吉利德科學 (GILD) 2007 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Gilead Sciences fourth quarter and full year 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 January 23, 2008. I would now like to turn the call over to Susan Hubbard, Vice-President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone and welcome to Gilead's fourth quarter and full year 2007 earnings conference call. We're pleased you could join us today. We issued a press release this afternoon providing results for the fourth quarter and year ended December 31, 2007, and describing the Company's quarterly and full year highlights. This press release is also available on our website at www.gilead.com. Joining me on today's call to discuss our results is John Martin, President and Chief Executive Officer, John Milligan, Chief Operating Officer and Chief Financial Officer, Kevin Young, Executive Vice-President of Commercial Operations, Norbert Bischoferger, Executive Vice-President of Research and Development and Chief Scientific Officer, and Matt Howe Vice President of Finance. John Martin will take you through the corporate and product related highlights for the quarter, John Milligan will be reviewing the fourth quarter and full year 2007 financial results and financial guidance for 2008, and Kevin Young will summarize our commercial milestones and provide more color on the market dynamics surrounding our various franchises. We'll then allow time at the end of our call to answer your questions. Before I turn the call over to John Martin for the corporate update, I would like to remind you that we will be making forward-looking 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 subject to a number of risks and uncertainties that would cause our actual results to differ materially from those expressed in any forward-looking statements. I refer you to our Form 10-Q, for the third quarter ended September 30, 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 also be making certain references to financial measures that are on a non-GAAP basis. We provide a reconciliation between GAAP and non-GAAP numbers on our website. I will now turn the call over to John Martin.

Thank you, Susan.

Good afternoon, everyone, and thank you for joining us us today. We're pleased to summarize for your Gildead's accomplishments during the fourth quarter of 2007. I will start by reviewing our corporate milestones for the quarter and provide an update on our research and development programs, John Milligan will run through the financial results for the quarter will provide our 2008 guidance, and finally Kevin will review our commercial efforts.

First, Caroline Dorsa got off to a good start at Gilead as Chief Financial Officer, so we were disappointed by her departure for personal reasons after only two months. We will work hard to identify a replacement so that John Milligan can focus on his role as Chief Operating Offer. In the interim, he will reassume the role of Chief Financial Officer, a continuation of his previous responsibilities.

2007 marked a year of many important milestones for Gilead. We saw continued significant growth in our product sales, particularly our HIV franchise which grew 48% from 2006 to 2007, which is the primary driver of our non-GAAP earnings per share growth of 33% year-over-year. We executed on several product approvals and launches in multiple territories and particular particularly of multiple acquired sights, and end license compounded, and expanded our foot print in Europe. We executed on several product approvals and launches in multiple territories and particular particularly Letairis for PAH in the U.S. and Atripla in the EU and Canada. We also completed the integration of multiple acquired sites, embarked on several new collaborations and in license compounds, and expanded our foot print in Europe. In addition we completed regulatory submission for Aztreonam lysine for inhalation for Cystic Fibration and Viread for HBV and Glaxo filed for approval for Letairis in the EU. With all three products currently under going review in the U.S. and or the European Union. We are prepared to launch these products later this year leveraging the commercial infrastructure we already have in place, as Kevin will expand in a bit. All of this was accomplished by the approximately 2,900 dedicated Gilead employees who are committed to advancing patient care worldwide.

In November at ASLD, we presented positive data from the two key pivitol data for Viread for chronic Hepatitis B. These data support the U.S. and European filings which we submitted in the fourth quarter of 2007. The U.S. NDA was accepted by the FDA, and assuming a ten month review, we would expect to launch the product in the third quarter of this year. In the EU, the filing is a Type-2 variation, therefore, we anticipate that the review could be quicker, and if approved, we could be in a position to begin launching and in the free pricing countries of Europe in the second quarter of this year. The data from two pivitol studies showed Viread to be superior to Hepsera based on the primary inpoint of HBV viral load decrease and histologic improvement. These results coupled with the long-term safety database based on the use of the Viread in HIV infected individuals comprising more than one million patient years of safety data suggest that Viread will be a good choice for the treatment of Chronic Hepatitis B. Despite the fact there are now several antivirals on the market, including Hepsera, Chronic Hepatitis B continues to meet a significant unmet medical need. The market dynamics are very different in HBV than HIV. There are approximately the same number of HBV infected individuals in the U.S., as is the case with HIV, but the diagnosis rate is significantly lower and the treatment rate is extremely low. We believe this creates a significant opportunity for our Hepatitis B franchise.

Turning now our efforts in HCV. As you know, we have numerous research efforts for the treatment of HCV,which also represents a significant unmet medical need and an area of research in which numerous biotech and pharmaceutical companies are focused. Our lead compound for HCV is GS 9190, a non nucleoside polymerase inhibitor. We presented preliminary data on the single dose and the first two doses of a seven-day treatment course at the AASLD conference last November, which demonstrated favorable anti-viral activity pharmacokinetics and exposure at the dosage evaluated. In this study, we also observed a possible QTc prolongation at the 120 milligram dose, and we proceeded to asses the effect of GS 9190 on QTc in a separate study of healthy volunteers. We have now completed the assessment of the QTc effects of GS9190 at the 120 milligram, and at the 40 milligram BID doses. QTc prolongations were confirmed at the 120 milligram dose but prolongations at the 40 milligram dose were small and we believe clinically manageable. Therefore we are in the process of reinitiating of dosing of HCB affected individuals to further define the efficacy and safety of the compound.

GS 9450, our capase inhibitor in license last year, is currently being evaluated as a hepatal prodectant in an ongoing Phase-2a study in HCV infected individuals. We expect data at the end of the trial by the end of this year. We think that this molecule may also have untility in other liver diseases such as fatty liver disease or NASH.

Turning to HIV. In 2007, significant progress was made to increase the diagnosis and treatment of HIV in the U.S. and the EU. In the U.S., eight states took legislative steps to reduce the barriers to testing and guidelines were modified to recommend treatment at higher CD4 cell in an effort to better preserve patient immune systems Some initiatives were seen the EU before new treatment guidelines were implemented, as well as initiatives to increase testing. We also saw the approval of two new classes of drugs targeting the treatment of patients that have failed on other regimes, an integrase inhibitor and a CCR5 inhibitor. In light of these new options for patients, the new standard for the evaluation of novel agents in treatment experienced patients such Elvitegravir, is a non inferiority study versus a non comparative. With the FDA's guidance, we have been looking hard to finalize the design of the Phase-3 program for Elvitegravir. We will be conducting two non inferiority studies evaluating Elvitegravir doses of 150 milligrams or 300 milligrams versus 400 milligrams of Elvitegravir, in up to 1,560 patients. Our primary import will be the proportion of patients that achieve and maintain HIV RNA, less than 50 copies per milliliter at week 48. We are evaluating the 300 milligram dose of Elvitegravir because of the clean safety profile exhibited with the highest dose of 125 milligrams evaluated in the Phase- 2 warrants explores above of this higher dose. This may result in greater verify effacy for patients with more advanced disease.

With regards to our cardiovascular franchise, we plan to initiate the Phase-4 program for Letairis in the second quarter of this year, the initial study will be be a blinded. A blinded two-arm study comparing the PDD5 inhibitor, Cidenafil to the combination Cidenafil and Letairis patients who are not optimally responding to Cidenafill mono therapy. The study intended to demonstrate the clinical value of the addition of Letairis therapy early in the treatment process. Phase-3 studies for Darusentan and resistant hypertension saw progress in terms of the enrollment in both the DAR311, and the DAR312 studies, which are approximately 45% and 10% enrolled respectively. We believe we are on track to complete enrollment and receive data from these studies in 2009.

On the respiratory front, Aztreonam Lysine is Gilead's unique drug formulation, specifically designed to achieve high lung antibiotic concentrations with a short amount of administration. Based up a data from the two Phase-3 pivotal studies, the dose that provides the best efficacy is 75 milligrams delivered in two to three minutes three times daily. The NDA was filed in 2007, and we have been notified that it has been accepted and was granted a traditional view with the PDUFA date of December 16th of this year. Based on discusses with the EMEA, we plan to submit an MAA in the second quarter of this year. We are preparing to conduct a head-to-head open label study versus TOBI in the European Union to support registration, and will initiate this study shortly. This study will not need to be completed to gain approval of Aztreonam licensing, but will support a traditional strategy. I'm very pleased with aim of the progress Gilead made in 2007, and look forward to further getting of our organization in 2008. Next John Milligan will review our financial results for the quarter.

Thank you, John. The fourth quarter of 2007 was another very successful quarter and completes a tremendous year of growth for the Company. Total revenues which include product sales and royalty, contract and other revenues for the fourth quarter of 2007 were $1.1 billion, our fourth consecutive quarter of surpassing $1 billion in total quarterly revenues. Fourth quarter product sales were $1 billion, a 34% increase compared to the fourth quarter of 2006 This mash this first time the company has exceeded $1billion in product sales in given quarter. For the full year, total revenues were $4.2 billion.

HIV product sales totaled $864 million for the fourth of 2007, driven primarily by the continued strong uptake in the United States as well as the strong growth of Truvada across regions. Operating expenses were $355 million dollars, a 41% increase over the fourth quarter of last year. This reflects our commitment to investing in our pipeline and our geographic expansion while keeping a sharp focus on our overall expense management. I know you have heard in the past of our plans to expand our operations in the EU, and Kevin will speak to you about the strong progress we're making in this regard. We believe this positions us well for the future.

Our fourth quarter 2007 net income was $402 million, or $0.41 cents per share on a fully diluted basis. Our full year 2007 net income it was $1.6 billion, or $1.68 per share on a fully diluted basis. Non-GAAP net income per share for the fourth quarter of 2007, excluding the impact of the after tax, stock base compensation expense was $.44 per share on a fully diluted basis, a 6% increase over the fourth quarter. 2006 non-GAAP income per share of $.41 per share, which is good at both the purchase and process R&D expenses, as well as the after tax, stock based compensation expense. We generated $512 million in operating cash flow during the fourth quarter of 2007, bringing the full year operating cash flow to $1.8 billion.

Now turning to the specific results for the fourth quarter. Total revenues for the fourth quarter of 2007 were $1.1 billion, an increase of 22% from total revenues of $899 million in the fourth quarter of 2006. This performance is driven by a 34% increase in our product sales, partially offset by a 48% reduction in our royalty, contract, and other revenues compared to the fourth quarter of 2006. Product sales were a record $1 billion for the fourth of 2007, marking four consecutive years of quarterly product sales growth. Product sales from the fourth quarter increased sequentially by 7% as our (inaudible) product sales continued to grow. In terms of our foreign exchange impact, $36 million of our product sales increase in the fourth quarter of 2007 was due to the strengthening they've underlying European currencies when compared to the same period in 2006, and $14 million compared to the third quarter of 2007. This favorable impact takes into account our hedging activities. Royalty, contract, and other revenues decreased sequentially by 29% due primary to the decline in Tamiflu sales. Now turning to more specific in product sales. HIV product sales grew to $864 million for the fourth quarter of 2007, up 35% from $642 million in the fourth quarter of 2006, and up 7% sequentially from the third quarter of 2007. Truvada sales were $449 million for the fourth quarter of 2007, up 33% compared to the fourth quarter of 2006, of which approximately 6% was driven by favorable foreign currency exchange currency impact when compared to the fourth quarter of 2006. Truvada sales were up 10% essentially from 2007, of which approximately 2% was driven by a favorable foreign exchange impact when compared to the third quarter of 2006. Truvada sales accounted for approximately 52% of our total HIV franchise sales in the fourth quarter of 2007. In the U.S., Truvada sales were $210 million for the fourth quarter of 2007, up 7% compared to the fourth quarter of 2006. Sequentially, U.S. sales were up 2%, even though the fourth quarter of 2007 was the sixth quarter of Atripla availability in the U.S.,thereby demonstrating Truvada's continued hold on it's place as the NRTI of choice in combination with protease inhibitors. In Europe, Truvada sales for the fourth quarter of 2007 were $212 million, an increase of 67% compared to the fourth of 2006, and an increase of 15% compared to the third quarter of 2007. Strong sales volume growth in Europe, and a favorable foreign exchange environment were the key drivers of the increased Truvada sales.

In response an increased response of parallel trade activity in the region, effective December 1, 2007 number the company initiated a supply management system in France to manage orders of Truvada and Viread to insure adequate and appropriate supplies of those products to France comesurate with the market demands of France. We do not believe the impact from parallel trade was material to our overall HIV product sales during the quarter. We currently estimate that the supply management system has accomplished what we had hoped and we expect that future sales in the region will better approximate future demands.

Atripla contributed $260 million dollars to our fourth quarter HIV product sales as Atripa demand for this product continued to rise in the U.S. Atripla sales accounted for 30% of our total HIV franchise sales in the fourth quarter 2007. The Sustiva portion of Atripla the which is distributed back to BMS is reflected in the cost of goods sold line was approximately $96 million or 37% of Atripla sales in the fourth quarter of 2007. Although the EU collaboration is structured somewhat differently from the North American joint venture, Gilead will still pay BMS for the Sustiva portion of the Atripla sales in the EU product sales and cost of goods sold will be impacted similarly. We have booked minimal sales of Atripla in the EU the fourth quarter, and are reminding you here for future reference.

Viread sales were $148 million for the fourth quarter of 2007, down 7% from the same period in 2006, due primarily to lower sales volume in the U.S., partially offset by a favorable foreign exchange impacts of 4% compared to the same period in 2006. Viread sales for the fourth of 2007 remain strong and stayed relatively flat sequentially compared to the third of 2007.

Hepsera for the treatment of Chronic Hepatitis B generated sales of $77 million in the fourth quarter of 2007, up 17% compared to the out if of 2006, of which approximately 7% was driven by the favorable foreign currency exchange impact. Hepsera sales for the fourth quarter of 2007 experienced a 3% decrease sequentially. In the United States Hepsera sales increased by 4% when compared to the fourth of 2006, and Hepsera sales decreased by 11% sequentially. In the fourth quarter of 2007, there was a slight reduction in Hepsera inventory held at the wholesalers, put the inventory level remained within our contractual band. Fourth quarter 2007 Hepsera sales if the EU increased by 20% when compared to the same period last year. The increase in EU Hepsera sales in the fourth of 2007, compared to the same period last period in 2006 was driven by sales volume growth in the European territories.

Finally, sales of AmBisome were $68 million dollars for the fourth quarter of 2007, a increase of 16% when compared to the fourth quarter of 2006, of which approximately 9% was driver by favorable foreign currency environment. AmBisome sales decrease by 1% sequentially.

Our royalty, contract, and other revenues for the fourth quarter of 2007 decreased by 48% compared to the same quarter of 2006, and decreased by 29% sequentially. These decreases were primarily driven by lower Tamiflu royalties revenues recognized from Tamiflu sales made by Roche due to lower pandemic purchases. Royalties received from Roche and recognized in our revenue in the fourth quarter of 2007 were $46 million. Those 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 2007. As you may be aware, Roche is currently scheduled to report fourth quarter 2007 earnings on Wednesday of next week. We expect on that call, Roche will provide estimated 2008 Tamiflu pandemic sales guidance.

Turning to product gross margin. Non-GAAP product gross margin for the fourth quarter of 2007, which excludes stock based compensation expenses of approximately 79%, compared to the non- GAAP product gross margin of approximately 80% for the fourth quarter of 2006, and 80% for the fourth quarter of 2007. The lower product gross margin, when compared to the same period last year was primarily due to the higher portion of Atripla sales. Remember, Atripla sales carry the weighted portion at zero gross margin, so what you are seeing is the simple impact of sales being slightly more weighted toward Atripla.

Now turning to expenses. Non-GAAP R&D expenses for the fourth quarter of 2007, which excludes stock based compensation expense were $169 million. This was an increase of 73% from $98 million in the same period last year, and a $47 million or a 30% increase from the third quarter of 2007, primarily as a result of increased license payments made to Gilead's corporate partners related to our collaborations, as well as higher clinical study expenses, as well as higher headcount driven both organically, as well as by the absorption of acquisitions made in late 2006. As you may recall in the fourth quarter of 2007, we paid a $20 million up front license fee to LG Life Sciences Ltd., that which was included in R&D expenses, and which we disclosed at the time we announced the transaction. As John mentioned, we are seeing good progress and are enrolling patients, in our two Phase-3 studies for Darusentan and you see the financial impact of that here as well. Non-GAAP SG&A expenses for the fourth quarter of 2007 which excludes stock based compensation expense were $165 million, an increase of 29% an increase of $128 million compared to the same period last year, due primary to increased marketing, promotional, and other expenses in support of our antiviral and cardiovascular programs, as well as higher head count especially in our cardiovascular business. On a sequential basis, non-GAAP SG&A expenses for the fourth quarter of 2007 increased by 11% from $148 million in the third quarter of 2007, due primarily the increased marketing, promotional, and other expenses in support of our antiviral and cardiovascular programs. On pretax earning, foreign exchange had a net favorable impact of $26 million in the fourth quarter of 2007 when compared to the same period last year, and an $11 million net favorable impact when compared the third quarter of 2007. This favorable impact takes into account the product sales and expenses generated from outside the United States, as well as our hedging activities.

Our effective tax rate for the fourth quarter of 2007 was 26.1%. Our effective tax rate for the fourth quarter of 2006, before the acquisition related in process of R&D expenses was 27.6%. Our full year 2007 effective tax rate was 28.9%, a decrease from the 31.4% effective tax rate for 2006 before the in process R&D expenses. The lower effective tax rates were primarily driven by increased earnings and favorable tax jurisdictions and a lower state effective tax rate.

Next, I would like to turn to our operating cash flow performance for the quarter and finally our net cash position at the year end. In the fourth quarter of 2007, we generated $512 million in operating cash flow, bringing total operating cash flow generation for the year to a record $1.8 billion. We also repurchased $33 million of our common shares this quarter through our $3 billion stock repurchase program, bringing our total repurchases of common shares to $488 million for the year. Our balance sheet at December 31, 2007, showed cash, cash equivalents or marketable securities of $2.7 billion. This is an increase of $504 million when compared to the balance of $2.2 billion at the end of December 30th, 2007. We continue to actively evaluate strategic ways to use our cash and investments, including continuing in our efforts to pursue end license or acquire products to compliment our own internal efforts. We're also clearly committed to returning cash to our stockholders, as is evidenced by the $1 billion stock repurchase program we completed in the second quarter of 2007, and our new $3 billion stock repurchase program which we initialiated at the end of 2007, and which we intend to complete in the next three years.

Now I would like to turn to the financial guidance for the full year 2008. You can locate all of our guidance for the 2008 year on Gilead's corporate website. Our guidance for the full year 2008 product sales is in the range of $4.7 to $4.8 billion, which is approximately a 26% to 29% increase over 2007. To be clear, this product sales guidance is for direct product sales only and does not include royalty, contract, or other revenues. This guidance also does not include any potential sales for Aztreonam Lysine, inhalation for CF, or for Viread specifically for HBV, consistent with our practice of not issuing guidance prior to product approval and initial launch. As a reminder, the product gross margin and expense guidance we are providing today will be non-GAAP which excludes the impact of stock based compensation expense. We are providing non-GAAP product gross margin guidance for the full year 2008 of 77% to 79%. The lower product gross margin compared to 2007 is entirely due to the expected higher mix of a Atripla revenue from both the U.S. and the EU which includes the (inaudible) portion of zero growth profit, partially offset by product gross margin improvements driven by lower API costs. Providing non-GAAP, R&D expense guidance amounts from $610 million to $630 million which is approximately an 18% to 21% increase over the 2007 non-GAAP expense which excludes the impact of the stock based compensation expense The expected growth in R&D expenses is driven by the expected product candidate entering and progressing through late stage clinical studies, including Darusentan for hypertension, and Elvitegravir for HIV, as well as continuation of our Phase-3 Viread for HBV studies, and initiation of the Phase-4 program for Letairis. Providing non-GAAP SG&A guidance of $710 to $730 million an approximately 17% to 21% increase over 2007 non-GAAP SG&A expenses which excludes the impact of the stock based compensation expense. This expected increase in SG&A expenses over 2007 spending was what anticipated higher headcount and spending to support our business growth, including the expansion of European foot print, in the Nordics and Benelux, as well as the costs associated with anticipated launches of Atripla in the EU, Viread for HBV in both the U.S. and the Eu and Aztreonam licensing for inhalation for Cystic Fibrosis in the U.S.

Our effective tax rate guidance is for the full year 2008 is expected to be to the range of 29% to 30%, compared to the 28.9% effective tax rate for the full year 2007. We expect the tax rate benefit from increased earnings and favorable tax jurisdictions to be the offset by the expiration of the federal RD tax credit on December 31, 2007. Regarding stock based compensation expense, be expect the 2008 fully diluted per share impact to be in the range of $0.12 to $0.14 compared to $0.14 per diluted share in 2007. The 2007 stock based compensation expense reflects the impact of the Myogen and Corus unvested stock options that we assumed as part of the acquisition, and of which had accelerated vesting due to employee transition..

In conclusion, our solid operating performance continues to be a validation of the significant efforts made by the more than 2,900 Gilead employees around the world. We remain committed to driving performance for our share holders by working to improve the lives of patients around the world. At this point I would like to turn the call over to Kevin who will discuss our commercial highlights for the quarter.

Thank you, John, and good afternoon, everyone. 2007 was an extraordinary year for Gilead sales and marketing operations. New product launches and expanded presence in Europe, as well as products which have pending approvals have paved the way for what we expect to be a very exciting 2008. In anticipation of the launch of a Atriplat and the expected approval of Viread for HBV we have expanded our European operations in 2007 by opening marketing subsidiaries in three additional countries, taking our total European presence to 11 countries. We are believe we are positioned to execute on our 2008 marketing strategy. I would now like to turn to the commercial update for the quarter. I will start with our antiviral franchise, which as you know is comprised of our HIV and HBV marketing products. For the analysis of our market share data in the U.S. and Europe, we rely on most up to date third party data available to us in each market. As a reminder, this data lags behind our financial results by one quarter. Our U.S. franchise HIV performance remains in the best in industry in Q3 in 2007, and the GAAP between Gilead and our closest competitors continued to widen. Atripla, built on its leadership position in the U.S. has approximately 25% of the estimated 514,000 patients, or just under 130,000 patients were on Atripla therapy. For the fourth consecutive quarter since the launch of Atripla, over 80% of treatment naive patients started therapy with one of Gilead's products, with approximately 55% taking Atripla, 25% on a Truvada regimen and 1% initiating on a Viread based regime. In patients switching to Atripla from other therapies, approximately 49% were from non-Gilead based regimens, primarily [Congria] patients at 21% of total such patients. As demonstrated by two consecutive quarters of sales growth Truvada continued to be the backbone of choice for antiviral therapy if the U.S. with an estimated 160,000 patients receiving Truvada. This represents approximately 31% of all patients treated with anti retro-virals. Notably 64% of all U.S. patients, or 330,000 received the Tenofovir molecule during the third quarter in one of it three forms; namely Atripla, Truvada, or Viread.

We continue to make good progress with our HIV ports in Europe and believe that with the love of Atripla will be able to further strengthen our position. In late December, Gilead along with our partner Bristol Myers Squib introduced the approval of Atripla in the 27 countries that comprised the European Union, as well as Norway and Iceland. We have already shipped product to wholesalers and hospitals, in Germany, the U.K. and Austria where our sales representatives have begun detailing Atripla. The rest of the European Union will follow over the course of the year. We will market Atripla with BMS in most of Europe, while BMS will primarily be responsible for marketing in several countries in Eastern Europe. Atripla sales will be captured essentially in the same way that it is in the U.S., Gilead will record revenues and distribute back to BMS the Sustiva portion as reflected in our cost of goods line. We are very excited to offer the first once-daily single tablet regimen throughout the EU and we anticipate similar uptake dynamics as we have seen when launched Atripla in the U.S. The estimated market opportunity in just the Big Five market alone is now 250,000 patients on anti retro-viral therapy. This population grew at an estimated rate of 9% year-over-year. Travada's continued to build on a strong base throughout the EU. By the end of the third quarter of 2007, we estimated that approximately 100,000 patients, or just under 40% of all treated patients within the Big Five EU markets were being treated with Truvada. In the Big Five Eu markets Truvada plus Sustiva was the leading treatment regime up 14% followed by Truvada plus Kaletra 9%, and Truvada plus Reyataz at 6%. In naive patients, approximately 60% of patients initiated therapy on Truvada. Having the top three regimens in Europe in exactly the same starting at the U.S. was when Atripla was launched in 2006. Truvada is now the leading brand in the Big Five markets while Tenofovir is a leading molecule in Germany in Spain. We anticipate we we will achieve the same position in the other countries in the coming quarters. As John Martin mentioned in 2007, significant progress was made the U.S., as well as in the EU, to continue to continue to reduce the barrier to testing and to accelerate the initiation of treatment. These steps will continue to growth to the treated HIV patient population in 2008 and beyond.

Turning briefly to our Hepatitis franchise. During the fourth quarter of 2007, in the United States, Hepsera continued to be the leading antiviral agent for the Chronic Treatment of Hepatitis B. As of the end of December, 2007 Hepsera has maintained it's place as market leader with a total prescription chair of just over 45%. In are the Gilead territory's outside the U.S., Hepsera continued to grow as well. We anticipate the approval of Viread for HIV and the EU later this year, and commercially we are already preparing for the launch in these markets. We believe we have the infrastructure in place to support a successful launch without the need for a major restructuring effort.

Now turning to our Cardiovascular franchised and Letairis for the treatment of pulmonary hypertension, or PAH. We are pleased with the recent performance of Letairis, as well as the market trends we have been seeing. We are beginning to hit full stride in our launch. We now have approximately 3,200 physicians enrolled in our Letairis education program, otherwise known as LEAP. Although just a small percentage are subscribers, they are all part of the physician referring base that others turned to, an important group for expanding awareness and diagnosis of the disease. To date, nearly 800 physicians have prescribed Letairis, and during the fourth, we recorded approximately $15 million in Letairis sales. Patients are coming from four primarily sources, new patients to therapy, patients with accelerated LFT that have been taking Persantine and patients who were initiated on PDE5 inhibitors that have not responded to therapy, and patients that discontinued the STRIDE preclinical program. More over, we have observed a small cohort of patients switch from Persantine because of poor effecaccy. On the reimbursement front, all state Medicaid plans and the top moneys care plans are reimbursing Letairis at an equivalent tiering to [Triglia]. Structural changes we have implemented since the launch of Letairis to our LEAP program, as well as recent modifications in our risk plan have been well-received. Overall, we believe we are well positioned to continue to build upon the very solid first six months of Letairis.

In closing, I am personally very proud of what the whole commercial organization accomplished in 2007, and I am excited about the many at any times we have ahead of us to continue to deliver upon our sales goals, while maintaining a diligent fix on operational excellence and business compliance. I will now turn the call over to the operator to begin the question and answer portion of the call. Operator?

Yes, sir. 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. And our first question comes from the line of Meg Malloy with Goldman Sachs. Go ahead.

Thanks very much. Just a quick one. On Letairis, what do you contemplate in terms of your '08 sales, guidance? Is there a range you could provided there? And then a very quick follow-up, I missed the R&D expense line guidance for 2008. Thanks.

Meg, it's John. So we're not breaking out any of our individual products, so we 're not going to able to break out Letairis specifically for the course year. It's within the full guidance range that we gave you of $4.7 to $4.8 billion for all of our product revenues. The R&D guidance for the year is $610 to $630 million for the entire year.

Our next question comes from the line of Mike King with Rodman & Renshaw. Go ahead.

Thanks for taking my question, and congratulations on an outstanding year. Just wanted to maybe understand Atripla a little bit better, so if I can do a two-part question. First is you seem look you've gotten the most you're going to get as far as a step function of new patients into therapy, based on the new testing, the dropping of consent laws, and I wondered if you guys could also look out longer term and talk about the new NNRTI class and Atraverine and TMC278, you you look at those competitively, and how it might impact the Atripla franchise.

So, Mike, with regards to the step function that you're describing, I think what you're saying is that we've done a lot of work to try to push more patients into care, and has that actually been completed. In fact, it's very early in that stage of bringing new patients into care. I think also we're getting 80% percent of those new starts. Certainly we're not satisfied with 80% of those patients, but obviously bringing more patients into care benefits us greatly. So we'll So we'll continue to work with public health officials, government officials to increase testing, awareness, to try to take that 25% of patients who don't know they HIV and help them figure out that they have a disease that they can spread quite readily. to work with public health officials, government officials to increase testing, awareness, to try to take that 25% of patients who don't know they HIV and help them figure out that they have a disease that they can spread quite readily. The second portion of this, with regard to the new compound Tibotech compound Etravirine, which just came to market in 278 I guess it is fair to say that Etravirine a salvage agent is going to be used in combination with other products. don't see that as being competitive with Atripla, that was your specific question, because it's really excluded from treatment naive patients, and as a twice a day product I don't see much use for it in those products. It could potentially be competitive with Viramune I would say. With 278, 278 from what I understand from what's out there, there are some issues with 278 and it's going to take longer to develop and maybe at a lower dose. We're going to watch and see how that product profile evolves over time, but it's clearly going to be delayed more significantly than people thought even six months ago, so I don't see a huge competitive threat on that at the moment.

Mike, you've seen in this quarter of the data, the Q3 data, is that now Atripla is taking over in terms of the naive patients, 55%, so it's now moved from Truvada to Atripla. And so I think that's a very strong position and shows the importance of having a one tablet, one per day regimen for compliance and avoidance of resistance. So I think that's a very strong position to be in. And, you know, shows the importance of having that as a once daily regimen.

Mike, and if I may just add something else as well. From a clinical perspective, Atripla, I think, establishes a very high hurdle bar for other compounds to come in, because of the tolerability and safety of the regimen and the single bill once daily, and also the long term data. As you know, we have now clinical data. We have extended our 903 study to ten years, so in two years from now, we will have ten years of clinical safety and efficacy data on this particular regimen. That's a very high hurdle bar for future compounds to overcome.

Great. Thanks for the color.

Our next question comes from the line of Thomas Wei with Piper Jaffray Go ahead.

Thanks very much. had a question on the HIV drugs, and then one on Letairis. For the HIV trends in the U.S., they were a little bit light, relative to what we might have expected from some of the prescription data sources. Can you help us understand if there were any other factors on changes within the prespecified wholesaler ranges, wholesaler inventory ranges or on non retail sales during the quarter, and then on already Letairis, the 15 million number for the fourth quarter seems a little bit low relative to the metrics that you had provided on the last conference call, and some of the exrtrapolations we are doing. Are you seeing good expanse among the original 450 docs who you had last quarter, or is is most of the growth there just coming from some initial trialingamong the new 350 docs that you added during the quarter. Thanks.

Thomas, I'll start with the HIV numbers. Yes, we did see pretty draw down of our inventory, our U.S. wholesalers. So it went from on the higher end of the rain to fairly low. Still within the contractual bands. We saw that across all the HIV products and saw that with Hepsera as well. So that was one of the reasons there was a slight disconnect. Outside of the retail market, the nonretail segment was slightly stronger in the course of the fourth quarter. Think most notify lightness as you put it would be due to the draw down of inventory.

And on the Letairis, we moved from 450 prescribers up to 800, so I think that's a fairly significant increase in physicians who have at least tried Letairis in one patient. That's very encouraging. While we are not including it in numbers for competitive reasons, yes, we did see an increase in and of the larger prescribers, so there is that increase going on. And I think, as I said, you know, we're seeing prescribes in the four main buckets, and what I would also add, I am encouraged by seeing those early patients who are not doing well on Persantine, and I think that's an encouraging sign for the positioning of Letairis going forward, and I think that what we are also hearing is , I think the interaction between Cidenafil and Persantine if you look closely at theCidenafill label and you see how Persantine affects the dosing ratio of Cidenafill. think not to have that interaction is a very positive profile for Letairis that's

As a reminder, ladies and gentlemen, we ask ask that you please limit yourself to one question apiece. Our next question comes from the line of Mark Schoenebaum, with Bear Stearns. Go ahead.

Hey, guys. Thanks for taking the question. I add my congratulations. I'll ask a question. I know you can't answer but it's my job to do it. Looks like your sales guidance is $100 million to $200 million above the street. And I know you won't break its down, but, I don't know, John, if you can help us at all when we're building our models where the difference may be in terms of your projections versus the streets. Should we be looking at HIV. Is that really the message here? and if you won't answer that, I've got another question.

That very complicated question even to answer even if I could You know the street consensus has a wide variety of models that feed into it, so there are people with different opinions of different products. I think if you think about it for the next year, there is a lot to think about with regard to HIV growth, particularly in Europe. As Kevin mentioned earlier, because we're so much earlier in the launch of Atripla in Europe than we are in the United States, it's really almost as if we we were two years back there, because we're getting 65% of patient, so these good opportunity there. We do have good opportunity across all our product lines. Obviously Viread launching late in the year for HBV, we're not including that product guidance, and we are certainly not at the point where we can give any guidance on Aztreonam. So bits and pieces are missing there. Unfortunately Mark I can't give you on great color on that.

That was colorful enough. I appreciate it. And the follow up on that, is in thinking about the European launch for Atripla, how should we think about that modeling it over the year? I know you're not going to give guidance, but can you walk us through key milestones that are going happen over the yearward to reimbursement, things like that.

Mark, this is Kevin. Good news is we've already shipped our products in our first three markets. This week we just got some really good news from the UK, and that the London consortium, which is basically 65% of our HIV business in the U.K., just listed Atripla at the pricing that we wanted, which is our target of one plus one. So that allows London hospitals to begin their use of Atripla, and that was a nice milestone for us. As far as the rest of the markets, and we're concerned about France, Spain, Italy. We think it will be approximately about the nine-month roll out in terms of pricing and reimbursement. Again our target is one plus one pricing and we think we can get that in three quarters of the year which would be a little under what we achieved with Truvada. So our expectation is certainly during 2008 we'll have all of the Big Five and hopefully one or two additional countries like Portugal that make nice additions to our European sales.

So prior to the three quarters for now will there L will there be meaningful sales in France, Spain and Italy?

I think the meaningful sales in those three markets will happen more at the end of the year, toward the fourth.

Okay. Thanks a lot, I appreciate it.

Our next question comes from the line of Jeffrey with Sanford Bernstein. Go ahead.

Thank. A couple of questions. On HIV, Kevin, you mentioned that 64 % on treated patients are now on a (inaudible) based regimen, can you confirm that, but also given us a sense of what do you think? There has to be a maximum for what that can get to, and what do you think that is. At some point patients are going to are become resistant to (inaudible) and go on to other medications. Can you give us a sense of what the comparable number is in the EU and where that might go to? I just wanted to ask about the integrase inhibitor, John you mentioned about the Elvitegravir Phase-3 trial could you give us more information about the dose, and about the Rotinavir boosting and compare the patient population because I think that would be useful. thanks.

Jeff, I may not answer quite in the right order, but if you take Europe, we've now gone 40% of all patients on Truvada. I'm not quite sure, but we can follow up on total Tenofovir for you. The other thing I pull out writh Europe is that we have now achieved 60% of new patients. I compared that to where we were going into the launch of Atripla, we're one quarter behind that in terms of data for Europe, the U.S. was at 66% Truvada of naive patients, so we got to the the same basis of launch of Atripla of in Europe that we have -- that we had for a launch in the U.S. In terms of how far we can go, and the same applies for U.S and Europe. And we still think we can go further. We believe we have the preferred product in Atripla, and obviously we double detail with Truvada was also very encouraging is that if a patient comes off Atripla 85% to 90% of the time, they're go on to Truvada based regimen with a PI. I just left a national sales meeting Monday and Tuesday, and I can tell you our expectation is to continue that growth.

Sorry, could that 64% be 80%, or 90%, or --

Difficult to put a number, but we certainly still consider this growth there, Jeff.

Kevin, if I may answer the question of Elvitegravir. It is two studies, two studies of identical design. One is being carried out in the U.S and one in Europe. Each study will have about three arms, about 240 patients per arm, and they are randomized 1 to 1 to 1, to two doses of Elvitegravir so either 150 or 300 milligrams and the control arm is at the Rotinavir at the commercial dose. You are correct, Elvitegravir, it has to be given, Rotinavir boosted and the way we deal with this in the protocol, is we require patients to be on a boosted protease inhibitor. And that will take care of the boosting, and we have confirmed that's numerous testing studies we have carried out over the last two years or so. And then the end point is fairly simple, it is the proportion of patients that are below 50 copies per week 48, it's a noninferiority designed with a delta of 10%.

Jeff, back to me, I just took out the number for you, we have achieved just over 50% share for theTenofovir molecule in the Big Five markets, and are very close, and would expect to cross 3TC very, soon so it is close to becoming the leading molecule.

Out next question comes from the line of Yaron Werber with Citi. Go ahead.

John, I'll stick to the one question rule. Relating to Tamiflu can you give us a little bit of a sense,I know you cannot give us guidance, what are you seeing on the year ahead for Tamiflu, and then as stockpiling demand is drying up and how and do you look at that drop as kind of a marker as to how much you're willing to spend on your expense line? So another way of asking that, are you managing your expenses as a percentage of product sales, and so the contract revenues might not impact you as much? just trying to see how you think about your expense structure.

Yoran that's a good question. So we don't know what Roche's numbers are, so we can't give you any body language into what will happen next week. We have been saying, somewhat what they have been saying,we expect those pandemic orders to be down substantially year-over-year over year, without having a definition of what substantial means, recognizing that it's fairly fluid product category, because birds showing up at different parts of the world can have effects or not. depending on what happens over the course of the year. Roche will not given guidance for seasonal or prophylacsis use of individuals, so that won't be part of their guidance, and not sure what that's going to play out, but I did want to say a couple of things. They said most of the orders this have were mostly filled in 2007 so didn't sound like there were a lot of orders left to be filled in 2008, and I don't know what the magnitude out to of those orders are. Also about the seasonal issue, were just notified that there is heightened flu through out Europe. We do not know what that is going to mean for Roche's sales. There it has ban mild season in the U.S., as well. We can't say much more than that, because that's about all we know about how the product is going to respond during the course of the year. And the second part of your one question is how bout how we manage the business, and it really relates to percentage of product sales, our own product sales, and that's really the only way you can manage a business since Tamiflu is completley out of our hands at this point in time. We do manage it efficiently, so there's not a lot that you could do up or down, certainly down to decrease expenses given all of the exciting things you have to work on.

Our next question comes from the line of Jeff Meacham with J.P. Morgan. Go ahead.

Hey, guys,congrats on the quarter. I wanted to ask you an 8-part single question if that's okay. Question on gross margin. Atripla is now accounting for in 2007, roughly 20% of revenues, yet your margin from '06 to '07 is only down 300 basis points. What can you tell us about that, why it's better performing. Is it a better contribution from from Truvada doing better, better market growth, then any extrapolation of those efforts looking to 2008. So why is our gross margin better than you would predict. I think there is a couple of answers in there, one of them relies to currency the effective price with dollars so many of our prices have gone up. We have worked hard on an issue that is behind the scenes to lower our manufacturing costs. So trying to drive down our API costs, including different outsourcing strategies, bringing in different contractors to lower our raw materials costs and importantly moving on the process itself, so we had a lot of people just trying to improve the efficiency of manufacturing by getting more out free traction that we have been on and that really has been quite successful So across our product mix, we've been doing that and that has really helped some of the decrease that would have occurred with Atripla Its. really those two reasons.

Our next question comes from the line of William Ho, with Banc of America Securities.

A quick question with respect to the market for PAH and Letairis rather than Persantine. [Actillium] just reported roughly [15%] growth of (inaudible) can you describe as to what you are thinking is occurring in that market, wrote it is getting the gross, both with your product is theirs from, and how do you think that will progress?

Obviously different for us to take talk about the competitor's sales. I mean, they did drop by 10% in the third quarter, and then back up by 16%,how you interpret that is probably best left to Actillium. I think the good news is that with the noise from both companies and additions from people like United Health that there is a lot of noise out there, and the very fact that we've increased the prescriber base by almost 80% over the quarter, I think is an indication that, you know, there's a bigger group of physicians outside the big centers that are aware of PAH. Many of them largely refer into the big centers, and we certainly support that. Our educational efforts are, you know, very much targeted to the opinion leaders with their large centers, and, you know, many of them rely on these networks, and we fully support that, especially the specialists. So I think the fact that you've got a lot of education in the area, and a lot of commotion in the area, is making -- making the ability to pick up PAH higher among some of the physicians who see PAH in the first instance.

Our next question comes from the line of Mark Aberman with Credit Suisse. Go ahead.

Actually Michael, but thank you for taking the call. I'm going to ask a question on 9190. Can you give -- can you remind us again what the dosage that you used already and what the efficacy you saw in that Phase-1 trial, and can you give us more trial as to the millisecond change in QTc at the 40 and the 120 that gives you comfort that in the Q2 prolongation will be manageable? guess with that, you know, what the typical amoxifloxin control QTc is.

Michael, just a quick update. We can also call you afterwards if you want more detail about this, but we tested in the original study and current study, the 40 and 120 milligram BID dose. At both doses we saw significant and fairly large reductions in (inaudible) -- they range from about .5 logs to 2 logs depending on what you look at, is it type 1A or 1B or different somewhat, and we don't really have enough patients in either group to definite to say what the viral load, what the reduction was. Now, we did observe and confirm at the 120 million gram dose definitively a QTc effect. At a 40 milligram dose, we thought the effect was still there, but we have consulted a number of cardiologists and the consensus opinion was that this was that this was a clinically manageable issue, and in the processes of reinitiating dosing in this study, and what we have to do first is talk to regulatory authorities, what they think a bout this. The QTc effect was less than 10 milliseconds. As you know, also, with -- with only a smaller number of patients, it's really difficult to say what, exactly, the effect was, and it's also complicated by fact that there were a number of which corrections that you can do for heart beat and all of those corrections give you slightly different number. But again, in the overall message is that the effect that we see is clinically manageable, and we are confident that we can move forward with the program.

Our next question comes from the line of Sapna Srivastava with Morgan Stanley. Go ahead.

Hi. Two very quick questions. One is on the inventory ranges, you mentioned that it was at the low end of your contracted range. Is there normally progression to the main? Do we expect it to come back to the main levels over the next quarter? And secondly, on the Letairis time lines, can you give us some time lines as to when we can actually start looking at some data?

So, Sapna, yes, things end to regress towards the mean, and we were a little bit on the high side. Came down farther than we would have predicted based on the historical way these things fluctuate, it came out to the low end, so that's not the worst thing in the world to happen towns at the end of the year. My expectation is that it will probably slowly go to the mid-line of that, but I can't a you know, I can't say for sure that that will happen, because it's been difficult for us to predict how wholesalers will behave or the companies are of the years, and I guess the second thing, the Letairis studies are designed to initiate dosing in the second quarter or so, I don't think it would be until next year that you gap to see data on that, so 2009.

Our next question comes from the line of Joel Sendek with Lazard Capital Markets. Go ahead.

Hi, thanks. Lazard Capital Markets I have a question about Viread and the patent claims and that that all means, and specifically what the next steps are. In the process that we should be looking for. Thanks.

Thanks for asking that question, Joel. So there was a press release that came out today from Public Patent and I think if you read through that, it seemed very misleading to me in terms of what has actually occurred with some exaggeration there. So basically what happened is what we thought would happen, basically there were two patents that were rejected. There were two more that were potentially going to be rejected. We had talked about that and we expected that happen, and in fact it did a couple of days ago, so now this allows us to go back in. So these are non final rejection, as were the initial ones, and that's important. This allows us to go back in and submit more data back to the patent agency and to begin to work with them to defending the claims that we think are fully valid.

Our next question comes from the line of Maged Shenouda with UBS. Go ahead. Thanks for taking my question. Can you help us quantify the impacted of the new treatment guidelines recommending treatment at CD4 counts below 350? I mean is appropriate to think of this as a bolus, new patients coming say in 2008,2009 and then just kind of leveling off in terms of growth?

It's actually quite difficult to sort of quantify. Finding data around patients CD4 count is quite hard. One of the data we have looks specifically at the ADAPT patients, so called thats the AIDS assistance programs presents at 350 or below. ADAPT patients make up about 27% of our patient group here in the U.S. I think it is still the case that there are many patients at 350 and below, still presenting both in the U.S and Europe, so I think it is going to be a big encouragement for physicians to begin prescribing earlier. I think the opinion leaders in the major centers are already there. hat really helps us with these guidelines from a promotional point of view and with our medical scientists in the field is that it is more the general HIV physician who adheres more closely, or takes the time in changing their patient starts, and I think it will help us with what we call the lower depth physicians to encourage them to be beginning anti retroviral therapy, particularly (inaudible) in their new patients.

Our next question comes from the line of Phil Nadeay with Cowen and Company. Go ahead.

Good afternoon, thanks for taking my question. Why questions on the European market for your drugs. You mentioned that there's 250,000 or so patients in the Big Five countries with HIV, but my when I read the literature it suggests many times that in the non-Big Five,particularly in the countries in Eastern Europe. So my question is, what can you do to access those markets? is it realistic to think of the next few years, you could have meaningful sales in non-Big Five countries? Or is the reimbursement such that you will never have meaningful sales there.

I think it's a bit of both. There's clearly a lot of HIV in some of the eastern bloc countries, certainly just the HIV in Russia is talked about a great deal. Some of those countries have, as you say, lower pricing, poorer reimbursement, and just access to HIV therapy is more restrictive. What is, I think, saying we bout you were to see movement of population. So there is HIV going into countries like Germany, particularly the U.K. right now, from migration, economic migration, populations from the eastern side of Europe, so they then go into the healthcare system, because they're employed people, and, therefore, qualified for the national health systems, and so it will increase the treatable population. So I think it will be slower in terms of uptake of HIV therapies in the eastern European countries. We do operate right now largely through distributors, countries like Hungry, Poland, Checoslavakia. We will be thinking about whether there comes a time to put Gilead as a an affiliate into those countries, so we'll be thinking about that. But I think it's going to be a little bit slow in the those countries, but they will, in the long term, get there, and become, I think, a bigger proportion of our sales contribution.

Our next question comes from the line of Ian Somaiya with Thomas Weisel Partners. Go ahead.

Thanks, and let me add my congratulations on a great year. Just a question on the price increasing that we saw for Atripla and Truvador in January, whether the wholesalers were given an option to buy in, or have the continued option buy in relative to those increases?

Hi, Ian it's Kevin. Yes, have an option because that is part of the agreements that we have with four major wholesalers. So that is standard -- a standard calculation. As you know, we put those in place a few years ago, and so that's kind of a standard calculation. That's also win over the reasons that we tingly try to announce a price change early in the quarter to allow that to increase to then move down during the quarter. So that's the reason that those price increases came in on January first.

Okay. Just a related question was can you quantify the dollar impact of the inventory draw down in the quarter?

Ian, we're not going to disclose the dollar impact of that his.

Okay.

Ladies and gentlemen, that does conclude the time we have for questions. Miss Hubbard, I'll send it back over to you.

Great. Thank you operator. Thank you all for joining us today. We appreciate your continued interest in Gilead, and look forward as always to providing you updates on our future progress.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.