the treatment of chronic Hepatitis B. We believe both products have interesting and unique attributes and we are in the process of evaluating and defining the development plans for both of them.

In particular, DAPD has unique activity against resistant HIV with [INAUDIBLE] analog mutations or TAMs associated with d4T and AZT therapy.

Therefore we are designing a Phase II study to evaluate the drug's efficacy and treatment experienced patients with multiple TAMs where there is current unmet medical need.

We'll provide you with more guidance on Amdoxovir and Clevudine later in the year, after we've completed our evaluation of the current development programs.

GS7340 a novel [INAUDIBLE]pro drug with the active agent in Viread is an ongoing Phase I-2 study.

Through this proof of early concepts study of our pro drug technology, we hope to show that GS7340 retains beneficial side effect and convenience profile while providing a greater level of potency.

Should this be the case, we'll evaluate other compounds in the Gilead library targeting a variety of viral diseases.

We anticipate having data from this study and making a decision about further development of GS7340 later this year.

Also, to our research effort, we've identified a HIV protease inhibitor candidate.

GS4338 that meets our internal specifications to take a compound into the clinic.

Based on preclinical studies, the compound appears to very potent with a resistance profile that is distinct from the approved protease inhibitors and can be dubbed as a single pill once daily.

We are currently in the IME workup phase with this potential product and hope to file a IME by year end and begin clinical studies early next year.

In summary, this quarter has been a very productive one for Gilead as the company has solidified it's position as a global leader in antiviral drug development and commercialization.

We've continued to build on the successful launch of Viread and initiated U.S. and European launches for Hepsera.

We look forward to continued strong growth driven by Viread, Hepsera and AmBisome and to the introduction of FTC later this year which will take Gilead's product portfolio to seven marketed products.

We will also maintain our focus on careful expense management in order to continue increase shareholder value.

I would now like to turn the call back over to the operator so we can take your questions.

Operator?

Today's question-and-answer session will be conducted electronically.

Anyone wishing to ask a question may signal us by pressing the star key followed by the digit 1 on his or her touch-tone telephone.

We will call on you in the order that you signal us.

If you find that your question has been asked, you may remove yourself from the roster by pressing the pound sign.

We will take a maximum of two questions per person at one time.

We'll pause for just a moment to compile the Q&A roster.

First, we'll go to Caroline Copithorne with Morgan Stanley.

I'd like some clarification on the change in guidance.

It looks like the revenue guidance is up $25 to $50 million.

The R&D spending guidance up $50 million, SG&A down 10, the net result looks like it is about flat or up 10 to down $15 million in income.

So I just found that surprising given how much stronger the 1st quarter was, and the strength of Viread, whether we're supposed to imply that the difference is all Triangle impact or what the take away from that is supposed to be.

The largest impact, Caroline is the increase in R&D associated with Triangle, so that is where a majority of the increase in spending is coming from.

With regard to the strength of Viread, you're right, we had a very strong quarter.

We are going to face some pricing pressures in Europe in the coming quarter, particularly in France, where we are expecting what is a typical HIV event, a mandate or price decrease going from a hospital product to a pharmacy product, and that will occur sometime in the quarter, so there will be a pretty significant price decrease.

We do believe we'll make up for that in volume, but we still have a way to go.

And so our guidance remains at 475 to 500 for the year based on events that are known, and then we have the Triangle R&D numbers we've added into this.

As Mark said in his portion of the call, we are continuing the ongoing assessment of the Amdoxovir and the Clevudine development programs.

And so the guidance we have is for those programs today and we'll continue to evaluate those over the course of the year.

And so the second question on AmBisome since you did not change the guidance there and it looked like sequentially when you back out the effects from 1Q and 4Q it was down about 22% sequentially, I think that's right, what do you expect the turn around with regard to the competitive environment for the rest of the year.

You know, we're just starting to get a handle on how much AmBisome was sold in Europe, I think it was something like $15 or $17 million in Europe, there is a competitive environment from AmBisome.

This is also starting to make inroads into it.

We're still comfortable with our range of $160 to $170 million at this point in time.

We only have one quarter of experience with the products on the market and will continue to monitor it.

Caroline, the 1st quarter is historic I the lowest quarter in the AmBisome sales, and if you take a run rate off the $41 million, you are right within the guidance of 164.

It looks like your next question comes from Michael King, Banc of America.

Thank you for taking my call and congratulations on a great quarter.

Just a follow-up on AmBisome.

Can you guys give some characterization to what patients you think you may be losing?

Are you losing patients directly to [INAUDIBLE] or are you just competing for new patients, in other words, are patients switching off of AmBisome, I kind of doubt that or competing for new patients and can you maybe characterize them?

And when do you expect the AmBisome study to complete enrollment and be able to have data out?

You know, Mike, you are right, we are competing for new patients.

It is not really proactive switches that we're seeing.

It is competition for new patients for [INAUDIBLE].

We're not exactly sure what types of patients we're competing for.

So -- because it depends a little on the markets that we're in.

So we have imprecise data to -- to color further than you'd like.

With regard to the AmBisome study, we've just started enrollment of that, it is a large study and it certainly will not happen any time this year.

If I can just follow up on the -- I mean, are you typically -- are you, you know, seeing patients in the -- in the ICU, or outpatient, or any -- any color at all on the AmBisome competition.

It is not the ICU, if anything that is where the [INAUDIBLE] competition is coming in and they haven't made very significant inroads there.

I do not have any data from our affiliates of what the patient types are, where we're competing.

Your next question comes from Margaret Malloy, Goldman Sachs.

Thank you very much.

Good quarter.

I do not know if you can comment on this yet, but do you have a better assessment of NOLs from Triangle and what might be applicable this year and next year through the tax rate.

We do not have that study completed.

We do have -- we ended the year last year with 360 million in NOL, so we anticipate that we'll be more than sufficient to cover a majority of our tax exposure for this year and into next year.

We'll be able probably in the next quarterly conference call to give you full guidance.

We are doing a study of that and just did not have it completed in time for this call.

What would be the variables in that analysis, just what gets counted and R&D in process and --

There are a number of variables, including the previous changes of control and of Triangle, including the Warburg position that was taken.

There is also a timing issue for when we can take them and some of the R&D in process write-offs that occurred, so there are variables in there, and we believe we have a position to take, a greater number of them, and a fewer number, but we do not have that completed at this time.

The range is, like, 200 to 400? 400?

That it.

That is approximately right.

Okay.

And when you do figure out the amount that you can take, are there restrictions in the amount -- in terms of the amount that you can take in any given year.

Yes, there will be restrictions in any given year.

It will probably be out over a ten year period.

Your next question comes from Eric Ende with Merrill Lynch.

Thanks a lot guys, good quarter.

I just need some -- some understanding of the guidance that you gave on the R&D and SG&A side.

I understand that, you know, a couple of the conferences were canceled.

But it just looked like you've kind of loaded these expenses with everything possible.

I'm just trying to understand, is the Triangle -- all three -- let's include FTC and Hepatitis B, L-FMAU and DAPD, that is -- are you currently assuming those are currently going forward in your current R&D guidance?

They are going forward.

They're not going forward necessarily at the rate they would have been around at Triangle, no.

So there have been some delays in studies.

Okay.

But as far as the potential for them to be eliminated, if the data does not support continuing those programs, that's not in the guidance.

That's correct.

There would be additional savings if we eliminated the programs altogether or if we delayed them further.

And that includes FTC and Hepatitis B.

I think it unlikely that we would be able to delay -- to cancel it entirely, because it is a ongoing study, and it is our intention to see how that study plays out in Hepatitis B. It's not our intention currently to start another study until we see the data, and we may no have another study to file for that indication.

That is in the current guidance, R&D?

Correct.

Okay, the second question that I have related to the manufacturing issue, I think we all know that the FDA inspected the Abott plant in December and Abott responded to the 40, threes in January.

Very quickly, can you kind of take us through really what needs to be accomplished in order to be able to get FTC approval on the pidufa date and what kind of things you have in place to kind of back up in case Abott runs into issues.

Sure.

Sure.

So with regard to Abbot, we've worked closely with them, even before the completion of the acquisition to try to address some of the issues in the 483.

We've worked with Abbot and set out a time line allowing us for a launch in July and are working down the time frame.

There are a number of steps which need to be repeated.

There are some proficies which needed to be revalidated and those activities are ongoing.

To date, we've stuck to our time line, and things are going smoothly.

There are still additional activities which need to occur, and those would include another preapproval inspection by the FDA in advance of approval and launch.

And so while things have run smoothly to date there are still things out there that could go wrong.

We're not saying that there is anything that could go wrong, but they could because there is a uncertainty to that.

That would get us into a July launch.

If things were to go wrong, which I think is your question for the backup, it would either be something that we would address through continued work with the FDA and Abbot, and that could allow us to launch at some delayed portion.

Or alternatively we're working with a secondary supplier that could produce API, and if that supplier continues on the current time line we could have that material available perhaps as early as late summer or early fall.

That facility also would have to undergo FDA inspection as well.

There are a lot of things that would have to occur.

I think you got cut off, Eric, I hope I addressed your question.

We'll move to Elise Wang, Smith Barney.

Thank you for taking my question.

Can you actually clarify in terms of your increase guidance for Viread just to get a better sense of this, what proportion of your guidance for sales that you are providing us do you assume will come from the U.S. versus Europe in the overall sense and how much of it is also being driven by the favorable benefits that you are seeing now from the currency [INAUDIBLE] in Europe in light of what you are saying about them, the pricing changes that will occur.

Yes, Elise 65% of the revenues come from the United States and 35% from Europe.

We do expect that to -- the European contribution to increase over time.

As you recall, we just launched in Italy, for example, so I think that will happen.

We are, I would say, very bullish certainly on the United States where the run rate has been very strong.

And that was part of the reason for the increase.

Also, the other reason, if you annualize the rate we're at, you get to 430 million, exceeding the low end of our previous guidance.

We felt comfortable going up to 4 -- sorry, 475 to 500.

We do have some pricing decreases, and we'll expect foreign currency to decrease.

We've had favorable effects, and just to be clear, the effects that we have described are really a quarter one '02 versus a quarter 1, '03 effect, that would be the difference between those two.

They are not quarter over quarter effects, which would be much smaller.

We had a favorable currency environment.

We have not historically hedged Viread and have benefited from the favorable currency environment but are likely to do so to protect some of that -- some of that gain that we already have.

So I mean I think the answer is we do expect Europe to increase over time.

And to contribute in a slightly greater way than it does in the current product mix.

Okay.

That was very helpful, certainly helped to clarify the outlook there.

In regards to the expense side, just to get further clarity on this, in terms of some of the pipeline products, and what that could represent in terms of additional cost savings on the R&D side, when do you expect to make decisions on the pipeline products this year.

It -- it is going to occur roughly over the next six weeks.

Moving on to Mark Augustine with CS First Boston.

Hi, thank you for taking the question.

I wanted to ask about the mention made of the study in treatment of naive HIV patients, if you could give us, even if it is still being developed, a bit more on the design and perhaps a bit of a focus on statistical methods, please.

Thanks.

It is not -- this is Mark Perry, it is not that far along yet.

What we do know about the study is -- would be [INAUDIBLE] on the one hand, versus Viread and FTC on the other, and with the favrins as the third drug, we do not know the number of patients or the length of treatment yet, it will be in treatment naive patients.

We do not have a good idea on what the powering would be on the number of patients, we expect it to serve as sort of two purposes, one, to meet our second confirmatory study for the Viread approval.

To get full approval on Viread.

And, secondly, is obviously a marketing study, use of Viread and FTC together but that's all we can say about it at this point.

Can you characterize it as a superiority study, not inferiority study or equivalent study.

Not yet.

Okay.

That's obviously going to be a function of what numbers we want to put in the study, and that's one of the things we're discussing.

Okay, thank you.

Superiority would require big numbers.

Navdeep Jaikaria from Leerink Swann.

Hi, guys.

Congratulations on a good quarter.

A couple of questions.

When did you propose to begin the study, following up on Mark's question, the [INAUDIBLE] versus --

Some time in the second half of this year.

Second half.

And on the same lines of questioning, when do you expect to begin the entokoview study, the Triangle studies that you mentioned, the DAPD, when are those --

The Phase II study would be before the end of this year as well, again, do I not know the duration of the numbers of that study.

Do you think more like 4th quarter.

I cannot get that specific for you.

The second question that I had was that you mentioned that there has been progress and -- as far as formulation for the -- for the coformulated Viread versus the [INAUDIBLE] product and you mentioned that you will do stability studies.

When do you propose to begin those and how long do they typically take?

We're very close there, within, you know, a matter of weeks or months to begin those studies.

But the -- those studies will not be the rate limiting factor in getting approval.

The manufacturing stability -- the realtime stability that we have to generate on that formulation so -- and that will begin, obviously, at the same time.

So sometime in -- this year we will run the bioequivalent study basically, it is probably a 30 day study.

Is that correct, John?

It is even shorter than that.

It would be a cross over bioequivalent study that would start later this year.

More to the point, Navdeep, your concern about when it will go on stability and that will happen before the end of the next -- of this quarter.

And we'll go next to Chris Jenner, [INAUDIBLE] Price.

Hi, just a couple of questions.

One is given the synergy between FTC and Viread, and vice versa, I just wanted to make sure that as was asked by previously about some of the uncertainties surrounding an FTC approval in early July, the guidance -- the new guidance for Viread does not assume a FTC approval in July; is that correct?

That's correct.

Okay.

And, Mark, I'm wondering if you could just spend a moment to talk about what you are seeing in terms of decile prescribers, how the use of Viread is being more widely used in lower decile press describers following the 903 data, the second question is any comment that you could make about -- about inventory?

And then, thirdly, given that the sales force has had some modest changes, new people, and territories, et cetera, do you think that that has had, you know, any effect on -- on execution or performance in this quarter?

Thank you.

Sure.

Let me take it in reverse order.

No, I do not think that the changes in the sales force has had any disruptive effect.

We kept people on territory as we made changes.

All the promotions we made were from within, but people kept in their territory until essentially now this week we're making the transition over.

There is very little disruption there.

All the back filling is in the sales rep positions and people were promoted from sales reps to regional directors and national account managers or other positions, and that has gone very smoothly.

I do not think that we're going to see a disruption there.

People are not out of territory because of that.

Secondly, on the inventory side, we're still not seeing inventory billed to the wholesalers it is about a three to four week -- very steady three to four week average at the wholesalers, so that what the -- the product is still flowing through very nicely and the wholesalers are upping, you know, their weekly orders as the volume has gone up.

I do not think we're seeing any inventory build at all.

I forgot your first question.

The docile.

Thank you.

We continue to see somewhat of a spread from the top docile to the lower docile, so the uses are quite a bit higher in docile 7210 than it is in docile 3 through 6, or however you want to cut it.

And the -- so each of those groups, if you look at those groups, if you look at 1 through 3 and 4 through 6 and 7 through 10, each group is going up in percentage use in market share on Viread, but there is still a difference between each of those three groups.

So the 903 data, our marketing efforts, frankly, just experience with the drug, the top prescribers are increasing their use, but we're seeing more use in the mid deciles and lower deciles, part of that's been a concerted effort by our sales force to get the mid decile folks, get them the 903 data and get them to talks and presentations by the fine leaders in this field.

So we're still seeing the spread, but we're seeing all -- all the groups going up gradually over time.

Craig Parker, Lehman Brothers.

Hi, good afternoon, guys, you've obviously answered every possible foreign currency question already.

In the past you've given some data on penetration by patient segment.

Do you have any update there?

You know, first line use versus salvage use for Viread?

Not really.

It has been a guess, frankly, in the past.

All right.

Based on perception more than anything else.

Okay.

You know, increasingly I think it is gradually increasing first line use, but I cannot quantify that for You know, increasingly I think it is gradually increasing first line use, but I cannot quantify that for you.

Okay.

And in the contract with Abbot for manufacturing, how quickly -- let's assume you launch with Abbot, how quickly can you transition to a third party contract actually.

Immediately.

Immediately, okay.

In fact, regardless of what happens with and both's process in the 483s, we are going to external -- other manufacturers.

So you are pursuing Abbot because practically it could be the quickest route to the market but you do not contractually need to do that.

Correct.

And, Craig, the incentive on our part is that the price for the other manufacturer will be substantially less so we can drive the cost of goods down to a much more reasonable level over time by moving away from Abbot, and we'll do so as quickly as we can.

It is the only alternative to the July launch.

Jason Kantor with WR Hambrecht.

You've answered most of my questions as well, I wanted to get better clarity on the SG&A expenses.

The number was very low.

I think relative to what we were expecting, the 4th quarter was a bit high in your guidance.

It looks like you're going to have some significant ramp.

Is there any way you can give us a better sense of how that will roll out over the next three quarters, or is it going to be a gradual increase over that period, or, you know, will the front end load in the 2nd quarter, is that something that just got shifted by weeks --

There's two things going on, Jason.

One is that there are true savings there, and those are reflected in the guidance coming down that John gave you, and that is despite the addition of the Triangle function which doesn't add much in the SG&A arena.

We still are bringing the guidance down, some very real savings there.

But there is also a timing issue.

And some of that, you know, we were already back-end loaded this year due to the FTC launch and the way that the conferences and the promotional programs work out this year, and the fact that we just have hired -- increased our sales force now this 2nd quarter.

So there was a pretty much a stepwise increase over the quarters this year.

And you just need to rachet those back by the -- with the new guidance.

Some of the savings include the fact we've canceled conferences given the war, some very significant conferences.

And we've also delayed some of our programs including, some of our direct to patient activities in the U.S.

So there's actually some savings in there in an effort to increase margins.

Okay.

Thanks.

Moving to Tom Deitz with Pacific Growth.

Greg Wade here.

Wondering if you can help us understand what level of clinical significance would have to be met in the ongoing study 903 for the DSNB to stop the study for ethical reasons.

That is a good question.

I do not know -- I do not know, nor do I expect that that level of significance -- usually that relates to a efficacy difference, that is almost certainly not going to happen unless the dropout rate becomes so high.

It is not our expectation that the DSNB would stop the study at this point in time.

We are really mostly about 2.5 years now with the least furthest patients, so the likelihood of it being stopped is close to zero, and I expect it will compete 144 weeks.

The last patient hits that point in October.

Thank you.

Just one more, if you could just tell us what accounts receivable were at the end of the quarter, please.

Corporate accounts receivable was $146 million, with the vast majority of that coming from Europe.

It looks like we'll go to a question from Shakahar Bashu, Greenberg Healthcare.

Thank you.

I wonder if you can give us a update on DAPD, as to what happened exactly at Triangle or as to what delayed the clinical trials in Phase II B and what has been resolved regarding those clinical issues to lead you to believe that you should initiate the trials later on this year?

My second question on FTC, I'm wondering whether clinicall programmers will be able to combine it together as a single bill.

Your first question with regard to DAPD, as you may be aware, there was a clinical hold, a partial clinical hold on the drug due to some animal findings there were changes occurring in animal studies, we believe these were secondary to nephertoxicity caused by crystallization of the product in high doses in the animals.

The FDA asked us to go back and redesign studies so if we looked longer term we would have better baseline view of those events in humans.

Now there was a study that we had anticipated starting here, certainly Triangle had anticipated starting.

However, we thought it would not address the two most important issue, one what is the safety profile of the drug at different doses, and, two what is the actual activity of this product in TAMs.

We'll redesign a study to look more specifically at the activity of the product versus [INAUDIBLE], most specifically the 41 and 210 mutations to see if there is a role for this product in more treatment experienced patient, we'll redesign the study and reinitiate it later this year.

And then your second study -- I'm sorry, your second question with regard to a FTC Viread program that is the co-formulated product to which we're referring.

We do have a viable formulation, we're down to things like choosing the color as we put the batches on stability in the next few months.

And we do anticipate having a filing and approval for this product in early 2005.

And maybe your question also related to the study that we plan to initiate.

We would initiate the study of FTC and Viread with evavrins using the two separate pills if it was appropriate during the course of the study to switch to the co-formulated pill, we would do that.

I show that's all the time we do have for questions today.

I would like to turn things back to Mark Perry for closing comments they may have today.

Thank you operator.

And thank you all for joining us today.

We appreciate your continued interest in Gilead and look forward to providing you with updates on our future progress.

That will conclude today's conference call.

We do thank everyone for their participation.