吉利德科學 (GILD) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences fourth quarter 2005 earnings conference call. [OPERATOR INSTRUCTIONS] Your speakers for the day are John Milligan, Executive Vice President and Chief Financial Officer, 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, sir.

Good afternoon, and welcome to Gilead's fourth quarter 2005 conference call. We issued a press release this afternoon providing results for the fourth quarter and year ended December 31st, 2005, and describing the Company's quarterly highlights. The press release is also available on our website. Also joining us on today's call are Norbert Bischofberger, Executive Vice President of Research and Development, Mark Perry, Senior Business Advisor, Matt Howe, Vice President of Finance and Susan Hubbard, Senior Director of Investor Relations. I will begin the call by reviewing the fourth quarter and full-year 2005 financials, and then I will provide financial guidance for 2006. John Martin and Kevin Young will take you through the corporate and product-related highlights for the quarter, and 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 within the meaning of the Private Securities act of 1995. These statements are based on certain assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statements. I refer you to our latest press release and form 10-K, our quarterly reports on form 10-Q for the first, second, and third quarters of 2005, and other publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business.

In addition, during the call today we will be providing you with information and data from clinical studies that have not yet been reviewed by the FDA nor include in our prescribing information. I want to remind you that our sales forces are permitted to promote our products based only on our FDA-approved prescribing information, and we cannot guarantee that the FDA will approve the inclusion of any of the clinical information or data discussed on this call in our prescribing information.

In short, 2005 was another very successful year for Gilead, filled with many corporate successes and achievement of signifi--several significant financial milestones. Last year, full-year total revenues topped the $2 billion mark for the first time in Company history. Driven by the continued strong growth of our HIV franchise, we achieved record product sales in excess of $1.8 billion, a 46% increase compared to 2004. HIV product sales totalled $1.4 billion during 2005, with continued strong sales across all geographies as well as successful Truvada launches in all of the major European countries.

Our 2005 net income was $814 million, up 81% compared to 2004. Diluted earnings per share grew by 74% to $1.72, and income from operations increased by 76%. In addition, we generated more than $700 million in operating cash flow during 2005. This strong operating performance is a validation of the significant efforts by the more than 1800 Gilead employees around the world and the strategies we have implemented for growing revenues and cash flows while making controlled investments in our Research and Development program and Sales and Marketing infrastructure.

Now, turning to specific results for the AVP fourth quarter and full-year 2005. Gilead had a strong financial performance during the fourth quarter as both product sales and earnings improved significantly over the fourth quarter and full-year 2004. Total revenues were up 65% compared to the same quarter last year and 52% on a full-year basis, driven primarily by higher sales from our HIV products and higher royalty revenue from collaborations with our corporate partners. Fueled by our strong top line growth, fourth quarter 2005 operating income more than doubled to $362 million when compared to the same period in 2004, while full-year 2005 operating income exceeded $1.1 billion. Our full-year operating margin improved substantially from 48% in 2004 to 55% in 2005.

Gilead reported net income of $282 million or $0.59 per share on a fully diluted basis to the three months ended December 3st, 2005. This compares to $0.24 per diluted share for the same period last year and $0.38 per diluted share for the third quarter of 2005. Our effective tax rate for the fourth quarter before the impact of the qualified foreign earnings repatriation was 32%, unchanged from the effective tax rate for the fourth quarter of 2004. During the quarter, we repatriated $280 million of qualified foreign earnings under the American Jobs Creation Act. The foreign earnings repatriation resulted in a one-time benefit to the income tax revision of approximately $25 million, recorded in the fourth quarter of 2005. Excluding this tax benefit, non-GAAP net income was $0.54 per diluted share for the fourth quarter of 2005.

Turning to revenue, total revenues for the fourth quarter of 2005 were $609 million, an increase of 65% from total revenues of $370 million in the fourth quarter of 2004. Full-year 2005 revenue increased by more than 52% from 2004 to over $2 billion. Compared to the third quarter of 2005, total revenues increased 23%. Revenue from Gilead's product sales increased sequentially by 6% in the fourth quarter of this year as well as our HIV and HPV franchises continue to grow. Revenue from Gilead's royalty and contract revenues increased sequentially by more than four-fold due primarily to the recognition of payments received from Roche in relationship to our dispute resolution, which I'll describe in more detail later.

Net product sales for the fourth quarter of 2005 were $493 million, a 39% increase over the same period last year. This growth was primarily driven by higher HIV and HPV product revenues as well as continued strong sales of AmBisome. HIV product sales grew to $385 million for the fourth quarter of 2005, up 47% compared to $262 million in the fourth quarter of 2004 and 6% sequentially from the previous quarter. This growth continues to be driven by strong uptick of Truvada in the United States and the European countries where the products have been launched and the continued strong sales of Viread in both the U.S. as well in countries where Truvada has not been launched. Truvada sales were $191 million for the fourth quarter of 2005, up 18% sequentially. In the United States, Truvada sales were up 7% sequentially, primarily due to the use of Truvada in patients new to therapy and secondarily from switches of patients on other regimens, including those containing Viread and Emtriva. Truvada sales in the United States were $149 million for the fourth quarter; three times the $50 million recorded in the same period last year, while Viread sales in the U.S. in the same period decreased by 25%.

Outside the U.S., HIV product sales for the fourth quarter of 2005 grew 54% to $153 million from $99 million during the same period last year and grew 7% from $144 million recorded in the third quarter of 2005. The increase was driven primarily by the launch of Truvada in the majority of European countries during 2005 as well as strong sales of Viread when compared to the same period last year. Truvada is now available in 15 countries outside of the United States, including all of the major European countries. For the fourth quarter 2005, Truvada product line in the European countries doubled when compared to third quarter of 2005. For full year 2005, total HIV franchise revenues were $1.4 billion, representing a 53% increase over 2004.

Hepsera, for the treatment of chronic Hepatitis B, had sales of $51 million in the fourth quarter of 2005, a 43% increase compared to the fourth quarter of 2004 and a 9% increase from the previous quarter. For the fourth quarter of 2005, U.S. and international sales of Hepsera were $24 million and $28 million respectively; for the full year Hepsera revenues were $187 million, a 66% increase from the $113 million recorded in 2004.

Finally, sales of AmBisome were $56 million for the quarter, an increase of 1% over the same period last year and a 2% increase sequentially from the prior-quarter sales levels. For the full year, AmBisome revenues were $221 million, a 4% increase when compared to 2004. Higher AmBisome sales volumes for 2005 were largely offset by lower pricing in most regions.

For the fourth quarter of 2005, Gilead recognized royalty and contract revenues of $116 million, compared to $14 million for the same quarter of 2004 and $26 million for the third quarter of 2005. The significant increase was primarily driven by the recognition of Tamiflu royalties of $81 million related to our dispute resolution as well as $21 million related to royalties for Roche's Tamiflu sales during the third quarter of 2005. As a reminder, we recognize royalties from Tamiflu sales on a one-quarter lag, and we include royalties on fouth quarter sales of Tamiflu in our first quarter, 2006 results.

In regards to the dispute resolution, the $81 million was comprised of $18 million related to disputed royalties from 2001 to 2003, $12 million related to the reimbursement of the cost-to-goods adjustment for 2004, and $51 million relating to the updating of royalties payable to us for the first nine months of 2005 based on current-year royalty rates, instead of the prior year's effective royalty rate. We anticipate receiving a blended royalty for Roche's full-year 2005 Tamiflu sales in a range of 18% to 19%, as previously announced. Roche is scheduled to release earnings on February 1st, and we will be monitoring their guidance on Tamiflu sales and evaluating the potential impact on Gilead's future financial performance.

Turning to gross margins, product gross margin for the fourth quarter of 2005 was approximately 85% compared to a product gross margin of approximately 86% to the same quarter of 2004. The slightly lower gross margin is due to product mix changes as switches continue to occur from Viread, a higher-margin product, to Truvada, and also to foreign exchange adjustments. For the full year, gross margins were approximately 86%, in line with our guidance of 85% to 86%.

Research and Development expenses were $69 million for the fourth quarter of 2005, a decrease of 2% from $70 million in the same period last year and a decrease of 13% sequentially. R&D expenses decreased slightly from the fourth quarter of 2004, primarily due to the $13 million in up-front licensing fees in our Hepatitis C collaborations during the fourth quarter of 2004. R&D expenses decreased sequentially, mostly because of the $15 million payment to Emory related to amending our existing licensing agreement, [rentricitabeam] during the third quarter of 2005. During the fourth quarter of 2005, we continued to invest in R&D by increasing head count as well as clinical and program development companies with our Viread for HPV program, co-formulation of Truvada/Vistide and our HIV integrates products. Total R&D spending for full-year 2005 was $278 million, an increase of 24% from 2004.

SG&A expenses in the fourth quarter of 2005 were $104 million, up 22% from the same quarter of 2004 and a 5% increase sequentially. The increased spending in SG&A is principally due to increased head count as well as the expansion of our sales forces and sales and marketing activities, partially offset by lower bad debt expense resulting from higher cash collections in certain European countries. For the full year 2005, total SG&A spending was $379 million, representing a 25% increase compared to 2004. The higher spending in 2005 is primarily due to the factors mentioned earlier as well as severance and other expenses associated with the relocation of our European headquarters from France to the United Kingdom.

The impact of foreign exchange was favorable on an overall basis during the quarter, due primarily to our foreign currency hedge program, which offset the impact of a stronger---which offset the impact a U.S. dollar had on our revenues when compared to the fourth quarter of last year. The total net impact of foreign exchange on our pre-tax earnings for the fourth quarter and full year 2005, was $6 million and $21 million respectively when compared to the same periods in 2004. This includes the aggregate foreign exchange impact on revenues and expenses generated outside of the United States and the results of our hedging activities.

Finally, I'd like to turn to cash flow statement of the balance sheet to highlight our cash flow performance for the quarter. The balance sheet at December 31st, 2005 shows cash, cash equivalents, and marketable securities of $2.3 billion. This is an increase of 40% when compared to the balance of $1.7 billion at September 30th, 2005. This increase is primarily due to $340 million of operating cash flow generated during the quarter, which includes payments received from Roche relating to our dispute resolution. In addition, we generated $335 million from our financing cash flow, including $300 million of proceeds from our term loan, which our [Irish] subsidiary entered into in order to facilitate the repatriation of our qualified foreign earnings under the American Jobs Creation Act.

We are actively evaluating strategic ways to use our cash and investments, including opportunities to inlicense, acquire companies or potential products to complement our own internal efforts, as well as methods to offset dilution from employee stock option exercises, including potential stock buy-back programs.

Now I'd like you to turn to our financial guidance for 2006. First, let me start with a few words on stock option expensing. On January 1, 2006, we adopted FAS 123-R, which requires all stock-based compensation be expensed on the income statement based on their estimated value. We expect the EPS impact from stock-based compensation expenses during 2006 to be in the range of $0.15 to $0.17 per share. As a reminder, this estimated impact is dependent upon certain variables which are not predictable at this point, such as our future stock prices and variability. Our current plan is that as we provide financial results for each quarter this year, we will also communicate the specific impact of stock-based compensation expensing.

In our GAAP financial statement, stock-based compensation expenses will be recognized and reported in each operating expense line, specifically cost-of-sales, R&D, and SG&A. The expense guidance I will be providing to you today will be non-GAAP, and we will not include the impact of stock-based compensation expensing for now. For our entire HIV franchise, which includes [Durid], Emtriva, and Truvada, we're providing full year 2006 guidance for net product sales for the franchise to be in the range of $1.675 to $1.750 billion, which is an approximate 20 to 25% increase over 2005. This does not include any revenues from the future sales of the fixed-dose regimen of Truvada and Vistide as we are not yet certain as to the timelines for the FDA review and launch. We will update this guidance accordingly on future earnings conference calls.

Turning to AmBisome. For the full year 2006, we're providing net product revenue guidance of $205 to $215 million. This slight decrease in revenue year-over-year takes into consideration pricing pressure in Europe and a higher level of competition in the marketplace.

For Hepsera, we're providing net product revenue guidance for 2006 of $200 to $210 million. This modest increase is 7 to 13% over 2005 revenue factors in the impact of existing and potential competitive products in the United States and in Europe.

I'd like to remind you that we haven't in the past and won't be giving guidance on Tamiflu royalties from Roche. We expect Roche to provide guidance on their estimated 2006 [patanemic] sales in their February 1st earnings call. We do not anticipate that Roche will provide guidance on 2006 seasonal sales of Tamiflu.

We're providing gross margin guidance for 2006 of 85 to 86%. This guidance also does not include the impact of the potential launch of a fixed-dose regimen because, as I mentioned earlier, we are not yet certain as to the FDA review and our launch timeline. We will update this guidance accordingly on future earnings conference calls. We do want to point out that the launch of the fixed-dose regimen will decrease our product gross margin percentage, but without a corresponding impact on our operating or net profit dollars. This is due to the fact that a majority of owner of our joint venture with Bristol-Myers, Gilead will consolidate 100% of the triple product revenues and share the economic values [indiscernible] at the gross margin line. Gilead will get the full product margin of the Truvada portion of the triple product, thus there will be no impact on our share of the net profit dollars, despite the lower gross product margin percentage.

We're providing R&D expense guidance for 2006 from $295 to $320 million, which is a 6 to 15% increase over the 2005 R&D expenses. This range factors in the progress of pipeline products into more advanced clinical trials as well as increases in head count. We have not included any additional R&D expenses for potential new collaborations or product licensing activity, and we'll update our guidance as appropriate during the year.

We are providing SG&A guidance of $430 to $455 million, a 13 to 20% increase over 2005. This increase over 2005 spending accounts for costs associated with launching and supporting Truvada in various geographies as well as reflecting overall increased head count, the majority of which was higher through the course of 2005.

And finally, our effective tax rate guidance for the year 2006 is in the range of 32 to 34%, driven by the projected growth of our business.

In summary, as Gilead looks ahead, we will continue to make the investments we believe necessary to promote our product lines, further develop our pipeline and continue to evaluate opportunities to build a strong and independent global business.

This concludes the earnings reporting section of this conference call. At this point, I'd like to turn the call over to John Martin and Kevin Young, who will review our corporate and commercial highlights for the fourth quarter 2005 and provide an update on the milestones we'll be striving to achieve during 2006.

Thanks, John. Good afternoon, everyone, and thank you for joining us today. We're pleased to summarize for you Gilead's accomplishments during the fourth quarter of 2005. I'll begin by providing a brief corporate update in discussing our pipeline programs. Then Kevin Young will review our commercial efforts, and John Milligan will wrap up the call.

2005 was another year of significant corporate accomplishments in growth for Gilead. We now have more than 1,800 employees in 11 countries around the world, and as John mentioned earlier, full-year total revenues surpassed $2 billion for the first time. Before discussing the progress we have made on the commercial front, I would like to take a moment to extend my gratitude to George Shultz for a decade of service on our Board of Directors. Dr. Shultz' contributions have been invaluable to Gilead, as our Company has grown into a fully-integrative biopharmaceutical company. Dr. Shultz will continue to serve as a Director Emeritus of Gilead and in that capacity will remain an advisor to our Board of Directors. We are fortunate to continue to benefit from his expertise. In addition, we were pleased to announce in December that John Madigan has joined our Board of Directors. Mr. Madigan is the retired Chairman and Chief Executive Officer of the Tribune Company and a special partner of Madison Deerborn Partners. We look forward to benefiting from his broad experience.

As John highlighted earlier, we announced in November that we have settled our dispute with Roche and expanded our Tamiflu collaboration. In addition to the financial payments we received in the fourth quarter and the more favorable royalty arrangements we will benefit from going forward; as a result of the dispute resolution, we gained an important role in the oversight of the manufacturing commercialization of Tamiflu. To that end, we are actively participating with Roche in the commercial strategy in planning for product and working together with governments around the world. In February, an important and timely two-day summit focused on seasonal and pandemic influenza will be taking place in Washington D.C. The sponsors are: The Infectious Disease Society of America, The Society of Healthcare and Epidemiology of America, the National Institute of Allergy Infectious Diseases, and the Centers For Disease Control and Prevention. Gilead and Roche are providing an unrestricted educational grant for this event along with several other companies focused on influenza treatment and prevention.

This meeting will include a diverse faculty of approximately 20 research scientists, physicians, health policy experts, and administrators from the private and government sectors. Notably, special keynote presentations will be provided by Dr. Anthony S. Fauci, Director of the NAIAD and Dr. Julie Gerberding of the CDC. The [promo] will crucial topics including the epidemiology of seasonal versus pandemic influenza, the H5N1 virus, surveillance measures, vaccine therapy and research, anti-viral therapy and approaches to prevention, and pandemic influence of planning. We are pleased to be part of this important initiative and look forward to such events in the future.

Finally, I'd like to highlight new evidence that suggests Tamiflu's effective against the currently-circulating H5N1 Avian influenza virus when administered early. According to an animal study presented recently at a scientific conference in London, Tamiflu was able to prevent mortality 100% when administered four hours after infection, but with somewhat less effective when administered 24 hours after infection. Further studies are underway to identify the optimal dose of Tamiflu if administered 24 to 48 hours after infection.

Turning to our HIV and HPV franchises, on the scientific front, we are very proud that our 48-week data from study 934 were published in the New England Journal of Medicine just a few weeks ago. The authors conclude that at 48 weeks, the efficacy and safety of the two components of Truvada, Viread and Emtriva, are superior to [GSK's] Combivir. Notably, the most common cause of discontinuation for patients on the Combivir[on] was anemia, which either required treatment with [eurythropolytin] or in seven cases, a blood transfusion. In addition, data from a subgroup of patients revealed that those on the Combivir arm had significantly less [lymphat] than those on the Viread and Emtriva arm at week 48. In a [clemery] sub-analysis of 255 patients at 96 weeks, these trends and the differences in [lymphat] persisted with further loss of [lymphat] seen in patients on Combivir.

Data that clearly defined the long-term strategy of our products relative to those-- I'm sorry, the long-term safety of our products relative to those on the market have been an essential component of our strategy to provide physicians and patients with the unambiguous data needed to make treatment choices. The success of Viread is a direct result of the positive data we generated from Study 903, which was a head-to-head study versus [Serat]the number one NRTI at that time--of the Viread launch. [Serat], at one time, held approximately 25% of the new prescription market share and since then, data from the Study 903 have contributed to the erosion of their market share to less than 6%.

We look forward to using the positive Study 934 data as soon as they are included in our label to highlight that the components of Truvada have not only demonstrated a superior safety profile compared with Combivir, but also a superior efficacy as is concluded by the authors in the New England Journal of Medicine article.

In addition to this important publication, we generated and presented key data at several medical conferences in the fourth quarter of 2005, notably the two HIV meetings: European AIDS Conference, and the Interscience Conference on Antimicrobial [Atryptic] Chemotherapy, also knows as ICAC, as well as the American Association For the Study of Liver Disease Conference. At both the European AIDS conference and ICAC, we were pleased to present positive preliminary data from the [common] study. As you may recall, [common] is a 24-week single-arm study evaluating switching from twice-daily Combivir to once-daily Truvada in HIV patients who were also receiving a [faverence] and who were [virulogically] suppressed. We plan to provide the full 24-week data from this study during the second half of this year.

In addition, we have several other switch studies that are currently enrolling patients and that we believe will continue to illustrate the beneficial profile Truvada over other NRTI's. At the annual liver meeting in November, we had an opportunity to present five-year efficacy, safety and resistance data from Hepsera study 438. This study was conducted in E-anogen negative patients and after five years of treatment with Hepsera demonstrated reversal of signs of liver damage in this patient population. We have submitted this data to the FDA for inclusion in the Hepsera product label and are hopeful we will achieve this milestone by the end of this year.

In an increasingly competitive HPV treatment market, Hepsera is the only anti-viral supported by positive long-term data. This is an important distinction for physicians and patients who recognize the need for long-term chronic therapy to treat this disease.

Turning to our product pipeline, we made important advances in our pipeline programs in 2005 and achieved several notable successes. At the beginning of January, 2006, we were pleased to announce with our partner Bristol-Myers Squibb that we had obtained data supporting bioequivalents of a new formulation of a fixed-dose regimen of Truvada and Vistide. Despite the challenges we faced earlier, in 2005, we were able to successfully overcome the formulation issues by using a bi-layer technology where Truvada and Vistide were physically separated in two layers combined in one pill.

We are moving forward with a pill that is just over 1500-milligrams in size and plan to file an NDA during the second quarter of this year. At this time, we don't know the potential review timeline, but we are hopeful that it will be an abbreviated review based on recent precedent. Once approved, this fixed-dose combination will be the first-ever once daily, one-pill regimen available to HIV patients.

Moving to another exciting compound in our HIV portfolio, our novel integration of our GS9137. As we mentioned a few weeks ago, we have completed a Phase 1, 2 study evaluating GS9137 in a ten-day dose ranging monotherapy study in HIV-infected individuals. The study shows that GS9137 is a once-daily compound when administered in combination with [Ritonovir] and achieved bio-load reduction similar to the most potent protease inhibitors when evaluated as monotherapy in short-term studies.

These data will be presented as a late-breaker presentation at the conference on retroviruses and opportunistic infections on Wednesday, February 8th in Denver, Colorado. We plan to initiate a 200-patient Phase 2 study for GS9137 in the second quarter of this year. This study will evaluate three doses: 20, 50, and 125 milligrams of GS9137, all boosted with 100 milligrams of [Ritonovir] The study will have a primary efficacy end point at 16 weeks, and the study will continue through 48 weeks to develop longer-term safety and efficacy data.

Integration hithers represent a promising new target in the field of HIV research. Given our experience developing novel compounds in HIV, we were able to move forward one of our internal integration clinical candidates, GS9160 and filed an IND in late December. Although it is very early, we believe that GS9160 may have the potential to be dosed once daily without [Ritonovir] boosting. We anticipate moving into a single dose Phase I, [indiscernible] trial with GS9160 [as] volunteers during the first half of this year.

Turning to our Hepatitis development programs. In Hepatitis C, our most advanced candidate, GS9132, is currently being evaluated in a Phase I study in approximately 20 volunteers. We will initiate a Phase I-B viral dynamic study of GS9132 in HGV-infected patients during the first half of this year. As you may recall, GS9132 is a small molecule inhibitor of Hepatitis-C virus replication. That it works through a novel mechanism involving HGV protease. Our partner, Achillion will lead the development of GS9132 through the proof of concept study, at which time Gilead will assume responsibility for further development of the compound.

We are committed to bringing forward several compounds in the clinical trials in Hepatitis-C and to that end continue to believe that collaborative efforts are necessary to making progress in this field. In November, we signed an early-stage Hepatitis-C research collaboration with [Four AZA Biopharmaceuticals], a company based in [Logan], Belgium. We will also continue to make progress on our other early-stage efforts, which include the gene labs nucleoside program and our internal protease and [plummeries] programs.

In Hepatitis B, we are progressing with the enrollment of two Phase III 48-week, comparing the efficacy and safety of Tenofivir versus Hepsera in patients with HPV and anticipate completing enrollment during the second half of this year. We believe that the 300-milligram dose of Tenofivir, the same dose marketed as Viread for HIV, has the potential to be an important treatment for Hepatitis B.

I am very proud of the advancements we have made in the last year to augment our pipeline. We are committed to building both through internal research and end licensing and acquisition efforts a pipeline of products that will help fuel the growth of the Company in the years ahead.

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

Thank you, John. Good afternoon, everyone. I will begin by highlighting the overall HIV marketplace and discussing some of the trends that are impacting this dynamic, therapeutic area. As we have discussed previously, the HIV market in the United States is experiencing demographic shifts, and we continue to recognize significant potential for market expansion through education, awareness, and earlier treatment.

According to third-party market research, we believe the number of new patients initiating anti-viral therapy annually in the United States is increasing and is currently projected at nearly 55,000. This growth is testament to the introduction of safer, more tolerable, and easier to take therapies like Truvada. In addition, improvements in diagnostic tests for HIV and a trend among physicians to start their HIV-positive patients on therapy earlier, have all contributed to this increase in newly-treated patients.

As for the total pool of patients on the anti-viral therapy today, independent market research estimates that more than 114,000 patients in the United States were receiving Truvada therapy as of the third quarter of 2005. Also, Truvada now captures approximately 60% of the growing pool of new patient starts. We believe this capture rate has the potential to increase, particularly once the Truvada [Sistiva] fixed-dose regimen is approved and launched.

Turning to the performance of our HIV franchise, in dollar terms the HIV franchise achieved a 6% growth in the fourth quarter over third quarter sales and a 53% growth in year-over-year sales. Truvada continues to be an increasing contributor to our HIV franchise, comprising 50% and 41% of HIV franchise sales in the fourth quarter and full-year 2005 respectively.

As I prepare to talk about the U.S. market share data for the products in our HIV franchise, I want to point out that these data encompass the total NRTI market, which includes both generic DDI and generic AZT. And these are the market share data that we will be sharing with you and to all our calls going forward. Since the U.S. launch of Truvada, the combined total prescription market share for all of our HIV products has increased from 27% to 38%. By contrast, the combined total prescription market share for all GSK HIV products has fallen from 54% to 47% during the same time period.

As we informed you on the October conference call, Truvada first surpassed Combivir in new prescriptions, which is the leading indicator of performance during the third quarter of 2005. Truvada continued to pull away from Combivir in new prescriptions during the fourth quarter of 2005, and as of the week ended January 13th, 2006, the gap between the two products has increased to nearly six market share points. In terms of prescription volume, the spread is even greater. Truvada exited 2005 with more than 5,000 or 30% more new prescriptions written than Combivir. As of the week ended July 13th, 2006, Truvada captured 22.4% of new prescriptions and 21.3% of total prescriptions in the NRTI class, and is firmly established as the number one product.

Viread, as a stand alone product, continues to be used in a variety of treatment regimens in later lines of therapy and captured 14.3% of the new prescriptions and 15.1% of the total prescriptions of the NRTI class as of the same week. We have observed that the expected decrease in Viread new prescription volume has begun to flatten during the fourth quarter of 2005, and we believe that the market share has stabilized at the current new prescription market share levels. Our goal remains to make Tenofivir the number one prescribed molecule in the NRTI class, and we have made significant progress to this end. At the launch of Truvada, Tenofivir was approximately 15 market share points behind 3TC, the leading NRTI molecule, and by the end of 2005, the gap had decreased to three points.

Importantly, we have a growing number of tools to continue to drive market share for both Truvada and Viread. In March of this year, we anticipate the 48 week study 934 data will be included in both the Truvada and U.S. product labels. This will allow our U.S. sales force to detail the 934 data directly to physicians for the first time.

Turning to our HIV franchise performance to date in Europe; as a reminder it was less than one year ago, in February, 2005, that Truvada received EMEA approval in Europe. Essentially, this means that we view the European uptick of Truvada about 12 months behind the United States because of the additional time required for individual country pricing and reimbursement. However, we firmly believe the growth pattern will evolve in a similar fashion to what we are experiencing in the U.S.

Importantly, in Europe the 48-week study 934 data were [running] to Truvada's label during the fourth quarter and include superiority language versus GSK's Combivir. The [timing addition] of the 934 data in the European Truvada label is favorable, as Truvada has now been launched in all five major countries in Europe. The final two countries included in the big five, Italy and France, came on board in October and December of 2005.

We look forward to generating our first full year of Truvada sales in Europe in 2006 and continue to grow this product into the leading NRTI backbone of therapy across Europe. As I mentioned earlier, patients and physicians remain committed to using Viread in 2005 and the market entrance of Truvada has only strengthened the reputation of Gilead's HIV products. Viread achieved unit volume growth in Europe of 25% and sales dollar growth of 21% year-over-year. According to third-party market research, Viread had a 21% market share as of the end of the third quarter of 2005. This contrasts to a 16% share for Combivir. Truvada market share of 4% as of the end of the third quarter 2005 has overtaken [Kyvexa], known as [Exicon] in the U.S., despite the fact that GSK had typically a three-month lead in launching its combination products.

Finally, a key strategy for increasing worldwide market penetration, of both Viread and Truvada, is the on-going presentation of Phase IV switch studies involving Viread, ultraviolet-based regimens, versus AZT, or Combivir-based regimens. As John mentioned, we will present the complete 24-week [common] data some time later this year. Several other physician-sponsored trials will continue to generate significant switch data in 2006 and into 2007, including the [suite and sonic] studies.

Turning to Hepsera, for chronic Hepatitis B. In the United Sates, Hepsera's prescription volume grew 36% during 2005 over the prior year, resulting in record U.S. sales of $83 million. The total Hepatitis B prescription market grew approximately 26% in 2005 versus the prior year, and Hepsera's growth continued during the year, albeit at a slower pace, in spite of increasing competition.

As the anti-viral market leader for the treatment of chronic Hepatitis B, Hepsera has actually benefited from the growth in the market since the entrance of [Intekavir] by Bristol-Myers Squibb. We anticipate another competitive agent, [manned] to the market in 2006, but we believe that the long-term clinical data we have generated for Hepsera will support its position as the most durable, proven therapy to treat chronic Hepatitis B patients.

In Europe, the growth in Hepsera has occurred broadly across the major countries. During 2005, total unit volume of Hepsera in Europe increased by 77% compared to the same period in 2004. As of the end of the third quarter 2005, Hepsera continued to increase its share in the big five European countries with 38% and 35% market share in France and Spain respectively.

To conclude my discussion of our commercial products, AmBisome achieved another year of record revenues at $221 million. On a volume basis, unit sales of AmBisome in Europe, where Gilead markets directly or through distributors, increased more than 7% during 2005 compared with the prior year. This product continues to benefit from a strong reputation among the European treatment community and remains the goal standard for serious fungal infections. As of October, 2005, AmBisome maintained nearly 22% market share in the intravenous anti-fungal market and continues to hold a steady market share position ahead of [vfeld].

As you may recall, late last year at the American Society of Hematology meeting, we presented data from the [indiscernible] trial which evaluated higher loading doses of [indiscernible] versus the standard 3 milligrams per kilogram dose. These data showed that the standard 3 milligrams per kilogram dose is equivalent to the higher loading dose and confirmed that the standard dose is the most appropriate treatment for severe fungal infections. These data have been well received by the treating community and have enabled Gilead to reaffirm AmBisome's key attributes with physicians.

We are very pleased with the continued growth of all our product franchises during 2005. We look forward to another successful year in 2006 and, pending regulatory approval, to continue to improve patient care with the first ever one pill once per day fixed-dose regimen for the treatment of HIV in the United States.

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

Thank you, Kevin, and thanks, everyone for joining us on the call today. We're very proud of the financial, commercial, and research and development accomplishments Gilead has achieved in 2005. We look forward to continued strong product revenue performance in 2006, driven by our growing HIV franchise as well as Hepsera and AmBisome sales. We remain focused on investing [wise] in our pipeline and our marketing and sales programs are continuing to deliver earnings to our shareholders.

I'd now like to turn the call back over to the operator so that we can take your questions. Operator?

[OPERATOR INSTRUCTION] Sir, our first question is from the line of Geoff Porges with Sanford Bernstein.

Thanks very much for taking the question and appreciate your giving the additional detail on the product split. Kevin, can you give us a little bit more? You mentioned on the Viread penetration, as a molecule in the U.S. and what it is now and then what it could potentially get high; could you give us a little bit more on that? And then perhaps estimate where you think you are in the five top markets in Europe in terms of the Tenofivir molecule penetration now and where it might get to in the future once you roll out the Truvada fully and then the triple?

Hi, Geoff. I think what I talked about in the first instance was the Tenofivir in the U.S., where we're now 3 percentage points behind 3TC. So with continued growth of Truvada, obviously, we hope the introduction of the fixed-dose combination, that we will soon surpass that, so that's been an excellent gain since the differential of 15 percentage points when we launched Truvada back in August of 2004.

In terms of Truvada in Europe, really the story in 2005 was pretty much only about Germany and the UK. We didn't launch in three of the other major five markets until end of third quarter and into the fourth quarter, and as you probably know, two very important markets are France is our No. 1 market and Spain is No. 2 market, and France did not come on board until actually December, in hospitals. So even though we had impressive uptick-- for example, 14% market share in Germany by the end of the year-- we really only had two of the five major markets. So that looks like-- that's why the number for Truvada is relatively modest, but we expect it to follow the lines of the U.S.

Kevin, can you just give us sort of the Tenofivir penetration in Europe, where you are now and where you think you could get to?

I don't have that right at my fingertips, Geoff, but we could certainly follow up with you after the call and find that for you. But I have to say that, generally, the dynamics are very, very similar to the U.S., albeit 12 to 15 months behind because of pricing and reimbursement.

Right. Okay, thanks.

Sir, your next question is from the line of Meg Malloy with Goldman Sachs.

Thanks very much. I just wanted to get a repeat on what you said specifically on Truvada share, at least on my line it was fading a little bit in and out in terms of new prescriptions and total prescriptions and where you stood versus GSK's Combivir? And secondly, for John, can you elaborate a little bit on the foreign impact on margins for the quarter and elaborate a little bit more in terms of what you said about how you'd be accounting for the margin impact with the single-filled Truvada [Sistiva] formulation? Thanks.

Hi, Meg, this is Kevin. Let me answer this share, and I'll hand it across to John. In terms of NRX, if you check the weekly data---the very latest weekly point as of 13 of January, the NRX for Truvada was 22.4%. That compares with Combivir, currently at 16.7%. TRX, just below that for Truvada it's 21.3% and Combivir it's 16.5%.

Thanks, Kevin.

So, Meg, as I understood, I think you're asking about the impact of foreign currency for the quarter. The quarter was a $5 million positive impact because of our hedging programs and because of our relative earnings versus expenses, and then I think the second part of your question was how would margins be impacted with the launch of the triple. And remember, so, to be more clear than I was in the script, we book full revenue for the triple, so we'll have product revenue, and that will include 100% of [Sistiva] revenue. That [Sistiva], at full price, that gets backed out on a cogs line, and so then you'll artificially decrease the gross margin percentage, so we would anticipate that to go down, and the magnitude of how far it goes down will depend on how far it cannibalizes Truvada and other sales that would have appeared in our top line. So it will decrease it, but remember, since we get full Truvada sales in there, it doesn't really have a net impact on the dollar amount that flows through down to pre-tax income.

Sir, our next question is from the line of Craig Parker with Lehman Brothers.

Hi. First quick question about whether there were any inventory changes that might have affected the Truvada number in the U.S.? And then I guess John or Norbert, if you could describe a little more broadly the development strategy for 9137. It seems like it could possibly move into a Phase III in treatment experience patients, but if you could broadly describe how you envision it being positioned and what that means for the development strategy and timing. That would be terrific.

Why don't we start with inventory. With regard to inventory levels, I would say that they were all well within our banding for our different distributors, so I would anticipate-- I don't think that that was any issue related to the end of the quarter.

With regards to, Craig, the development strategy broadly we're thinking about it this way. So we only currently have 10 day data on safety and efficacy. The first thing we have to do is generate some more long-term safety and efficacy data. That's going to happen in a Phase II study, and soon after that, once we have sufficient safety data, particularly the safety data, we'll move into a Phase III program. We're thinking currently about patient-- experienced patient population simply because it's the more quicker path to approval. The details are still being discussed internally.

Sir, our next question is from the line of Thomas Wei with Piper Jaffray.

Thanks very much. When we look at your market share in the U.S. and you look at the [Tenofivir] sales on a sequential basis it looks like [Tenofivir] sales from 3Q to 4Q were up 5%. Do you know what that might look like if you split it out on a volume versus price basis?

Going up sequentially versus-- I guess the question is versus what? So if we went up quarter-over-quarter, the volume increase level should be the same, because there were no price increases during the period of time. So they should mirror each other almost exactly.

Okay. I had thought previously you had said that the price increase taken at the beginning of the third quarter would partially be implemented over the fourth quarter--

Well, what happens is that-- you're correct, that you do get increases in prices on a quarterly basis in line with the consumer price index, so that dictates how far you can raise prices in the-- for example, in the public sector such as Medicaid and with VA and the Public Health Service, things like that, and especially with the ADAP's. On the other hand, since it only goes up a fraction of a percentage of VPI each quarter, that impact tends to be very small.

Just to add to that, Thomas, about a quarter of our business is what we call non-retail. So that's hospitals, prisons, nursing homes, and in terms of what John's talking about, the rest, the three-quarters is retail.

Okay, thank you.

Sir, our next question is from the line of Yaron Werber from Citigroup.

John, if we look at your guidance for total HIV franchise sales and annualize the run rate exit in Q4 into next year, I get to roughly 1.539, organic growth of kind of looking at 9 to 14%. And if you put in a price increase of 4 1/2%, you get to 5% to 10% year-over-year, yet you're depicting a fairly bullish outlook with the, all the data that's going to be added to the label, et cetera, and the data you're going to be presenting. So, how should we think of the guidance here?

Well, I don't know about the math about the price increase. Remember, price increases are for a subset of what happens in the U.S. We have not announced any intention to increase prices during the course of the year. So what we're seeing here is organic growth based on prescription volume increases based on a couple of things: First and foremost, we're launching into the bigger markets of Europe with Truvada finally, so that will allow Spain, Italy and France to really start to be major contributors to the overall revenue picture. Very important countries for us, as you can imagine. We'll also roll out launches into some of the smaller countries around the world as well. So there's overall geographic growth.

Secondly, we're really looking forward to using the data available to us with the inclusion of the 934 data into the label as of March to allow us to finally go out and start to work on the Combivir versus Viread-- I'm sorry, Combivir versus Truvada equation with really having the full amount of [r in the tereann] at our disposal. Of course, the New England Journal article will be important positions, but being able to talk about it specifically through our reps will be important to get at those mid and lower decile doctors.

And then finally, the other thing I think is quite interesting is the dynamic continues to shift with more patients coming into the marketplace. We're estimated now on a forward run rate that about 55,000 patients will come into therapy over the course of the next 12 months. That's, that continues to be something we're evaluating, but we're really pleased with the efforts to try to create an environment which more patients are able to get therapy, because that's clearly the best treatment outcome for patients, but it's also the best way to stop the spread of the virus, and in fact, the CDC heads up their numbers for estimated patients infected last year to around 50,000 from 40,000.

So clearly, we have to have a better public health initiative to create an environment where people aren't being infected. All of that favors more patients seeking treatment, and we think that's going to favor Gilead over the other product.

Yes. Yes. And that's very useful. Then just a question about gross margins. The guidance is 85 to 86%, and on average this year you were around 86%, and it seems to me that next year you should benefit from the new manufacturing process from Triva and also, theoretically, from the spread relating to your acquisition of the Emtriva royalties here. Again, the gross margin guidance is essentially flat from '05. I mean, again, how should I think about that? Are you being conservative here?

I would say there's gross margins, there's a number of dynamics that come into play here, some which are positive for us and some which are negative for us. So just a quick example. AmBizome sales were only up around 4% year-over-year, yet the volume increased between 10% and 15%. So it was, it was a big increase in volume. So that means that we're selling more for lesser margin. And so that puts some negative pressure on it.

We are facing quite a bit of pricing pressure around the world as governments are coming to cope with large pharmaceutical bills they have to deal with. So there's a number of things that are uncertain there. We are seeing some greater economy with the Emtriva as it does run through as the cheaper stuff is starting to run through the-- running through the pipeline and getting through our inventory and out into the marketplace.

On the other hand, the more we sell of Truvada versus Viread, the less the margin is, because again, we have a royalty obligation that still exists on Emtriva So there's still a lot of different things that are coming into play here. So it's a long winded way of saying it's very difficult to predict where things are going to play out at the end of the day just because of the dynamics.

Great. Thank you.

And sir, our next question is from the line of Bret Holley with CIBC World Markets.

Yes, I've got a question about the mix of the regimens that you're seeing in Truvada and front-line patients. The number of patients on Truvada, combination regimens versus Truvada plus PI's and other RTI's?

Hi, Bret, it's Kevin speaking. About 35% of Truvada is co-prescribed with [Sistiva] right now. This is kind of the latest data point we have end of 2005. And in terms of [Rayotad's Kalitra] about --- just a little over, actually, about 36, 37% is co-prescribed with those two products. So, in terms of total N---NRTI, it's about 43% and total PI's, it's about 52% when you add everything else in, so that was both brands as well as the class.

Great. That's very helpful. Thank you.

And sir, our next question is from the line of Ian Somaiya with Thomas Weisel Partners.

Thanks for taking my question. I was hoping to tease out the contribution from the launches in Spain, Italy and France. Maybe you could just share with us what portion of Viread's sales in 2005 came from Spain, Italy, and France and then would you expect a similar proportion for Truvada going forward?

We don't typically break those out, but yes, we'd expect a very, very similar picture once it got sort of a full 12 months of launch in each of those countries. Basically, our No. 1 market in Europe is France, also Spain is a very, very important market for us, and then, a little way behind those, becomes the next three, which is a mix of Germany, UK, and Italy. So we'd expect the similar stackup when it comes to having a good 12 months of Truvada sales in each of those countries.

Okay. And just a follow-up question. Just sort of at the field level, have you seen any impact or has there been a change in the usage patterns for Truvada or Viread following the presentation of the [common] data as well as the publication of the 934 study?

Well, again, please bear in mind that we haven't had a field force presence in the United States on 934. That can only happen once we have included in the label, and that's circa, six, seven weeks away from now, but you can imagine that the field force here in the U.S. are very excited to at long last be able to do that. And neither have we been able to comment about [comet] either here in the U.S. So really, those affecting factors primarily have only been in 2005 for Europe and of course, that's primarily been about the UK and Germany and then at end of the year for the launches just taking place in Spain, Italy, and France.

I was just curious more of---more in the sense of physicians asking the sales reps about the study results.

I think, I think what we're seeing now is that there is an accumulation of confidence in physicians. They're now seeing a growing picture that everything's stacking up to say that Truvada is preferable to Combivir, not only in terms of the ninth patient published with the patient that's been on longer-term Combivir therapy as pointed out by the New England Journal. So I think on both fronts there is an acceptance now that there is a clear difference between the products.

Okay. Thank you very much.

And sir, our next question is from the line of David Witzke with Banc of America Securities.

Hi, this is John Watkins in for David Witzke. Quick question on the duration of the therapy and first-line use of Truvada, if you have an estimate of how patients remain on that? And also, if you had any feelings of what we might expect with the triple combo, considering there could be better compliance?

I don't have anything at my fingertips on persistency. Maybe Norbert might want to comment about the clinical trials. There might be a proxy for that.

Well we can just --the only thing I can point you to, I think the best study is study 903, which we have [now] data on for seven years where patient have stayed on study, and the regimen [effeverent] Viread and 3TC, which were used in the study is very well tolerated and durable over that long of a period of time.

Great. Thank you.

And sir, our next question is from the line of Shiv Kapore Montgomery & Company.

Thanks for taking my question. I have a question on Truvada XUS. Can you explain how the launch is progressing in different countries in terms of penetration and growth rates?

Let me take that. Basically, we really haven't got any data for the major markets outside the UK and Germany just because the latest data we have is kind of for the end of the third quarter, and essentially, the product only just been launched in Spain and haven't yet been launched in Italy and in France. But to give you the latest data point in the UK, which launched at the end of February, there is now a market share in terms of days of therapy. That's how it's expressed in the databases of just over 11% in the UK, and in Germany, it's now to 14%, and if I just take the example of Germany, Germany launched three months after [Kivexa], which is [Exicon] in the United States. They launched three months, and after three months on the market, had already overtaken [Kivexa], and now the ratio of prescriptions of Truvada to [Kivexa] are in excess of 3 to 1, so I think a very impressive launch both in the UK and Germany.

Thanks. If I can ask you a follow-up. Contributions from Truvada have been steadily increasing from the second quarter to the fourth quarter, gone up from 27 to 35 to 39%. What's the major cause for the increase or decrease in gross margin from Q3 to Q4? And will we continue to see this trend over 2006 as contribution from Truvada increases?

So the question is, so why-- what is the impact of increasing Truvada?

Yes, apart from--

[Overlapping speakers] sell either as Emtriva or through Truvada. The more margin will be impacted negatively, okay, because there's royalty contribution that goes out the door, either through accounting or through actual payments of royalty. So that does decrease the gross margin as a result of that. And so that, I would-- so what we're providing guidance for is to be in about the same range we were this year, about 85 to 86%.

Great, thanks.

And sir, our next question is from the line of Jason Kantor with RBC Capital Markets.

Hey, guys. Thanks for taking my question. I have two questions. First, you said that the erosion in Viread is flattening and you think that this is a new, steady state level where people are using Viread not as part of Truvada. Are you saying that at this point all new Truvada scripts are coming from new patients and there is no more projected future cannibalization of the Viread market? That's my first question.

Hi, Jason, Kevin. Basically, if you look at the sort of pattern of patients going on Truvada for the last 12 months, basically in December of 2004 the split was about 30% new patients and about 70% was switch patients. Now, in December, 2005, 12 months later, it's about 46 deep, so. there is a movement, as you'd expect, to an increasing part of our patient capture towards new patients. So less coming from switch. In total, since the launch of Truvada, we've converted about 50% of our [Tenofivir] plus FTC patients, and over 25% of the [Tenofivir] plus 3TC patients. So we expect the picture of the --- shape of the pie for patients gone on Truvada to gradually move to more and more [nieve] patients, which is good, as you heard me also say that we are picking up now 60% of new patients going on our anti-retroviral, so that's a trend that we're happy about.

So it sounds like there's still a lot of room to cannibalize existing Viread patients?

Yes, but again, you have to appreciate that like any pharmaceutical market, stabilized patients, as you start to scoop out patients from a patient book-it, it becomes slower and slower and that's just a natural phenomenon of switching patients, and as you go on and it gets slower, and inevitably, there will be just some patients, for whatever reason, clinically or just patient choice that will remain on the components of Truvada.

Okay, and just to clarify, the guidance you gave for the HIV franchise does not include sales of a triple combination still? And can you tell us what the relative cost of the [Sistiva] component is relative to Truvada, assuming the triple pill's price on parody with the two-drugs separately?

So. You're correct, that the guidance again did not include any triple revenue for this year. We'll provide updated guidance at such time we have a launch or shortly thereafter, and then the relative price is about two-thirds for Truvada and about one-third for [Sistiva].

Thanks .

Sir, we have time for one more question, from the line of Sapna Srivastava with Morgan Stanley.

Yes, hi. Sorry. One quick question on the rampup of Truvada in the U.S. Can you explain why the sequential growth seems so slow this quarter?

I don't have a ready answer for you. You know, I think the-- we had a good fourth quarter, and as I said earlier, we're continuing to get a larger and larger share of the [nieve] patients and that's the increasing part of the proportion of Truvada.

Thank you.

With that, ladies and gentlemen, concludes the question and answer portion of today's conference. I'd like to turn it back to Dr. Milligan and the group for any further comments.

Thank you Operator and thank you all for joining us today. We appreciate your continued interest in Gilead. We look forward to updating you on our further progress.

Ladies and gentlemen, we thank you for your participation in today's conference. This concludes your presentation.