吉利德科學 (GILD) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences fourth quarter and 2006 year-end earnings conference call.

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

Later we will conduct a question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded January 31, 2007.

Your speakers for the day are John Milligan, Executive Vice President and CFO;

John Martin, President and Chief Executive Officer;

Norbert Bischofberger, Executive Vice President of Research and Development; 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.

Welcome to Gilead's fourth quarter 2006 earnings conference call.

We issued a press release this afternoon providing results for the fourth quarter year ended December 31, 2006 describing the Company's quarterly and full year highlights.

The press release is also available on our website at www.gilead.com.

Also joining us on today's call are Matt Howe, Vice President of Finance; and Susan Hubbard, Vice President of Investor Relations.

I'll begin the call by reviewing the fourth quarter and full year 2006 financial results and then I'll provide financial guidance for 2007.

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

We'll allow time at the end of this call to answer your questions.

First, 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 refer you to our Form 10-K for the year ended December 31, 2005 and our Form 10-Qs for the first three quarters 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 short, 2006 was another very successful year for Gilead filled with many corporate successes and the achievement of several significant financial milestones.

Full year total revenues for 2006 exceeded the $3 billion mark for the first time in Company history.

Spurred by the continued growth of our HIV product sales we achieved record 2006 product sales of $2.6 billion, a 43% increase compared to 2005.

HIV product sales for 2006 exceeded the $2 billion mark and grew 52% compared to 2005 driven primarily by the strong uptake of Atripla following its U.S. launch in July 2006, as well as the continued strong performance of Truvada and Viread.

In 2006, we also generated more than $1.2 billion in operating cash flow.

Our solid operating performance is a validation of the significant efforts made by the more than 2,500 Gilead employees around the world.

Each employee has played a part in executing the strategies implemented by the Company for growing revenues and operating cash flows, including making prudent investments in both our research and of development efforts and our sales and marketing infrastructure.

Now turning to significant results for the fourth quarter and full year 2006.

Gilead reported a net loss of $1.7 billion or a loss of $3.62 per share in a fully diluted basis for the quarter ended December 31, 2006.

This includes the impact of the purchased in-process research and development charge of $2 billion associated with our acquisition, as well as $25 million of after tax stock-based compensation expenses reflecting the impact of our on adoption of FAS 123-R on January 1, 2006.

For the full year of 2006, net loss was $1.2 billion or a loss of $2.59 for a fully diluted share including purchased in-process research and development charges of $2.4 billion associated with our Corus and Myogen acquisitions and after tax stock-based compensation expenses of $102 million.

Excluding the impact of the purchased in-process R&D charges, Gilead had a robust financial performance during the fourth quarter and full year of 2006 as both product sales and non-GAAP earnings improved substantially over the same periods of 2005.

Non-GAAP net income per share for the fourth quarter of 2006 which excluded the impact of purchased in-process R&D charge was $0.78 per share on a fully diluted basis, a 45% increase over the fourth quarter of 2005 non-GAAP net income per share of $0.54 cents per share, which excluded the tax benefit realized from the repatriation of foreign earnings under the American Jobs Creation act.

For the full year of 2006 non-GAAP net income per share increased 51% to $2.52 compared to $1.66 per share in 2005 reflecting our strong operating performance driven by our top line growth.

The non-GAAP figures for 2005 excluded the after tax stock-based compensation expenses relating to FAS 123-R as they were prior to our adoption of FAS 123-R.

The non-GAAP figures for 2006 do not exclude the after tax stock-based compensation expense and therefore reflect the impact of our adoption of FAS 123-R on January 1, 2006.

Total revenues for the fourth quarter of 2006 were $899 million an increase of 48% from total revenues of $609 million in the fourth quarter of 2005.

Product sales were a record $768 million for the fourth quarter of 2006, up 56% over the same period of 2005 making more than three years of consecutive quarterly product sales growth.

Full year 2006 total revenues increased by 49% from 2005 to $3 billion.

This is driven primarily by a 43% increase in our product sales as well as our royalty revenues which more than doubled from 2005.

Compared to the third quarter of 2006 total revenues for the fourth quarter of 2006 increased 20%.

Revenue from our fourth quarter product sales increased sequentially by 50%, as well as our HIV and HBV product franchises continued to grow.

Revenue from our royalty and contract revenues increased sequentially by 67% due primarily to the recognition of royalty revenues received from Roche's sales of Tamiflu.

HIV product sales grew to $642 million for the fourth quarter of 2006, up 67% compared to $385 million in the fourth quarter of 2005 and up 15% sequentially from the third quarter of 2006.

For the full year 2006, HIV franchise product sales were $2.1 billion representing a 52% increase over 2005 with Truvada leading the way with a record $1.2 billion in sales.

Truvada sales were $337 million for the fourth quarter of 2006, up 76% compared to the same period last year and an increase of 9% sequentially.

Truvada sales accounted for more than half of our total HIV franchise sales in the fourth quarter and full year of 2006.

In the United States, Truvada sales were $196 million in the fourth quarter of 2006, an increase of 31% compared to the fourth quarter of 2005 and a decrease of 3% sequentially as certain patients began switching from a Truvada containing regimen to one containing Atripla.

Viread sales in the United States for the fourth quarter of 2006 decreased by 7% compared to the same period last year and remained flat sequentially.

In its second quarter in the market, Atripla contributed $137 million to our HIV product sales.

As a reminder Gilead records 100% of the Atripla product revenue to the Gilead consolidated financial results of our joint venture with BMS.

The economic values of Sustiva which is distributed back to BMS is captured in our cost of goods sold line.

The Sustiva component of the Atripla sales figure is approximately $51 million of the $137 million with Truvada comprising the remainder.

In Europe, Truvada sales for the fourth quarter of 2006 increased sequentially by 28% while Viread sales decreased sequentially by 9%.

Hepsera for the treatment of chronic Hepatitis B had sales of $66 million in the fourth quarter of 2006, a 29% increase compared to the fourth quarter of 2005 driven primarily by strong volume growth in our European market.

For the full year Hepsera product sales were $231 million a 24% increase from $187 million recorded in 2005.

And finally, sales in AmBisome were $58 million for the fourth quarter of 2006 an increase of 5% over the same period of 2005.

For the full year AmBisome revenues were $223 million, a 1% increase when compared to 2005.

Compared to the same period last year, revenue from Gilead's royalty and contract revenues for the fourth quarter of 2006 increased 13%.

Sequentially, royalty and contract revenues increased by $52 million or 67%.

The year-over-year and sequential increase in fourth quarter revenues primarily driven by increased Tamiflu royalty revenues recognized from higher Tamiflu sales made by Roche.

Royalties received from Roche for the fourth quarter of 2006 were $113million.

These royalties, which are paid one quarter in arrears, reflect a royalty rate of approximately 22% as applied to Roche's sales of Tamiflu during the third quarter of 2006.

Turning to gross margin.

Product gross margin for the fourth quarter of 2006 was approximately 80% compared to product gross margin of approximately 85% for the same quarter of 2005.

For the full year product gross margin decreased to 83% from 86% in 2005.

The lower gross margins are primarily due to the launch of Atripla which carries a Sustiva related portion of revenue at a zero gross margin.

A write-down of our inventory [INAUDIBLE] as well as product mix changes.

This is partially offset by the benefit associated with the purchase of the Emtricitabine royalty interest owed to Emory University which was completed in 2005 and lower API costs.

Now turning to expenses.

R&D expenses were $112 million for the fourth quarter of 2006 which included stock-based compensation expense of $14 million.

This is an increase of 62% from $69 million in the same period of last year and an increase of 20% from $93 million sequentially.

In addition to stock-based compensation expense, other factors which led to an increase in R&D expenses for the fourth quarter of 2006 were increased head count and increased contract services and clinical study expenses from our product development and research activities related to our HIV, Hepatitis and newly acquired programs in respiratory and cardiopulmonary areas to our acquisition of Corus and Myogen.

Total R&D spending for the full year 2006 was $384 million which included stock-based compensation expense of $52 million an increase of 38% from 2005.

SG&A expense in the fourth quarter of 2006 was $147 million which included stock-based compensation expense of $19 million.

This is an increase of 38% from $107 million in the same quarter of 2005 an increase of 11% from $133 million sequentially.

For the full year of 2006, total SG&A spending was $574 million, representing a 50% increase compared to 2005.

The higher SG&A expenses in the fourth quarter and the full year 2006 was primarily due to increased head count and expenses driven by our business growth, our acquisition of Corus and Myogen and other business development activities, as well as stock-based compensation expense from our adoption of FAS 123-R.

Our tax rates for the fourth quarter of 2006 before the purchased in-process R&D charge was 27.6%, a decrease from the 32.3% tax rate for the fourth quarter 2005, after excluding a tax benefit realized from the repatriation of foreign earnings in the fourth quarter of 2005.

The decreased fourth quarter tax rate was a result of the December 2006 extension of the federal research credit as part the Tax Relief and Health Care Act of 2006.

The credit was retroactively extended from January 1, 2006 and in accordance with U.S.

GAAP the cumulative benefit was recorded in the fourth quarter of 2006.

Our full year tax rate before the purchased in-process R&D charge was 31.4%.

And finally I would like to turn to cash flows and balance sheets to highlight our cash flow performance for the year.

The balance sheet at December 31, 2006 shows cash, cash equivalents and all marketable securities of $1.4 billion.

This is a decrease of $1.8 billion when compared to the balance of $3.2 billion at September 30, 2006.

The decrease during the fourth quarter was primarily attributable to $2.4 billion in net cash paid for the acquisition of Myogen and Raylo partially offset by $480 million of operating cash flow generated during the quarter.

Now I would like to turn to our financial guidance for the full year 2007.

As you know, with Gilead's adoption of FAS 123-R in January of 2006, we opted at that time to write GAAP expense guidance that would include the impact of our stock-based compensation expense, it's on the buried line item.

A year has now passed and based on feedback from investors, as well as pure benchmarking, we believe that reporting actual results and issuing expense guidance excluding the impact of stock-based compensation is more relevant and consistent with investors' evaluation of Gilead and our peers as well as our own internal management reporting.

Therefore, the expense guidance we are providing you today will be non-GAAP and excludes the impact of stock-based compensation expense.

You can locate all of our guidance for the year 2007 on Gilead's corporate website.

Additionally, for 2007 we are altering the way we are giving net product revenue guidance.

Due to the number of products in our portfolio and to the increasingly complex dynamic of our four [AIDS-related] products we are now going to aggregate our guidance to include all our marketed products.

We are providing full year 2007 product sales guidance in the range of $3.4 billion to $3.5 billion which is approximately a 31% to 35% increase over 2006.

This guidance does not include any potential revenues for Ambrisentan consistent with our practice of not issuing any guidance prior to product launch.

We are providing product gross margin guidance for the full year 2007 of 78% to 80%.

The lower gross margin compared to 2006 is entirely due to the higher mix of Atripla revenue which includes the Sustiva portion at zero gross profit, partially offset by gross margin improvements driven by lower API costs and lower amortization of prepaid Emtricitabine royalties due to the royalty buyout executed in 2005.

We are providing non-GAAP R&D expense guidance for 2007 from $510 million to $530 million, which is a 54% to 60% increase over the 2006 R&D expenses excluding the impact of stock-based compensation expense.

This range factors in the absorption of full year R&D expenses for our recent acquisitions, as well as additional R&D investments we expect to make in the respiratory and cardiopulmonary areas, including the continued development of Darusentan for resistant hypertension.

Norbert will elaborate on this later in the call.

We are providing non-GAAP SG&A guidance of $570 million to $590 million, a 13% to 17% increase over 2006 SG&A expenses excluding the impact of stock-based compensation expense.

This increase over 2006 spending reflects our overall higher head count and spending to support our business growth as well as a sales force expansion planned for the anticipated Ambrisentan launch in the United States.

And finally our effective tax rate guidance for the full year 2007 is expected to be in the range of 30% to 31% driven by the projected growth of our international business and the extension of the R&D tax credit by Congress.

Regarding stock-based compensation expense.

We expect the 2007 fully diluted per share impact to be in the range of $0.27 to $0.30 per share compared to $0.21per diluted share in 2006.

This increase is primarily driven by the assumption of Myogen unvested stock options as part of the acquisition.

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

This concludes the earnings reporting section of this conference call.

At this point I would like to turn the call over to John Martin who will review our corporate highlights for the fourth quarter of 2006.

Thank you, John.

Good afternoon everyone.

And thank you for joining us today.

We are pleased to summarize for you Gilead's many accomplishments during the fourth quarter of 2006.

I will start by providing an update on our business, then Norbert Bischofberger will summarize our pipeline efforts and research programs and then Kevin Young will review our commercial efforts.

To begin, I would like to highlight the progress we made with our HIV portfolio.

As you know the FDA approval of Atripla in July of last year marked the introduction of the first and only once-daily single tablet for the treatment of HIV.

This simplification of therapy was highly anticipated by physicians, resulting into a robust launch making Gilead the HIV market leader in the United States.

During the fourth quarter, we, along with our partners Bristol-Myers Squibb and Merck announced the submission of the Atripla marketing authorization application to the EMEA and the European Union.

Based on our expectation for standard review by the EMEA, we anticipate approval of Atripla in the EU sometime late in the second half of this year.

Also, you will recall that in August last year, Gilead and Merck established a separate agreement for distribution of Atripla in developing countries utilizing a different trade trust than our tablets destined for the U.S. or European markets.

Merck is now working to register Atripla in these territories.

Kevin will discuss in greater detail our commercial progress with Atripla later in the call.

We have continued to expand our efforts to ensure access for Viread and Truvada in developing countries while protecting for profit markets.

Applications for registration of Viread have been completed for nearly all of the 97 developing world countries included in our access program.

In addition, agreements have been forged with 11 [Indian] companies to manufacture and distribute a generic form of Viread to these countries.

These agreements reward Gilead for its innovation and should facilitate greater availability of Viread.

Over the course of 2006, we achieved a number of milestones that supported our continued growth.

In addition to advancing the pipeline programs and HIV Hepatitis B and C, we completed three key acquisitions.

With the acquisition of Raylo late last year we brought to Gilead a much-needed increased capacity for process research and scale up of clinical development candidates to support the aggressive time lines for our multiple R&D programs on which Norbert will elaborate shortly.

Through the acquisitions of Corus and Myogen we brought into our existing focus the odd anti-infectives and into respiratory and cardiopulmonary disease.

While these are therapeutic areas new to Gilead we expect to leverage our demonstrated experience in registering and commercializing highly differentiated specialty products.

This expanded focus provides the opportunity for additional product launches to fuel both near term and long-term revenue growth.

And in a short period of time two combined organizations have successfully integrated and have already begun working together effectively to advance our clinical programs.

Norbert and Kevin will elaborate on the progress of both Aztreonam Lysine for cystic fibrosis and related lung infections and Ambrisentan for pulmonary arterial hypertension later in our call.

We are pleased with the progress Roche made in 2006 in raising the profile of the potential of Tamiflu for both seasonal as a treatment and prevention and pandemic influenza.

As Roche stated last year, they have now successfully ramped up their production capacity to 400 million treatment courses annually largely to support international stockpiling for the potential of an avian influenza pandemic.

Currently Roche has received orders or letters of intent to purchase Tamiflu from the governments of more than 75 countries accounting for 200 million treatment courses.

Over 30 countries have now -- now have in place stockpiles that would cover at least 5% of their population.

I would also like to highlight Carla Hills has joined our Board of Directors.

Mrs. Hills previously held positions as U.S. trade representative under President George H.W.

Bush and as U.S.

Secretary of the Department of Housing and Urban Development under President Gerald Ford.

Her expertise in trade policy and business will be invaluable to us as we continue to expand our international operations.

And finally, this year, 2007, marks the 20th anniversary of Gilead.

Since the Company's founding we have made significant progress on advancing therapeutics against life threatening diseases worldwide.

Our success is due to the hard work and dedication our employees exemplify every day.

In addition we appreciate the support that you our investors have provided over the years.

Now with 10 marketed products, one product under review by the FDA and three products in Phase III clinical studies we have a strong foundation to support continued growth for the years to come.

I will now turn the call over to Norbert to review our pipeline and research programs.

Thank you, John.

And good afternoon everyone.

Gilead has made significant investments in and achieved considerable progress with its pipeline in 2006.

Our efforts have resulted in the identification of a number of development candidates, the advancements of clinical development compounds and the achievement of late stage development milestones.

To begin with, I would like to give you an update on the Phase II dose ranging study of GS 9137 our lead integrase inhibitor candidate for the treatment of HIV.

As you know, we completed enrollment in this Phase II study last June, amended the protocol in October, and the last patient enrolled in this study crossed the 24-week end point in December.

We are pleased to report that an abstract for this study has been accepted as a late-breaker presentation at the upcoming 14th conference on Retroviruses and Opportunistic Infections taking place in Los Angeles late February.

We will present the study results at that time.

But due to guidelines issued and enforced by the conference organizers, we are not at liberty to share any of the data prior to the presentation.

We can say that we are very encouraged by the preliminary results which we have allowed -- which have allowed us to select a dose for further studies.

We have begun designing the protocols for our Phase III program which we will share with the FDA in the near future along with the Phase II results.

Pending on the outcome of these discussions, we anticipate being in a position to begin enrollment in the first Phase III studies in treatment experience patients toward the mid part of this year.

In addition to GS 9137 which is boosted with Retonavir, we also advanced a second integrase inhibitor GS 9224 into clinical development to explore its potential as a once-daily agent which would not require boosting.

Based on data from a Phase I clinical study obtained recently, we have decided to discontinue development of GS 9224 due to its short half life.

Despite this disappointing result, we remain committed to pursuing the integrase class of drugs, in particular our lead compound GS 9137 which, as I indicated previously, is advancing into Phase III studies.

We have also made progress on our programs focused on developing antivirals for the treatment of Hepatitis C. Our collaboration with Achillion resulted in the identification of GS 9132, a small molecule antiviral that works through another mechanism involving HCV protease.

Achillion began dosing patients with the 9132 in a Phase I two viral dynamic study in December of last year.

This dose escalating trial will serve as a proof of concept study determining the antiviral activity and safety of GS 9132 in HCV infected patients.

We expect data from this study in the second quarter of this year.

In addition, Gilead began dosing HCV infected patients in a phase I study of a model non-nucleoside polymerase inhibitor GS 9190.

We anticipate safety and efficacy data from this study in the second quarter of this year as well.

For Tenofovir DF for chronic Hepatitis B, we expect 48-week results from both of our Phase III studies in the second half of this year.

And we anticipate regulatory filings in the U.S. and European Union occurring by the end of this year.

I would like to turn now to the advanced product candidates resulting from the Corus and Myogen acquisitions last year which have enabled us to broaden our focus in respiratory and cardiopulmonary diseases.

First, last September we reported positive Phase III results from AIR-CF2 which is the first of two pivotal studies evaluating Aztreonam lysine in cystic fibrosis patients with Pseudomonas infections.

The study met its primary efficacy endpoint of time to need for inhaled or intravenous antibiotics which was assessed by the onset of common symptoms predictive of a pulmonary exacerbation.

Enrollment in the second Phase III study was completed just last week and we expect to have data by mid-year.

Pending positive results from the second Phase III study we would be in a position to file a new drug application in the U.S. for Aztreonam lysine for the treatment of cystic fibrosis in the second half of this year.

Turning now to our cardiopulmonary product candidates.

We are very pleased the new Gilead employees in Colorado completed in December the new drug application submission to the FDA for Ambrisentan for pulmonary arterial hypertension or PAH.

We believe that based on the safety and efficacy data obtained in various clinical studies involving approximately 480 patients with PAH once daily Ambrisentan has the potential to be the best in class endothelin receptor antagonist.

We are pleased to announce we have just been notified that two abstracts related related to Ambrisentan have been accepted for oral presentation at the American Thoracic Society meeting taking place in San Francisco in May.

The first presentation will highlight one year follow-up data from AMB-222 a study evaluating Ambrisentan in patients who had previously discontinued Bosentan or Sitaxsentan or both due to LFT abnormalities.

The second presentation will provide long-term safety and efficacy data from ARIES E, which is the extension study of patients who enrolled in either of the two pivotal Phase III studies.

As part of our NDA filing we have requested priority review and we will inform you of the PDUFA date for Ambrisentan once we receive official notification from FDA.

Our team is also working closely are GSK to pursue regulatory submissions in the European Union which we expect will occur by the end of this quarter as well as in other territories.

Finally, I would like to provide you with an update on Darusentan.

As you know both Ambrisentan and Darusentan are AIDS specific endothelin receptor antagonists that Myogen in-licensed from [clone] and Abbott respectively.

Myogen evaluated Darusentan in a Phase II study in resistant hypertension and showed the addition of Darusentan to three or more anti-hypertensive drugs resulted in a significant reduction in blood pressure versus placebo.

Based on these results and on safety data from approximately 1,400 patients who had received Darusentan in various studies, Myogen planned to advance Darusentan for resistant hypertension into two Phase III studies, one of which, study 311, was initiated mid-2006.

After a careful review of the program, we are convinced of the medical potential of Darusentan as a potential agent for the management of resistant hypertension, and we have decided to continue its development.

We are planning on making certain protocol modifications to study 311, however, which should speed up enrollment and reduce overall development costs.

We have not yet informed regulatory authorities of our intentions, so would prefer not to speak about the specifics surrounding the studies until that occurs.

In summary, I'm proud of the research and development advancements we have achieved over the last quarter and year.

We have many exciting opportunities to deliver on over the course of this coming year, and look forward to keeping you updated on our progress.

With that, I will now turn the call over to Kevin Young to discuss our commercial efforts.

Kevin?

Thank you, Norbert.

Good afternoon everyone.

To begin, I would like to provide an update on the commercial progress of our HIV franchise in the fourth quarter.

I'm pleased to report that we continue to see rapid uptick of Atripla since its U.S. launch six months ago.

The launch trajectory of Atripla when looking at prescription data continues to surpass that of Truvada, which was the number one antiretroviral launch in the history of new HIV medications in terms of market share gain.

In its 28th week on the market, Atripla's NRTI share of the new prescription and total prescription market was 11.7% and 11.2% respectively, as compared to 10.8% and 9.4% for Truvada at the same time point.

As we stated on last quarter's call, the Atripla launch was supported by a successful series of activities focused on formal acceptance with private payers, Medicaid, the national VA system and aids drug assistance programs.

In record time since its launch Atripla has now been added to Allstate, Medicaid and ADAP formularies.

And with most payers, patients have the additional benefit of only one co-pay for the three medications in Atripla.

We have received updated third party patient data, some of which we previewed at the JPMorgan conference early this month that begin to give us some insight into where the Atripla business is coming from.

This data is from the third quarter of 2006 and is therefore reflective of progress achieved in the time frame immediately following the Atripla launch in mid-July of last year.

Noteworthy is that 34,000 patients or 7% of the total treated population were on an Atripla regimen.

Approximately one quarter of the Atripla business came from new patients and three quarters came from switches with over half of that from the obvious switch of Truvada plus Sustiva.

And importantly, switches from Combivir accounted for 15% of the switches to Atripla during the first full quarter of launch.

That said, 30,000 patients remain on a Combivir plus Sustiva regimen, which along with 37,000 Trizivir patients remains our largest target for garnering switches to Atripla.

Gilead's HIV franchise commanded a place in each of the top four most prescribed regimens, with Atripla debuting in the third spot within just one quarter of launch preceded only by Truvada plus Sustiva and Truvada plus Reyataz and followed by Truvada plus Kaletra.

Truvada maintained its position as the backbone of choice with either protease inhibitors or non-nucleoside reverse transcriptase inhibitor as well as across all patient demographics including African Americans and women.

One metric we utilize to measure our success in HIV franchise growth is to follow the trajectory of what we call total Truvada, that is the combined growth of Truvada and the Truvada component of Atripla.

For total Truvada, in terms of total prescription volume, total Truvada grew by 29% over the first six months of the Atripla launch compared with the six months prior.

Patient share of new starts has grown to 76%, up from 66% of new starts just prior to the Atripla launch.

And the number of patients receiving total Truvada grew by more than 4% quarter-over-quarter to 203,000 patients, which represents 43% of all treated patients.

Based on weekly prescription data received from Walter's [Quarterly] health, Combivir's new prescription market share has dropped 5 market share points since the launch of Truvada in August 2004 reflecting our efforts to take market share from our competition.

As of the third quarter 2006, the number of patients receiving Combivir has decreased by 35% since the launch of Truvada.

And strikingly, the number of patients starting therapy with Combivir has fallen off from a peak of well over 60% in 1999 to 11% currently.

In terms of total molecule share, Tenofovir, the molecule in Viread, Truvada and Atripla has continued its growth as the most prescribed molecule in HIV, with total prescriptions exceeding the 3TC molecule by 25% in December 2006.

With the launch of Atripla, Emtricitabine, Gilead's molecule in Emtriva, Truvada and Atripla is on the verge of joining Tenofovir as the top two most prescribed molecules in HIV.

In fact, as of the week ending January 19, 2007 the new prescription market share for Emtricitabine now slightly exceeds that of the 3TC molecule for the first time capturing 21.2% new prescription share compared to 21.1% for 3TC.

We see continued opportunities to grow our HIV franchise not only based on the profile of our drugs but also based on dynamics that are now unfolding in the United States.

For the sake of time, I will not go into great detail, but will briefly mention a few highlights and we are happy to take your questions later.

First, new CDC guidelines were published in September of last year recommending that every individual between the ages of 13 and 64 years of age be tested for HIV as part of their routine healthcare.

The impact of these guidelines from an administrative, healthcare and economic perspective were explored in a recent HIV summit meeting in late November which brought together individuals from treatment community, government, industry and media.

Several key themes emerged from the meeting.

First, the improvements in HIV therapy warrant increased testing.

Second, historical HIV testing strategies have failed.

Third, normalizing HIV testing can help identify and triage new persons into care.

And finally, more people in care will help with prevention lowering the rates of new infections.

This meeting was considered a first for bringing together all of the relevant stakeholders and a very important step in the potential implementation of the CDC recommendations.

Secondly, the Ryan White Care act was reauthorized in December, which as you may know, is the safety net program for HIV and AIDS patients without private healthcare insurance or who do not qualify for other public programs.

Several key elements of the reauthorized bill will include priority on co-medical services, priority on earlier diagnosis of HIV positive individuals through [optare] testing and a redistribution of funds to areas with increased HIV incidents.

And third, we have seen an increase in a number of patients initiating therapy over the past few years.

That combined with the advancements in HIV treatment leading to patients living significantly longer has grown the number of patients taking antiretroviral therapy by 90% over the course of last year.

Turning to our HIV franchise performance in Europe.

As a reminder Truvada was approved at the end of February 2005 and was launched within 10 months in the U.K., Germany, Spain, Italy and France.

We have seen strong uptick of Truvada across all European countries.

In November, Truvada achieved a significant milestone as it is now the leading branded NRTI in all of the big five EU countries, including most recently Italy.

And in fact every one in four treated patients in the EU is on a Truvada-containing regimen.

In terms of patients new to therapy, Truvada continued to be the dominant NRTI backbone and has held its 39% patient share in the third quarter 2006 compared to Combivir, which declined to 24% during the same period.

We have also seen Truvada plus Sustiva become the top regimen in all treated patients, growing to 10% patient share, surpassing Combivir plus Sustiva which declined to 7%.

This milestone is very important as we anticipate the approval of Atripla in Europe later this year.

On a molecule basis, Tenofovir DF which is the active molecule in both Truvada and Viread increased 1% quarter-over-quarter to a strong 40% patient share.

In summary, the uptick dynamics of Truvada in Europe mirrored that of the U.S. which is a testament to the changes we have made in commercial operations over the past two years to improve the precision of our marketing, our sales and marketing execution.

We look forward to furthering the momentum of Truvada and will continue to target both naive and switch patients who can benefit from a Truvada-based regimen, all of which will strengthen the foundation for the European Atripla launch later this year.

Turning briefly to Hepsera.

In the United States, Hepsera continued to be the leading antiviral agent for the treatment of chronic Hepatitis B. Furthermore, Hepsera was prescribed more in the fourth quarter of 2006 than in any previous quarter.

Nearly two years after the launch of Entecavir from Bristol-Myers, Hepsera prescription volume continued to increase with a growth of 3.6% from the third quarter of this year.

Importantly, Hepsera has maintained total prescription market share above 50% and has held steady in the number of patients currently receiving Hepsera quarter-over-quarter.

As we have pointed out previously, the introduction of Hepsera as well as more recently launched competitive products has actually grown the market for patients receiving oral antiviral therapy.

The pool of Hepatitis B treated patients in the U.S. increased 36% over the last 12 months from 33,000 to 45,000.

We remain committed to protecting our market share in the face of increasing competition as we believe the long-term safety, efficacy and resistance data we have generated for Hepsera positively differentiates its profile from that of our competitors.

In the Gilead territories outside the U.S., Hepsera made steady gains in market share against Lamivudine, particularly in southern Europe.

Hepsera exited the third quarter of this year at 38% market share, up from 36% over the previous quarter.

Turning to our [inter] antifungal product.

AmBisome recorded another solid sales quarter of nearly $58 million.

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

And finally, a few comments about the growth of our commercial organization in anticipation of the Ambrisentan launch for pulmonary arterial hypertension and the progress we are making in expanding our reach in Europe.

In preparation for the U.S. launch of Ambrisentan later this year, we are now working hard to finalize the size and shape of our launch sales force.

We plan to augment our existing Flolan team of 17 and depending on FDA approval timelines, they will either promote Flolan alone for a period or immediately Ambrisentan plus Flolan.

On the EU expansion front we have recently opened offices in Austria, Switzerland and Turkey with the Netherlands and Belgium slated for later in the year.

As we stated in our second quarter call last year, we believe our business in these additional countries has matured to the extent that each is now large enough to support a Gilead subsidiary.

We believe this will enable us to better manage the commercialization of our HIV, Hepatitis and cystic fibrosis products, but more importantly the launch of Atripla later this year in partnership with Bristol-Myers and Merck.

Moreover, we believe this expansion will place Gilead in even stronger position with respect to the licensing of new products making Gilead an ideal partner for like minded biotech companies seeking European sales and marketing capabilities.

In summary, I am pleased with the performance during the fourth quarter and full year 2006, especially the early uptick of Atripla in the U.S. and the continued growth of Truvada in Europe.

The Gilead commercial operations area looks forward to this year and the exciting challenge of preparing for the anticipated 2007 and 2008 launches of Ambrisentan for pulmonary arterial hypertension, and Aztreonam Lysine for cystic fibrosis, and Tenofovir DF for the treatment of HBV.

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

Operator?

Today's question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Meg Malloy with Goldman Sachs.

Please proceed.

Thanks very much for the call and for taking the questions.

Two very quick ones on the pipeline.

First, on Ambrisentan, could you just remind us isn't the date by which you would know about priority review six or 10 months out 45 days, not business days after filing?

And then second, on Darusentan I can totally respect you don't want to go into specifics at this point.

But I wanted to get some clarity on your comfort level for changing the design.

As I recall, it may not have been an SBA but the requirements were for optimal dosing of three meds, including a diuretic.

Could you comment on your comfort level that you could change the trial design at this point?

Thanks, very much.

Yes.

Hi, Meg, it's Norbert. the first question the official notification from FDA comes 60 days after the filing.

Meg, the first question the official notification from the FDA comes 60 days after the filing.

We filed on the 18th of December.

So we should receive that notification sometime middle of February.

We we have not heard anything yet.

Secondly, with regards to Darusentan, we feel after review of the data very comfortable with going ahead and making a protocol change and by the way, the protocol change does not have to do with the requirement for full dose.

The full dose thing after looking at it and after talking to a number of thought leaders and investigators, we are completely comfortable with.

The full dose, by the way, I just want to make it clear, does not mean maximum dose.

It means either maximum dose or something lower if there is adequate documentation and reasoning by the investigator.

Thank you.

Your next question comes from the line of Geoff Porges with Sanford Bernstein.

Please proceed.

Thanks very much for taking the question and congratulations on 20 years of Gilead.

And John, also on the great slides.

It helps a lot.

You obviously must have finally got some help.

Couple of questions about Europe.

It is very helpful to have the break out.

But could you give us a sense of approximately what percentage of United States reported revenue for Truvada and Viread comes from Europe and then related to the European markets could you talk a little bit about Epzicom which seems to be doing better in Europe, and finally about pricing exposure, is it likely you will be able to get bang pricing for Atripla in Europe or do you have some pricing disparities emerging in Europe with the legacy products?

Hi, Geoff, it's Kevin.

I'll take your last couple of questions first while John might provide the first.

In terms of Atripla, I do think that we can at least across our major markets get a one plus one of Truvada plus Sustiva for Atripla.

If we can get a premium obviously that is a negotiation we'll go through.

As you remember, we were very successful with Truvada getting a one plus one on Viread plus Emtriva.

The only country where there was a marginal decrease on that was in Spain.

But we were successful, in fact, we got a premium in, for example, the Nordic area.

In terms of the ratio, if you like, of Truvada Epzicom, or [Khai Rexia], as it is called, you are correct in that there seemed to be a better execution of GSK in European territories than here in the U.S.

There is a range of ratios.

In Germany, it is particularly strong whereas in the U.K. it is slightly lower.

As you know with a nationalized health care system in Europe and large purchasing groups, that's to be expected.

I also think that GSK probably had a little bit more traction on their sort of philosophy of sort of doing hypersensitivity testing up front.

So that has probably resonated more with certain European health care systems.

But overall, you know, there is still a gap between ourselves and [Khai Rexia] and we certainly think we can maintain that if not actually grow that.

Geoff, one of your questions was how much of the international business is Europe versus the rest of the territories.

And I'll just give you a couple of metrics, for HIV franchise the European business total was $203 million and the other component of international the ROW was $38 million.

And that was for Q4 '06.

Truvada [INAUDIBLE] was quite small it was only $13 million for the quarter because we are just now getting Truvada launched in a couple of other territories.

Your next question comes from the line of Thomas Wei with Piper Jaffray.

Please proceed.

Thanks very much.

I had wanted to understand a little bit more on the guidance for R&D.

It's going to be up about $200 million it seems like on a non-GAAP basis from '06 to '07.

Can you help us understand how much of that increase is what you had previously been working on versus say the addition of Myogen or Corus?

And does that also assume that, have you built in expenses for both Hepatitis C compounds working and moving forward into much larger trials?

Thomas, this is John Milligan.

The answer is a couple of different ways.

If you look at both, a majority of it is related to the programs that we're acquiring and perhaps even expanding on with Corus.

And so what I'll call right now Seattle and the Colorado site with that.

In terms of the increase, trying to decide how much color I want to give on it.

It is a significant portion of it.

For example the continuing research in Colorado and the continuing research in Corus.

There is a component built into that that has several things.

One, new products that we're developing in Seattle and then secondly, the new trials that we'll be doing which will include 9137 going into Phase III.

That is included.

There is our budgeted items both for the continuation of our current clinical products including 9190 and 9132 and then, of course, we have ambitions to file additional INDs during the course of the year.

So there is a considerable amount of money associated with that.

Also in that budget this is the full Darusentan budget.

We are budgeting this as if we are going ahead with the study.

So any alterations or delays could in fact lower those costs.

I don't think they would increase much from where we are.

As Norbert put it in his script and then the question A, we do think we can decrease the overall cost it would take to run the study by changing the entry criteria and that is something we are working on.

And your next question comes from the line of Yaron Werber with Citigroup.

Please proceed.

Yes, hi.

Good afternoon.

Congratulations on a nice quarter and thanks forgiving guidance on a non-GAAP basis, I think it will make things a lot simpler for us.

We heard your feedback from everybody, yes.

Terrific.

Thanks.

So I have two questions.

The first one is Hepsera and Truvada were very strong outside the U.S. in the quarter.

Could you give us a little bit of a sense as to what were you seeing in terms of trends that increased that volume?

And how much of that is potentially inventory stocking?

And then I have a follow-up, as well.

Hepsera and Truvada outside of the U.S. there is no inventory stocking associated with those products.

Because we, in fact, in Europe have a direct distribution model.

We distribute directly into those countries.

So there isn't any [INAUDIBLE] for stockpiling.

And since the question that will come up again later, I just want to point out that in the United States we have looked at our wholesale inventories very carefully and they have been very consistent quarter-over-quarter on the mid to lower side of all the inventory levels.

Atripla is on the lower side of those bands at all our wholesalers as is consistent with behavior when you are launching a product as rapidly as Atripla has launched.

In terms of the competitive landscape, in terms of Hepsera, I think we're seeing very nice up take in the southern European market.

Italy, you know, Spain, Greece and turkey and we also had a very good quarter in France.

So I think those markets are performing particularly well for Hepsera.

In terms of Truvada, I think we know, what is nice in Europe is you always have the ability for each market to learn from the subsequent markets.

And you know, we have seen a very, very consistent performance from country to country.

And if you remember, we've always had what you might call a stronger label in Europe because we've actually got the advantage where -- where you know, we have a significant difference to Combivir actually in the label because of our 934 study.

So I think we've been -- had a high degree of impact in actually executing on that competitive advantage.

So it's just been a really, really focused effort from all the countries.

What, in terms of the United States, there has been a tremendous amount of discussion over the last quarter and the Atripla scripts versus Truvada, in a sense Truvada continued to be fairly flat while Atripla continued to grow the market but perhaps flattened a little bit too.

Can you give us a little bit of sense what were you seeing in terms of the usage of Atripla?

Did you see early conversion?

Or is it mostly growth coming from new patients?

Can you give us a little bit of sense of the lumpiness in the market in terms of new patient growth?

Just to sort of frame that, I think you have got to appreciate that basically, the total booking for Atripla to capture patients from in terms of the switch is significantly lower than the bucket Truvada had when it launched.

It is really in very, sort of high terms, it is half the market because of the patients, approximately the half of the patients on antiretrovirals have a protease inhibitor as part of the regimen and they wouldn't necessarily be an obvious switch to Atripla.

But if we look specifically at Truvada and Atripla, Atripla got a quarter of its prescriptions from new patients in the third quarter.

And got 75%, three quarters from switches.

And about half those switches were the obvious switch of Truvada plus Sustiva.

So you are always going to see with Truvada kind of a balancing act because some of its prescriptions, particularly in combination with the Sustiva will convert across to Atripla.

But it will be continued to grow and be fed by garnering prescriptions from Combivir plus a PI, or Epzicom plus a PI, which we consider our switches to the product.

So there is always that balancing act.

And as I said in the script, there are still 30,000 patients on Combivir plus Sustiva and 37,000 Trizivir patients.

And they are obvious patients for Atripla.

So the reason we talk total Truvada at Gilead is because our sales representatives do a double detail.

First detail is Atripla.

And for patients who are combining essentially Truvada plus an NNRTI.

And then we have Truvada plus the PI sales.

We do both of those.

So that's why we are not just concerned about Atripla, we are concerned about the two products together.

Your next question comes from the line of Eric Ende with Merrill Lynch.

Please go ahead.

Thanks a lot.

We appreciate the non-GAAP guidance.

But for the purposes of this quarter it does get a little bit confusing.

I wanted to make sure that I backed into the R&D and SG&A numbers including the options correctly.

I'm hoping that you do have that in front of you.

R&D, I think, would be 580 to 610 and SG&A 670 to 710.

Is that correct?

That is about right if you use the Q4 numbers for stock options based on the Q4 results we just presented here today that is approximately correct.

There is a bit of a lumpiness.

And I would say the acquisition of Myogen, you know, and the assumption of stock options you have to revalue them at the new value.

So the price of those options are not quite higher than a Gilead option.

That is one thing that is driving higher option cost for next year, option expenses for us next year versus this year.

But, Eric, your math is approximately correct.

But is that to say also that if we base it off the options off the fourth quarter and you are saying 2007 option expense is higher the actual number would be higher than what I just said?

Remember the guidance we gave for the full year was $0.27 to $0.30 per share.

And the option expense for fourth quarter 2006 was approximately $0.05.

So that was the decrease in EPS.

We would have been $0.83 if we had excluded stock options on an EPS basis.

It is slightly higher for next year on a quarterly basis than it is for this year, yes.

Okay.

I hope that is helpful.

It is a little lumpy because of when the options are issued.

Your next question comes from the line of Bret Holley with CIBC World Markets.

Please proceed.

Yes, I have a question about Darusentan, on your level of comfort at this point being higher and your commitment going forward with the development plan.

How has that changed the commercialization plan or what you might do there?

Hey, Bret, this is John Milligan.

So in terms of how we're going to detail this, this is something that we are going to continue to noodle on.

Obviously, it will be a few years before this product gets approved.

We are going to look at how we can commercialize that.

We haven't yet explored in great detail how in fact we commercialize it in different territories.

If we look specifically at resistant hypertension, we do see a very nice area which a specialty sales force could do a significant amount of sales for those patients to our undercare, are at full doses and who are still not fully, have full control of their blood pressure.

And so we see a very nice market with a smallish sales force.

It is going to depend a lot on how the studies turn out and the profile of the product.

The greater the applicability to general hypertension the more we may try to broaden that through other partnership arrangements.

It is too early to know that until you see the data.

Yes, Bret, just after that it doesn't alter in any shape or form the sizing we're doing for the Ambrisentan launch.

Depending on the successful development of Darusentan, you could see it expanding that, but as John said it is still a specialists market.

This is nothing like a primary care market.

So we still believe it is a specialist sizing opportunity for us.

And just one follow-up on GS 9132.

The data we're going to see in the second quarter, will that be considered proof of concept and will Gilead take over the drug, and what would you consider proof of concept for that drug?

Proof of concept is defined by seeing at least a one-log reduction in each city barring a after the dosing.

And according to contract, yes, Gilead would then fully be responsible for further development of the compound.

I want to remind you.

This target, you know it is a novel target that involves HCV protease and as such this has not been validated by anybody clinically.

The proof of concept really means that we are validating this target, that we can say yes if you inhibit this particular protein that you get an antiviral effect in the clinic.

Your next question comes from the line of Geoff Meacham with JP Morgan.

Please go ahead.

Hi, thanks for taking the question.

One question for Norbert on 9224.

Can you give us a little bit more color on the dosing issues, and then whether this increases the likelihood of perhaps co-formulating 9137?

And I have a follow-up on Darusentan.

So I'm not sure if I understood your question.

The 9224 was the integrase inhibitor that didn't require boosting that we have discontinued, and we discontinued that program simply because the half life we saw on the Phase I PK study was very, very short.

It would have required three times or four times a day dosing.

That's just not something we think is very interesting to go forward within development.

And the last question about co-formulating -- oh, Truvada.

Yes, sure.

That is absolutely a possibility.

That we could co-formulate Truvada with 9137.

It would, though, still require the addition of Retonavir, so it would not be a stand alone complete regimen single pill.

It would require the addition of Retonavir.

Okay, and then on Darusentan, I know you don't want to go into too much detail.

Can you tell us where you are in terms of number of patients in the 311 trial?

And then is it fair to characterize the potential changes as mostly to the line of therapy?

In other words, number of prior therapies, rather than actual full dose or optimized?

I'll tell you the enrollment status in 311 and the reason I want to do that is that it signifies what the issue is.

The study was opened in May and we have enrolled in all the sites about 50 patients or so that were randomized.

So the rate at which the trial accrues is about, a little bit more than one patient per site per year.

And that's just simply, we felt going forward is not the pace that we want to continue to enroll.

So we are going to make -- we are contemplating making changes to the enrollment criteria so that more patients would qualify.

And if -- I really would prefer not to go into any more detail than that.

Your next question comes from the line of Ian Somaiya with Thomas Weisel.

Please proceed.

Thank you.

Congratulations on another great quarter.

Two questions.

First, just on dynamic related to Atripla and Truvada.

Would you have, would you be able to [guesstimate] how many patients remain on the combination of Truvada and Sustiva at this time?

And when would you expect them to transition to Atripla?

Hi, Ian, it is Kevin.

Basically there is now we believe from the [INAUDIBLE] data 51,000 patients still on Truvada plus Sustiva.

And we expect to be able to eat into that fairly quickly.

Today we think over the first quarter launch there has been something like about 20% penetration into the Truvada plus Sustiva.

Okay, and just a follow-up question regarding the R&D guidance.

We have seen I guess two years of significant increase in R&D spend, '06 and what is anticipated to be another relatively significant increase in '07.

Relative to your major clinical programs Phase III and some of the major Phase II efforts, are we looking at a near plateau in the R&D spend in '07, or at least a plateau in terms of the growth in R&D spend?

Well, it's John Milligan, a couple of ways to say this.

Yes, we did accelerate our R&D this year.

As we have been talking about it, our R&D had not been growing nearly at the pace the revenues were growing and we certainly felt that the rate of investment was getting onto the low side.

Certainly much, much lower than our peers.

If you look at '05 we did about 13.7% of R&D expenses versus revenue.

This year, without stock options it would have been 11%.

So very -- it is getting down very much to the low side.

So even with this increase here today, with the guidance we have given let's call it the mid-point in the guidance, that is just over 13%.

Whereas most companies are in the sort of 17% to 20% range.

That is not to say I think that is the right metric.

What I would say for the future is it will continue to increase.

But without some sort of major event happening and I don't anticipate any of those, I don't see that the rate of change could possibly be as high as this year.

But we have a lot of good programs going on and the success of those programs may call for us to invest more money next year and I would expect R&D to go up again next year.

Your next question comes from the line of Craig Parker with Lehman Brothers.

Please proceed.

Hey, guys.

First question is a short one.

The status of the Darusentan active controlled study, the 312 study, and then my second question for Kevin is on the Hepatitis B market.

If you could just characterize what you think is behind the patient growth?

If you think that is sustainable?

And it looks like you have lowered the Hepsera price.

Is that accurate?

Yes, hi, Craig, it's Norbert.

The status of the 312.

So the 312 was ready to go.

We have put a hold on that pending the outcome of our analysis.

And now that we are going to move this program forward we were going to initiate the 312 study.

Okay.

Hi,Craig, it is Kevin.

Yes, there has been a nice growth but bear in mind it is still a relatively small market compared with the HIV market that we operate in.

I think that's really down to, if you like the energy, of now three companies, actively promoting, you know, their products.

So I think, you know, that is noise in the market.

We certainly have led a lot of initiatives on patient education, and I think you know, that put together with -- with you know lots of noise, has had the growth.

We certainly have not, had taken any price decreases on Hepsera.

We increased prices in January of our HIV products but that didn't include a price increase on Hepsera.

So there has been no change downwards for Hepsera.

All right.

Your next question comes from the line of Mike King with Rodman.

Please proceed.

Thanks for taking my question and let me add to the congratulations.

Can you discuss, you guys are generating an awful lot of cash flow.

John, if I heard you correctly. $1.2 billion in operating cash flow last year.

That's correct.

What are you going to do with all that?

Will that be used for further acquisition?

Or buy back stock?

Some combination or --?

This is what I can tell you.

We are generating a lot of cash.

I do think, in fact, we are going to be spending quite a bit of time thinking about the perfect -- the correct capital structure for the Company coming forward.

I do think there is a right amount of cash that you need because this business is uncertain.

And we would like to get back to that level and we can't do so through just the organic generation of cash.

We do have authorization from the board to repurchase up to a billion dollars in stock.

We had a two-year window to do that beginning 2006.

Last year we repurchased $545 million worth of stock.

So we have authorization to do more.

We are not at this time going to give any guidance as to whether we will or will not do so in the future, but I with tell you we don't have an active program doing so here today.

There is going to be some consideration as to the right uses of cash going forward.

I think 2007 is all about execution.

We really need to execute on the acquisitions that we've had to date.

So I would say that with our current portfolio products, we certainly have everything we need for both the near term and I think, frankly, the long-term.

I do think we'll opportunistic in licensing where we can bring in products which complement our existing franchises and that is where you'll find most of our activity, and that's where I think the cash we have could be quite a strategic asset going forward.

Okay, great.

And if I'm allowed a follow-up.

When you guys look at the Hepatitis B market longer term, in any of your scenario outcomes, do you assume at some point the market goes to combination therapy, and sort of, can you give us some sense of when you think that might happen and in what geographic territories we might see that?

Well, marketing is looking at research and research is looking at marketing, so I guess I'll answer the question..

There is quite a bit of enthusiasm from the investigators and the key opinion leaders and, in fact, the regulators to combination therapy.

It is very attractive.

And based on the model that happened of the HIV of more products give you better, long-term viral suppression, there are many people who would think that could be quite successful.

So the difficulty for us and for anybody in this area is the fact that many of the single agents, particularly when we look at the profile of TDF it is going it be a very long expensive trial to show a difference between Truvada and TDF in most simple patient populations.

So at this point in time we are not really ready to commit to that, unless we or somebody else can come up with a hypothesis of a patient population where we could determine a difference between the -- the double versus the single agent in a way that's cost-effective for us.

That is I quandary we are in right now.

Your next question comes from the line of Michael Aberman with Credit Suisse.

Please proceed.

Great.

I hope I can get one question which doesn't really count.

Can you clarify that your product and sales guidance does not include the royalty and contract revenue?

That's right.

We don't give our contract or royalty guidance.

This is just product sales guidance.

Royalty and everything would be above and beyond that.

That doesn't count.

Thank you.

My two questions are, one, on integrase inhibitor if you could update your status on discussions with the FDA in terms of moving into the naive market, or naive clinical trials, and the question on Darusentan is some comments had been made that pricing might be difficult in terms of what price point can you set in the hypertension market and how might that potentially lead to off label use in the PH market and talk about how you are thinking about that, as well?

I'll answer the first question.

So the first trial that we anticipate doing is in [INAUDIBLE] experience patients.

We think that is the appropriate patient population.

Number one, you know, there isn't enough known yet about the long-term safety and efficacy of this compound.

It is really an experimental compound.

And secondly, [INAUDIBLE] gives you a faster pathway to approval.

We will have 10 subsequent conversations with FDA about entering the treatment naive patient population, as well, but we have been done that yet.

You had discussed in the past this issue of protease inhibitor in the naive.

Is that an issue that has been addressed with the FDA?

Yes, I think he said the issue was the use of protease inhibitor in naive patients.

Is that correct?

Yes, and the low dose protease inhibitor.

Low-dose inhibitor, so Retonavir?

Yes.

Well, that is certainly at least a theoretical issue that some people have brought up.

That is something we'll have to discuss with regulatory authorities, how that's being viewed.

Okay.

And in terms of pricing of Darusentan, I think the first thing to say is that, you know, we want to put the patient first here at Gilead.

And we certainly think there is a high unmet need and we also think there is a lot of patients who could benefit from Darusentan, if indeed, it is successful in development.

We have given initial thoughts to pricing and go this is not a general anti-hypertensive.

We think we can garner a good price for this that would be commensurate with the need as well as the size of the market.

So, you know, first things first, which is can we develop the product?