吉利德科學 (GILD) 2006 Q2 法說會逐字稿

Thank you for standing by.

Welcome to the Gilead Sciences second-quarter 2006 earnings conference call.

At this time all participants are in listen-only mode.

Later we will conduct a question and answer session. (OPERATOR INSTRUCTIONS).

As a reminder this conference call is being recorded Thursday, July 20th, 2006.

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 second-quarter 2006 earnings conference call.

We issued a press release this afternoon, providing results for the second quarter ended June 30th, 2006 describing the Company's quarterly the 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;

Matt Loar, Vice President of Finance; and Susan Hubbard, Vice President of Investor Relations.

I will begin the call by reviewing the second-quarter financial results and then I'll provide updated financial guidance for 2006.

John Martin and Kevin Young will take you through 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 the standard Safe Harbor statement.

I would like to remind you that we will be making statements relating to future events, expectations, trends, objectives and financial results that constitute forward-looking statements 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 statement.

I will refer you to our Form 10-K and Form 10-Q for the first quarter of 2006, subsequent press releases and other publicly filed SEC disclosure documents for a detailed description of the risk factors affecting our business.

In addition, please note that we undertake no obligation to update or revise these forward-looking statements.

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 included 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.

Now, turning to the specifics for the second quarter, in short, the second quarter 2006 was another successful quarter for Gilead, with record-setting net product sales as well as improved earnings over the second quarter of 2005.

Total revenues were up 38% compared to the same quarter last year.

Fueled by our strong top-line growth, second-quarter 2006 operating income increased by 32% to $365 million when compared to the same period in 2005.

Gilead reported net income of $265 million or $0.56 per share on a fully diluted basis for the three months ended June 30th, 2006.

This includes $28 million of after-tax stock-based compensation expense from our adoption of FAS 123(R) on January 1st of 2006.

Excluding the impact of stock-based compensation expense, our earnings per share would've been $0.61 per diluted share, representing a 48% increase when compared to the $0.41 per diluted share recorded in the same period last year.

Our effective tax rate for the second quarter of 2006 before the impact of stock-based compensation expense, was 32.6%, a slight change from the 32.0% effective tax rate for 2005, excluding the benefit of the foreign earnings repatriation in the fourth quarter of 2005.

Including the impact of stock-based compensation expense, our effective tax rate for the second quarter of 2006 was 33.5%.

Now turning to revenues, total revenues for the second quarter of 2006 were $685 million, an increase of 38% from total revenues of $495 million in the second quarter of 2005.

This growth was primarily driven by higher HIV product sales and higher royalty revenues from Roche's first-quarter Tamiflu sales.

Compared to 2006 total revenues of $693 million, second-quarter total revenues decreased slightly by 1% driven by the seasonality of Tamiflu royalties, which I will discuss later.

Revenue from Gilead's product sales increased by 32% in the second quarter of this year compared to the same period last year, as both our HIV franchise and HPV product volumes continue to grow.

Product sales increased sequentially by 6% due primarily to higher HIV product sales.

HIV product sales grew to $475 million for the second quarter of 2006, up 38% compared to $344 million in the second quarter of 2005 and up 5% sequentially from the first quarter of 2006.

This growth continues to be driven by strong sales of Truvada and Viread.

Truvada sales were $299 million for the second quarter of 2006, more than double Truvada's sales for the same period last year and an increase of 20% sequentially.

Truvada sales accounted for more than 60% of our total HIV franchise sales in the second quarter of 2006.

For the United States, Truvada sales were $208 million in the second quarter of 2006, an increase of 16% sequentially and an increase of 86% compared to the second quarter of 2005.

Viread sales in the United States for the second quarter of 2006 decreased by 15% compared to the same period last year and decreased by 1% sequentially.

In the United States, we also realized higher average selling prices as some Medicaid patients began switching to Medicare Part D starting in the first quarter of 2006.

In Europe, Truvada sales in the second quarter of 2006 increased sequentially by 40% while Viread sales decreased sequentially by 4%.

We continue to see the impact of the European launch of Truvada on Viread and as expected, as we saw in the United States, declining sales of Viread as patients switched from a Viread containing regimen to one containing Truvada.

However, in countries where Truvada is either early in its launch or has not yet launched, Viread sales remain strong.

Hepsera for the treatment of chronic hepatitis B had sales of 57 million in the second quarter of 2006, a 24% increase compared to the second quarter of 2005 and an 8% increase from the first quarter of 2006, driven primarily by sales volume growth in most of our European markets, as well as Australia and Asia.

Finally, sales of AmBisome were $56 million for the second quarter of 2006, a slight decrease of 1% over the same period in 2005, primarily due to slightly lower sales volume and pricing in Europe, partially offset by higher sales volumes in Asia and Latin America.

Compared to the same period last year, revenue from Gilead's royalty and contract revenues for the second quarter of 2006 more than doubled.

This is due primarily to increased royalty revenues recognized from Roche driven by higher Tamiflu sales as well as the elimination of the cost of goods adjustment, which had historically reduced the amount of Tamiflu royalties paid to Gilead.

Total royalty and contract revenues decreased sequentially by $39 million due to the seasonality of the flu season and resulting Tamiflu sales, as well as the annual reset to the lowest royalty tier at the beginning of Roche's fiscal year.

As a reminder, Roche's first-quarter Tamiflu sales resulted in royalties recognized in Gilead's second quarter, as royalties are paid one quarter in arrears.

Now turning to gross margins.

Product gross margin for the second quarter of 2006 was approximately 87% compared to product gross margin of approximately 86% for the same quarter of 2005.

The slightly higher gross margin is due primarily to slightly higher average selling prices of our HIV products and the royalty buyout from Emory's Emtricitabine sales, partially offset by a product mix change and the inclusion of stock-based compensation expense in 2006.

Now turning to expenses.

Research and development expenses were $91 million for the second quarter of 2006, which include a stock-based compensation expense of $13 million.

This is an increase of 52% from $60 million in the same period last year and an increase of 2% from $88 million sequentially.

In addition to stock-based compensation expense, other factors which led to an increase in R&D expenses in the first quarter of 2006 were increases in headcount, as well as increased costs associated with clinical, product development and research activities related to our hepatitis C, hepatitis B and HIV programs.

SG&A expenses in the second quarter of 2006 were $152 million, which included stock-based compensation expense of $21 million.

This is an increase of 60% from the $95 million in the same quarter of 2005 and an increase of 6% from $142 million sequentially.

Factors impacting the higher SG&A expenses in the second quarter of 2006 compared to the second quarter of 2005 were stock-based compensation expense, increased headcount, and expenses driven by our significant business growth and business development activities as well as preparation for our launch ATRIPLA, which was approved by the U.S.

FDA last week.

Finally, I'd like to turn to cash flow statement and balance sheet to highlight our cash flow performance for the quarter.

The balance sheet at June 30, 2006 shows cash, cash equivalents and marketable securities of $3.3 billion.

This is an increase of 30% when compared to the balance sheet of $2.5 billion at March 31st, 2006.

This increase is primarily due to $266 million of operating cash flow generated during the quarter and 588 million of net proceeds generated from our issuance of convertible senior notes and related transactions, partially offset by $45 million paid towards the principal on our term loan.

On an ongoing basis, we actively evaluate strategic ways to use our cash and investments, including opportunities to in-license and to acquire companies or potential products to complement our own internal efforts.

As announced in early June of 2006, we have signed a definitive agreement to acquire a Canadian subsidiary, Raylo Chemicals, Inc. from Degussa AG for approximately EUR115 million or approximately $144 million, subject to certain closing conditions.

We intend to utilize this site primarily for manufacturing development of it investigational products, supplying API for clinical research programs and contributing to new product supplies.

We have paid EUR18 million or $24 million as a deposit, which we have recorded as current assets on our balance sheet.

We expect this transaction to close in the fourth quarter of 2006.

Now, I'd like to turn to our financial guidance for 2006.

I will only be providing updates on specific guidance components that have changed since we first released 2006 guidance in January of this year and our subsequent update in April this year.

You can locate all of our guidance for the year 2006 on Gilead's corporate website.

For our entire HIV franchise, which includes Viread, Emtriva, Truvada and now ATRIPLA based on continued strong sales as well as the ATRIPLA launch and the strengthening of the Euro currency, we're raising our full year 2006 guidance for net product sales to the HIV franchise from a range of 1.825 to 1.875 billion to a range of 1.95 to $2 billion.

As a reminder, Gilead will record 100% of the ATRIPLA revenue as the majority owner of our joint venture with BMS.

The economic value of Sustiva, we distributed back to Bristol-Myers via the cost of goods sold line.

For Hepsera, we're slightly increasing our guidance for 2006 net product revenue from a range of 205 to $215 million to a range of 215 to $225 million.

This increase is a result of the continued strength of the product in the U.S. despite the presence of new entrants in the marketplace, as well as growth in Europe.

We are lowering our product gross margin guidance from a range of 85 to 86% to a range of 84 to 85%.

This reflects the impact of the Sustiva related revenue within ATRIPLA revenue which we paid out to Bristol-Myers via the cost of goods sold line and contributes zero gross margin.

Now turning to expense guidance.

As a reminder, the remaining guidance on expenses includes the impact of stock-based compensation expensing resulting from our adoption of FAS 123(R).

We are raising our SG&A guidance from a range of 500 to $530 million to range of 550 to $580 million.

This increase in guidance reflects anticipated higher expenses related to uncontrollable events, including the stronger euro and increased Social Security taxes in France due to higher than forecasted revenue.

Additionally, we're including refined estimates in stock-based compensation expense.

And because of the better-than-expected performance of our market of products, we are in a strong position to make additional investments to support the growth of our business.

We have initiated two major investments.

First, to augment our [AW] related initiatives in public health; and second to replace part of our European distribution network new Gilead subsidiary, the latter of which Kevin will discuss later in today's call.

None of these guidance figures include expenses associated with the potential acquisition of Corus and we will be providing updated guidance on our October 18th 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 second quarter of 2006 and provide an update on the milestones we'll be striving to achieve during the remainder of 2006.

Thank you, John.

Good afternoon, everyone, and thank you for joining us today.

We're pleased to summarize for you Gilead's accomplishments during the second quarter of 2006.

I will begin by providing an update on our business and pipeline programs and then Kevin Young will review our commercial efforts.

To begin, I'd like to discuss a milestone that is significant for Gilead and also significant for the treatment of HIV AIDS.

Just last Wednesday, the U.S.

Food and Drug Administration approved ATRIPLA, the first and only complete, highly active antiretroviral therapy combination available as a once daily single tablet regimen.

ATRIPLA is comprised of Gilead's Tenofovir DF and Emtricitabine and Bristol-Myers Squibb's efavirenz.

This approval came only 2.5 months after we submitted the new drug application to the FDA and we commend them for their rapid review of the application.

Due to the significance of this event, the FDA hosted a press conference that day which I attended on behalf of Gilead.

At the conference, acting FDA Commissioner, Andrew von Eschenbach made the statement that ATRIPLA is a landmark in the treatment of HIV and AIDS.

ATRIPLA's development would not have been possible without Gilead's joint venture partnership with Bristol-Myers Squibb, the first of its kind in the 25-year history of the AIDS epidemic.

Because of the historically complex nature of HIV combination therapy and a high level of patient adherence required for successful viral suppression, this product is eagerly anticipated by government officials, providers and patients around the world.

The U.S. approval of ATRIPLA is a critical first step in making it available to patients globally.

We continue our efforts to finalize an agreement to commercialize ATRIPLA with Merck & Co., which retains rights to efavirenz in certain countries outside the United States, including those resource limited countries, where the epidemic has hit hardest.

The U.S.

FDA approval of ATRIPLA included the approval of two trade [dresses], one for the U.S. and an alternative trade dress, which will help facilitate product distribution and tracking in the developing world.

Additionally, we are working with both Merck and Bristol-Myers to reach an agreement for the European Union.

The U.S. launch of ATRIPLA comes in a period where there is increased focus and dialogue among policy makers, regulators, physicians, patient advocates and scientists on expanding testing and importantly, ensuring earlier treatment for people with HIV.

Together, these initiatives will serve to improve health outcomes for those infected and help prevent the spread of HIV.

We are keenly aware of the need for access to HIV medications in resource limited parts of the world.

As you know, we have had in place since early 2003 an access program to provide certain of our HIV products at substantially reduced prices. [And we lower] cost in some cases in developing countries.

Our first goal is to complete filings in all access program countries by the end of 2006.

These countries represent more than 70% of the world's HIV infections.

We have submitted applications in approximately 60 countries and Viread and Truvada are currently registered in 13 and eight of the access programs countries, respectively.

We're proud of the progress we have made thus far and we look forward to continuing to address the worldwide need for antiretroviral medications through the development of new products like ATRIPLA and to our efforts to expand access to our HIV products.

For example, we have entered into a partnership with South Africa's Aspen Pharma Care for the manufacture and distribution of Truvada and Viread to the developing world and are offering non-exclusive licenses to multiple Indian generic manufacturers for access program countries.

In addition, we have developed a system of tiered pricing based on a country's economic status and HIV prevalence.

This approach allows us to price our products based on a country's ability to pay that helps to ensure that we will earn enough revenue to continue to invest in research and development of new therapies for HIV and for other diseases that represent significant unmet medical needs.

Turning to Tamiflu, Roche released their second-quarter 2006 earnings earlier today and reported that quarterly Tamiflu revenues of 360 million Swiss francs or approximately $280 million based on current currency exchange rates.

Gilead will record royalty revenues from these sales in the third quarter of this year.

In Roche's earnings call, their management slightly increased their pandemic guidance to 1.2 to 1.3 billion Swiss francs and stated that by year end they will have capacity to produce 400 million treatment courses.

In addition, a press release issued earlier this week by Roche's U.S. operations, Roche described their efforts to help U.S.-based corporations prepare for a potential pandemic.

Roche is providing guides and drug supply to interested parties and to date have received inquiries from 115 U.S.-based companies, large and small and across a variety of industries and orders from close to 60 companies for Tamiflu, in quantities ranging from a few hundred to hundreds of thousands of treatment courses.

They also stated that experts including the World Health Organization and HHS agree that Tamiflu and other antivirals are an essential part of any plan to help control the spread of pandemic flu virus and potentially reduce illness, hospitalization and deaths.

Moving to our product and research pipeline, we are pleased to say that we have completed enrollment in our Phase II study of GS 9137, our lead integrase inhibitor for HIV earlier this month.

This program is allowing three once daily doses of GS 9137 boosted with 100 milligrams of Tenofovir versus a boost of protease inhibitor of the investigator's choice.

While this study was designed to enroll 200 patients, because of heightened interest in this program, we enrolled significantly more than that, which will augment our safety database for the drug.

This study has a 24-weekend point, which should allow us to have data in selected dose for Phase III clinical development early next year.

The enrollment of our two pivotal Phase III studies of Tenofovir DF for chronic hepatitis B has also been completed.

And with a 48-week end point, we anticipate data from this study sometime late next year.

As additional therapies for chronic hepatitis B continue to become available, we believe that the market for HPV treatments will continue to expand.

Based on data seen from previous studies with Tenofovir DF in coinfected patients, we believe that this drug has the potential to become an important treatment to help patients living with this chronic disease.

For the treatment of hepatitis C, Gilead and Achillion are preparing for the initiation of a Phase I/II biodynamic study of GS 9132, which will begin screening patients for enrollment in August.

This study will have sites in the U.S., Germany and the Netherlands.

I am pleased with the research and development accomplishments we achieved this quarter, each of which underscore our ongoing commitment to advance our product pipeline.

In addition to recent advances we have made on our existing pipeline, we have also been busy over the last several months with business development activities to expand and support our pipeline efforts.

In June, we announced our attempt to acquire Canadian subsidiary Raylo Chemicals and most of its assets from Germany-based special chemicals company, Degussa AG.

Under the terms of the agreement which are subject to certain closing conditions, Gilead will pay approximately EUR115.2 million or approximately $144.3 million to Degussa.

In addition, Gilead has entered into long-term agreements with Degussa for the supply of raw materials and the manufacture of certain active pharmaceutical ingredients for certain of Gilead's products.

We expect the transaction to close in the fourth quarter of 2006.

We have had a long-standing and successful partnership with Degussa and Raylo and believe that through this acquisition, we will enhance our chemical and manufacturing expertise and enable us to more rapidly provide adequate supply of Gilead's investigational products for preclinical and clinical evaluation.

We look forward to welcoming our colleagues at Raylo to the Gilead team.

I would like to close with discussing our announcement yesterday that we have agreed with Corus Pharma to exercise our option to purchase the remaining portion of the Company for $365 million.

And concurrently, Gilead and Novartis Diagnostics and Vaccines Inc. have entered into an agreement, whereby Novartis has agreed to dismiss its ongoing litigation with Corus for an undisclosed payment.

As you may recall, in April of this year, Gilead invested $25 million in Corus, which made Gilead Corus's second-largest shareholder.

In return for our investment, Gilead received preferred shares in the Company and an exclusive option to purchase the remaining shares of Corus at a prespecified price.

We anticipate that this transaction will close in the third quarter of this year.

As you may now know, Corus is a privately held Seattle, Washington-based company committed to developing and commercializing specialty products for respiratory and infectious diseases.

Their lead product, aztreonam lysine, is currently being evaluated in two Phase III clinical trials with the goal of defining the safety and efficacy as a treatment of cystic fibrosis in patients with pseudomonas infection.

We expect data from both the Phase III trials in the first quarter of next year, which may allow a U.S.

NDA filing sometime in the second half of 2007 if the results are favorable.

We also look forward to welcoming Corus employees to the Gilead team, establishing their Seattle-based presence as Gilead's new center of excellence, focused on respiratory diseases and delivering this important novel antibiotic to patients in need.

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

Kevin?

Thank you, John.

Good afternoon, everyone.

To begin, I would like to discuss the launch activities surrounding ATRIPLA.

As John Martin mentioned, just last week, Gilead and Bristol-Myers received approval from the U.S.

Food and Drug Administration for ATRIPLA, the first one pill once daily regimen for the treatment of HIV.

We are very pleased to report that within 24 hours, the first shipments of ATRIPLA were sent to our wholesalers and the first prescriptions for ATRIPLA were filled at local pharmacies last Friday.

Both the Gilead and Bristol-Myers sales representatives who were fully trained on ATRIPLA prior to approval are now out in the field detailing the product to their key customers.

With the combined efforts of the Gilead and Bristol-Myers sales forces, we are essentially doubling our promotional voice and reach.

With ATRIPLA, we have what we believe will become the treatment of choice for naive patients and the best choice for any patients appropriate for therapy with a non nucleoside reverse transcriptase inhibitor.

Because of the profile of ATRIPLA, notably the convenience of one pill once daily, we also believe that the launch of ATRIPLA will bring new patients into therapy.

With Truvada, we expect it to continue to be the leading NRTI backbone for patients started on or switched to a protease inhibitor.

Finally, we believe that Viread will continue to play a prominent role with treatment experienced patients.

With the launch of ATRIPLA, we expect there will be some chemicalization of Truvada, particularly from patients currently receiving Truvada plus Sustiva.

But we believe that this will be somewhat offset by the continued growth of Truvada as the NRTI backbone of choice for protease inhibitors.

We expect the launch of the single tablet regimen to increase the percentage of antiretroviral treated patients receiving Truvada, either as a stand-alone agent or as part of ATRIPLA, both overall and within the naive patient population.

We also believe this will drive additional switches from the 97,000 patients still receiving Combivir.

Finally, as stated earlier, we believe the commercial availability of a single tablet regimen will drive new patients into therapy.

As of the end of the first quarter, Truvada captured more than 65% of new starts.

It is one of our goals to increase that percentage and we believe with the strong data that is included in the ATRIPLA label, namely data from study 934, the head-to-head study against Combivir, along with the convenience of one pill once daily dosing and in most cases, one copay, we believe that is attainable.

It is worth noting that Truvada continues to hold its position attained in the first quarter of this year as the number one prescribed NRTI backbone with the top three leading third agents, Sustiva, Kaletra and Reyataz.

And the milestone achieved this past quarter, Truvada became the number one backbone of choice in all patient demographics, including African-Americans and women.

In the second quarter, Truvada continued to make steady share gains and was not only the number one prescribed branded NRTI on the market, but also the most prescribed branded antiretroviral, a position formally held by Sustiva.

Based on data received from third-party market research on a one-quarter lag, as of the end of the first quarter, 36% of all patients currently treated are on a Truvada backbone, a nearly 11% increase over the prior quarter.

As I mentioned previously, Truvada continued to be the first choice amongst physicians and patients in first line regimens, capturing more than 65% of new patient starts, up from 62% the previous quarter.

We also continued to see steady prescription gains in Truvada, both in the retail and nonretail segments.

As of the week ended June the 30th, according to Wolters Kluwer Health, formally NDCHealth, Truvada held 26.6% and 26.2% of new and total prescriptions in the retail NRTI market, respectively.

With regards to the nonretail sector, which includes government institutions, correction facilities and large health maintenance organizations, and currently contributes approximately 25% of our HIV business, we estimate that the nonretail segments grew by approximately 13% based on a three-month rolling average.

The truest measure of market share of any HIV products is the molecule share.

So I'm pleased to say that during the second quarter of this year, Tenofovir, the molecule in Viread, Truvada and now ATRIPLA, has overtaken 3TC as the most prescribed molecule in HIV, a position 3TC has held for nearly a decade.

Moreover, FTC, the molecule in Emtriva and Truvada, continued to be more prescribed than AZT.

These advances are a testament to the profile of Gilead's products and the important data generated by our clinical teams.

Clearly, we see continued opportunities to grow our HIV franchise.

With the introduction of ATRIPLA, we believe we have a product that will become the antiretroviral regimen of choice for treatment naive patients and patients appropriate for NNRTI therapy.

With Truvada, we have the backbone of choice the patients started on or switched to a protease inhibitor.

And with Viread, we have a powerful single agent that we believe will continue to play a prominent role in treatment experienced patients.

Turning to our HIV franchise performance in Europe.

Truvada is now fully commercialized in all five major countries.

In total, Truvada has been launched in 14 European countries.

We have seen strong uptake of Truvada in France and Italy, where we most recently launched and have also seen continued growth in the UK, Germany and Spain.

The total number of Truvada treated patients in the five major markets of Europe has risen to 50,000 over the last twelve months.

Conversely, during the same period, the number of Combivir patients has dropped to 64,000, a 20,000 patient decrease.

This is likely attributed to the inclusion of our study 934 data in the product label and the hard work performed by our European sales forces.

In France, the largest HIV market in Europe, Truvada was the second most commonly prescribed NITI brand behind Combivir.

France has traditionally been a strong Combivir market.

We are seeing similar trends in Europe occur as in the United States with regards to patients new to therapy.

Truvada has now surpassed Combivir in all new starts and accounted for more than 35% patient share in the first quarter 2006 compared to Combivir, which had declined to 32%.

On a molecule basis, Tenofovir DF, which is the active molecule in both Truvada and Viread, increased to a strong 33% patient share.

We look forward to furthering the momentum that Truvada has gained and will continue to target both naive and switch patients who might benefit from a Truvada based regimen.

Turning to Hepsera, in the United States, second-quarter 2006 revenues grew to nearly $24 million.

And Hepsera continued to be the leading antiviral agent for the treatment of chronic hepatitis B. Furthermore, more Hepsera was prescribed in the second quarter of 2006 than in any previous quarter.

Fifteen months after the launch of a competitor, entecavir from Bristol-Myers, Hepsera continued to increase in prescription volume with growth of 4% from the first quarter of this year.

Importantly, Hepsera has maintained both new prescription and total prescription share of about 50% fifteen months after the launch of entecavir.

As we have pointed out previously, the introduction of Hepsera as well as entecavir has actually grown the markets for patients receiving oral antiviral therapy.

And as the market leader, Hepsera has benefited more from this market growth with the pool of hepatitis B treated patients increasing by 30% over the last 12 months from 33,000 to 43,000.

The majority of entecavir's share has to date been at the expense of lamivudine.

Internationally, Hepsera achieved record second-quarter 2006 revenues of more than $33 million and continued to grow across all markets, especially in southern Europe.

Our antifungal, AmBisome, recorded another solid sales quarter at $56 million.

This product continued to maintain its position, thanks to a strong brand reputation as a proven treatment for confirmed invasive fungal infections.

We continue to support this product with a specialized European sales and marketing organization.

And finally, I would like to conclude with a brief description of our plans to expand our commercial operations in Europe, as John Milligan mentioned earlier in the call.

Currently, Gilead has business operations in the five major countries of Europe, Portugal and Greece.

In several other countries where we do not yet have operations, our business there has matured to the extent that each is now large enough to support a Gilead subsidiary.

We believe this will enable us to manage the commercialization of our products, particularly in our growing portfolio of HIV therapies and decrease our reliance on distributors.

The countries where we plan to establish new European subsidiaries of the coming 18 months include Benelux, Switzerland, Austria and Turkey.

Thus by the end of 2007, we expect a new Gilead footprint across Europe that will provide a significant return on investment by positioning us for continued growth, including support for the launch of ATRIPLA in conjunction with Bristol-Myers and Merck, and placing us in a stronger position with respect to the potential acquisition on licensing of new products.

In summary, I'm pleased with our performance during the second quarter.

I believe that we have the organization and the operational execution capabilities to continue our commercial growth through the very important launch phase of ATRIPLA and in support of our existing brands and franchisees.

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

Operator?

(OPERATOR INSTRUCTIONS).

Thomas Wei, Piper Jaffray.

Had a couple of questions here just on the dynamics in the HIV sales.

Can you remind us how many Combivir patients you think have fallen off of Combivir since Truvada was launched?

It sounds like the decline has been greater in Europe.

And do you think that those European numbers that you gave us are an appropriate model for future U.S. market share gains now that 934 is on the label?

Hi, Thomas; it's Kevin Young speaking.

Thomas, the launch of Truvada in the U.S.

Q3 2004, there was over 140,000 patients on Combivir.

As I said in my text, it's now down to 97,000 people.

So, that is the current figures or were the figures and now are the current figures in the U.S.

Actually, I think it's a pretty similar dynamic that we have going on in European market.

The uptake curves look fairly similar, it's a fairly good grouping across the countries and fairly comparative to the U.S.

Geoffrey Porges, Sanford Bernstein.

Thank you very much for taking my question and congratulations on another great quarter.

Could you give us a sense of in terms of modeling ATRIPLA, how much of Truvada is really given with Sustiva right now and how quickly you think that's likely to convert over to ATRIPLA?

And then secondly how much of Combivir is given with Sustiva and how much and how quickly you think that this could convert?

Thanks.

Right now, there is in terms of Combivir plus Sustiva, is about 31,000 patients in that combination.

In terms of Truvada plus Sustiva, there's about 57,000 patients with that combination.

So to go back to kind of the dynamics as we see, obviously, we obviously, just like we did with Truvada, have to see how things roll out over the coming months.

But the important message here is that right now just over half of the prescribing of Truvada is with protease inhibitors.

Just under half is with Sustiva, sorry with NNRTIs.

So it's very important when you look at the dynamics of the uptake of ATRIPLA is that a large portion or certainly a significant portion of Truvada is in the protease inhibitors and we continue -- we forecast that that will continue and indeed some naive patients will continue to be prescribed Truvada plus protease inhibitors.

So the most natural conversion if you like for ATRIPLA is obviously the 57,000 Truvada plus Sustiva and obviously the Combivir, 31,000 plus Sustiva and I will just also add that there's still a large booking to Trizivir patients, 45,000 patients and we certainly see that they are just as applicable as Combivir to switch to ATRIPLA.

Meg Malloy, Goldman Sachs.

Thanks very much.

Two quick questions.

One is just double checking on gross margins, of course we did expect them to come down once you start to account for the Sustiva component of ATRIPLA.

But your base operating margins on your own products haven't changed.

I just want to confirm that you're comfortable still with that in the 86, 87% range?

Meg, it's John.

We had a slight uptick in our gross margin for the quarter versus last year, so we were getting some efficiencies based on better manufacturing and slightly higher processes.

That's why our baseline increased slightly to about 87% this quarter.

Now we're factoring in the change in product mix to the Sustiva portion and that will drive it downward as we had mentioned and predicted earlier to the 84 to 85% range on an annual basis.

Thanks very much.

And if I might, Kevin, I was wondering if you could elaborate a little bit more in terms of doubling your share of voice in the AIDS market now that you've got ATRIPLA out there?

We don't generally give specific details of size of field forces.

But the size of the BMS -- one of the BMS forces, who is actually going to be promoting ATRIPLA is very, very similar to the size of the Gilead HIV.

So essentially we have got two very, very closely matched sales organizations; it is essentially double our current Gilead size.

That's going to be very well coordinated.

Albeit, that each company has their own individual products to sell as well as ATRIPLA.

Yaron Werber, Citigroup.

Let me also add my congratulations on a very nice quarter all around.

A quick question on you mentioned that greater than 65% of all patients' new starts are currently going to Truvada.

Can you give us a sense as to the remaining 35% or so, what are they starting therapy with?

I don't have that information at my fingertips.

I can certainly tell you that about 10% of those patients currently go on Epzicom and then there's one or two of the patients around sort of in the single digits.

Yaron, obviously the remainder would go on mostly Combivir in those segments.

Just give us a little bit of a sense in terms of the copay difference for patients, if they were to go on Combivir with Sustiva versus Truvada and Sustiva?

It depends obviously on the percentage of the absolute amount within the plan.

But essentially you have got one copay with ATRIPLA versus two copays with two divided therapies.

So it just depends on what the percentage of the absolutely pricing is of the individual's health plan.

Essentially you're collapsing two costs into just one cost.

Yaron, I hope that answers your question; you actually asked Truvada Sustiva versus Combivir Sustiva and those two are exactly the same in terms of the copay.

But the collapsing down to ATRIPLA in many plans would lessen the copay.

In some there is a graduated scheduling where you might pay one copay but it could be slightly higher.

That in fact, the lesser copay has been one of the key advantages for trizivir and one of the reasons why we think so many patients are still on it.

Geoffrey Meacham, JPMorgan.

Good afternoon.

Just I also wanted to offer my congratulations.

Questions on Europe.

What if any are the differences among the big five countries in the rate of Combivir switches you guys have seen?

As I said in my text, Combivir has been strong in Europe, particularly it has been strong in France.

We have had very good uptake since our launch at the back end of last year in France and France is the number one HIV market.

We still are second behind Combivir in France but we certainly have made good progress and we are already outselling Kivexa Epzicom even though it was launched six months before Truvada.

So, we certainly have the aspiration, as we have done over here to really rapidly eat up Combivir in the major markets.

What countries are you set to launch in the next quarter or two?

Probably better to say by the end of the year.

We're now into kind of the smaller European markets, the Netherlands, Switzerland and probably in the first quarter of 2007, Belgium, once you get reimbursement.

Bret Holley, CIBC World Markets.

Yes, I have got a question I guess appropriately directed to Kevin about new patient starts in the U.S. and the trends that you're seeing there just quantitatively.

I guess in 2004, it was around 30,000 patients, in 2005 it was around 55,000, I think you said.

And how does it look like it's tracking in 2006?

Obviously we are always on a one-quarter lag so we're just sort of looking at the first quarter.

And it looks right now for the first quarter about the same.

Obviously, it's like a rolling so it's a rolling 12 months but we think it's still about the level of 55,000 new patient starts to antiretroviral therapy.

The good news is that we have seen kind of a tick-up generally of diagnosed patients, so I think that's obviously a positive sign, which you know after years of being in sort of the kind of 3%, we're seeing it going up to like sort of 8% level.

So I think that bodes well.

And we have had, and it's very early days, anecdotal stories of newly diagnosed HIV patients walking into physicians and talking about ATRIPLA just because they've heard the news and want to be treated for the first time.

So the 55,000 that -- you're just projecting based on one quarter in 2006 then for the full year 2006?

Right now, that's the number of patients currently diagnosed on a kind of annual basis, 55,000.

The answer was yes to that.

Ian Somaiya, Thomas Weisel Partners.

Thank you and congratulations again.

I had two questions.

First, if you could just remind us how long it took for patients to transition from Viread and Emtriva to Truvada?

And would you expect that that rate of transition and migration to be similar from Truvada plus Sustiva to ATRIPLA?

And then I just have one other question for you.

You know, it was variable just in terms of the transition rate and for example, there are still patients on Viread Emtriva who have not transitioned over.

Although I think by now a good portion of them have.

One thing that is key to factor in is that patients are typically given their prescriptions on a three-month basis so they see the doctors every three months.

Some even less frequently than that so it can take a substantial period of time.

It was certainly greater than six months as we went through that to get a majority of those patients over.

So it is a rolling process.

There may be a heightened awareness about ATRIPLA because of all the media attention and other things which could help drive it.

But as you recall, a lot of the launch was pent-up demand and new patients coming to market on Truvada.

I would just like to add again, once again to emphasize the quantity of patients that are currently getting Truvada plus a protease inhibitor, either Kaletra or Reyataz.

So there is a large bulk of patients who wouldn't naturally be candidates for ATRIPLA.

More than half.

The other question I had was just on the SG&A spend.

I know obviously we've seen a step up over the past six to nine months.

I was just curious as we move over the next 12 to 18 months and we look forward to launches of Tenofovir and hepatitis B, potentially your integrase inhibitor and the Corus compound, do you think your sales force is adequately positioned to sell those products or where could we see organizational changes?

Well, we mentioned some organizational changes, so we would expand the European sales force to accommodate the new subsidiary.

That is long-term economically better to us rather than paying commissions to these distributors and will help us retain more of our product margin.

In the U.S. and Europe, we feel pretty good about the existing franchises in the territories where we currently have it, so we're not anticipating any additional increases in sales and marketing folks.

What you're seeing this year, certainly, the full effect of what we did last year to expand those subsidiaries.

What you're really talking about is we are seeing strategic opportunities to invest right now, so the subsidiaries is one, but also public health initiatives are I think very important for us to get out the message about increased diagnosis and increased treatment.

And I don't know if you were watching this morning, but even President Bush this morning addressing the NAACP called out for greater diagnosis, especially in the black community and called for the passage of the Ryan White Act and we think these sorts of things are very important for HIV patients and clearly very important for Gilead.

Sapna Srivastava, Morgan Stanley.

Yes, just two quick questions.

In terms of expenses that are being guided higher, could you just give us a breakdown as to how much of the (indiscernible) related to the HIV franchise and the other to onetime events that you mentioned?

And secondly just also in terms of the conversion price of (indiscernible) and Tamiflu, are you using an average FX over the quarter or a spot rate?

I'll deal with them in the reverse order.

The FX, there's a contractual rate that's in the contract which I haven't disclosed but it does tend to be an average over the quarter, more on a monthly basis than anything else, so it isn't the end rate.

And again there are different countries that come into that, so it's very complicated for us and I'm sure for you to figure out in the absence of knowing the exact formula.

So that is the FX for Tamiflu.

With regard to where the different pieces were, I'm not sure if you are asking about this quarter or in the future.

But a couple of things to say.

This quarter's spend was I think higher than anticipated and there were a number of events that contributed to that, including a lot of our activities around Corus, around the legal activities around Corus in particular.

We also have a couple of macroeconomic events that are causing expenses to go up, including the really strong increase of the euro versus where we were at the beginning of the year and so that caused expenses to go up.

And again, we don't hedge expenses up significantly for the quarter but also projecting out into the future.

At the given exchange rate, we are projecting a significant increase in our expenses just based on that fluctuation.

The other thing that is probably not too easy for you to understand and sometimes for us to understand is this French pharma tax.

It is in fact a payment that companies make that are based on our own product sales as well as all sales across the industry and is nearly impossible to predict.

It's very -- because we don't know all the different variables that go into it.

And so both with industry sales being higher and particularly Gilead's sales of Truvada being much higher than we forecasted, we are seeing an increased payment that happened this quarter and will persist we believe through the remainder of the year.

So to the best of our ability, we are predicting that the expense will be higher.

And really those two components account for nearly half of the increase in SG&A over the course of the year.

So it's very significant again external factors for us.

Craig Parker, Lehman Brothers.

Hi, John, first question, you're obviously going to keep some operations going at Corus.

Can you provide any information on the R&D expenses at the Company currently and if not now when do you expect to give guidance on the impact of that transaction?

And then I have got a follow-up question.

So Craig, holdings, yes, we do expect to keep those operations up there.

The people are very important to us and the most important thing for us is to keep them on track for filing their NDA next year -- completing their clinical studies and filing the NDA next year.

So that's important to us and clearly we need and want those people to develop not only Aztreonam but future products to that.

We have not yet disclosed the R&D.

We don't yet have enough information to forecast what the R&D is going to be because we have to take a look at the costs associated with the acquisition, severance costs.

And there will be some severance costs associated with redundancies and the ongoing operations and we're not quite prepared to do this as we have been scrambling to get this settlement and closure completed just yesterday.

So at the latest and I think that the most likely date is the third-quarter guidance that we will provide.

But clearly this is an all-cash acquisition that will be an in-process R&D write off that we will hit in the third quarter should we close this and there will be additional expenses, particularly R&D expenses associated with this occurring in 2006.

I will say this, it is a fairly small operation.

There are 95 people up there currently and so it's very small compared to the rest of Gilead.

And do you think it's reasonable to assume that the development costs are going to drop quite a bit when the last patient data is collected in September in the Phase III trials?

Well a lot of the patient data is not expected to be available now until next year and so the timelines have extended considerably, given the distraction and the economic pull that the litigation has had on the organization.

And so we had an opportunity to settle with Novartis this week.

We also recognize that the longer this trial and its likely appeals would go on, the more the team would lose their original timeline and so that was quite a concern to us, which is one of the reasons why we chose to do this this week.

Could I also ask about the HIV franchise guidance?

Excluding the contribution to your revised guidance from currency -- and I could probably do this math on my own if it wasn't so late in the day.

Are you assuming in that guidance simply the conversion of some patients to ATRIPLA and the difference in revenue recognition associated with that?

Or are you also assuming that the introduction of ATRIPLA changes the adoption ramp or penetration ramp for the product for Truvada overall?

I think it's pretty fair to assume there are several components to this guidance, one of which would be a change in the adoption rate so new patients coming onto ATRIPLA, who may not have come onto Truvada.

There's also the -- we have to factor in some pipeline fill as we go in there so there will be that factored into there.

And then additionally, there is the continued growth of Truvada in Europe and new territories.

Those are three of the major buckets but there are more to that.

David Witzke, Banc of America.

Sorry if I missed this, but can you provide in the first line setting what percent of patients with Truvada are given either Kaletra or Reyataz and the same for Combivir?

And then I guess follow that with ATRIPLA available, do you foresee a trend away from PI as a third agent in newly diagnosed patients?

Hi, it's Kevin.

Again I will take the second one first.

We still think there's going to be a strong role in naive patients for Truvada plus protease inhibitors.

Obviously BMS themselves and Abbott with Kaletra and they've got the new formulation, the [Maltrex] formulation of Kaletra, are promoting both of those products pretty hard.

So we actually saw a little tick up in the percentage of Truvada patients on a protease inhibitor in the first quarter, up from about 50-50 split to 58%, 57%, 42%.

So 57% for Truvada plus the protease inhibitors.

That might shift with the appeal of having a single tablet once daily regimen but we certainly envisage there's still going to be people who like to use a protease inhibitor in combination with Truvada as first line for whatever reason.

We still think it's going to be there and the good news is we have got Truvada for those people.

In terms of the percentage of Truvada, this is just of Truvada that was prescribed with Sustiva, that was approximately 34% of Truvada in the first quarter.

Kaletra prescribed with Truvada is just over 20% and almost exactly the same for Reyataz, also 20%.

So those are the percentages for Q1.

I'm afraid I don't have the Combivir percentages at my fingertips.

Shiv Kapoor, Montgomery Company.

Thanks for taking my question.

Sorry if I am repeating this, but I have had to go off and on the call.

The question is can you explain why international HIV sales are flat quarter over quarter in the first quarter and five or six quarters that that has been through?

What are the dynamics there?

I'm sorry, non Europe non U.S. is what you mean by international.

I think as we mentioned in the last quarterly call, one of the concerns that we had about this quarter was the lumpiness of sales into Brazil and we were concerned that there may not be any sales in Brazil this quarter and in fact there were no sales in Brazil this quarter.

So because of the lumpiness, that really affected things.

There were very high levels of sales in Brazil in Q1 because in Q4 there were no sales so it all fell into this quarter.

So that contributed to the flatness of international.

Okay, and can you give us an update on your Integrase Inhibitor program?

Well as John mentioned, we have finished enrollment in our Phase II program, enrolled more than patient and anticipated, which will give us a larger data base.

And we will then -- we should be in a good position towards the end of the year to pick a dose to go into a Phase III program early next year.

Jason Kantor, RBC Capital Markets.

Thanks for taking my questions.

I wanted to go back to this -- your statement that you expect the new drug, the ATRIPLA pill to bring new patients into therapy.

You said the Q1 or Q2 run rate is 55,000 patients.

Could you quantify where you think that can go and what you think a reasonable first line penetration could be for Truvada and ATRIPLA in that population?

It's Kevin and I'll also let John follow on for me.

We've moved the penetration of Truvada from 62 to over 65% now in Q1 because we're always on a one-quarter lag.

We do think it can go north of that.

Difficult to peg just how far it can go.

But I think being able to essentially move on both fronts because we have Truvada with PI as itself as well as, of course, as part of ATRIPLA for the NNRTI, I think that puts us in a really great position to dial it up from that 65% level.

So, yes, we do think it can go north of that.

Exactly where remains to be seen right now.

The first part of that question would say how much can that market grow beyond the 55,000 run rate that you are talking --

That's the key question.

It depends on the diagnosis rate.

It depends on how early in the HIV cycle doctors are prescribing to their patients so there's a number of factors.

It is clearly one of our goals to increase screening initiatives so that more patients are diagnosed, which is important for public health and that more of those patients would seek treatment and then importantly that more of those patients seek ATRIPLA than any other medicine, and so those are all the things that we're working on.

A lot of this right now is anecdotal because as Kevin mentioned, the data we get is a quarter behind the actual numbers.

We do know there was a pent-up demand for ATRIPLA.

We do know that scripts are being written immediately, which means the doctors have patients waiting to go on it and obviously those are newly diagnosed patients because you wouldn't withhold therapy from somebody who had HIV.

A question about the Corus deal.

You had previously said that your option was after Phase III data, that you had to get a look at that data.

So I understand that you settled with Novartis but why did you have to exercise the option before you saw the data?

Or have you seen any data?

So to be clear, we didn't ever disclose when that option expired.

There was a time at which the option expired and we were hopeful that we would get to see some of the data.

But it was clear that we had to tie the settlement with the option exercise in order to make this work with Novartis.

And given the highly predictive nature of inhaled antibiotics, we felt fairly comfortable that we didn't need to see it.

It would've been nice but I think not necessary for us to make a decision to go forward.

And as I mentioned earlier in this discussion, the timelines are moving into next year and in fact we're now exceeding the timeline that we would have had under the option agreement, so that also made the decision much easier.

So we felt doing it sooner was better so that we could help influence the clinical studies so we can keep things on track, and I think importantly, help this organization with their European approval, which we have a clearly much higher level of sophistication than they do.

Jim Reddoch, FBR.

A quick question on inventory.

Can you say if the amount of Truvada in the channel with distributors or wholesalers went up or down during the quarter?

And do you have any plans to exchange or buy back that Truvada now that ATRIPLA is out a little ahead of schedule?

Thanks.

That's a good question.

We had mentioned in the last quarterly call that Viread was near the higher end of the inventory ranges and Truvada was approximately in the midrange of that.

And at the end of this quarter, we had said that each of those came down just slightly from where they were previously, so there was really not a major shift in inventory during the course of the quarter, which is good for us because we did institute price increases in it last quarter, which means that the IMAs were very effective at keeping things in the ranges that we wanted them to be in, although they did come down just a tad over the course of the quarter.

We don't have any plans to buy back the Viread.

I'm sorry, we didn't buy back Viread when Truvada was launched.

We certainly don't have any plans to buy back Truvada now that ATRIPLA is launching.

And we would expect as with Viread that this inventory will flow out naturally over time.

Just to add that in terms of ATRIPLA, we allowed wholesalers to purchase modest quantities, that's Cardinal McKesson Amerisource and we certainly expect them to order multiple times over the quarter.

Phil Nadeau, Cowen.

Congratulations on a great quarter.

Just two quick questions.

You just mentioned price increases during the last quarter.

Could you let us know how large those were and when they were taken; that's first.

Second, could you give us some idea of how large the cystic fibrosis market is, what portion of those patients actually do have a pseudomonas infection?

Thank you.

I'll take the price and hand over to John for the cystic fibrosis.

Our Truvada price WAC is $735.36.

That was an increase of 5.9%.

All of these price increases were taken in very early April.

Viread WAC is $442.56, an increase of 6.2%.

And Emtriva is $292.80 and that was an increase of 5.4%.

And your second question was about how big market is.

We could say this a couple of different ways.

In terms of the patient size, there's approximately 30,000 patients in the United States and if you look at the major markets of Europe, it's about 30,000 patients as well.

And last year, Tobramycin for inhalation did about $250 million.

The vast majority of that, more than 200 million, was in the U.S.

The dynamics of that product in Europe is less favorable and they don't sell nearly as much there.

So a couple things to say.

In terms of patients who have pseudomonas infection, this is often really considered a preventative.

So patients who are at risk, as they move along in their lifespan become a higher and higher risk of getting pseudomonas due to the decrease in lung function over time because the chloridine channel has failed in these patients.

And so not every patient gets it but a majority of patients get multiple therapies in this area, including other drugs such as Genentech's Pulmozyme.

And all of those, all seeking to keep lung function from decreasing over time.

With things like Pulmozyme, I think it's a pretty effective drug.

With antibiotics, as you can imagine, monotherapy in infectious diseases tends to lead to failure rates over time because the bacteria fail to be adequately controlled.

And that's why we think a second agent could be useful.

TOBI is used one month on and one month off.

And so that one month off is designed to eliminate some of the problems associated with resistance but it's not certainly effective.

And so we do think that Aztreonam Lysinate or [Kastin] could be used in those off months, because we know lung function declines during those off months or as a replacement for patients who are failing TOBI due to resistance.

So there's quite an opportunity for us I believe to expand the market there.

And additionally because I think the stronger IP position of this product, there is a greater opportunity for it in Europe than there is currently for TOBI.

Michael King, Rodman & Renshaw.

Thanks for taking the question.

Strategic question since we're still on the topic of Corus.

I think when many of us speak to investors about the Gilead story, one of the longer-term issues that is often voiced is a lack of sort of a gap filler.

And I'm wondering if the acquisition of Corus may be a statement by the company that we are to expect sort of onesie, twosie type of acquisitions than a major acquisition.

Can you address that?

So in terms of the acquisition strategy, I think part of it is what is available, what fits in with our strategy and what do we think we can do long term.

You could argue that this product is a fairly small product but I do think the franchise has great long-term potential and a high probability of success in the short term.

I think part of this speaks to the confidence we have in the current pipeline and the current marketed products to carry us quite a ways.

But as always we're going to continue to look for things.

We'd certainly like to bring in products with greater market potential than Kastin has and we'll continue to look for such things through licensing and whatnot.

So I don't think there's a strategy of either or but rather one in which we can find things that are appropriate for the kind of sales organization we are and the kind of scientific organization we are.

I wonder if you could address the latter point, John, about the detail because your -- it seems like a different sell and Gilead has been excellent at executing in HIV and virology.

What expertise or what strength do you think you bring to the table with regard to Corus?

One thing that's really remarkable about this disease is that because the Cystic Fibrosis Foundation is so heavily involved in this, they practically know the name and address of every patient in America.

And it's handled by about 114 centers who are specialty in pulmonology.

These are primarily pediatric pulmonologists.

Although it is transitioning to more of an adult disease as people are living longer.

So the kind of sales force you would need for this would be even smaller than the current Gilead sales force is.

So let's call it 25 individuals in the field approximately plus management.

So it fits very nicely with our brand of a very efficient scientifically oriented sale and we think that we are very effective that way, and particularly effective at using MSLs and public policy to enhance what we are doing.

Just to add to that, Michael, I actually see an incredible overlapping in the type of market for cystic fibrosis with HIV because of the interlinkage of patients, payors, support groups, physicians; it's incredibly tight just like HIV.

So I think the type of challenges that we've dealt with, with HIV, albeit a different disease, I think we will see again cystic fibrosis.

So we can certainly leverage our expertise.

Jennifer Chao, Deutsche Bank.

Thanks for the taking the question.

The first is if you could just provide us with respect to x-U.S.

ATRIPLA outlook, just a little bit of the flavor with regard to regulatory timing there and when we can expect an agreement among Gilead, Bristol and Merck to be more fully defined.

And the second is if you can provide any interesting observations for the Truvada penetration into Europe and whether or not you have similar expectations for Truvada to cull away the comp of your market there.

Thank you.

Let me take the first question.

In terms of the European outlook, we are disappointed that we've not yet been able to put into place the agreements necessary to commercialize in Europe.

We are working hard on that.

I can tell you there are seven separate agreements or contracts that we're currently working on associated with Europe, so that's Europe alone; it's very complicated as you can imagine.

It is our anticipation that we would be able to file in Europe before the end of this year.

In terms of Europe, obviously, it's the normal dynamics of a staggered rollout.

Germany and the UK have been on the market 18 months.

Spain approximately one year, and coming up to nine months in Italy and France.

Certainly what we've seen in France in terms of starting to eat into Combivir I think is very positive and we do see, just as we saw with Viread, we do see the opportunity for Truvada to follow the type of dynamics that we have seen in the U.S.

And just a comparative kind of marker versus Kivexa or Epzicom, we typically launched anywhere between three and six months after that product.

And in all countries, irrespective of those start dates, we are in all markets in excess of at least a 1 to 1 ratio.

In several of the countries, we have got 2 to 1 and in Germany, we nearly have 4 to 1 prescriptions in favor of Truvada.

So we certainly have the expectation our European team can follow in the footsteps of the U.S.

Dr. Milligan, that concludes the time we have for questions.

Thank you, operator, and thank you all for joining us today.

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