吉利德科學 (GILD) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences fourth quarter and full year 2009 earnings conference call.

My name is Katina and I will be your conference operator today.

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

We will conduct a question and answer session.

As a reminder, this conference call is being recorded today, January 26, 2010.

I would like to turn the call over to Susan Hubbard, Vice President of Investor Relations.

Please go ahead.

Thank you, Katina.

Good afternoon and welcome to Gilead's fourth quarter and full year 2009 earnings conference call.

We are very pleased you could join us today.

We issued a press release this afternoon providing results for the fourth quarter and full year 2009.

This press release is available on our web website at www.gilead.com.

We have also posted slides that outline the topics discussed on this call.

Joining me today are John Martin, Chairman and Chief Executive Officer, John Milligan, President and Chief Operating Officer, Kevin Young, Executive Vice President of Commercial Operations, Norbert Bischofberger, Executive Vice President of Development and Robin Washington, Senior Vice President and Chief Financial Officer.

We will be prepared to keep comments brief to allow time for Q&A.

I would first like to remind you that 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 Litigation Reform Act of 1995.

These statements are based on certain assumes and are subject to a number of risks and uncertainties that would cause our actual results to differ materially from those expressed in any forward looking statement.

I refer you to our form 10K for the year ended December 31, 2008, form 10 Q for the first, second and third quarters of 2009, subsequent press releases and other publicly filed SEC disclosure documents for a detailed description of risk factors and other matters related to our business.

In addition, please note we under take 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 provided a reconciliation between GAAP and Non-GAAP numbers in the press release we just issued this afternoon and on our corporate website at www.gilead.com.

I will now turn the call over to John Martin.

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

With the completion of the fourth quarter, Gilead has closed out another year of exception commercial execution and financial growth.

Total revenues for the fourth quarter crossed the $2 billion mark for the first time in our history and we completed the year having generated over $7 billion in total revenue.

This growth was chiefly driven by the continued momentum of our antiviral franchise with revenues of $1.6 billion and $5.8 billion for the quarter and year, respectively.

Importantly, we generated operating cash flow of $955 million for the quarter and $3 billion for the year.

I am also very pleased with the momentum of our pipeline programs during the past quarter.

Norbert will speak about these programs in greater depth but I want to highlight a couple of things.

As you know, Cayston, our product for the treatment of infections due psuedomonas aeruginosa in patients with cystic fibrosis was reviewed by the FDA NI infective drugs advisory committee back in December.

The panel recommended 15-2 that the safety and efficacy data generated from the two pivotal trials supported approval of the drug and unanimously voted that we have determined a right dose 75-milligram given three times daily for this indication.

We await PDUFA date of February 13 and are hopeful the FDA will follow the recommendation of the advisory committee.

Cayston was approved last year in the European Union and Canada and have and will continue to make this product available to patients in the United States through our expanded access program while we work towards approval and commercialization.

In preparation for 2010, we completed our thorough review of our pipeline portfolio, which now includes the cardiovascular metabolic programs brought to us through the acquisition of CV Therapeutics in April 2009.

We are very enthusiastic about the early stage work being done by our R&D team and now feel we have both the commercial presence and R&D capabilities that will establish us as an important company in this specialty cardiovascular space.

While we were disappointed that the second Phase III study of Darusentan did not meet its primary end point, we quickly and decisively came to the conclusion this program should be discontinued, allowing us to redeploy our efforts and funds that were earmarked to support this program to other more promising, albeit earlier, programs underway.

I'm confident we have in place the people and capabilities necessary to continue to grow across each of our therapeutic categories.

As you may know, significant progress was made over the course of 2009 to increase HIV screening initiatives in the United States.

First in August 2009, the Veterans Administration adopted routine HIV screening.

The VA is the single biggest provider of HIV care in the US.

In December, CMS announced that Medicare will now cover annual voluntary screening of those at risk for HIV infection, as well as women who are pregnant.

And California law now requires that private insurers must cover routine HIV testing, the first state in the nation to do so.

Since 2006, when the CDC issued the recommendation all individuals between ages 13 and 64 should be screened for HIV as part of their routine healthcare, 16 states modified their laws in furtherance of the recommendations.

Only six states still require specific written informed contest for HIV testing and we expect further progress on this front over the course of 2010.

In addition, the extension of the Ryan White Treatment Act adopted at the end of October will provide $2.3 billion in funding in fiscal 2010 with annual increases through 2013.

And will help to ensure that patients in the US who are diagnosed, brought into care, and prescribed therapy do not face any financial barriers in obtaining access to treatment.

The treatment act also establishes for the first time a national goal of administering five million HIV tests each year.

On December 1, World Aid's Day, the US Department of Health and Human Services released their revised treatment guidelines that now recommend all patients whose CD4 cell count fall below 500 copies per milliliter should start anti-retroviral therapy.

As Gilead's products, namely Atripla and Truvada, are the cornerstones of first-line therapy, capturing more than 85% of new starts, we see this as an important opportunity along with the drive to screen more individuals, to continue to grow the number of patients on a Gilead based regimen.

In fact, treatment guidelines in all of our major markets favorably position Gilead's products and are moving towards starting patients on treatment earlier in their disease.

And finally we continue to make progress in our efforts to remove barriers to access to all patients around the world who could benefit from our therapies.

We announced in November an agreement with GSK to commercialize Viread, for the treatment of HBV in adults in five countries in Asia.

This is a part of the world where HBV has taken the greatest toll with a prevalence greater than 8% in most countries.

Under the agreement, Gilead will retain exclusive rights for commercialization of Viread for HBV and Hong Kong, Singapore, South Korea, and Taiwan.

In China, Glaxo will have the exclusive commercialization rights and registration responsibilities for Viread for Hepatitis B Virus.

Each company will pay royalties to the other on sales of the product in their respective Asian territories.

I will now turn the call over to Robin to review our financial results.

As John mentioned, the fourth quarter of 2009 was another very successful quarter and completes another record year for Gilead.

Total revenues, which include product sales and royalty, contract, and other revenues were $2 billion, a 42% increase year-over-year.

For the full year, total revenues were $7 billion, up 31% over 2008, driven primarily by the continued strong growth in our antiviral franchise.

Our net income for the fourth quarter was $802 million or $0.87 per share.

For the full year, net income was $2.6 billion or $2.82 per share.

Our Non-GAAP net income for the fourth quarter was $864 million or $0.93 per share.

Representing a year-over-year increase and net income and EPS of 46% and 49%, respectively.

For the full year, our Non-GAAP EPS was $3.06 per share, a 40% increase over our 2008 Non-GAAP EPS of $2.19 per share.

As a reminder, Non-GAAP income and net income per share exclude the impact of acquisition-related expenses, restructuring expenses and stock-based compensate expenses net of tax.

Product sales for the quarter were $1.8 billion.

Antiviral product sales grew to $1.6 billion, up 27% year-over-year and 10% sequentially.

Atripla contributed $698 million to our antiviral product sales, representing the first quarter that Atripla sales were higher than Truvada sales.

Atripla sales increased 50% year over year and 15% sequentially resulting from the continued uptick of the product in the US and Europe.

The efavirenz portion of Atripla which is purchased from BMS at its estimated market price and reflected in cost of goods sold was approximately $264 million.

Truvada sales contributed $671 million to our antiviral product sales, up 19% year over year and 8% sequentially due primarily to sales volume growth in the US and Europe.

Viread sales were $178 million, representing an increase of 10% year over year and 5% sequentially, driven primarily by sales volume growth of Viread and in the treatment of patients with HBV infection in the US and Europe.

Letairis sales were $52 million, an increase of 44% year over year and 9% sequentially, driven primarily by sales volume growth in the US.

Ranexa sales were $46 million, representing a decrease of 6% sequentially.

Finally, sales of other products were $159 million, representing a decrease of 2% year-over-year and an increase of 2% sequentially.

Foreign currency exchange had a net favorable impact of $14 million on revenues when compare to the same period last year.

On a sequential basis, foreign currency exchange had a favorable impact of $5 million.

Our royalty contracts and other revenues for the fourth quarter were $228 million, an increase of $188 million year-over-year and an increase of $76 million sequentially.

Both year-over-year and sequential increases were driven by increased Tamiflu sales related to pandemic planning initiatives worldwide.

Royalties received from Roche for Tamiflu sales and recognizes in our revenues in the fourth quarter were $194 million.

These royalties, which are paid one quarter in arrears, reflect a royalty rate of approximately 16% as applied to Roche's net sales of Tamiflu during the third quarter of 2009.

Roche is scheduled to report their full year 2009 earnings on February 3rd.

The following discussion of margin and expenses related items are on a non-GAAP basis and exclude the impact of acquisition, restructuring and stock-based compensation related expenses as applicable.

Product gross margin 75% for the fourth quarter compared to 77.4% for the same quarter of last year and 76.5% for the third quarter of 2009.

The year-over-year and sequential decreases were due to the higher proportion of Atripla sales, which include the efavirenz component at zero gross margin.

Operating margin was 56.4% for the fourth quarter, compared to 52.5% for the same quarter last year and 53.9% for third quarter 2009.

Our year-over-year and sequential operating margins were favorably impacted by increase in Tamiflu royalties, as I discussed earlier.

We continue to see improvements relative to 2008 in core operating margin, which excludes Tamiflu and efavirenz.

R&D expenses were $211 million for the quarter, an increase of 14% on a year-over-year basis and a decrease of 13% sequentially.

The year-over-year increase was due to additional hiring and increased clinical study activities to support the growth of our business.

The sequential decrease was primarily due to the effect of the Tibotec R&D expense reimbursement during the third quarter.

SG&A were $223 million for the quarter, an increase of 28% on a year-over-year basis and increase of 12% sequentially.

The year-over-year and sequential increases were due primarily to higher head count and expenses associate with expanded sales, promotional and infrastructure expenses in our cardiovascular franchise.

In addition, the sequential increase was due to promotional spend seasonality in our international operations.

Other income and expenses reflect a net expense of $6 million for the fourth quarter compare to net income of $3 million for the same quarter last year, due primarily to lower year-over-year investment yield.

Sequentially, other income and expenses were $3 million unfavorable due primarily to unfavorable foreign exchange translation gains and losses and increased cost of hedging.

Our effective tax rate for the full year 2009 was 25%, which was lower than our 2008 effective tax rate of 26.3%.

Our effective fax rate for the fourth quarter of 2009 was 24.6%.

The year-over-year and sequential decreases were driven primarily by increased earnings and lower tax restrictions as well as the fourth quarter 2009 resolution of certain tax audits with tax authorities, partially offset by the revaluation of certain tax assets related to integration of CV Therapeutics.

Next I wanted to update you on our restructuring activities.

As we discussed during our third quarter call, we completed a restructuring plan to realign the cardiovascular operations of Gilead and CV Therapeutics.

We incurred approximately $52 million in pre-tax restructuring expenses in 2009 with $19 million incurred during the fourth quarter.

We expect to incur additional restructuring expenses of approximately $20 million through 2010.

We generated $955 million in operating cash flow during the quarter and paid off the remaining $200 million of the credit facility we accessed in the second quarter.

We repurchased 5.3 million shares of common stock at a cost of $242 million, fully utilizing the remaining fund under the $3 billion share repurchase program authorize by our Board in October 2007.

In aggregate, we purchased 63 million shares under this program.

We entered 2010 with a strong balance sheet position, our cash and marketable securities portfolio of $3.9 billion allows us the continued flexibility to pursue opportunities to expand our business and return value to shareholders.

Now I would like to turn to our financial guidance for the full year 2010.

You can locate all our guidance for 2010 on Gilead's corporate website.

Our product sales guidance for the full year 2010 is a range of $7.6 billion to $7.7 billion, which reflects a 17% to 19% increase over 2009 product sales.

Factors that may have an impact on our business include, but are not limited to, US health care reform, international government pricing pressures, and the potential for continued volatility in foreign currency exchange rates.

Please note that the non-GAAP product gross margins and operating expense guidance provided to you excludes the impact of acquisition, restructuring and stock-based compensation-related expenses where applicable.

Our non-GAAP product gross margin guidance for the full year 2010 is a range of 75% to 77%.

For expenses, we expect non-GAAP R&D expense for the full year 2010 to be in the range of $850 million to $870 million.

We expect non-GAAP SG&A expenses for the full year 2010 to be in the range of $900 million to $920 million.

As always, Gilead remains committed to conscientious expense management to sustain the continued profitable growth of our Company.

Our effective tax rate guidance for the full year 2010 is expected to be in the range of 25% to 26%, assuming the federal research tax credit is extended.

And finally, we are anticipating the full year 2010 diluted EPS impact of acquisition, restructuring and stock-based compensation expenses of a range of $0.27 to $0.30 per share.

Additional details can be found on our corporate website.

At this point, I would like to turn the call over to Kevin, who will discuss our commercial highlights for the quarter.

Thank you, Robin.

I am very pleased to discuss with you our outstanding commercial performance for the fourth quarter.

I'm particularly proud to highlight the US sales and marketing organization reaching approximately $1 billion in sales during the quarter.

Fourth quarter total US antiviral product sales were a healthy $889 million.

This result was led by our HIV products with Atripla contributing $466 million, up 32% year-over-year and Truvada with $318 million, up 25% year-over-year.

I am pleased to report that in the fourth quarter for both Atripla and Truvada growth remained extremely robust.

This is reflective of market position and the flow of new patients coming onto HIV therapy.

This is also important to point out these trend do not represent the impact of new DHHS guidelines that occurred in December.

Nonretail sales large components direct purchases by state drug assistance programs were in line with prescription trend, albeit at higher pace.

We currently have no waiting lists in the large HIV states and the 2009 extension to the Ryan White Treatment Act provides federal dollars to help fund ADAP for the next four years.

Absolute inventory levels for the fourth quarter stayed relatively flat compared to the third quarter across our three major US wholesalers, which account for over 80% of our US product sales.

During the fourth quarter, we signed revised inventory management agreements with these three US wholesalers.

The new IMAs established a bound of days on hand and removes the buying option around price increases.

While this provides a certain level of inventory consistency at the wholesaler level, we cannot account for any downstream purchase variability that may occur, particularly in the nonretail segments of the market.

As a reminder, patient data for the US lags our financial results by one quarter.

In the third quarter 2009, the numbers of patients treated with antiretroviral therapy grew by 4% on a moving annual total basis to approximately 578,000 patients.

Atripla, the most prescribed regiment in HIV, had 189,000 patients on therapy or one-third of all treated parents and captured approximately 53% of treatment naive patients.

Importantly, safety and efficacy data from study 073 were recently add to the Atripla label, which will allow us to actively promote the switching of patients to Atripla.

This remains an important contributor to future growth as there are over 100,000 patients in the US still on either Combivir or Epzicom at the end of third quarter 2009.

Truvada continued to add patients with 212,000 on therapy or 37% of all treated patients, clearly maintaining position as the backbone of choice for antiretroviral therapy in the US.

Total Truvada or Atripla together with Truvada continued the account for approximately 85% of patients new to therapy and were the components of all of the top six prescribed regimen in HIV.

It's also encouraging to see the growth of the newer agents in the setting coming in tandem with Truvada.

Approximately 81% of Raltegravir patients and 91% of Darunavir patients were co-prescribed with Truvada.

Our HIV proxy in Europe continue to perform well, led by Truvada, which contributed $311 million of revenue in the fourth quarter, up 15% from the same period in 2008.

Atripla contributed $216 million during the fourth quarter, up over 100% from the same period in 2008.

Despite the popularity of the protein inhibitor class in France in these first six months, the uptake of Atripla has matched that of the US and in November, Atripla market share in France overtook that of Combivir and its quickly closing the gap on Kivexa.

We now have the number one and number two HIV brand in Truvada and Atripla in Germany, Spain, the UK, and Italy and early indicators suggest that we will soon reach this status in France as well.

During the fourth quarter of 2009, we launched Atripla in Belgium and at the beginning of this year, Australia.

We anticipate reimbursement approval for Atripla in Switzerland during the second quarter of 2010.

At the end of the third quarter, the big five countries of Europe had approximately 287,000 patients treated with antiretrovirals, representing a growth rate of 6% on a moving basis.

Approximately 23% of patients receiving Atripla converted from Truvada plus Sustiva in the third quarter of 2009, while 33% were switches from other regimens and 44% were naive to therapy.

Total Truvada increased its share to approximately 76% of treatment naive patients, up from approximately 71% in the fourth quarter of 2008.

While Kivexa's share dropped to 10% in the fourth quarter 2009, down from 14% in the fourth quarter of 2008.

Now turning to our US hepatitis franchise, during the fourth quarter, we began executing a significant modification to our HBV promotional efforts centered around the addition of a new group of sales representatives focused on the largest Asian communities, namely Los Angeles, New York, and San Francisco.

By the end of this quarter, we will have a field team 50% larger than in 2009.

We believe these additional resources will be the catalysts for driving growth in the diagnosis and treatment of Hepatitis B.

We hurried up and continued this strong uptake during the fourth quarter where HBV prescriptions grew by 17% quarter on quarter, more than offsetting any decline in Viread HIV total prescriptions and generating 4% quarter-on-quarter increase in total Viread prescription volume across both indications.

The latest December monthly data point for total HBV prescriptions have Viread with an estimated market share of approximately 33% and Hepsera at 20%.

As of the most recent data point in October 2009, Viread achieved 41% naive patient share in HBV market, while Entecavir naive patient share continue to decline to 36% versus a peak of 49% in April 2008.

Later this year, we anticipate having the 144-week data from the 102 and 103 studies added to our label.

As a reminder, those data were presented at the American Association For Study of Liver Disease in October last year.

In Europe, Viread for HBV is now reimbursed in 18 countries with late fourth quarter 2009 launches in Belgium and Australia.

Poland and Switzerland launches are anticipated in the first quarter of 2010.

Viread has continued to build on its lead over Entecavir in Germany, Spain, and the UK, our first countries of launch.

As of October 2009, Viread's HBV market share in Europe was estimated to be 19% versus 7% in October 2008.

In Turkey, where the Ministry of Health has given Viread a priority position ahead of Entecavir for patients who fail [the liver test].

As of December 2009, we have achieved a 22% market share up from 10% in December 2008.

And finally in the interest of time, I will concentrate my cardiovascular comments on Ranexa.

Total US sales for Ranexa during the fourth quarter were $46 million.

This figure does not include any booked tablet sales to Menarini, our licensee for Ranexa in Europe.

It's also important to highlight the comments made in the third quarter earnings call when we stated we have seen a modest increase in inventories in one-time sales benefits as we incorporated Ranexa into our Gilead inventory management agreements.

During the fourth quarter we saw strong prescription demand for Ranexa and falling off formal relaunch in October, we have begun to see early signs of increased usage as we look to continue to build awareness with our targeted physicians.

The latest weekly data point is Ranexa as an all time high of over 16,000 total prescriptions, compared to just over 11,000 of the time we closed the CVT acquisition.

We have also seen a 9% increase in the base of prescribing physicians for Ranexa in the fourth quarter over the third quarter of 2009.

Beginning this week, we will commence our Ranexa plan of action for 2010.

The sales and marketing and medical affairs area have a comprehensive array of activities to execute on.

We believe the significant potential for Ranexa in angina warrants this level of commitment.

I will turn the call over to Norbert to discuss R&D efforts.

Thank you, Kevin.

On the research and development front, as we enter 2010, we have a number of exciting opportunities across our therapeutic areas between now and the end of the year we expect numerous and important data to emerge from these efforts.

First on the cardiovascular metabolic front, as we have previously discussed, we're evaluating the potential for Ranexa and follow on late sodium channel inhibitors in a number of additional indications and settings.

Based on desired product profiles, we will pursue some opportunities with Ranexa itself and some of them with new chemical entities that will be emerging from our ongoing research efforts.

The first such effort would be to evaluate the use of ranolazine for the treatment of patients with diastolic heart failure.

We are on target to begin enrollment in a Phase II study in patients with heart failure with preserved ejection fraction early next quarter and will in parallel initiate discussions with FDA regarding the potential design for a Phase III program.

We're also progressing GS 9667, a partial A1 adenosine antagonist towards a Phase Ib proof of concept study, which we expect to start in the first half of this year.

This compound has been shown in a single ascending study to lower plasma free fatty acids.

The Phase Ib study will look at GS 9667 on plasma glucose and insulin sensitivity as well as its effect on plasma triglycerides.

The study will help determine its potential use in patients with type 2 diabetes or with hypertriglyceridemia.

In addition, we are exploring the utility of Letairis for the treatment of non-core group one PH patients.

We have recently dosed the first patient in Phase III study, exploring the utility of Letairis for the treatment of pulmonary hypertension, secondary to IPF.

The safety and efficacy of Letairis will be determined in this placebo controlled study, which is targeted to involve 255 patients at over 80 investigational sites with six minute walk distance as the efficacy end point.

We also continue in our efforts to support Phase IV studies of Letairis in PAH and announced in November, our planned collaboration with GSK for an international event-driven clinical trial to study combination therapy versus monotherapy in a first line treatment setting for PAH.

The study, called Ambition, will evaluate first line combination use with Letairis and Tadalafil, a PD5 inhibitor versus monotherapy with each in approximately 300 patients with PAH.

The question of first line combination therapy versus monotherapy is an important outstanding clinical question in PAH and Ambition would be the first large randomized clinical trial designed to provide some answers.

We expect the study will be underway in the third quarter of this year.

On the respiratory front, as John Martin discussed, we're very pleased with the outcome of FDA's advisory committee meeting for Cayston and we continue to work with FDA towards approval for the product in the US.

Our head-to-head study of Cayston versus TOBI, which would support full approval of in the EU and Canada and help marketing Cayston completed enrollment at the end of 2009 with data anticipated from that study towards the middle part of this year.

With regards to GS 9411, our epithelial sodium channel blocker, or ENaC inhibitor, we have recently initiated a multiple dose study in healthy volunteers, which we expect to complete this quarter.

We will also initiate a single ascending dose study in patient with cystic fibrosis shortly.

This compound is designed to increase airway hydration and therefore could have applications beyond use in cystic fibrosis.

As one such opportunity, we are preparing to initiate a proof of concept study in patients with COPD.

In addition, the Phase III study of Letairis for the treatment of IPF is approximately 25% enrolled with about 200 study sites in 17 countries and we're targeting to complete enrollment of 600 patients in this study by the end of this year.

This is an event-driven study with time to progression or death as the primary end point.

With regards to efforts in HCV, as we have discussed in our last call, we initiated a study to evaluate the drug interactions between novel protease inhibitor, GS 9256 and our preliminary inhibitor GS 9190.

The data confirmed an interaction between the two compounds and we will be working to determine the appropriate dose of GS 9190 to move into combination therapy in HCV infected patients we believe we will be in a position to do so by the second quarter of this year.

And in parallel, we're continuing our 9190 Phase II study in 258 HCV infected patients, looking at 12 and 24-week SVR data, which we will have later this year to see if GS 9190 has the profile that would allow it to be further developed in combination peg-interferon and ribavirin.

Our caspase inhibitor, 9450 continues to make progress as a (inaudible) both in HCV and NASH.

The Phase IIb study in patients with HCV is on going and is assessing two doses of GS 9450 or placebo in adults with chronic HCV infection.

with enrollment nearly complete, the study will evaluate the 24-week efficacy histology end point.

The data from this study will help us inform about GS 9450's further potential in HCV as well as NASH.

We hope to be able to present data from both Phase IIa studies in HCV and NASH at a major medical meeting in the spring of this year.

And finally, on HIV.

As you know, we issued press release the first week of January announcing that both the Phase II clinical trials of the Quad and of GS 9350 met their primary objectives.

The first study in 71 HIV infected adults comparing the Quads with Atripla, based on 24-weekday that, efficacy of the Quad met the criteria of noninferiority as compared to Atripla, based on the proportion of subjects with HIV levels less than 50 copies per milliliter.

This continuation rate due to adverse events were comparable in both arms of the study.

The second Phase II study in 79 HIV infected adults is evaluating the safety and efficacy of GS 9350 boosted atazanavir compared to ritonavir boosted atazanavir, each in combination with Truvada.

The study met its primary objective of achieving viral load of less than 50 copies per MIL at 24 weeks of treatment.

This continuation rate due to adverse events were corporation in both arms of the study.

We're very pleased with these outcomes and have submitted data from both these studies for presentation at the scientific meeting in early 2010.

We will soon be reviewing these data with the FDA and our goal will be to initiate three full Phase III studies before the midpoint of this year.

I'm also pleased to share with you that we have completed drug interaction study of GS 9350 with proton pump inhibitors and H 2 antagonist.

As one you may recall, this topic was brought up during the Q&A of last quarter's earnings call.

We initiated this study to assess whether the PH solubility of GS 9350 could lead to a variable exposure depending on the PH of the stomach, particularly when used concurrently with PPIs or H 2 antagonists.

In short, neither the PPI nor the H2 antagonist altered the exposure of elvitegravir or 9350 so therefore will not be corresponding doses restrictions as we head into the Phase III program.

The Phase III study of Elvitegravir head to head versus Raltegravir experienced HIV patients completed enrollment in December and puts us on track for obtaining 48-weekday that study by 2011.

We continue our evaluation of fixed-dose formulations of Truvada with Tibotec's NNRTI drug candidate TMC278.

The clinical data sets to allow support that would support the filing of the fixed dose in addition to buy equivalent data are the Phase III results from the TMC278 head-to-head program versus efavirenz in treatment naive patients.

Tibotec has stated they expect to have data from these study before the middle of this year, which would allow them to file for the single agent of TMC278 in the second half of 2010.

Our intent is to submit marketing applications for the fixed dose of Truvada and TMC278 shortly after Tibotec's filing for TMC278 as accepted for review in the US and in the EU, respectively.

In summary, we have a number of exciting opportunities both for label extensions of our commercial products and for new chemical entities in development or arising from our research efforts.

I will now turn the call over to John Milligan.

Thank you.

I am very pleased with our high level productivity and consistent financial performance in 2009.

As we enter 2010, it's clear we have the opportunity to continue to expand our commercial business to introduce new data sets on our products in clinical development and expand our pipelines on all therapeutic areas.

Over the course of this year, we will work to leverage catalyst that occur in 2009, namely the extension of the Ryan White care act and changes in treatment guidelines to facilitate more patients with HIV into care and onto therapy.

We will also be supporting targeted initiatives in major US cities including New York, Los Angeles, New York, Washington DC where the prevalence of HIV is the highest to increase HIV screenings in settings such as emergency rooms, pharmacies, correctional facilities and clinics.

We will be taking the lessons learned and the success from these programs to help establish best practices and support effort in other studies and geography.

We're looking at similar efforts in Europe to reach those living with HIV but who are not yet diagnosed.

We will continue to make strides in increasing access to patients in resource constrained parts of the world through our Gilead access program, which covers 130 resource limited countries.

Today over 1.3 million individuals around the world receive one or more of Gilead's HIV medication and more than 50% of these patients are in the developing world.

We're proud of our success in helping expand access.

With the recent change in WHO guidelines now recommending treatments for less severely ill patients, including those with CD4 counts as high as 350, we now have more work ahead of us.

I believe that this will be a very exciting year as we chart the progress of our HIV pipeline candidate, particularly as we initiate the comprehensive Phase II program for the Quad and GS 9250 in the second quarter of this year.

We also anticipate the release of the TMC278 pivotal studies by our partner Tibotec and look forward to the filings of the fixed dose regiment of that compound co-formulated by Truvada by year's end.

An approval of this new potential regiment with would mark the second single pill complete regimen since the introduction of Atripla in 2006.

We are very much looking forward to the upcoming Conference on Retrovirus and Opportunistic Infection, or CROI Conference, which will take place in San Francisco the third week in February.

This meeting is considered to be the pre-eminent conference focused solely on HIV and Aids and brings domestic and international thought leaders, guideline committee members, researchers, and caregivers whose practices are dedicated to treating patients living with HIV.

We anticipate the presentation of numerous important data set both from Gilead's internal programs as well as external groups.

Beyond HIV, we have a broad and deep pipeline of product candidates in liver, respiratory, and cardiovascular metabolic diseases that will support our growth into the future.

We look forward to sharing our progress with various product candidates.

In summary, as we enter 2010, the hard work and diligent focus we have maintained at our core for so many years has positioned us extremely well for the future growth of the Company.

We concluded in 2009 with nearly $6.5 billion of product sales including two product with sales of $2.4 billion each and a very healthy cash position of about $3.9 billion.

a Having now completed three-year, $3 billion share repurchase program in only two years, as well as the cost savings we will recognize from winding down the Darusentan study, we are actively and thoughtfully evaluating the potential future use of cash including further investments to augment our pipeline all with the focus of bringing forward new medicines for patient in need, while ensuring the long term growth of our Company.

I would like to close by recognizing the dedication and contributions of our nearly 4,000 employees whose focus on delivering on our promise to make a difference in the lives of many patients around the world benefiting from our therapies.

I will turn the call to the operator for the question and answer session.

Operator?

Today's question and answer session will be conducted electronically.

(Operator Instructions).

The first question comes from the line of Geoff Meacham, representing JPMorgan.

Please proceed.

Congrats on a great quarter.

I want to ask about the fourth quarter HIV trend.

Kevin, you said inventories were basically flat sequentially but I'm wondering if you can give color about the sequential step up from 3Q to 4Q.

Is it treatment guidelines?

Is it new IMA that have impacted the channel?

Just help us out with the fourth quarter demand.

Sure Geoff.

I want to reiterate it was a very good quarter from the point of view of prescription growth and that's the background to our optimism in our guidance for 2010.

Let me specifically talk about Q3 going to Q4.

There's really three considerations there, Geoff.

The first one is going back to the their quarter.

If you remember, there was a four-day drawdown of inventories in the third quarter, which we talked about in our earnings call.

So that has the effect of essentially bringing down Q3 and therefore Q4 on Q3 has that relative uplift.

Specifically around Q4, there's two affects to talk about.

First of all, is pricing.

For Q4, we have the full effect so the full three months of the price increase that we took in July on Truvada which affected Atripla.

With our previous inventory management agreements, it allowed one month of buy-in at the previous price of our products so essentially you only get two-month effect in the following quarter.

And then the subsequent quarter -- in our case, the fourth quarter -- you get the full three-month effect so that's the first thing to mention.

But the second area is the most important area and that is the nonretail.

We did see continued strong demand from our nonretail area.

That's primarily the ADAP programs and is very much around Florida and Texas.

When we look at the information provided from Florida and Texas -- and this is public information -- we can see quite significant rises in ADAP patients that these two programs are covering.

And in addition to that, it's important to point out for Texas, they have the restatements of about $20 million of funding that was held back in 2008, because of hurricane Ike, it's been reinstated in 2009.

and they obviously are spending a lot of that money on antiretroviral therapy.

So that has given some uplift to that purchasing in the fourth quarter.

Thank you.

The next question come from the line of Mark Schoenebaum representing Deutsche Bank.

Let me join Geoff.

Great quarter.

I have to ask you about R&D.

I was looking at your R&D guidance and its way below where most of the sell side at least is modelling -- it looks to me like it implies 10% to 11% of revenue for 2010 versus, I think, most of us are thinking 12% to 13%.

Does this represent -- A, why the slower growth than we were thinking?

And B, is this the way we should think about modeling the company long-term or is it too early?

Thanks a lot for taking the questions.

Hi, Mark, it's Robin.

I'll start and maybe Norbert can chime in.

I think there's a couple of things.

We did see overall growth in R&D activity but if you recall, we talked about the trial being canceled so from a run rate standpoint, that was a reduction which as we mentioned we hope to find new alternatives going forward.

Also, we get a full year's impact of synergies that result from a consolidating a CV Therapeutics as well as our own cardiovascular activity.

And lastly, if you recall, we had about $52 million related to that in Q3 of 2009.

We will only probably -- we only estimated about $25 million relative to reimbursements to J&J going into 2010 at this point.

I would like to add another maybe philosophical comment.

We look at R&D spending as very disciplined and judicious use of resources, both financial and human.

And we will allocate it to programs that are very, very successful and are worth the investment in terms of expected return.

Thank you very much.

The next question come from the line of Michael Aberman, representing Credit Suisse.

Congratulations on a great quarter.

Some positive news in biotech is always welcome.

I have a question -- not that you don't have a lot going on -- but with phase II data in place with the booster, how do you think the potential -- either in coapplications or otherwise with other inhibitors?

Michael, I think as you know, we have committed to developing the booster by itself and we have to have discussions with the the FDA about exactly labeling but the booster will be made available as a stand alone agents so it can be used with other protease inhibitors.

But in addition to that we are actively looking at coformulation opportunities other inhibitors in HIV and also other opportunities but those things haven't advanced far enough we would be ready to talk about.

Just to elaborate on that -- one reason we have not advanced talks is it's important to have some data and now that we have data in hand, those will be presented at an upcoming meeting.

That will give us an opportunity to go and speak to partners, who are quite interested and who will talk to us about various coformulation opportunities and so we'll have to make some decisions on how we'll do such things but it does create a really interesting opportunity for us and as Norbert pointed out, HIV and HCV arena as we have seen today.

And your own HIV protease inhibitors you may have shelved that could come back?

Or is that too early to tell?

We have a protease inhibitor we have shelf and are evaluating whether it would be feasible to bring it back and under what situations that would be worthwhile in this marketplace, yes.

Thanks.

That was two questions, Mike.

Sorry.

The next question comes from the line of Rachel McMinn representing Banc of America Merrill Lynch.

Thank you for the question.

I might sneak in a second as well.

I'm curious, John, on your last closing remarks about use of cash -- is there any potential you're considering a dividend and as a related question, is where should we think about strategically Gilead focusing?

Will you continue to add to cardiovascular products or considering adding new verticals?

Thanks.

So Rachel, the question use of capital -- we have been describing to folks going through -- and as you grow the company you go through a national evaluation program.

We have had a number of groups ask us whether we would consider a dividend and some have thought it would be a good idea for Gilead to consider a dividend.

At that request, what you would always do with your Company and your Board of Directors, you go through the various scenarios for the future and you evaluate how you can invest in the Company, so how you can grow organically R&D, how you can bring in licensed compound to build the Company and how you can acquire to build the Company so that's part of the evaluation.

You look at stock buybacks, which are important consideration for share holder value, and often true that companies, at some point, start to pay a dividend.

What we're communicating right now is we're continuing to evaluate those various scenarios for now and for the future.

It's a long-term planning process for us and we go through scenarios at various times.

so as we -- and the Board importantly come to conclusions what we should do, we'll communicate those as we can.

Or as we should, I should say.

And then, finally your question is would we look at different areas.

Our first and foremost opportunities are with ours existing pipelines so we will continue to evaluate in-licensing opportunities to augment the opportunities we have including cardiovascular disease where think we have a good deal of expertise and good opportunities.

And your last point was would you continue to look at other verticals?

In this business, there's always a chance that groups would do something that's opportunistic that may fall into a different product category but should have the same characteristics of the current products we have.

So you can never rule that out because there are things become available during the course of the year and you have to use your team to evaluate things when they come up because they go away very quickly otherwise.

The next question comes from the line of Yaron Werber representing Citi.

Please proceed.

Hi, thank you for taking my question and thanks for the good guidance.

We definedly need it.

I had a question about the quad pill and help us understand maybe a little bit your -- it's not that the data we will get next month -- it looks like you show statistical noninferiority would suggestion even a little bit numerically better but it's very small study.

As we think of phase III -- it sound like you're beginning to show a difference on safety.

And in terms of side effects, obviously pretty good.

It's got an Achilles heel in about 10% to 20% of patients terms of tolerability, it's not a huge sample.

So the question is really, how do you differentiate and how do you set up the clinical study to show a difference in safety?

Thanks.

Yes.

So the phase III is very straightforward.

It's a noninferiority study.

We just have to agree with regulatory authorities on the delta from the delta follows the sample size.

But, you look at past studies, it would be something like total of 600 to 700 patients so 300 to 350 per arm.

And with regards to differentiation, I am in my -- if you ask me to speculate, I do think it would be differentiated in terms of safety because we have a fair amount of data on our (inaudible) inhibitor from our ongoing phase II study that is now in its third year and we do know a lot about the safety of (inaudible).

It looks pretty clean.

But again, this has to be phase III study and we have to wait until we have the data.

The next question comes from the line of Geoff Porges representing Bernstein.

Please proceed.

Thanks very much for taking the question.

Kevin, just one follow-up to the data you provided us on HIV -- could you tell us of the Truvada patients you mentioned in the US and the big five EU countries, what number or percentage are treated with Retonavir in combination with Truvada?

Thanks.

I don't have that at my fingertips, Jeff.

I can certainly follow up later.

If you look at -- I can certainly give you the split of NRTI to PIs.

PIs are largely boosted here in the US as they are in Europe.

If you look at the ratio in terms of new patients, it's 55% NRTIs to 45% PIs but if you look at total total patients, it's still a 52% ratio in favor of protease inhibitors to NRTIs.

Is that in Europe or the US?

That's in the US.

Okay.

And Europe?

As you know, Jeff, there's a fair spectrum in the use of protease inhibitors to NRTIs across the five major markets.

Spain and the UK are weighted towards NRTIs because of the success of the Sustiva introduction there.

And Italy and Germany -- sorry, Italy and France -- are the protease inhibitor markets and they're skewed in about a 60-40 direction towards protease inhibitors.

With all that data, it's about half seem to be more or less half on a retonavir regimen if they're all on a boosted PI.

Terrific.

That's very helpful.

Thank you.

The next question come from the line of Steve Harr representing Morgan Stanley.

Please proceed.

Just in the past, you have stated that you expected the absolute growth in patient volume and HIV business to grow at a level consistent with the past or greater given the HIV guidelines.

Incorporating the guidance you have given us, is that a stable growth rate on patient volumes from '07-'09, is that an acceleration or some other number?

I'll take a go at that, Steve.

We expect 2010, as you can see from the very healthy guidance, to be a good proportion of the applicable patients now coming under the guidelines to be moving onto antiretroviral therapy and of course, 85% is total Truvada.

I couldn't call it an acceleration but I would call it a very healthy movement to patients from under care to going on antiretroviral therapy.

So, the nice thing about this HIV market is it continues to be very consistent in its growth.

I actually went back and had some look at numbers today when guidelines last changed.

That was December 1, 2007, when all patients were recommended below 350.

There was not a hockey stick, but there was that continued very robust, very dependable growth of this market.

The next question come from the line of Jason Kantor, representing RBC Capital Markets.

Please proceed.

Great, thank you for taking my question.

When you think about the growth projections that you have for 2010, could you comment on the sources of growth relative to US, ex US and maybe outside of Europe?

And also, what's your factoring in for the non-retail component?

Because that always seems to be a swing factor quarter to quarter.

I can certainly give you qualitative comment in terms of what we're looking at, Jason.

As we have talked about already, we will certainly see, our HIV business to be very healthy in 2010 thanks to guideline changes and as being referred to the initiatives we're now seeing on testing.

Obviously we are positive about our opportunities for Renexa, now that we put in our new, our new field-based teams and all the extra resources.

Europe looks also a high opportunity because of full-year effects with Atripla in France and we have self countries coming on stream.

So I think you qualitatively they would be the main drivers behind our vision of 2010.

The next question come from the line of Thomas Wei, representing Jefferies.

Please proceed.

Hi, thanks.

I wanted to ask a question, actually, about the growth in the overall US HIV market but slightly different perspective than the answer that you gave previously.

On the slide that you show, slide 26 with these numbers, I noticed that the growth in the number of patient who are being treated as looks very different this time relative to the prior earnings' slides.

It is showing 4% year-over-year versus the 6% or 7% rates that you had calculated earlier.

Should we be at all concerned about that?

Are you surprised that it's that low, given the fact that the data around early treatment initiation and all of these moves to increase the diagnose rate has actually has been out there for some period of time?

Hi, Thomas.

nice to have you back on the call.

I'm not unduly concerned by this one quarter effect.

Again, I went back and looked at data over the years and of course this is the survey data.

We do have, from time to time, quarters that are flat quarter-on-quarter.

So we do see this.

The survey is what it is.

It's a survey, only based on you 200 physicians who present 20 patient records per quarter so 4,000 patient records and then extrapolated up to national levels.

I think we should always look at prescriptions as the lead indicator of growth and you know the IMS and data and it looked pretty good for the fourth quarter.

I say we see these type of sideways moves from time to time.

Thomas, this is Susan.

I will add one point to Kevin's response.

Obviously, the data is on a quarter lag, right, so that's Q3 data and that certainly was an advance of the US guidelines changing for earlier initiation so just one more point to add to that.

The next question come from the line of David Bu representing Goldman Sachs.

Thank you.

This is, I guess, a twist on the previous questions.

Putting your 2010 guidance in sort of the broader context, I was wondering in terms of the water fall diagram, what the drivers of growth and how much of it is coming from the guidelines changes?

And secondly, looking backward, I want to make sure I heard you correctly in terms of the nonretail sales that the point was that it looks like it's going to be robustly sustainable and it wasn't sort of the lumpy pattern in 4Q 2009?

Hi, David.

I'll take your second question first.

It was a strong quarter for nonretail and that comes on the back of a strong Q3 so we have seen a couple of pretty strong quarters.

If you recall, the supplemental grants for ADAP were given out in 2009 so they may indicate an earlier ordering pattern and I did mention this extra benefit that the Texas had.

It's difficult always to make predictions about nonretail.

It's always qualitative comments we get from our discussions with Florida and Texas ADAP but looks like Q1 will be a healthy quarter for their purchasing.

But we never quite know.

They are, at the end of the day, they are state-run establishments.

Going back to your first question, probably the best way to look at it is you do know that the gap between the patients under care and the patients currently on antiretroviral therapy is over 100,000 patients.

It's approximately 125,000 patients.

If you just look at the patients who are 500 CD 4 counts and below, that's in the region of 60,000 to 70,000 patients.

And they would be the obvious patients that will be addressing with physicians and indeed we do have campaigns going directly out to patients.

So what we have considered in our expectations for 2010 is a healthy conversion of those 60,000 to 70,000 patients coming onto therapy.

Well, thank you.

The next question comes from the line of representing Phil Nadeau representing Cowen and Company.

Please proceed.

Thank you for taking my question.

John, I think in your prepared remarks, you mentioned there was still six states that need to change their laws in order to accommodate the CDC screening guidelines.

Some of those states are some of the one with the larger high-risk patient populations like New York and Massachusetts.

I was wondering if you could give us an update specifically on New York and Massachusetts and the other larger, high-risk states, where they are in the legislative process?

I'm not sure if you meant John Milligan or John Martin.

I think it was John Martin that mentioned it, but I'll take either answer.

Thank you.

With regards to the legislative process, it's slow and we know we have folks trying to help make those states understand the importance of these various initiatives.

I don't know specifically when Massachusetts or New York -- and those two of the most important states -- when we would expect those things to change.

It's kind of impossible to predict these things so we will have to give you updates as things happen but I don't have any further update for you now.

We have screen programs within those states that allow for more expeditious compliance with those requirements while we're waiting -- working on the legislative changes.

Okay.

And what's at risk for these states who haven't changed their laws under the new Ryan White care act?

Could they lose their Ryan White funding if the laws aren't changed?

No, they don't have to specifically change their laws.

They are required to test certain number of individuals in accordance with the prevalence in their state so if they don't test that number at individuals they're at risk of penalties and loss of funding so states never let that happen.

We expect them to these those peoples but that doesn't mean you have to change guidelines to hit the number.

It just means you have to be more vigilant in trying to get people in and taking them through all the steps to get there.

Okay, that's very helpful.

Thank you.

The next question come from the line of Tom Russo, representing Robert W.

Baird.

Please proceed.

Thank you.

I want to revisit two questions ago -- the number of patients available with CD 4 count over 500 and under care of a physician -- did I correctly calculate that that's about 55,000 to 65,000 patients and then when do you expect -- when would you model that?

It doesn't sound like it's 2010.

Is that something you expect to see thereafter?

Thanks.

Hey, Tom, this is Kevin.

Yes, you calculated it about right.

The number that you've got would be over 500 and the survey CD 4 count not recorded so there's a little bit -- maybe like some "other" in there.

So you would have to make some assumptions what the CD 4 count was.

Don't forget that today we do have physicians that are treating patients above 500.

If you actually look at our survey of new patient starts, about 10% are already being started above the 500 level so as we've often said, guidelines often follow clinical care.

So, no doubt there are going to be a growing number of the physicians who won't stop patients above 500.

And the guidelines committee voted 55% in favor of that starting pointed so, yes, I think there are parents and will be more patients above 500.

Okay, thanks.

The next question come from the line of Jim Birchenough representing Barclays Capital.

Please proceed.

Hi, guys.

I was wondering if you could speak to the positioning of the new fixed dose combinations that you are working on both the quad and the 278 combo.

I was trying to get a sense of the current patients on Atripla, which percent are not satisfy by side effects and inadequate viral suppression and how do you position this for a switch and what patients you think you will successfully gain on entry of either of those product?

Hi, Jim.

I'll take the first part and I think John will come in on the positioning.

If we look at Atripla today, 53% of new patients start -- begin on Atripla.

When we look at the type of patients, there's very, very little difference when you look at Caucasian, African-American, and Hispanic.

Its's remarkably similar in terms of the use of Atripla.

Probably, the two differences we do see is the Atripla is less commonly used in females due to the cautions around pregnancy and probably less commonly used where patients have very low CD 4 counts, below 200.

That would be your profile of the type of usage of Atripla.

So we're going to try to do a couple of different things here but will really depend on the data at the end of the day.

If you think of the 278 fixed dose combination, that will be head-to-head, basically.

That will be the data set we would have to detail off of.

With respect to the quad, Norbert's program is putting together two studies.

One versus Atripla and one versus a boosted [xanavir].

Ideally, we with would have good data sets to allow us to position the product versus a protease inhibitor or versus Atripla, but at the end of the day we will have to look at the 278 fixed dose combination and the quad and determine what is the best thing for patients based on the relative profile and we can't do that until we have the full data set down there.

The next question come from Bret Holley representing Oppenheimer.

Please proceed.

Thanks for taking my question.

Norbert, I want to ask a point of clarification.

Did you say you confirmed the interaction between GS1956 and 9190 and does that complicate things, potentially?

I did say we confirmed the drug interaction and it doesn't -- I wouldn't say complicate.

That's the wrong word.

We just have to probably dose adjust the 9190.

9190, as you may remember, was 40-milligrams PID and we're seeing about a doubling of the exposure when we coadminister with the protease inhibitor and that, we think, is too high in terms of the QTC risk so we have to figure out what that lower dose is.

It's not -- I think it's pretty straightforward to figure that out.

You just do another drug interaction with a lower dose and see whether you get the same exposure as you get with the 40-milligram B.I.D.

without the protease inhibitor.

At this time, we have time for one final question.

That question come from the line of Joel Sendek representing Lazard.

Please proceed.

Hi, thanks a lot.

My question is the quad for the phase III studies in the trial.

I'm wondering with the factors are to start that.

I think you mentioned a meeting with the FDA.

Do you have to wait for the data for the phase two studies?

Any other commentary on timing?

Thanks.

The only data we really need is some confirmation of safety and efficacy from the phase II study, which we have now.

We will take this data now to FDA, present it to them, and that will be the factor to go into phase III.

That's an agreement we previously had with them.

We agreed on patient numbers.

So I think it should be pretty straightforward.

Thanks.

Ms.

Hubbard, at this point we have run out of time for additional questions.

Great, thank you, Katina and thank you all very much for joining us today.

We appreciate your continued support and interest in Gilead and we look forward to providing update on future progress.

We'll be back in our offices shortly for follow-up questions should you want to reach out to us.

Thanks a lot.

Ladies and gentlemen, thank you for your participation in today's conference.

This conclude your presentation.

You may now disconnect.

Good day.