吉利德科學 (GILD) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Gilead Sciences second quarter 2007 earnings conference call.

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

Later, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded today, July 19, 2007.

The speakers for today are John Milligan, Chief Operating Officer and Chief Financial Officer; John Martin, President and Chief Executive Officer; Norbert Bischofberger, Executive Vice President of Resource and Development and Chief Scientific 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 2007 earnings conference call.

We issued a press release this afternoon providing results for the second quarter ended June 30, 2007 describing the Company's quarterly highlights.

This press release is also available on our web site 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 will begin the call by reviewing the second quarter financial results and then I will provide updated 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 will allow time at the end of this call to answer your questions.

First, I would like to remind you we will be making forward-looking statements related 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-Q for the first quarter ended March 31, 2007, 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.

We will be making certain references to financial measures that are on a non-GAAP basis.

We provide a reconciliation between GAAP and non-GAAP on our web site.

Additionally, as previously announced we effected a two-for-one stock split during the second quarter of 2007and as such all references to EPS numbers are split adjusted.

In short, the second quarter of 2007 was another very successful quarter for Gilead.

Total revenues for the second quarter of 2007 were just over $1 billion, driven by record quarterly product sales of $905 million, a 53% increase compared to the second quarter of 2006.

HIV product sales totaled $762 million for the second quarter of 2007, driven primarily by the continued strong uptake of Atripla following its U.S.

launch July 2006, as well as strong growth of Truvada in Europe.

We generated approximately $512 million in operating cash flow during the second quarter of 2007.

In addition, we repurchased $455 million of our common stock from the open market, thereby completing the $1 billion share repurchase program that was authorized by our board in 2006.

Our solid operating performance continues to be a validation of the significant efforts made by more than the 2,700 employees of Gilead around the world.

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

Now turning to the specific results for the second quarter.

Our second quarter 2007 net income was $408 million, up 54% compared to the second quarter of 2006.

Diluted earnings per share grew by 51% to $0.42 per share.

Non-GAAP net income per share for the second quarter of 2007, excluding the impact of after tax stock-based compensation expense, was $0.46 per share on a fully diluted basis, a 48% increase over the second quarter of 2006 non-GAAP net income per share of $0.31 per share.

Now, turning to revenues.

Total revenues for the second quarter of 2007 were just over $1 billion, an increase of 52% from total revenues of $685 million in the second quarter of 2006.

This performance is driven primarily by a 53% increase in our product sales as well as a 51% increase in our royalty contract and other revenues compared to the second quarter of 2006.

Product sales were a record $905 million for the second quarter of 2007, marking more than three years of consecutive quarterly product sales growth.

Compared to the first quarter of 2007, total revenues for the second quarter of 2007 increased by 2%.

Product sales from the second quarter increased sequentially by 8%, as all of our product franchises continue to grow.

Royalty, contract and other revenues decreased sequentially by 24% due primarily to the seasonality of influenza and its resulting impact on Tamiflu sales and royalties, which I will discuss later.

HIV product sales grew to $762 million for the second quarter of 2007, up 60% compared to $475 million in the second quarter of 2006, and up 8% sequentially from the first quarter of 2007.

Truvada sales were $385 million for the second quarter of 2007, up 29% compared to the second quarter of 2006 and up 11% sequentially from the first quarter of 2007.

Truvada sales accounted for approximately half of our total HIV franchise sales in the second quarter of 2007.

In the U.S., Truvada sales were $186 million for the second quarter of 2007, down 10% compared to the second quarter of 2006, as certain Truvada patients switched over to Atripla.

Compared to the first quarter of 2007, however, U.S.

sales stayed relatively flat as Truvada continued to hold its place as the NRTI backbone of choice in combination with protease inhibitors.

In Europe, Truvada sales for the second quarter of 2007 were $173 million, almost double the Truvada sales for the second quarter of 2006 and an increase of 19% compared to the first quarter of 2007.

Strong sales volume growth in Europe and a favorable foreign exchange impact contributed to the increased sales.

Truvada sales in Latin America for the second quarter of 2007 increased by $10 million when compared to both the same period last year, as well as the previous quarter, primarily driven by a government tender from Mexico.

In only its fourth quarter on the U.S.

market, Atripla contributed $212 million to our second quarter HIV product sales, as demand for this product continued to rise.

In its first full year on the market Atripla has accumulated over $600 million in product sales in the U.S.

Viread sales were $155 million for the second quarter of 2007, down 7% compared to the same period last year, and down 4% sequentially.

Sales volume of Viread increased in both the United States and in Europe during the second quarter, partially offset by a favorable foreign exchange impact for our European sales.

Outside of the U.S.

and Europe, second quarter 2007 Viread sales increased by $14 million compared to the same period last year, and increased by $5 million sequentially due primarily to higher sales recognized in Latin America.

Hepsera for the treatment of Chronic Hepatitis B generated sales of $75 million in the second quarter of 2007, a 32% increase compared to the second quarter of 2006, and 5% increase sequentially, driven primarily by sales line growth in both our U.S.

and European markets.

And finally, sales of AmBisome were $65 million in the second quarter of 2007, an increase 16% over the same period of 2006, and an increase of 5% sequentially.

This increase was primarily driven by sales volume growth in various European territories and Latin America, as well as a favorable foreign exchange impact.

Compared to the same period of last year, our royalty, contract and other revenues for the second quarter of 2007 increased by 51%.

This increase was primarily driven by increased Tamiflu royalty revenues recognized from higher Tamiflu sales made by Roche in the current year as compared to the same period last year.

Royalties received from Roche in the second quarter of 2007 were $123 million.

These royalties, which are paid one quarter in arrears, reflect a royalty rate of approximately 17.5% as applied to Roche's sales of Tamiflu during the first quarter of 2007.

As you may have seen, Roche reported their second quarter 2007 earnings this morning with 451 million Swiss francs, or approximately $375 million reported in Tamiflu sales.

We, therefore, expect the Tamiflu royalty revenue that we will report in the third quarter will be at a rate of approximately 21% of that figure.

Turning to product gross margin.

Product gross margin for the second quarter of 2007 was approximately 80% compared to the product gross margin of approximately 87% for the same quarter of 2006 and 80% for the first quarter of 2007.

Compared to the second quarter of 2006, the lower gross margin is primarily due to product mix changes, especially with the July 2006 launch of Atripla sales which have a lower gross margin due to the Sustiva portion at zero gross margin.

Turning to expenses.

Non-GAAP R&D expenses for the second quarter of 2007, which excluded stock-based compensation expense, were $119 million.

This is an increase of 54% from $78 million in the same period last year, and a $10 million, or 9%, increase from the first quarter of 2007, primarily as a result of the increased compensation of benefits related to higher head count, as well as increased clinical study expenses related to our respiratory and cardiopulmonary program.

Non-GAAP SG&A expense for the second quarter of 2007, which excluded stock-based compensation expense were $158 million.

This is an increase of 21% from $130 million in the same period last year and a $25 million, or 19% increase from the first quarter of 2007, primarily as a result of increased compensation of benefits related to increased head count and marketing and promotional expenses, including those related to the launch of Letairis for pulmonary arterial hypertension, which received FDA's approval in June of this year.

The increase in non-GAAP SG&A expenses in the second quarter of 2007 compared to the first quarter of 2007 was also due to increased general corporate expenses.

In terms of the foreign exchange impact on pre-tax earnings, we experienced a $19 million favorable impact in the second quarter of 2007, when compared to the same period last year and a $7 million favorable impact when compared to the first quarter of 2007.

This favorable impact, which was primarily due to the stronger European currencies relative to the U.S.

dollar, takes into account product sales and expenses generated from outside the United States, as well as our hedging activities.

Our tax rate for the second quarter of 2007 was 28.5%, a decrease from 31.4% tax rate for 2006.

The lower tax rate was primarily driven by increased earnings in lower tax jurisdictions.

Additionally, our second quarter 2007 tax rate decreased sequentially from 29.9% in the first quarter of 2007 due to the finalization of certain purchase accounting adjustments related to the due to Corus and Myogen acquisitions.

Finally, I would like to turn to our cash position and operating cash flow to highlight our cash flow performance for the quarter.

Our balance sheet at June 30, 2007 showed cash, cash equivalents and marketable securities of almost $2 billion.

This is a slight increase when compared to the balance of $1.9 billion as of March 31, 2007.

The increase during the second quarter of 2007 was primarily attributable to the $512 million of operating cash flow generated during the quarter offset by our repurchase of approximately $455 million of our common stock under our stock repurchase program during the second quarter of 2007.

We continue to actively evaluate strategic ways to use our cash and investments, including potential opportunities to end license or acquire products to complement our own internal efforts and other strategies to enhance stockholder value, including future additional share repurchase programs.

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

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

We are very pleased with the sequential quarter-over-quarter growth in our product revenue, particularly our HIV franchise.

Both AmBisome and Hepsera performed solidly in the second quarter, as well, consistent with the growth we saw in the first quarter.

Therefore, we are taking this opportunity to raise our net product revenue guidance to a range of $3.6 billion to $3.7 billion, up from the $3.4 billion to $3.5 billion range we provided on our first quarter conference call.

This is for direct product sales only and doesn't include revenue from either royalty revenue or contract revenue.

As a reminder, the expense guidance we are updating today will be non-GAAP, which excludes the impact of stock-based compensation expense.

First, we are lowering our non-GAAP R&D expense guidance from a range of $510 million to $530 million to a range of $500 million to $520 million, based in large part to the delay expenses associated with certain clinical programs, in particular the Phase 3 Darusentan study 311 which has just begun to enroll patients under the new protocol.

As a reminder, this expense guidance does not include any potential new collaborations or product licensing activities.

Second, due to the impact of weaker U.S.

dollar on our international operating expenses, which we do not hedge, we are raising our full-year non-GAAP SG&A expense guidance to a range of $580 million to $600 million from a range of $570 million to $590 million.

Regarding stock-based compensation expense, we are reiterating the 2007 fully diluted EPS impact to be in the range of $0.13 to $0.15 per share on a split adjusted basis.

We are also reiterating our gross margin guidance range of 70% to 80%.

And finally, we are lowering our tax rate guidance from a range of 30% to 31% to a range of 29% to 30%.

We expect this lower tax rate as a result of higher than anticipated earnings in lower tax jurisdictions.

This concludes the earnings reporting section of the conference call.

At this point, I would like to turn the call over to John Martin, who will review our corporate milestones for the second quarter of 2007.

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 second quarter of this year.

I will start by reviewing our corporate milestones for the quarters, and then Norbert will provide an update on our research and development programs, and then Kevin will review our commercial efforts.

First, the FDA's approval in June of Letairis for the treatment pulmonary arterial hypertension marks significant milestone for Gilead.

This is another example of our commitment to bring new treatment options to patients who are suffering from diseases that represent unmet medical needs, this time in the area of cardiopulmonary disease.

Importantly, this also demonstrates Gilead's ability to bring products with differentiated profiles to market, with a strong label to support them, that are outside the scope of our historical core disease focus.

In a moment, Kevin will describe for you our commercial efforts and progress since the approval in June.

We also saw important progress with our other late-stage development programs during the second quarter.

Both of our pivotal studies of Viread, for Chronic Hepatitis B, and the second registrational study of Aztreonam Lysine for inhalation for the treatment of pulmonary infection associated with cystic fibrosis yielded positive results; results that will put us in the position to begin regulatory filings for these two potential products before the end of this year, with revenue stream potential as early as the second half of next year.

With regards to Tamiflu, as John Milligan mentioned earlier, Roche released their second quarter financial results earlier today and reported second quarter Tamiflu sales of 451 million Swiss francs and updated their guidance to a range of 1.2 billion to 1.4 billion Swiss francs for pandemic sales only for the full year of 2007.

The incremental increases due to the fact that they are now including to guide pandemic sales in their guidance figures.

To date, Roche has received orders for 250 million treatment courses from more than 80 countries worldwide.

In the United States, specifically, they have delivered nearly 44 million Tamiflu treatment courses to the U.S.

federal government and various states.

During the quarter, Roche also announced it has received U.S.

approval of two alternative doses of Tamiflu, the 30-milligram and 45-milligram doses for the treatment and the prevention of influenza in children one year and older that can be used instead of the oral suspension formulation.

An additional advantage of the newly approved capsules is they have a five-year shelf life, compared to that of the liquid formulation that only has a one-year shelf life.

The 30-milligram and 45-milligram capsules will be available in pharmacies nationwide and for government stockpiling for the 2007-2008 flu season.

And finally, I would like to give a brief update on our developing world efforts.

As you know, since 2003, Gilead has had in place the Gilead Access Program established to provide access to our antiretrovirals in the developing world.

The program now includes both Viread and Truvada, making the drugs available at significantly;y reduced pricing in 97 resource-limited countries.

While we have made considerable progress submitting regulatory filings for the products in most of these countries, the paths to approval and distribution have been slow.

In many instances, we have found it necessary to secure local agents and distribution partners and we are now nearing completion of distributor agreements for the major regions where our Access Program is operational.

We have recently seen some encouraging progress on this front.

First, in March, Viread, Truvada and Atripla were added to the World Health Organization revised list of essential medicines.

This is important in that many developing world governments reference this list before they review regulatory submissions for products locally.

Also in April, our partner, Aspen Pharmacare of South Africa announced they received approval from the Medicines Control Council, South Africa's regulatory body, to manufacture and distribute both Viread and Truvada in South Africa.

Through a non-exclusive manufacturing and distribution agreement that Gilead and Aspen entered into 2005, Aspen was granted the right to manufacture and distribute Viread and Truvada in all 53 African countries.

While the progress on the developing world front does not represent a financial opportunity for Gilead, we are very pleased that more individuals suffering with HIV in the developing world may begin to have opportunity to benefit from our products.

I will now turn the call over to Norbert to discuss our research and development milestones for the quarter.

Norbert?

Thank you, John.

In the second quarter of this year, Gilead achieved several significant research and development milestones, further advancing our pipeline programs.

In particular, we released top line data from two of our Phase III programs, putting us on the path to regulatory findings for both products before the end of this year, the first of which is Aztreonam Lysine for inhalation.

As you know, last December we reported positive top line Phase III results from AIR-CF2, the first of two pivotal studies evaluation Aztreonam Lysine for inhalation in cystic fibrosis patients with Pseudomonas infections.

Positive data from this study were presented in April at the Cystic Fibrosis Therapeutics Development Network Conference in Seattle, Washington.

In June, we released top line data from the second pivotal Phase III study, the AIR-CF1, which evaluated the safety and efficacy of Aztreonam Lysine for inhalation versus placebo over 28 days in patients with CF.

The study met its primary efficacy endpoint of change from baseline in respiratory symptoms as assessed by CFQR, a patient-reported outcome tool used to measure health-related quality of life for people with CF.

Data from the 164-patient double blinded, randomized study demonstrated a significant improvement using this quality of life metric, with a mean treatment difference of 9.7 points versus placebo.

FDA has agreed that a five-point improvement is clinically meaningful and has set this as a threshold for a positive study.

Aztreonam Lysine for inhalation-treated patients also experienced significant improvement at day 28 in respiratory function as measured by FEV1, with a mean treatment-related improvement of 10.3% versus placebo.

We believe this is particularly impressive due to the more advanced stage of this population as compared to earlier registrational studies conducted with [Toby.]

We are pleased to announce that the full study results of AIR-CF1 have been accepted for presentation at the NACF conference taking place in Anaheim in October of this year.

With the positive results we now have in hand from both pivotal studies we are on track to find a new drug application in the U.S by the end of this year.

We plan to have further discussions with European regulators to define the path for filing there as well and will provide you with an update after we have more clarity.

In the interim, before commercial availability, we recently announced that we are initiating an expanded access program in the United States to make Aztreonam Lysine for inhalation available to CF patients six years old or older who have Pseudomonas infections.

The EAP program will usually be open for patients who have the most severe lung function impairment and we intend to expand this program subsequently in defined stages to additional patient populations.

The second program for which we released Phase III data is our program evaluating Tenofovir DF, or Viread, for the potential treatment of Chronic Hepatitis B.

Study 102 is comparing the efficacy, safety and tolerability of Viread to Hepsera over 48 weeks among patients with HBe antigen negative, anti-HBe antibody positive, or presumed precore mutant Chronic Hepatitis B.

375 patients were randomized in a two-to-one ratio to receive either Tenofovir DF or Hepsera, each given once a day.

The primary efficacy endpoint, the proportion of patients with a complete response at week 48 was defined by serum HPB DNA levels below 400 copies per mill and histological improvement characterized by at least a two-point reduction in the Knodell necroinflammatory score with no concurrent worsening of fibrosis.

At week 48, 70.8% of the patients in the Viread arm had a complete response compared to 48.8% in the Hepsera arm, which is a highly significant statistical difference.

The second Phase III study, study 103, is comparing the efficacy, safety and tolerability of Viread to Hepsera over 48 weeks among patients with HBe antigen positive Chronic Hepatitis B; 266 patients were randomized in a two-to-one ratio to receive either Viread or Hepsera, both given once daily.

The primary efficacy endpoint for this study 103 was the same as the endpoint for study 102 that I just described.

At week 48, 66.5% of patients in the Viread arm had a complete response, compared to 12.2% in the Hepsera arm.

These results were also highly statistically significant.

We're currently in the process of putting together the filing packages for the U.S., the European Union, Switzerland, Canada, Australia and New Zealand and Turkey, which we expect to submit prior to the end of this year.

We also hope to present the data set for both studies in full at a medical meeting later this year.

Turning briefly to HCV.

As we announced previously, our novel non-nucleoside polymerase inhibitor GS 9190 is currently in a Phase I study in HCV-infected patients and has demonstrated encouraging pharmacokinetic exposure and antiviral activity at the single dose.

We are now progressing to the second part of this study which is evaluating once and twice daily doses for eight days.

The study is designed to enroll 60 HCV-infected patients in total and is assessing safety, tolerability, pharmacokinetics and antiviral activity of GS 9190.

We anticipate completing this segment shortly and expect data from this study in the third quarter of this year.

Now a brief update on the Darusentan for resistant hypertension Phase III program.

As you may know, following our discussions with the FDA, we are in the process of implementing protocol modifications to study 311, which we anticipate will speed up enrollment and reduce overall costs.

The protocol amendment reduces the requirement for the minimum number of backlog antihypertensives that a patient has to be on at the time of enrollment from four to three.

Most of our U.S.

sites are now through the IRB process and are enrolling patients under the revised protocol and we expect the rest of the U.S., as well as international sites will be up and running prior to the end of the third quarter of this year.

We have also begun enrolling patients in study 312, which is a larger study targeting 770 patients, and comparing Darusentan to Guanfacine or placebo in a three-to-three-to-one randomization.

We look forward to providing you with more specific information on when to expect data from this program as we progress in our enrollment.

And finally on Darusentan, I am pleased to say that data from the Phase II study of Darusentan in resistant hypertension have been accepted for publication in a medical journal which we expect to be published prior to the end of this year.

Turning now to our HIV programs.

Last October, we, along with our partners Bristol-Meyers Squibb and Merck announced a submission of the Atripla marketing authorization application to the EMEA in the European Union.

The main thing we are currently discussing with the European regulatory authorities relates to the method of administration of Atripla, dosing with or without food.

Unlike in the U.S., the current European prescribing information states that Truvada should be administered with food, whereas [Afaborine] should be administered on an empty stomach.

Our proposal is for Atripla to be administered like [Afaborine] on an empty stomach.

This is supported by clinical data and extensive post marketing experience with Atripla in the United States.

We are working to resolve this issue with European regulators to keep the approval of Atripla on track for the end of this year, however, any requirement for additional data would delay the approval of Atripla in the European Union.

Turning now to Elvitegravir, or GS 9137, as it was called previously.

As you know, we presented the results from the 24-week Phase II dose-ranging study in February.

We have concluded our end of Phase II discussions with FDA and are currently considering our options for Phase III development of Elvitegravir.

Due to the availability of novel classes of antiretrovirals with demonstrated antiviral activity in treatment experienced patients, [merraviral] and in particular [retegrovir], both of which are available to patients currently through expanded access program, we plan on conducting our Phase III studies comparing Elvitegoravir to one of those new classes.

We're currently in the process of finalizing the protocols and obtaining agreement from FDA about the specific designs.

Once agreement is reached, and following availability of the new agents, we will initiate our studies which we hope will be later this year.

In March of this year, we announced that we're moving forward with GS 9219, a novel nucleotide analog which has shown evidence of anticancer activity in preclinical studies.

The early data shared at AACR meeting in April in Los Angeles have formed the basis for our decision to initiate Phase I clinical studies in cancer patients.

We hope to initiate dosing in our Phase I program in the third quarter of this year.

Based on the outcome from the Phase I studies we will make a decision on the development and potential commercialization path for this compound.

In summary, I'm proud of the research and the development advances we've achieved over this quarter.

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

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

Kevin?

Thank you, Norbert, and good afternoon, everyone.

To begin, I would like to provide a brief update on the commercial launch of Letairis, which as John Martin mentioned earlier, is an endothelin receptor antagonist, or ERA, that was approved by the FDA on June 15 for the treatment of pulmonary arterial hypertension, or PAH.

Pulmonary hypertension consists of five groups based on the WHO clinical classification system.

PAH is defined as WHO Group 1 of that classification system.

PAH patients are, in turn, characterized by four functional classes.

Letairis has been approved by the FDA for once daily treatment of PAH in patients with WHO functional class II or III symptoms, which account for an estimated 80% of the diagnosed patient population.

While it is clearly early in the launch phase, our sales teams have been making considerable progress.

Our focus has been on the large PAH centers, together with catalogists, pulmonologists, and rheumatologists who are either directly treating or referring PAH patients to specialists.

The feedback we have been getting is very encouraging.

In the first week following approval, I'm very pleased to be able to say that we have patients receive that filled prescriptions of Letairis through the Letairis Education and Access Program, or LEAP program.

As a reminder, every PAH patient must enroll in the LEAP program before Letairis is dispensed.

Our decision to price Letairis at [parity to placentum] has been extremely well received.

Both doses of Letairis, 5-milligrams and 10-milligrams are priced the same, and sharing that cost to the patient is not an impediment to proper dosing.

We have also received a resounding vote of approval for our innovative and comprehensive package of reimbursement services, our so-called Gilead Solutions.

Physicians we have been in contact with have unanimously applauded the clear stance taken by us to help with patients' out-of-pocket expenses, a first for private-pay patients with PAH.

We don't anticipate any delays if getting rapid formulary approval with all private and public payors over the coming months with a tiering at least comparable to our competition.

Overall, while it is only a matter of four weeks since FDA approval, we are pleased with the initial response to Letairis.

We believe that the differentiated product label in terms of efficacy, safety, drug interactions and dosing, together with the support services we have provided, position us to achieve our goal to become the ERA of of choice for PAH patients.

Now, turning to our U.S.

HIV franchise performance.

I'm using the most up to date third party patient data available for the first quarter of 2007.

Now, there are approximately 625,000 patients under care and approximately 500,000 patients being treated with antiretroviral therapy in the U.S.

The population of treated patients has grown by 8% over the last 12 months.

Of the patients on antiretroviral therapy, there were well over 100,000 patients receiving Atripla as of the end of the first quarter of 2007.

This represented 21% of all currently treated patients in only the second full quarter of sales following launch.

Atripla continued to solidify its position as the number one antiretroviral regimen with nearly three times the number of patients of the next most prescribed regimen, Truvada plus boosted [Reotas].

Nearly 50% of all treatment naive patients are being prescribed Atripla.

The uptick of Atripla continues to be driven predominantly from switchers at a level of 66% during the first quarter of 2007.

Importantly, 41% of these switchers came from antiretroviral regimens not containing Tenofovir or FTC.

This represented incremental business to Gilead, up from 29% of switchers in the first quarter of 2006.

17% of all switchers to Atripla in the first quarter of 2007 were from Combivir-containing regimens, mostly from Combivir plus Sustiva.

After eight months of launch, at the end of the first quarter 2007, 18% of the Combivir plus Sustiva patient population have been switched to Atripla, up from 14% in the prior quarter.

Total Truvada, which is Atripla plus Truvada, accounted for 80% of new starts in treatment naive patients.

In the first quarter of 2007, approximately 310,000, or 62% of all treated patients, were receiving the Tenofovir molecule in one of these three forms, namely Atripla, Truvada or Viread, up approximately 8% from the approximately 288,000 receiving the Tenofovir molecule in the fourth quarter of 2006.

Approximately 254,000 patients on therapy were receiving Total Truvada in the first quarter of 2007, up 6% from approximately 240,000 patients in the fourth quarter of 2007.

This is now almost three times the number of patients receiving Combivir.

Truvada remained a leading NRTI backbone in each of the four ARV regimens.

In order Atripla, Truvada plus [Reyataz], Truvada plus Kaletra, and Truvada plus Sustiva.

Turning to patient data to total prescriptions, Truvada and Atripla were the two most prescribed NRTI brands during the second quarter of 2007.

And Tenofovir and FTC strengthened their position as the two leading molecules in HIV treatment during this period.

While (inaudible) Atripla has not substantially altered the ratio of NNRTI to PI use across all lines of therapy, it has changed the dynamic in patients starting therapy.

Prior to the launch of Atripla, the NNRTI to PI ratio was 50/50.

In the first quarter of 2007, approximately 60% of patients started on NNRTI therapy as that third agent compared to approximately 40% starting other PIs.

We see continued opportunities to grow our HIV franchise, not only based on the growing body of data supporting Atripla and Truvada, but also based on overall market dynamics led by increased public awareness and focus on HIV testing that continue to unfold in the U.S.

and Europe.

June the 27th was national HIV testing day, a day that marked the culmination of efforts around the country encouraging individuals to know their HIV status.

While it's difficult to know the true impact of these efforts, the national awareness that this event has created is a positive catalyst for making HIV screening routine.

Coinciding with national HIV testing day, the CDC published an HIV testing focused edition of its morbidity and mortality weekly report which included data from a number of important studies, including a study piloted in emergency rooms in New York, Los Angeles and Oakland, suggesting that expanded integration of HIV testing can successfully help identified persons with previously undiagnosed HIV infection.

It may increase these individuals' linkage to health services earlier in the course of their infection.

Governor Rod Blagojevich of Illinois marked National Hiv Testing Day by signing into law State Senate Bill 929 which streamlines the process of informed consent and pretest counseling, which can often be a barrier in our administration of HIV tests.

Many states are reevaluating their informed consent law related to HIV testing because of the CDC recommendations.

Legislation similar to that enacted in Illinois is expected to be adopted by other states before the end of the year.

We are also encouraged by signs that European governments are seeing the need to increase the focus on HIV diagnosis and early treatment.

And later this year, and into 2008, we hope to support educational forums for national and pan-European debate among the constituent bodies involved in HIV care.

Finally, as you may know, the International Aids Society Conference will kick off next week in Sydney, Australia.

We will be presenting 144-week data from study 934, which has continued to confirm the long-term efficacy and safety of a regimen of Truvada plus Sustiva compared to Combivir plus Sustiva.

In addition, five-year data from study 903 will also will be presented at IAS.

Turning to our HIV franchise performance in Europe and utilizing the most up to date third party data available for this region, the total number of patients treated with antiretroviral therapy in the big five European countries increased to approximately 243,000 in the first quarter of 2007, an increase of 3% from the fourth quarter of 2006 and 9% year-over-year.

Truvada continued to be the leading branded NRTI across all big five markets with approximately 30% of all treated patients in the big five receiving Truvada.

In the first quarter of 2007, approximately 74,000 patients were benefiting from a Truvada-based therapy, up 10% from the previous quarter.

Patients new to a Truvada-based regimen were almost evenly split during the first quarter of 2007, with 52% coming from switches and 48% coming from patients new to therapy.

Patients switching to Truvada were largely being switched from Combivir and 3TC-based regimens.

In the first quarter of 2007, Truvada captured 50% of all patients that switched from Combivir.

Combivir switching still represents significant opportunity with approximately 48,000 patients remaining on Combivir-based regimens in the big five EU countries as of the first quarter of 2007.

Use of Truvada accounted for 46% of new starts in treatment-naive patients during the first quarter of 2007.

Truvada plus Sustiva continued to extend its leads for patients initiating therapy, growing to 23% of new patient market share during the first quarter of 2007, followed by Combivir plus Kaletra with 12%, and Truvada plus Kaletra with 11%.

In summary, Truvada has performed extremely well across Europe, essentially recreating the uptick dynamics seen in the U.S.

We believe there's still growth potential in all markets for Tenofovir to become the leading NRTI molecule and for increased use of Emtricitabine.

Turning briefly to Hepsera.

In the United States, Hepsera continued to be the leading antiviral agent for the treatment of Chronic Hepatitis B.

In the second quarter of 2007, Hepsera continued its track record of positive quarter-on-quarter growth in total prescriptions since launch in 2002, as well as strong year-over-year growth of 8% over the second quarter of 2006.

As of the first week in July 2007, Hepsera maintained its place with market leader with total prescription market share of over 48%.

Importantly, of patients new to therapy Hepsera continued to be the therapy of choice with 42% of new patient market share.

In the Gilead territories outside of the U.S., the patient opportunity for Chronic Hepatitis B has increased steadily.

In Europe, as the impact of economic migration continues to unfold, countries like Germany have experienced an increase in their infected population.

There are now an estimated 500,000 HBV infected people in Germany.

In the European continent as a whole, approximately 9 million people are estimated to be infected with HBV, with only 25% of those being diagnosed and less than 15% of the diagnosed population currently receiving treatment.

With the long-term safety, efficacy and resistance data we have generated for Hepsera, we believe we are well positioned for continued international growth of our brand.

Turning to our antifungal AmBisome.

AmBisome had an excellent quarter with sales of $65 million in the second quarter of 2007, up from $62 million in the first quarter of 2007.

We have seen a steady pickup in sales of AmBisome thanks to a concentrated sales and marketing effort by our European team.

Data from the [Ambilobe] study continues to be a great utility in reinforcing AmBisome's position as a highly effective treatment for serious invasive fungal infections.

In summary, I'm very pleased with the across-the-board performance of all of our Gilead products in all regions.

Moreover, the recent launch of Letairis has demonstrated that we now have the commercial capabilities to deliver innovative therapeutics to patients beyond our core antiviral and antifungal areas.

I will now turn the call over to the operator to begin the question-and-answer portion of the call.

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, everyone.

I guess two questions probably to Norbert.

One is on the Atripla discussions in the EU, is it possible that you will have to do additional clinical work to satisfy their question about the food/no food.

And then in terms of the discussions with the FDA on the integrated Phase III study can you discuss the pros and the cons of the Maraviroc versus Raltegravir in terms of hurdles and opportunities and which way are you guys leaning?

Thank you.

Okay.

I will take the last question first, Meg.

You know, the discussion we had and we also had with patient advocacy communities now with the availability of these new classes, it's not really possible anymore to do clinical studies like you used to do them.

You know, you do background, optimized background regimen and then you add placebo or your control agent, but now it's more appropriate to do an active controlled study, so essentially, you would test your (inaudible) against one of these new classes in the non-inferiority design.

With regards to which class, we would prefer, frankly, I think it's obvious we would prefer Raltegravir for the simple reason that Maraviroc necessitates tropism assays and you can really only enroll CCR5 positive patients.

So that is the short of it.

So the study we are contemplating or one of the studies is a non-interiority study versus Raltegravir.

And then, Meg, regarding your second study it's certainly possible that clinical, more clinical data would be required for European approval and that's the process we are currently going through that I was alluding to in my talk before.

Can I follow up on that?

Do you have a sense of what the timing might be or what do you need to satisfy before you can actually start the integrated study?

Only get agreement with FDA on the exact protocol and we have actually submitted our written protocols to FDA.

That should be a fairly quick process.

The more longer process may be the limitation is the availability of the agent.

As you know, we either have to get cooperation from the companies that they provided to us or we simply have to wait until they are commercially available and then purchase them.

Thanks so much.

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

Please proceed.

Thanks for taking the question.

First of all, on Viread in HBV.

Kevin, can you give us a sense of what your initial research is telling you, the amount of cannibalization you would expect for Hepsera with the launch of Viread in that indication, and give us a sense of any dimensions of the market opportunity you see there?

And then Norbert, could you give us a sense of the additional indications that you are contemplating for Letairis, where your thoughts are there in terms of clinical trials and those opportunities.

Thanks.

Hi, Geoffrey.

This is Kevin.

Obviously, we are still quite a long way from the launch of Viread HBV, so we are fine tuning our market research.

Our expectation is that most of the Hepsera patients will likely stay on Hepsera so we won't be looking for significant cannibalization of the existing Hepsera patients.

We will be looking for new patients or patients who might switch from other therapies.

We don't think that there will be a wholesale switching of the -- of Hepsera, and in some ways the proxy of what we are seeing and going through HIV is not a bad one.

So I think in both the U.S.

and in Europe, we will be looking for the additional new patients that flow through because of the encouraging early data we have seen in terms of profile, and certainly in Europe, a price point, I think, will be very attractive to reimbursement and payors.

I think we can do very well with that patient flow.

Geoffrey, regarding your second study, we are thinking about really two approaches.

One is additional studies in pulmonary hypertension for Ambrisentan.

Just to give you a few examples, one thing we are very interested in is using Ambrisentan in patients that are currently not optimally responding to existing therapies like PDE5s or other other ERAs.

Secondly, we are also looking at combination studies, you know ERAs plus Ambrisentan.

Particularly, you could think that two agents that are both given once daily would be fairly appealing.

The other big opportunity, which is also a challenge, is that ERAs have activity in many diseases and we're currently working our way through that looking at both what is most promising from a scientific/medical point of view and what is most appealing from a commercial point of view.

Okay.

Thanks very much.

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

Please proceed.

Thanks very much.

The first question was just on the U.S.

Tenofovir sales.

The growth there on a sequential basis was a little bit weaker than we would have expected and relative to the prescription data.

I just wanted to understand, is there anything else that we should be thinking about in interpreting that trend?

Anything on the retail, non-retail side that might have thrown that number off?

And then secondly, on the EMEA request for Atripla.

Can you give us a sense of where the discussions have gone there on clinical data, what the burden of data would be?

Is it just a simple food interaction study that you would need to do?

Are you talking about a full blown clinical study with 24-week endpoints?

Thomas, it's John.

I will answer your question.

It's a good question.

The growth doesn't to correlate with the prescriptions this quarter and we looked at the data and we saw a couple of interesting things.

One of which was we didn't have the data in the last call, but we got it later which was in Q1, in particular in March, there was a large surge in the non-retail segment that occurred mostly in March.

Someone at the end of a fiscal year for a lot of these organizations and so there was a buy-in that we were not aware of the last time we released our figures, and that led to what I will call a sequential flatless in the non-retail market.

It was basically flat quarter-over-quarter.

That's the part that you guys don't see, and we have most of the data but not all of it yet.

It looks to us Iike it's just flat quarter-over-quarter.

And we have seen some of this happen previously in the non-retail market which is less predictable, and as I've said in the past a little bit lumpy based on the purchasing patterns of places like Florida.

Thomas, just to add to we have heard anecdotally that some of the states perhaps had difficulty interpreting the reauthorization of the Ryan White Act and that kind of triggered a little bit of purchase in the first quarter because that's the end of their financial year.

I think they were perhaps worried about use it or lose it situation.

Thomas, regarding your second question, if you take the strict regulatory view, you could ask, is there a difference when you administer Atripla without food as we proposed and as we think it is justified versus administering the two individual agents, Sustiva and Truvada.

Sustiva given without food and Truvada with food.

That's the real essence of the question that arose.

We have submitted data to EMEA that we think are very convincing, particularly study 934.

In study 934, the protocol that we had was that Truvada and Sustiva can be given without regards to food.

We subsequently created case report forms and asked a subset of patients how they actually took their drugs and the large majority took it at bedtime on an empty stomach.

We then analyzed that population versus the other population and saw that there's no difference.

And so that's kind of the nature of data that we have and the argument of the discussion that's gone back and forth.

But again, it's an ongoing conversation and we still are hopeful that we can adequately and positively resolve it.

Thank you.

That's very helpful.

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

Please proceed.

Yes, hi.

Thanks for taking my question.

A follow-up on the last question from Thomas.

I'm just wondering Norbert how the discussions went in the U.S.

on the fed versus fasted issue for Atripla and why that was not an issue with the U.S.

regulators?

Let me just quickly, I would hate to spend the whole time on this issue.

But quickly, in 2003, originally Viread was approved and the method of administration was with food.

We subsequently had a number of studies where we did cross study comparison and we found that giving Viread with a light meal was similar to giving it fasted, and only if you give it with a high fat meal that that would lead to a food effect.

We subsequently looked at a number of our studies, figured out which diet actually the patients took and we came to the conclusion that it reflects more of a low-fat meal than a high-fat meal and that argument -- based on that argument we successfully changed our label in the U.S.

for Viread early in 2003.

Subsequently, Truvada was approved without food and Atripla was approved to be given on an empty stomach at bedtime.

That argument never -- we were not successful in the European Union, simply because they were insistent on very controlled side-by-side studies and that's not something that we had at that time and weren't willing to generate.

Okay.

Thank you.

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

Please proceed.

A quick question for you on Atripla.

Were there any inventory draw downs in the quarter, and then was the rate of switches from Truvada to Atripla different this quarter versus prior periods?

And I have a second follow-up on Letairis.

Quickly on the inventory, there were -- so if you look across the inventory of all of our products, we continued to remain mostly in the midrange for all of our products.

Atripla kind of trended up just slightly, but it's at the very low end of the range that we've guided to.

As you recall, in Q1 -- actually Q3 and Q4 last year, we were behind the curve.

We've crept up a little bit, a couple of days.

It's catching up a little bit.

The remainder of the inventory of Truvada/Viread had very little movement quarter-over-quarter.

One exception to that is Hepsera.

Hepsera inventory did trend up a bunch.

The magnitude of that, of course, is fairly small compared to the other products.

It's up about four days so it's on the higher end now.

Hi, Geoff.

In terms of switching and patients, as I think -- as I think you heard, two-thirds of the Atripla patients came from switch.

That can be basically conversion from our own products.

It can be a true switch, if you like, or whole switch from another company's product.

Atripla actually grew in terms of patients by 30,000.

We now have 106,000 patients on Atripla in the first quarter.

Truvada dropped from 165,000 to 149,000.

That is switching going on from typically Truvada plus Sustiva.

Truvada plus Sustiva was at 40,000 in the fourth quarter and dropped to 27,000 in the first quarter of 2007.

But as I think you see, you are starting to see a leveling of Truvada, which is starting -- you know, we expected this to happen in this type of life cycle, which is different than Viread and the Viread conversion to Truvada because, of course, Truvada in itself with the PI co-prescribing has very much a life of its own.

So we expected this flattening earlier than we have seen the sort of slow down in the switch off of Viread.

Okay, and my second question on Letairis.

What impact would you guys expect the AMB 222 study to have on switches of patients who are, say, stable on Tracleer and to Letairis, and then is there any sort of early indications that you are seeing switches going onto Letairis versus just new starts?

Well, the -- hi, Geoff, it's Kevin again.

The 222 has been very powerful in our promotion.

But I have to say that's contained within a full message on efficacy.

If you look at our six minute walk, both above 50 meters, if you look at the time to clinical worsening, both significant endpoints in ARIES-1 and ARIES-2, as well as the ARIES-E data in terms of patients on monotherapy, or patients' survival.

So we see it in a total package of differentiating points.

We want to make sure that the initial experience with Letairis is very favorable for the physician and for the patient.

So our clear focus is that the new patients, newly identified and diagnosed PH patients, and secondarily the [Persentan] patient with the elevated LFTs, where previously they either come off therapy or they may have gone on a reduced dose.

In terms of [Persentan] switch, if you like, in what you might classify the more stable setting, we haven't got data for that as of today and I certainly can't give you any anecdotal examples this early.

But certainly I can give you feedback in terms of new patients and the LFT failures, we are getting switches to Letairis.

Okay.

Thank you.

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

Please proceed.

Thanks for taking my questions.

I have two questions for Norbert.

First on 9137, can you just talk about what the implications are of a head-to-head study in terms of potential clinical trial enrollment times, as well as overall clinical timelines?

Ian, I would think actually enrollment should be faster than in the typical, historical placebo controlled study because you are assured -- the patient is assured to be at least on an integrase inhibitor.

So it would either be Raltegravir versus [Elviregravir] and both are excellent compounds.

I think enrollment, if anything, should be faster.

Okay.

And the other question was on GS 9190.

Just given your typical high standards, Norbert, can you just help us define what encouraging antiviral activity means?

I don't want to quantify for you, Ian, but the reason I said encouraging is because it's single dose.

You administer one single dose and it's not an astronomical dose.

It's hundreds of milligrams.

You can see it's statistically significant viral load reduction.

That's what we said by "encouraging," though by doing multiple doses, this is only going to increase.

Okay.

Thank you very much.

Your next question comes from Yaron Werber with CitiGroup.

Please proceed.

Yes, hi.

Good afternoon.

Thanks for taking my question.

My first question that I wanted to talk about is can you comment a little bit -- there's been a little bit of publicity about the challenges, or the request to have your various patents to reconsider the U.S.

PTO which was accepted and typically they will accept any such request.

Can you comment as to what your thoughts are on that and in terms of some of the concerns that the 708 initial application did not actually discuss what is ultimately provided for in the next four patents?

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

Hey, Yaron, this is John Milligan.

We can't take a lot in this situation.

But what we can say is this is a highly technical matter that's being picked on.

We are very confident we will be able to resolve it.

We don't believe that it threatens the substance or intellectual property protection for Viread or any of our other HIV products and basically that's all we can say.

Okay.

And can you talk a little bit -- there's been some concerns as to what the level of demand for Tamiflu might be going through, certainly on the stockpiling side.

This quarter was a very strong quarter in terms of demand but it sounds like from what Roche has intimated that perhaps the demand will be softening going forward.

It's certain that stockpiling can't last forever.

How do you guys look at Tamiflu as a revenue driver for you?

And, inevitably, as the stockpiling begins to go down, how do you look at that sort of step down in your royalty revenues and how do you manage the business and both on the revenue and the expense side to really handle that?

Yes, well, one strategy is to continue to grow the product revenue to replace that.

I was pleased, again, that we were over $1 billion in total revenue as we were able to soften the blow to decrease in Tamiflu even through this year.

But you are right at some point, the stockpiling will likely decrease.

We don't have good vision for that and, frankly, neither does Roche because we are managing the stockpiling on a yearly basis in line with various governmental organizations and their fiscal cycles.

We do have very little vision beyond 2007 as to what the additional orders might be.

We will learn more of that as we get into the second half of this year and as budgets are set around the world.

It's something that we can't give you any guidance on because we don't, quite frankly, know ourselves.

On the other hand, Roche has had a very strong commitment to increasing the use in the consumer segment, so that we have the prophylaxis and the treatment options going forward.

I think the addition of the new pills for children will help quite a bit because the suspension was hard to get.

People didn't like storing it in the pharmacies and it was often sold out.

I think this will help us quite a bit in that area.

I know that they are committing significant resources to the '07-'08 flu season to try to really start to replace that revenue stream of their own, because they have the same issues that we do, trying to replace that and there's a big commitment from the group to do that.

Your next question comes from the line of Jim Birchenough with Lehman Brothers.

Please proceed.

Hi, guys.

A couple of follow-up questions.

Just in terms of future stockpiling and as it pertains to the pediatric formulation.

Do you know what percent of stockpiling is for pediatrics, and would that be one area where we might see future growth in stockpiling, if there's a replacement of the current pediatric stockpile?

That's a good question, Jim.

We don't really know.

What I can tell you is the stockpiling for kids has been very close to zero.

What some organizations have done is bought the powder in a way that they could then just try to put it into water and shake it up, but that's proven to be very difficult to maintain and as you can imagine the logistical nightmare of trying to contribute that in a panic would be more complicated than any government could handle.

So there's the potential for stockpiling, obviously.

We don't yet know if governments are putting in orders for that.

That was one of the key drivers for getting those products approved so that there would be the ability to cover kids, which are very, very important part of pandemic planning, as you can imagine.

And at very high risk because of the lack of a strong enough immune system often to ward this off.

Great, and just as a follow-up question on HIV dynamics in Europe and number one, just wondering, as you look at continued growth for Truvada and switches that you are getting, can you quantify what's available still in terms of the potential switch business?

And secondary to that, I just want to make sure that I understand for Atripla that requests were made of you previously for food effect studies that you actually have that data, if it's requested for Atripla here?

I will take your second question quickly.

It's not the question of food effect.

It has to do with now do you administer Atripla when its two components have to be given, one without food and the other one with food?

And what data do you provide to show that if you give Atripla without food, that the clinical outcome is the same?

That's the debate.

It's not one of having done a food effect study.

Okay.

And in terms of Europe, as I said, we've achieved leading brand in RTI in the big five markets, but we have yet to get the leading molecule.

That's encouraging as far as we are concerned because there's certainly room to grow.

We are quite close in a country like Germany.

That was one of our first markets that we launched Truvada.

There are currently 48,000 Combivir-based regimen patients out there in the big five markets.

So clearly the opportunity is there for us.

As I said, we are getting 144-week data out of IAS, and Europe can typically use that data to promote before we get label changes here in the U.S.

That's clearly a healthy group of patients that we think can benefit from Truvada.

And as I also said, we're not getting as high a proportion of the new patient starts.

We currently are getting about 50% of new patient starts, so, again, there's room for us to grow there.

We do have more competition in terms of Kivexa, but we believe we are handling that competition well.

The growth opportunity is there.

Thank you for taking the questions.

The next question comes from Mike King with Rodman & Renshaw.

Please proceed.

Thanks for taking the question.

Apologies for the background noise.

Can you guys just give us a sense of the other international -- you may have addressed this in part in your formal remarks but I may have missed it I'm wondering how we should look at that?

Are the numbers you reported for the quarter are a base off of which you would grow or will those numbers continue to be sort of random as different contracts issue in different countries around the world?

Mike, your question is specifically about the ROW international sales?

Correct.

Yes, because -- one thing we pulled out was the $10 million tender in Mexico which was a little bit abnormal and, again, there are orders that come in on a non-regular basis, so it does have a tendency to bump around.

We are very pleased with the growth of Truvada in Mexico, but we suspect that this order does contain some aspect of things that probably could have been ordered in Q1 and weren't and might go into Q3, as well.

So I wouldn't expect that number to be reproducible.

And then as always, we have uncertainty regarding Brazil as to when they are going to order, when they are going to accept shipments and things like that.

I don't have the ability to predict it to you, but I think you are correct in that there could be variability quarter-over-quarter in this segment.

Yes, it can be lumpy, Mike, as John has said.

Particularly in Mexico, the government program there is very enthusiastic about using Truvada.

It's just one of our middle-income countries, but we see very good enthusiasm to incorporate in their program.

And I should also say I think a country like Australia is doing very nicely with Truvada, as well.

Are you willing to say at this point what, how big that component could be for Atripla and Truvada?

The ultimate market potential for ROW?

Mike, I wouldn't want to give that number off the top of my head.

I don't have a forecast for it and I -- I think I would be reluctant to break that out even if I had it.

Okay.

No worries.

Thanks.

Thanks.

Great.

Appreciate it.

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

Please proceed.

Great.

Thanks.

Going back to Tamiflu, maybe this is a simple question.

Do have a shelf life for those pandemic sales, and do you expect any recurrence once that expires if it does?

The pandemic sales, including the new capsules that were just approved for the pediatric uses are five years.

So they are -- so there is a limit to the stability that can be used.

Couple things are going on here, one of which is the agencies are working with Roche to see if they can extend that shelf life.

So there is the possibility that they would get a provision where they could extend that.

We don't know how that will play out because five years is about the limit of where our capsules typically starts to fall apart based on the gelatin capsule itself.

And the second point is that we don't know what the future will look like and whether governments would at that time begin to reorder or not.

It is clear that they are thinking about cycling this because as we have seen sales over the last couple of years, the governments have been buying things in stages so that not all the Tamiflu expires at once.

So should they need to reorder in the future, then they would have portions of it that would still be good while they replace it.

And the second question is on Viread and HBV and how are you thinking about positioning and as you get close to market, you mentioned some of the cannibalization but also how does that pricing, as we know there are some concerns there, how are you thinking about that in advance of launching?

Michael, very quickly, I think you know, based on the top line results there's a great profile for Viread in HBV.

It's been significantly different on the endpoints in both the 102 and 103 studies, so we really do think that we have an excellent product and it will be first in our detail and it will be very much the concentration of our efforts.

So we will, essentially, at the launch of Viread switch our total promotion from Hepsera to Viread.

But as I said earlier in the call, we do expect that a lot of patients who are well controlled with Hepsera -- and we shouldn't forget that we have very good five-year data on Hepsera -- they will remain on it, on Hepsera.

And it will be largely the new patients that we hope we will acquire with Viread.

I guess the question I'm asking is am I wrong in modeling the price the same as HIV and --

No, you are correct.

It's exactly the same price.

Does that come to a lower price per year than Hepsera?

Yes.

Yes.

Basically the price of Viread for our [WAC] currently is $482 per month, and for Hepsera it's $602 per month [WAC.]

Okay.

You answered the question.

Yes, so there's obviously a difference of $1,000 a year based on the WAC price that we would have to make up in volume which is what we believe we could do given the profile of Viread and given the increasing awareness of the importance of treating this disease to prevent not only cirrhosis, but primary liver cancer.

Got it.

Great.

Your next question comes from the line of William Ho with Banc of America.

Please proceed.

Hi, great.

Thanks for taking my question.

Just quickly.

So far you have been able to grow Atripla nicely without cannibalizing too much of your Truvada sales.

In the last quarter, if patients had dropped from 165 to 149, how did sales in the U.S.

remain roughly flat and how much more do you believe you can grow Atripla without much impact to Truvada sales?

Yes, these pools don't always match up entirely because of the way we do the audit.

So it was mostly flat quarter-over-quarter.

If we look specifically at Truvada inventory, it actually went down a little bit.

So it wasn't an inventory issue with that.

I think what you are seeing is that the difference between -- only a slight statistical difference I would say between 165 and 149.

So it's probably more of the error rate in the audits that go on than anything else.

I think the numbers are probably about the same for the Truvada patients quarter-over-quarter.

And how much do you think you can grow Atripla before you start to see an impact in those Truvada sales?

Well, as I said, I think we're going to see as we get into the latter part of the year that Truvada does level off because of its opportunity with PIs.

There has been some shifting within the new patient sort of mix between PIs and NNRTIs, but in the overall, in the total 500,000 patients it's still about 50/50.

But there's still 40% of patients are coming on protease inhibitors and those patients are more often than not using Truvada.

So we still have an opportunity to capture a lot of new patients with Truvada, and I think that's one of the reasons why we are seeing the flattening now is still the popularity of PIs in many doctors' regimens.

Great.

Thank you.

Doctor Milligan, there appear to be no more questions at this time.

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.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.