吉利德科學 (GILD) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Gilead Sciences fourth-quarter 2004 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, simply press star and then the number one on your telephone keypad.

If you would like to withdraw your question, press star and the number two.

As a reminder, this conference call is being recorded, Thursday, January 27, 2005.

Your speakers for the day are John Milligan, Executive Vice President and CFO, John Martin, President and Chief Executive Officer, and Kevin Young, Executive Vice President of Commercial operations.

I would now like to turn the call over to Dr. Milligan, please go ahead.

Good afternoon and welcome to Gilead's fourth-quarter 2004 conference call.

We issued a press release this afternoon providing results for the fourth-quarter and year-ended December 31, 2004 and describing the Company's quarterly highlights; the press release is also available on our website.

Also joining us on today's call are Mark Perry, Senior Business Advisor, Mike Aguiar, Vice President of Finance and Tricia Petersen, Senior Manager of Investor Relations.

I will begin the call by revealing the fourth-quarter and full-year financials and then I'll provide financial guidance for 2005.

Then John Martin and Kevin Young will take you through the corporate and product related highlights for the quarter.

We will keep our comments relatively brief to allow time at the end of this call to answer your questions.

First, let me start with a standard Safe Harbor statement.

I would like to remind you that we will be making forward-looking statements relating to financial results projections, 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 actual results to differ materially from those expressed in any forward-looking statements.

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

In short, 2004 was another eventful year for Gilead filled with many corporate successes and product achievements.

We had strong top and bottom line growth.

We launched Truvada in the U.S. and increased the market share of our HIV and [HPV] products.

With the continued strong performance of AmBisome we achieved a significant milestone with product sales well in excess of $1 billion growing total revenues by 53 percent compared with 2003.

On a non-GAAP basis, net income grew by 46 percent.

Diluted earnings per share by 35 percent.

And income from operations increased by nearly 93 percent.

In addition, we generated over half a billion dollars in operating cash flow during 2004.

We believe that this strong operating performance is a validation of the strategy we have implemented and the hard work put in by the more than 1600 Gilead employees around the globe.

Finally, I would like to highlight with the redemption of our two percent convertible senior notes we close out the year without any remaining long-determine debt and with more than $1.25 billion in cash and marketable securities.

Now turning to the specific results for the fourth quarter.

Gilead had a strong financial performance during the fourth quarter as sales, earnings and operating cash flow all improved significantly over the fourth-quarter of 2003.

Net product sales were up 39 percent compared to the same quarter last year, driven primarily by higher revenues from our HIV products and improved Hepsera perform.

GAAP income before taxes grew substantially from $85.3 to $152.5 million, approximately a 91 percent increase.

This improvement was fueled primarily by high product, royalty, and contract revenues, along with controlled spending.

As a result of this strong operating performance, operating cash flow for the quarter was $124.1 million.

As a reminder we implemented a two for one stock split effective September 3, 2004.

All prior period [INAUDIBLE] numbers have been adjusted to reflect the impact of this split.

The company reported net income of $110.2 million or 0.24 per share on a fully diluted basis for the three months ended December 31, 2004.

This compares to net income in the fourth quarter 2003 to $192.6 million or 0.43 per share.

This decrease is primarily attributable to a one-time tax benefit of $111.6 million that we recorded in the fourth quarter of 2003 due to the reduction in the valuation allowances of our deferred tax assets as Gilead transitioned to a fully taxed entity in 2004.

Our effective tax rates for the third and fourth quarters were 32 percent; up from the 31 percent recorded in the first two quarters of this year.

This increase was due to stronger-than-forecasted profitability which increased the utilization rate of our NOLs and R&D tax credit.

It is important to note that our actual cash taxes paid for 2004 were substantially lower than our book tax expense due to the utilization of our net operating loss carry forward and the benefit of employee stock plans.

Anticipated cash tax payments for 2005 will be higher than in 2004 but still significantly lower than our recorded effective tax rate.

As I mentioned earlier in the fourth quarter 2004, we completed the redemption of our two percent convertible senior notes.

In conjunction with this redemption the company a nonoperating charge of approximately $7.4 million for a make [whole] payment on the debt redemption during the fourth quarter.

Excluding the impact of the make [whole] payment as well as several non-recurring items in the fourth quarter 2003 that will discussed later, non-GAAP EPS increased 19 percent to 0.25 per share in the fourth quarter 2004 from 0.21 per share per diluted share in the same period last year.

For the full-year ended December 31, 2004, the Company reported GAAP net income of $449.4 million or 0.99 per diluted share; this compares to a net loss of $72 million or a negative 0.18 per diluted share for 2003.

It's important to note that 2003 results included several non-recurring items in addition to the tax benefit discussed a moment ago.

These included a charge during the first quarter for in-process research and development of $488.6 for the Triangle acquisition, a vendor contract settlement reimbursement of $13.2 million of R&D expenses and the fourth-quarter writedown of $10.9 million relating primarily to non-cash impairment charges against certain long-lived assets as a result of our decision to terminate the DaunoXome product line.

Excluding the non-recurring items discussed, non-GAAP EPS was [break in audio] per diluted share for fiscal 2003.

In 2004, non-GAAP EPS increased to 0.96 per diluted share.

Now turning to revenue: Total product sales for the fourth-quarter 2004 were $355.6 million, 39 percent increased over the same period of last year.

This growth was primarily driven by higher HIV product revenues.

HIV product sales grew to $261.7 million compared to $180.8 million in the fourth quarter of 2003, an increase of 45 percent.

This gross was driven by higher prescription volumes in both the U.S. and in Europe, strong initial uptake of Truvada in the U.S., and a favorable European currency environment compared to the same quarter last year.

We are particularly pleased with the launch of Truvada in the United States where according to the most recent NDC data, Truvada commands 10.3 percent of the new prescriptions in its class.

This growth is resulting primarily from new patients and successful switches of patients on other regimens, particularly Viread Emtriva and Viread [Enefivere].

As we stated on the last quarterly call, our expectation is that as patients switch from the individual components to Truvada, the growth rates of the individual products will be less meaningful than the growth rate of our entire HIV franchise.

On the demand side, U.S. prescription volume growth remains strong.

According to the latest NDC Data total retail prescriptions of our HIV products in the fourth quarter 2004 have increased by 9.7 percent compared to the same period last year and nearly two percent compared to the third quarter of 2004.

U.S. wholesaler inventory levels have remained consistent based upon our analysis of the data we received from the large wholesalers; according to this data as of the end of December 2004, U.S. wholesale and inventories for Viread and all products Gilead markets directly in the U.S. continue to be in compliance with the contractually specified levels.

Outside of the U.S., HIV product sales grew to $99.3 million from 64.9 million during the same period last year.

This is an increase of 52 percent due to significant increases in sales worldwide and a favorable EU foreign exchange environment.

One or more of our HIV products are now marketed in 28 countries around the world.

For the fourth-quarter 2004, HIV product line in the European Union and Australia grew by 51 percent compared to the fourth quarter of 2003.

Foreign exchange also contributed to International growth of HIV product sales adding 6.2 million to revenues compared to the fourth quarter of last year.

This is due primarily to stronger European currency in relation to the U.S. dollar compared to the same period of 2003.

For the full-year 2004, total HIV franchise revenues were $908.4 million.

This is above our October guidance of $870 to $890 million.

Hepsera for the treat of chronic Hepatitis B had sales of $35. [inaudible] million in the fourth quarter 2004 up from $29.7 million during the third quarter of 2004 and $15.8 million in the fourth quarter of 2003.

Sales in the U.S. and the rest of the world were $17.2 million and $18.7 million respectively.

We're pleased with the continued progress in launching Hepsera which we now market at 20 countries including the U.S. and Australia and all major countries of the European Union.

We have also received several milestone payments from GlaxoSmithKline in 2004 relating to the commercial approval of Hepsera in a number of Asian countries including most recently Japan.

Finally, sales of AmBisome were $55 million for the quarter, a slight increase of one percent over the same period in 2003.

Actual sales volume of AmBisome in Europe increased slightly by two percent when compared to the same period last year.

This increase in volume, along with a favorable foreign exchange environment in Europe and higher sales volumes in Latin America and Asia were partially offset by lower pricing in some regions.

In total the foreign exchange impact on AmBisome was $2.7 million when compared to the same period last year.

For the full year, AmBisome revenues were $211.7 million, above our previous guidance of $195 to $205 million.

For the fourth quarter 2004, Gilead recognized net royalty and contract revenues of $14 million compared to $7.9 million for the same quarter in 2003.

This growth was due primarily to 5.8 million of royalties received in the fourth-quarter of 2004 based on sales of Tamiflu by Roche in the prior quarter.

Product gross margins decreased to 86 percent when compared to 87 percent in the fourth quarter of 2003.

This is primarily driven by the inclusion of Truvada and the mix of sales for 2004 which has a lower growth margin than Viread due to higher royalties associated with the [diptriva] component.

For the full-year, gross margins were approximately 87 percent, which is slightly favorable to our prior guidance of 85 to 86 percent.

Now turning to expenses.

Research and development expenses were $70.2 million for the fourth quarter of 2004, an increase of 19 percent from 58.9 million in the same period last year.

After adjusting for the reclassification of certain European clinical trial expenses of 2003 from sales and marketing to R&D as discussed in previous quarters.

Compared with last year we have seen higher spending and research primarily associated with our the Hepatitis C program, especially licensing fees related to the collaboration agreements recently entered into Achillion and Genelabs.

This is all set apart by a lower level of clinical trial activity.

In total, licensed payments associated with the agreements were in excess of $13 million for the fourth quarter.

Total R&D spending for the full-year 2004 was $223.6 million which is slightly above our previous guidance of $210 million to $220 million.

This increase is primarily attributable to the up-front licensing payments associated with the Achillion agreement.

SG&A expenses in the fourth-quarter 2004 were $85.4 million, up 17 percent from the same quarter of 2003, after adjusting for the reclassification of certain clinical trial costs that I just mentioned.

The increased spending in SG&A for the fourth-quarter 2004 was principally due to increased global marketing costs, expansion of our U.S. and European sales forces which began in the latter part of 2003, increased infrastructure cost, and the cost associated with Gilead's presence at certain medical conferences in the fourth-quarter of 2004.

For the full year 2004, total SG&A spending was $302.8 million, which is at the lower end of our most recent guidance of $300 million to $310 million.

As discussed, foreign exchange is favorable on our overall basis during the quarter due primarily to a stronger Euro relative to the U.S. dollar when compared to the same period last year, the total net impact of foreign exchange on our pretax earnings for the fourth quarter and the full year of 2004 was $8.1 million and $31.1 million respectively when compared to the same periods in 2003.

This includes the foreign exchange impact on revenues, [hex U.S.] spending and the result of our hedging program.

Finally, for our current results, I would like to turn to the cash flow statement of balance sheet to highlight our performance for the quarter.

Operating cash flow increased by 24 percent to $124.1 million this quarter when compared with the operating cash flow of 99.9 million for the same period of last year.

This strong performance is primarily due -- due to significantly higher pretax earnings compared to last year and improved working capital performance.

Based upon the strong cash flow performance, the proceeds from the sale of all of our EyeTech common stock as well as the proceeds from the sale of Gilead stocks to our stock options and employee stock purchase plans, the balance sheet as of December 31, 2004 show cash, cash equivalents and marketable securities of $1.25 billion.

This is an increase of 77 percent when compared to the balance of $707 million at December 31, 2003.

Now I'd like to provide our financial guidance for 2005.

Before jumping into the specifics, however, I would like to highlight a few important assumptions implicit in this guidance.

First, we have not included the impacts of stock option expensing which will likely begin during the third quarter of 2005.

Stock option expensing will have a significant impact on all of our expense lines as well as our effective tax rate.

Second, we've assumed foreign exchange rates similar to today's environment.

And lastly, our R&D guidance does not include any contemplated expenses related to collaborationS we may enter into during the year.

As a result, any deals entered into during 2005 will be incremental to our guidance.

Now turning to the specifics, for our entire HIV franchise which includes Viread, Emtriva and Truvada, we are setting our guidance for net product sales for the franchise at $1.2 billion to $1.25 billion for 2005.

This anticipated 32 to 38 percent growth over 2004 requires that this franchise take additional market share from our competitors in the United States and abroad and include the introduction and rollout of Truvada in parts of the European Union over the course of the year.

For AmBisome, while we continue to recognize the increasingly competitive landscape, based on the continuous strong performance we have seen for the product to date, we expect net product sales of AmBisome to be in the $195 million to $205 million range for 2005.

As Hepsera's now fully launched in all countries of the European Union as well as the U.S., we will be providing guidance for this [inaudible] Hepsera for the first time.

Our estimated net product sales of Hepsera for the full-year 2005 is in the range of $160 million to $180 million.

This guidance range does factor in potential impact of additional competitions that will be entering the market at least in the United States later on this year.

We estimate our product margin -- product gross margins for 2005 will be within the range of 85 to 86 percent.

This is slightly below the 2004 levels due to product mix changes.

And, turning to expenses, our guidance for R&D expenses for 2005 is $240 million to $260 million.

This rise of expenses over last year's levels factors in increased spending in our internal research and development efforts but as I mentioned does not reflect any potential licensing fees or expenses associated with future potential corporate development activities.

For our SG&A expenses, our guidance for 2005, $350 million to $370 million.

This increase over 2004 actuals reflect anticipated launch costs for Truvada in the European Union, costs associated with post marketing studies to support our franchises, and ongoing investment in our global Commercial organization through hiring and promotional programs.

Our capital expenditure guidance for 2005 is $55 million to $65 million.

And finally, our tax-free guidance for the year 2005, we expect our effective tax rate to be in the 31 to 33 percent range, approximately the same as 2004.

Again this guidance does not yet include the impact of stock option expensing in the future.

In summary, as Gilead looks ahead, we will continue to make the investments we believe necessary to build a strong and independent global business.

We will continue to broaden our product lines, particularly our HIV franchise, AmBisome and Hepsera, continue to evaluate opportunities to in-license or acquire companies for potential products to complement our own internal efforts.

This concludes the earnings reporting section of this conference call.

At this point I would like to turn the call over to John Martin and Kevin Young who will review our corporate and commercial highlights for the four-quarter 2004.

Thank you, John, good afternoon, everyone, and thank you for joining us.

We are pleased to summarize for you today Gilead's many accomplishments during the fourth quarter and full-year 2004.

I'll begin by discussing a few of our recent business highlights and our pipeline programs.

Then Kevin Young will review our Commercial efforts and John Milligan will wrap up the call.

2004 was a year of significant accomplishments and growth for Gilead.

We now have over 1,600 employees in 11 countries around the world.

As John mentioned earlier, for the first time full-year sales from our products surpassed $1 billion.

The fourth-quarter 2004 was a busy time for Gilead at scientific conferences, notably [ICACC and AASLD] .

As you know we presented 24-week interim data from our ongoing study 934 as a late breaker at [ICACC] in Washington D.C.

Study 934, a 48-week clinical trial, was designed to compare a regimen of Viread, Emtriva, and [Efavirenz] to [Comagere] and [Efavirenz] in more than 500 treatment IU patients with HIV.

Kevin will provide an update on the status of this important study later in the call.

Currently, at the 55th [AASLD] meeting or concurrently at the 55th [AASLD] meeting in Boston, positive 144-week safety and efficacy data from study 437 of Hepsera in patients with chronic Hepatitis B were presented.

The presentation further defines the unique profile Hepsera of increasing efficacy with a strong safety profile in treatment, ie.

E-antigen positive patients.

In November, the committee for medicinal products for human use in the European Union issued a positive opinion for Truvada.

Traditionally the European medicine agency accepts the [CHMP] recommendation and issues a marketing authorization within three to five months of a positive [CHMP] opinion.

We anticipate the approval of Truvada and launch in several European countries during the first half of this year.

In addition to the focus on our commercial goals, we are making progress on both internal and external R&D programs that will drive the long-term growth of Gilead.

Our R&D programs are focused on small molecule therapeutics targeted at HIV, Hepatitis B and C and certain diseases of the immune system.

I would like to take a moment to elaborate on the collaboration of Gilead and Bristol-Myers Squibb signed in December 2004.

Gilead and Bristol-Myers Squibb established a U.S. joint venture to develop and commercialize a [ Inaudible ] Combination of Emtriva, -- it is the first complete regimen of HIV available in a fixed dose combination taken once daily.

Economic details of the venture have not been disclosed other than to say that both companies will provide funding and field space sales representatives in support of the promotional efforts for the combination product.

Bristol-Myers Squibb and Gilead will receive revenues from future sales at percentages relative to the contribution represented by their individual products that comprise to fix those combinations.

The work necessary to co-formulate Viread, Emtriva, and Sustiva into a one tablet, once-daily combination product was ongoing through most of 2004.

We have selected a co-formulation of the drugs, and we plan to initiate the bio equivalence and stability studies with this first lead formulation shortly.

We hope to have data from the bio-quivalent study by midyear.

There's always a risk to our development and therefore we have backup formulations that will be pursued if the lead formulation is not bioquivalent.

Based on our current projected timelines we could potentially file a new drug application sometime in the second half of 2005.

We remain committed to discovering advances in the treatment of HIV and have an active, dedicated search effort focused on an array of drug targets including the NRTI, NNRTI and [Protease, Plemrace, and Integrates] Classes.

To augment our pipeline, we continue to evaluate opportunities for in-licenses and/or acquiring compounds that complement our own internal efforts in both the areas of HIV and Hepatitis C. To this end, I would like to highlight a few deals about the progress we made with our Hepatitis C research program.

In September and November of last year, Gilead entered into collaborations with Genelabs and Achillion providing additional HCV research programs that are highly complementary to our own internal research.

The exclusive agreement with Genelabs covers research, development, and Commercialization of novel [nucleacide] inhibitors of HCV [Plemrace] and an exclusive agreement with Achillion to grant Gilead the worldwide rights for the research, development, and commercialization of Achillion's small molecule inhibitors of HCV replication.

During the fourth quarter Gilead paid an $8 million up-front licensing fee to Genelabs and a $5 million up-front licensing fee to Achillion and also purchased $5 million of equity in Achillion.

We believe that the treatment for Hepatitis C may involve -- evolve similar to that of HIV and may ultimately involve combination therapy with multiple drugs directed at multiple targets.

The Genelabs and Achillion programs help to advance our strategy to bring into the clinic multiple anti-virals that can be used in HCV combination therapy.

Although these programs are still at a early stage, there are lead compounds that look promising and will require preclinical evaluation before we select any [SIMB] candidates.

As always, we are regularly evaluating other company's research efforts and would consider in-licensing or acquiring products in areas of unmet need outside of anti-virals if such an opportunity fit well with the Gilead business model of specialty bio pharmaceuticalS.

Finally I would like to update you on our efforts to help fight HIV in the developing world.

With the establishment of a new manufacturing plant in the Bahamas, a supply of faulty low-cross products with people limited to HIV in the developing world will be available.

Gilead has continued to achieve economic -- economies of scale in the production of Viread and Truvada, and to this end we announce a reduction to the no profit price of Viread in July 2004.

Coming off a successful year in 2004, we believe that we have the growth and operating leverage in our business to attain the 2005 financial and operating goals that John Milligan discussed earlier.

We look forward to updating you on our progress throughout the year.

I will now turn the call over to Kevin Young to review our commercial products efforts.

Kevin?

Thank you, John.

Good afternoon, everyone.

I will begin by discussing the developments in our HIV franchise, which achieved record fourth-quarter and full-year revenues of $261.7 million and $908.4 million respectively.

The fourth quarter represented our first full quarter of Truvada revenue after the product's U.S. approval in August 2004.

In October 2004, the U.S. department of health and human services updated their guidelines for the use of anti-retroviral agents in combination therapy to recommend Viread and [Triva] as a first-line jewel [NRTI] backbone in combination with an [NNRTI] or a Protease inhibitor with adults infected with HIV.

This was an important development for our HIV products.

Many physicians in the lower prescribing deciles rely on these guidelines to assist them in making treatment decisions, and importantly, the timing of the revised guidelines has been helpful in our launch of Truvada.

As John mentioned, we anticipate a decision on our marketing authorization application in the EU for Truvada from the EMEA sometime in the first half of this year.

With the launches in Europe shortly thereafter.

Truvada will be launched in various EU countries as pricing is determined, beginning first, with the launches in the major markets of the United Kingdom, Germany, and Portugal.

In general, we anticipate Truvada will be priced using the same approach as in the United States, which will be determined by the sum of Viread and Emtriva prices in each country.

Turning back to the U.S. markets, in just over five months on the market, Truvada has captured approximately 10 percent of the new prescription market and over 7 percent of the total prescription market in the NRTI class.

According to the retail and nonretail prescription data from NDC, we believe that approximately 36,000 patients are now being treated with Truvada as part of their triple drug regimen.

We anticipated and have seen erosion of the individual components of Viread and Emtriva as Truvada becomes a great component of our HIV franchise.

For he launch of Truvada has resulted in significant growth of our overall HIV franchise, including the molecules shares of both Viread and Emtriva.

We believe these are the best measures of growth in the NRTI markets, which contains multiple combination products.

Our overall HIV franchise has expanded significantly.

New prescription market share for our products increased to 31percent at the end of the year, representing 15 percent growth from just under 27 percent share at the launch of Truvada in August.

The availability of Truvada has naturally allowed us to capture new patients going on therapy and convert patients previously on Viread [plus] Emtriva-based regimens.

But we are also beginning to make progress on taking market share from competitive products including D-14, 3, TC and Combivir.

While we have been very pleased with the launch of Truvada thus far, we are very early in the launch of this product, and believe we have significant potential to capture additional market share and continue to grow our HIV franchise.

Notably, there are still 110,000 patients on Viread [ Inaudible ] Regimes, 99,000 on the Combivir regimen and 48,000 patients taking D-14.

We plan to leverage the clinical data we have currently and generate additional data to help us achieve the goal of capturing share from these products.

Now I'd like to give you an update on a few of the ongoing clinical studies involving Truvada.

As John mentioned, study 934 has a 48-week end point.

If the positive trend observed at 24 weeks continues through week 48, we believe this will provide further support for the preferred use of Truvada over Combivir in combination regimens.

All the patients enrolled in study 934 have crossed the 48-week time point.

We are currently collecting data, and analyzing data, which we -- which we anticipate will be available by late Spring.

We -- we plan to submit the data for presentation at the next appropriate scientific conference, which could potentially be the International A.I.D.S. society meeting in Rio de Jenerio in July.

In addition to study 934, there are several phase-four studies planned which could potentially provide data to support switches to Truvada.

These studies involved both naive and experienced patients and will evaluate switching stable patients to Truvada and all Viread-based regimens from Combivir, Ebakavir and D14 based regimes.

We anticipate there will be an interesting switch data in support of Viread and Truvada at the retrovirus conference in Boston next month.

In addition to -- in addition to Gilead's [ Comet] Study, we believe by the end of 2004, there will be at least five Truvada switch studies under way or completed in the United States and Europe.

Now moving to Hepsera for chronic Hepatitis B. Hepsera achieved full-year revenues of 112.5 million, 55.8 million and 56.7 million in the United States and marketed territories outside the United States respectively.

Since early 2004, Hepsera's captured greater than 50 percent of the monthly anti-viral market for HBV in the United States.

And as a result, Hepsera is now marketed as the preferred first-line oral HBV agent.

In the United States, we believe there are approximately 13,000 patients on Hepsera therapy.

In the European Union, Hepsera is now fully launched in 15 countries, and we continue to increase our market penetration most significantly in Italy, Greece, and Turkey.

We believe that 10,000 to 11,000 patients are now being treated with Hepsera.

GlaxoSmithKline, our partner in Asia and Latin America, has launched in six Asian countries, including the important markets of Japan, Hong Kong and Singapore.

In these territories, Hepsera is priced at a premium to Lamidivine and we receive a royalty on the net sales of Hepsera on a one-quarter lag.

GSK plans to launch Hepsera in the important markets of Korea and Taiwan shortly, and it is also in the process of evaluating the regulated strategy in China.

As we prepare for additional competition in the HBV market, we remain focused on generating clinical data that will help to profile Hepsera's unique attributes.

As John mentioned, we have presented three-year safety, efficacy, and resistance data for Hepsera from pivotal clinical studies.

These studies will continue out to five years.

We also plan to present four-year data from study 438 at the European Association For the Study of Liver Disease meeting in Paris this spring.

We are dedicated to promoting Hepsera as a first-line treatment regimen and to continue growing the HBV markets.

As we have mentioned previously, following discussions with the FDA, we will proceed with clinical studies to evaluate the profile of [ Inaudible ] DF which is marketed as Viread for the treatment of HIV as a potential treatment for HBV.

We plan to conduct two phase III studies in E antigen positive and negative patients, similar to the Hepsera studies 437 and 438.

We anticipate initiating enrollment sometime mid 2005.

On to AmBisome.

We achieved another record year with revenue of $211.7 million.

The strong performance of AmBisome is the result of our efforts by our European sales and marketing organization and the product's reputation within the European treatment community.

On a volume basis, unit sales of AmBisome in the territories where Gilead markets directly or through distributors grew four percent during 2004 compared to 2003.

With increasing competition from Merck and Pfizer, we are focused on maintaining our market share by leveraging existing data through presentations at various scientific forums and through publications that continue to highlight AmBisome as a gold standard of care in the treatment of severe fungal infection.

In late 2004, we fully enrolled the [Ambilove] study with 225 patients.

This is the study evaluating the effect of higher loading doses of AmBisome early in treatment.

After a twelve-week follow-up period, we will conduct a necessary case report evaluation and statistical analyses and we anticipate data around midyear 2005 with a presentation of publication toward the end the year.

Finally, Sumatomo, our partner in Japan, submitted a [JNDA] for AmBisome in the fourth quarter highlighting the continued importance of this therapy on a worldwide bases.

Turning to Tamiflu, we have been experiencing a light flu season thus far, however, increasing influenza activity is being reported throughout the U.S. and Europe.

In Japan, consultation regs remain low and lab confirm cases still sporadic. [Shugite] pharmaceutical, a Japanese subsidiary of Roche announced that Tamiflu sales, during the 2004 influenza season covering March through December, were 8.6 billion yen or $82.6 million below its original estimate of $10.3 billion Yen or $98.9 million due to the absence of an epidemic. [Shugite] had prepared the medicine for potential coverage of 50 million people.

In the United States, influenza activity is continuing to increase mostly in the Eastern regions.

Although on a national level, the consultation rate has declined.

In Europe, influenza continues to gradually increase.

Elsewhere in the world, several cases of human bird flu in recent weeks in Vietnam have raised fears of a new epidemic.

During the past several months, we understand that Roche has made significant progress in getting commitments from a variety of governments to secure pandemic supplies of Tamiflu.

However, as you may recall, we receive a royalty on worldwide net sales of Tamifllu on a one quarter lag and we cannot predict how the influenza season or the pandemic planning will affect Roche's sales of Tamiflu.

Finally an update on Macugen and of age-related macular degeneration.

EyeTech Pharmaceuticals who licensed Macugen from Gilead received FDA approval for the product in December 2004.

EyeTech just announced last week that they have begun shipping the product in the United States.

Regulated submissions from Macugen have also been filed in the EU, Canada, Australia, and Brazil.

With the first commercial sale of Macugen, Gilead will receive a $7.5 million milestone payment.

In addition, Gilead will receive a royalty from EyeTech on worldwide net sales of Macugen.

The royalty will be paid on a one-quarter lag, and based on the first-quarter U.S. product launch.

We expect to begin recognizing a royalty payment from Macugen during the second quarter of this year.

This completes my discussion of our commercial products.

I will now turn the call back over to John Milligan.

Thank you, Kevin.

And thanks everybody for joining us on the call today.

We are proud of our financial and commercial accomplishments Gilead recognized in 2004.

We look forward to continued strong product revenue performance in 2005 driven by our growing HIV franchise.

As [inaudible] and AmBisome we remain focused on investing wise in our pipeline, and our marketing and sales program will continue to deliver earnings for shareholders.

I'd like to turn the call back over to the operator, so we can take your questions.

Operator?

[ Caller Instructions ] Ladies and gentlemen, your first question comes from Meg Malloy of Goldman Sachs.

Please proceed.

Thanks very much.

I have two quick questions.

First, thanks for the guidance.

And wondering if you can provide any sort of EPS growth target.

That's the first question.

And then the second question is I was wondering if we could get a little bit more detail on the switch studies.

I think you mentioned there would be five, where we should see completion.

I want to get a better handle on when we will see data and a little bit more specifics on the design of those studies.

Thanks a lot.

Hi, Meg, this is John Milligan.

I guess the first one on EPS growth guidance, we don't give any EPS guidance, so I can't really give you growth targets.

We just -- just going to give guidance on the parameters we discuss today and people have to model on their own from there.

And the second thing to say with regard to the switch studies, there's a variety of them, there's at least six either ongoing or soon-to-be started studies switching from a variety of regimes.

Some of them have control arms.

Some of them do not.

Most are looking at one or both [ Inaudible ] Analogs switching over to this and I guess it is fair to say for competitive reasons we don't want to get into the specific designs.

We know that this information could be used in a variety of ways against us.

But I think it's fair to say that you could map out the end points pretty appropriately in terms of [ Inaudible ] changes.

But importantly the safety parameters are things we are looking at: changes in hemoglobin, changes in cholesterol, triglycerideS, changes in lymphats that occur when patients come of some of the other agents and go on to a Viread or Truvada-containing regimen.

I don't have any specifics on the data rollout.

We will get to that later in the year as we know more precisely when enrollment has been completed and the timeline for each study.

It is just too early to talk about data right now.

Okay.

Thanks.

And if I could just follow-up on the [comet] study then.

I guess your target is just a complete enrollment this year.

So it is not clear we would see data from that study either, right?

It all depends on the rate, because it's a 24-week end point.

In theory it could, but I don't know where we are in enrollment and something I can't determine when it is going to be done.

Okay, thanks a lot

Thank you very much, ma'am.

Ladies and gentlemen, your next question comes from Sapna Srivastava of Morgan Stanley.

Please proceed..

I thank you. [Inaudible] for the strong quarter.

And on -- how are you getting expenses for the six dose combination with [ Inaudible ] And a just a second question: when do you expect the 48-week data topline, will you be [ Inaudible ] ahead from the Truvada conference?

I had trouble with your first question.

Could you repeat that?

You were too faint.

Sorry.

The first question was how do you plan to split expenses of Bristol on the fixed dose combination?

And the second question was just the timing of the 48-week data.

When can we see the top line, will it be ahead of the data already in the conference and when do you expect to get it on the label.

Thanks for repeating that.

So with regard to the Bristol-Myers' expenses-- The answer is, somewhat it depends.

There is an agreed opinion upon budget for marketing and sales expenses, for example, that would be split according to economics of the individual products, so that's a fixed budget for the year, but an example is sales force expenses aren't a part of that.

Everybody sort of pays their own way in that case and we don't put that into the daisy.

So it is a pretty simple way to do that and our anticipated expenses based on those budgets are already in our expense guidance for the year.

The second question was regarding the timing.

As John said, we expect the -- the data to be out in late spring, and I think we haven't yet determined how we are going to release that, whether it be by press release in advance or press release at a conference that will depend on the timing and when that goes out.

So I don't have an answer, because we simply don't know at this point in time.

And how long will it take you for you to get that data on the label.

How long will it take -- well, it depends.

In the United States, it could take up to ten months if we put it in as a separate application.

If we put it in with a fixed dose combination, the opportunity potentially to accelerate that along with the approval of the fixed dose combination, so we're looking at those two strategies and it will depend upon the timing when it is available.

Clearly we are going to get the data into the FDA as soon as we can after analysis and the reports are written.

In Europe the 24-week day from 934 is already included in the label.

It is partially in there, but again the full data will probably take another year from submission to get incorporated in the label and updated.

Thank you.

Thank you very much, ma'am.

Ladies and gentlemen, your next question comes from [ Inaudible ] Webber of Smith Barney.

Hi, good afternoon.

The first question is did the share outstanding count actually decrease in the quarter.

Is there an active share buyback program or just a function of recording?

There is no active buyback program.

It is a function of the diluted calculations, the make whole payment and a variety of other factors that cause our share count to fluctuate.

Okay.

And then as you look to build up the pipeline, do you have a preference as to -- are you looking specifically in in-licensing products or are you considering, perhaps, buying products and...

Then as follow-up to that, are you considering potentially bringing another vertical in or are you going to say in HIV and HBV?

I think we have been pretty open we would look at a variety of different ways to expand the pipeline, so we have focused on in-licensing programs in HBV through 2004.

In 2005 we are continuing to look at viral programs both HBV and potentially HIV programs which would be appropriate given our franchise there.

In terms of buying a product for the right product at the right price, of course we would consider it.

And your last question with regard to a new vertical, I often refer to it as the new franchise.

We are very interested in bringing in potentially a third franchise to Gilead, and I don't know what exactly that's going to be.

But we're certainly evaluating opportunities and are thinking of ways we can utilize our strength of specialty sales forces, particularly specialty European sales forces when we think of the key advantage to try to accelerate the growth of Gilead into the future.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Thomas Wei of Piper Jaffray.

Please proceed.

Thanks very much.

I wanted to ask a question on wholesaler inventory stocking levels.

You mentioned that they remained in the specified range, but can you give us any additional granularity on whether or not those levels rose within that range or declined within that range, and then also just wanted to ask a little bit on the nonretail channel sales.

If there is a disproportionate use of combination pills like Truvada and Combivir in nonretail channels, and if the market shares there look pretty consistent with the overall retail market.

I'll take the first question and turn the second one over to Kevin.

With regard to the [IMAs], I think it is fair to say we stayed very consistently within the ranges that we have contractually provided with the different wholesalers.

So I would just say it's been a very constant quarter over quarter.

These things -- I think you are right to point out these things can shift over time as demand increases or decreases but over a quarter, that change is not so significant.

Hi, Thomas, this is Kevin.

To answer your question specifically, no, there is no difference in essentially prescribing patents -- whilst we have different payor group, it is very consistent in terms of actually the adoption of -- of our products.

All our HIV products.

So we don't see any patents there at all.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Mark Augustine of CFSB.

Okay, thanks very much.

I want to ask a question about AmBisome.

Can you comment with more specifics about the U.S. pricing environment and trends there and when you give guidance for '05 for the product line, what is the basic assumption about U.S. flat, up, or down, thanks.

Well, I guess there was a couple of things to say about U.S.

One, we get a royalty component of that.

So we didn't give guidance on the royalty.

There is a portion of product sales that contains our U.S. sales to food to solid that's imbedded in our overall guidance.

Quite frankly, I am not sure what external guidance [ Inaudible ] has given with regard to the products so I am pretty uncomfortable giving any guidance as to what what we think the product's going to do up or down and I don't know the specific number either, so I would probably be mistaken, but do I know the volume basis, and I don't know the pricing assumptions behind that.

So we are a little bit -- probably the wrong company to ask with regards to what kind of environment is like with this.

I am afraid I can't help you, Mark.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Ian Somaiya from Thomas Weisel Partners.

Thanks for taking my questions.

The first is just a follow-up to Thomas's questions on the inventory levels.

Are there any plans to actively reduce inventory levels of either Viread or Emtriva as Truvada gains more, greater market share and then I just have one follow-up to that.

Well, I guess actively reducing isn't the right way to think about it.

What we do is we assess what the appropriate level is based on demand, and so, for example, with Emtriva, that demand has come down, and so you would expect that inventory to bleed off naturally as it sells out and we adjust it on a, sort of a, rolling three-month basis.

With Viread, the demand remained fairly strong, so, of course, you wouldn't anticipate changing that from the contractual levels, because those levels don't provide a whole lot of cushion for what a wholesaler needs in order to manage their inventory across all their -- all their distribution centers, but it is something that we work with very closely so we update the data and we analyze the trends as do the wholesalers and that's how we hit the targets.

Okay.

In the 2005 guidance for the HIV franchise, does it incorporate impact from any of the switch studies?

I would say that we do take into account in the -- in the guidance some anticipation about the kind of data rollouts that we're going to have.

We would think the 934 data may be one of those, but most of these would enter into the -- so the data would enter into sort of the scientific literature late in the season, so it would have more of an impact on '06 I think than '05.

Okay.

Thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Eun Yang of Gilead, please proceed.

Thanks.

You mentioned that in terms of the triple combo pill, if the lead formulation works out, then could you potentially file for approval in the second half of this year.

Does that assume [ Inaudible ] test to be about six months?

It is making some of the same assumptions we made with the Truvada submission, that you could submit with six months on three batches and then supplement later on.

We have not yet had the conversation as to how much additional data you would need with the FDA, and, of course, that depends on having data you can take to them so they can make a scientific judgment as to how stable the product is or not, so we don't -- we'll know more as we get down the pathway of looking at the data sets both on the accelerated and realtime stability studies.

The second question is, I just want to make sure I heard this right.

From Macugen, you are expecting $7.5 million in milestone upon the first to settle Macugen?

Yes, which EyeTech announced the first sale happened this month.

Okay, but the remaining, about $17 million or so, does that -- is that con -- contingent upon approval in other countries or some -- some are actually related to sales?

They are related to approval of from different countries.

Okay, thanks very much.

Thank you very much.

Ladies and gentlemen, your next question comes from Joel Sendek, please proceed.

Thanks, a couple of questions.

In the press release you said you have a 14 percent volume decrease in the U.S. sales Viread, but if you look at the dollar volume it looks like it went down by only four percent.

I am wondering what the reconciliation is there.

The 14 percent was over -- yeah, in terms of the quarter, quarter fluctuations, it can -- I'm trying to think of what we are comparing if to on this one -- sorry I am scrambling to get an answer for you here.

Okay, I can -- yeah, I can -- Let me ask my second question.

I will need to go and look at that one.

I don't have an answer for you off the top of my head.

Well, the -- the next question I had is more with regard to the cannibalization, and if you could just give us general comments whether the Viread cannibalization is happening faster or slower than you would have anticipated this far into the Truvada launch.

Hey, Joel, it is Kevin speaking.

I think it is pretty much as we expected.

As we can make out the cannibalization is a result of Truvada.

Obviously, we are in competition so the HIV market is a switch market sales, the dynamics around, you know, switching patients, but from what we can make out largely, the drop-off is a direct result of Truvada.

Obviously Viread in itself has a role to play, particularly in patients getting, you know, third-line, fourth-line therapy, but, you know, we did -- we did expect this, and no great surprise for us.

Thank you.

Thank you very much, sir.

Ladies and gentlemen, your next question comes from Geoffrey Porges of Sanford C. Bernstein & Company, Inc.

Please proceed.

Thanks for taking the questions.

Congratulations on the launch.

Quick question, first -- could you give us an update on discussions with Merck about the collaboration on the triple combination with them, and also any potential triple collaborations elsewhere.

The second question for Kevin.

Now you have sort of got your feet under the table.

Could you perhaps comment on the outlook for the commercial organization?

It looks as though you are getting a lot of traction against some of the individual products in the market, but Combivir seems pretty stubbornly stuck at its preTruvada market share, so I am just wondering if you can look at the detailing and spending levels what you think the outlook for the Commercial effort on Gilead's part might to be try to budget Combivir.

Thanks.

Well, let me start with the first one, your question about the -- about the continuing to work on the triple product collaboration.

So clearly we are having continued discussions with Bristol-Myers Squibb and setting up additional discussions with the folks from Merck.

I think it is fair to say we took a month off from this to get through the year and now getting back on track of having those discussions.

Again all the work is going on anyways and the product development teams and commercial teams are working together to do all the necessary preparatory work.

It's going to take us a while to get through the next one or two contracts because, of course, these are much more complicated than what was already a pretty complicated contract in the United States.

Hey, Geoffrey, it is Kevin.

In terms of your specific questions around the -- basically the buckets of patients that we are acquiring Truvada patients from, again, it is for the kind of cascade that we expected.

Clearly the obvious buckets of Viread patients or Viread plus FTC Entriva plus 3 TC and another large bucket is the D14 bucket and we have penetrated those quite nicely in our first five months, but there are still patients there to convert.

In terms of Combivir, we still see it in its early days.

We obviously see this as a very data-driven market.

We look forward to the results as they unfold from the 48-week time point of study 934, and HIV physicians know very much run their prescribing based on data and we think that is going to be a key.

And, so, you know, the way we see it, so far so good.

In terms of the Commercial organization, we've done a lot of work both looking at sizing, looking at, you know, coverage of our positions, as well as the quality of our marketing efforts.

And that's -- that's an ongoing process as far as we're is concerned.

So, you know, we are continuing to look at how we got the right resource, and you are know, I feel that we are moving, you know, in the right direction to be -- to be highly competitive.

Thanks very much.

Thank you very much, sir.

And ladies and gentlemen, your next question comes from Mr. Bill Tanner of Leerink Swann.

Please proceed.

Thanks, if I can make just keep on -- keep on the current trials that are ongoing, the switching trials.

Just curious.

It seems like lipidristophy is something, that I know that some of the people we talked to feel it is important.

How important do you think that actually will be to show either for the physicians or for the patients?

And then I guess maybe a second question would be of the 99,000 patients that look like they are on Combivir, what percentage would you -- would anybody estimate would also be on Sustiva as well?

Well, let me take the first one with regard to lipidistrophy.

The fear of lipidistrophy has caused a lot of physicians from using C4T Whether or not we can change lipidistrophy every time is an uncertain thing.

Certainly just stopping the progression of lipidistrophy is a very important thing for physicians so they can find a stable regimen that would change that.

That would be important for them.

There are early predictive markers.

The cholesterol and triglyceride levels are also early predictive markers.

So, when patients came off C4T and now there's evident patients coming off AZT can have more normalization.

I think all of those things, again, creat a stronger story for Viread that it's the right thing to do for longer-term therapy.

In terms of the combination of Combivir with Sustiva, we would estimate about half of those patients have that -- have that combination, which clearly, you know, is a good target for us because there is a mismatch between the once-daily Sustiva and the twice-a-day Combivir.

So, you know, by moving to Truvada, then you align the products, and, you know, you have once-daily, once-daily.

So, clearly there is a great deal of logic behind that switch.

But then, too, when you have the triple co-formulation seems like that would drive people more incrementally away from Combivir.

Is that fair to say?

Undoubtedly Bill having the three products in one tablet is -- is probably another step in -- in the form of helping the patient with compliance and ease -- ease of treatment.

Okay.

Thanks.

And nice quarter.

Thank you.

Thank you very much, sir.

At this time, Dr. Milligan, there appears to be no more questions at this time.

Terrific.

Thank you, operator.

And thank you all for joining us today.

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

Thank you very much, ladies and gentlemen, in your participation in today's conference call.

This concludes the presentation and you may now disconnect.

Have a good day.