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Gilead Sciences, Inc. (NASDAQ:GILD)

Q3 FY08 Earnings Call

October 16, 2008, 4:30 PM ET

Executives

Susan Hubbard - VP of IR

John C. Martin, PhD - Chairman and CEO

Norbert W. Bischofberger, PhD - EVP, Research and Development and Chief Scientific Officer

Robin L. Washington - Sr. VP and CFO

Kevin Young - Executive Vive President of Commercial Operations

John F. Milligan, PhD - President and COO

Analysts

Mark Schoenebaum - Deutsche Bank

Thomas Wei - Piper Jaffray & Co.

Geoffrey PorgesPhD - Sanford C. Bernstein & Co.

Margaret Malloy - Goldman Sachs & Co.

David Risinger - Merrill Lynch

Michael Aberman - Credit Space

Geoffrey Meacham PhD - JPMorgan

Maged Shenouda - UBS

William Tanner - Leerink Swann

Phil Nadeau PhD - Cowen & Company

Bret Holley PhD - Oppenheimer

Sapna Srivastava PhD - Morgan Stanley

Joel Sendek - Lazard Capital Markets

William Ho - Banc of AmericaSecurities

Jason Kantor - RBC Capital Markets

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Gilead Sciences Third Quarter 2008 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference call is being recorded today October 16, 2008. I would now like to turn the call over to Susan Hubbard, Vice President of Investor Relations. Please go ahead.

Susan Hubbard - Vice President of Investor Relations

Good afternoon and welcome to Gilead's third quarter 2008 earnings conference call. We're pleased you could join us today. We issued a press release this afternoon providing results for the third quarter ended September 30, 2008. This press release is available on our website at www.gilead.com. We've also posted slides that outline the topics discussed on today's call.

Joining me on the call today to discuss our results 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 Research and Development and Chief Scientific Officer and Robin Washington, Senior Vice President and Chief Financial Officer. We will keep our prepared comments brief to allow more time for Q&A.

Before I turn the call over to John Martin, I would first like to remind you than we will be making 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 assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statements. I refer you to our Form 10-K for the year ended December 31, 2007, Form 10-Q for the first and second quarters of 2008, subsequent press releases and other publicly filed SEC disclosure documents for a detail description of the risk factors affecting our business. In addition, please note that we undertake no obligation to update or revise these forward-looking statements.

We will be making certain references to financial measures that are on a non-GAAP basis. We provide a reconciliation between GAAP and non-GAAP numbers on our website.

I will now turn the call over to John Martin.

John C. Martin, PhD - Chairman and Chief Executive Officer

Thank you Susan. Good afternoon everyone and thank you for joining us today. We are pleased to summarize for you Gilead's accomplishments during the third quarter of 2008.

First, I'd like to acknowledge Dr. Rich Whitley's appointment to Gilead's Board of Directors. Rich is Professor of Pediatrics, Microbiology, Medicine and Neurosurgery at the University of Alabama at Birmingham and has been a key Scientific Advisor to Gilead since 1991. We look forward to the contributions and insight he will offer to our Board as we evaluate opportunities to grow our business and at the same time ensure broad access to the therapies we develop.

Second, last month we welcomed Dr. Seigo Izumo who joined Gilead as Senior Vice President, Cardiovascular Therapeutics and as a new member of our executive committee. Segal is a cardiologist who most recently served as Vice President and Global Head of Cardiovascular Research at Novartis Institute for Biomedical Research. His depth of knowledge in this area will be of great value as we continue to move our cardiovascular franchise forward.

Third, I'd like to briefly comment on the quarter. Gilead delivered a solid financial performance in the third quarter of 2008, driven by both our record product and total revenues as well as disciplined management of our expenses, resulting in non-GAAP earnings per share of $0.65, up 24% over the same period last year.

As Kevin will describe later in this call, our HIV franchise continues its momentum in gaining market share in all our commercial markets both with patients new to therapy and those switching off other regimens. Key data from two large independent studies presented at the International Aids Conference in Mexico City in August further differentiate the favorable safety and efficacy profile of a tenofovir containing regimen compared to abacavir.

First, the data from ACTG 5202 study were presented for the first time since the DSMB recommend in February this year that the patients with the high viral load arm be unblended and switched off Epzicom. Secondly, consistent with the DAV study findings presented in February at CROI, the new data from the SMART study also indicated an increased risk of cardiovascular events for patients on an abacavir-containing regimen.

This was also an important quarter for Viread, which was approved for the treatment of chronic hepatitis B by the U.S. Food and Drug Administration and Health Canada in August and September respectively. I have met and talked with many hepatologists about the challenges they face in diagnosing and treating this disease. One thing clear from these conversations is that the excellent profile of Viread for HBV is well appreciated. We believe that Viread can change the way doctors manage this decease.

While we make progress in the third quarter with our late stage compounds, we did experience a setback with our new drug application for aztreonam lysine of inhalation for the treatment of cystic fibrosis.

As you know on September 16th, we received a complete response letter from the FDA. We are continuing our dialogue with the Agency and will provide you with an update once we have more clarity on the path forward. In the interim, we will continue to provide the product to patients in the United States through our expanded access program.

In addition to our expanded access program, we are continuing to enroll patients in the studied we initiated earlier this year, the mild study and head-to-head study versus TOBI.

As we look to the future growth drivers of the company beyond our commercial products, I am extremely pleased with our pipeline progress, particularly our two most promising HIV products, elvitegravir and GS 9350 as well as darusentan for resistant hypertension and GS 9190 for hepatitis C. And as we exit this year and head into 2009, we will continue to keep a vigilant focus on managing our expenses.

One way we'll accomplish this is by keeping the hurdle bar for our research and development programs high, very high, as we always have, only brining forward molecules that have the profile to become best-in-class compounds in areas of significant unmet medical need. As our track record demonstrates with Viread and Hepsera, Tamiflu and more recently like Letairis.

I am pleased with the progress Gilead made in the third quarter and we look forward to informing you of future and further corporate milestones and the continuous advancement of our pipeline candidates. We recognize that these are very challenging and uncertain times in the face of the global economy. But I can confidently say that the fundamentals of Gilead's business have never been stronger.

Next, Norbert will review our pipeline progress for the quarter.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

Thank you, John. In the third quarter of this year, Gilead achieved several significant research and development milestones, further advancing our pipeline programs. I am going to provide only a summarized overview of the advancements during the quarter and we're happy to go into more detail during the Q&A portion of the call.

Starting with HIV. In the third quarter, we began dosing patients on our Phase III study of elvitegravir, which is a pivotal non-inferiority study evaluating elvitegravir versus Merck's raltegravir in treatment experienced patients. As it is still very early in the study, it is difficult for us to provide you with an estimate of enrolling completion or availability of data.

Clearly, the treatment naïve population provides a much more significant commercial opportunity with 80% of patients currently on either first or second line therapy. The current standard of care for those patients in those settings includes the use of fixed dose combinations. In other to move elvitegravir into that setting, we needed to produce our own boosting agent that we could co-formulate with elvitegravir and Truvada, which we now believe we have done with GS 9350.

The Phase I study of GS 9350 to evaluate the safety, tolerability and metabolic profile in healthy volunteers has now been completed. The data shows that 9350 increases blood levels of midazolam, a standard test compound used to assess boosting to a similar extent as the ritanovir controlled. Based on the strength of this data, we have initiated a Phase I study assessing the bioequivalence and bioavailability of our own single pill complete fixed dose regimen of elvitegravir, 9350 and Truvada. We hope to have data from this study by the end of this year.

And as we have previously stated, once we have that data for those sites from the nine month animal toxicology studies and the agreement with FDA, we will initiate a Phase II program in treatment naïve patients. We hope to begin the first study in naïves by mid next year.

We will also start the PK study of GS 9350 to investigate boosting of atazanovir or reyataz, one of the most widely prescribed protease inhibitors prior to the end of this year.

On the HCV front, which, as you know, represents our most focused research effort here at Gilead, we have now completed the enrollment in the Phase Ib study of 9190, our novel HCV polymerase inhibitor. This study confirms the safety and efficacy of the 40 milligram in a sufficient number of patients to allow us to go forward into a Phase II study. We are targeting initiation of the Phase II study in HCV infected patients before the end of this year. This will be a randomized, double-blind, placebo-controlled study comparing either 24 or 48 weeks of 9190 dosed at 40 milligrams BID, each in combination with peginterferon/ribovarin to the standard of care, 48 weeks peg interferon ribovarin in patients with genotype non-chronic HCV infection. Target enrollment is 200. The core primary objectives of this study are to compare the early and sustained biological response rates of 9190 dose of placebo.

With regards to 9450, the caspase inhibitor in licensed from LG Life Sciences last year, the compound is currently being evaluated as a hepatoprotectant in an ongoing Phase IIa study in HCV infected individuals. The study is evaluating four doses of 9450 [ph] versus placebo in 110 HCV infected individuals randomized evenly across the arms. This is a 14 days with primary endpoints of safety and tolerability and secondary endpoints of pharmacokinetics and changes from base line of certain liver enzymes and metabolic markers. We anticipate data from this trial by the end of the year, which, with our estimate into a Phase IIb study in the first half of next year.

Based on our belief that this molecule may also have utility in other diseases such as fatty liver disease, we initiated a Phase II study in patients with NASH or non-alcoholic steatohepatitis. We dosed the first patient in September. The study will enroll 110 patients, randomized across four doses of 9450 and placebo. The primary endpoint will be safety and tolerability of multiple oral doses of 9450. Secondary endpoints include pharmacokinetics and activity as defined by changes from base line of certain liver enzymes and metabolic markers.

While HCV research efforts are focused on compounds targeted at both viral and cellular targets, our research has led to the discovery of some very interesting lead compounds and we look forward to sharing more information as these compounds move into the clinic.

On the respiratory front, in addition to cystic fibrosis, we're planning to evaluate aztreonam lysine in a Phase II study in patients with non-CF bronchiectasis, which is projected to begin prior to the end of the year. We are also continuing to evaluate opportunities to explore Letairis in other indications beyond pulmonary arterial hypertension. We are currently preparing to evaluate Letairis in patients with idiopathic pulmonary fibrosis and are targeting the initiation of this Phase III study called RMS [ph] by the end of the year. This is a placebo-controlled study enrolling patients with honeycombing of 5% or less by HRCT. We are going to enroll approximately 600 patients randomized to run active to placebo at over 190 investigational sites worldwide. The primary endpoint is delay of disease progression or death in patients with IPF.

We also believe that Letairis, because of its mechanism of action and safety profile, could have applications in other areas such as pulmonary hypertension in IPF and also in renal transplantation.

And finally on the cardiovascular front, we've made significant progress in the third quarter in terms of enrollment in the two Phase III studies for darusentan for resistant hypertension, the DAR 311 study is now fully enrolled with 379 patients. The last patients will cross the 14 week endpoint in the first quarter of next year. And therefore, we would anticipate having data from this study in the second quarter of 2009.

The DAR 312 study, which is the larger of the two studies, targeted at enrolling 770 patients is now 52% enrolled. We believe we are on track to complete enrollment and receive data from this study before the end of 2009.

We're also in the final stages of preparing the IND to initiate Phase II testing of cicletanine, the product we purchased from Navitas in May of this year in 160 patients with PAH. Patients that have been randomized across three doses of cicletanine were placebo, the primary endpoint was the change in fixed limit dose distance [ph] followed by 12 weeks of treatment. We anticipate we will begin this program by the end of the year.

As we discussed in our last earning call, we have an extensive safety database from the products used in U.S. for the treatment of general hypertension.

In summary, we have made significant progress with our R&D pipeline during the third quarter of 2008. We have now four programs either in or moving towards Phase III, seven programs in Phase II and multiple programs either at the Phase I or IND stage.

Next, Robin will review our financial performance for the quarter. Robin?

Robin L. Washington - Senior Vice President and Chief Financial Officer

Thank you, Norbert. As you have also seen in the press release we just issued, the third quarter of 2008 was another very successful quarter for Gilead on multiple fronts. Before turning to the specifics, I want to know that going forward Kevin will discuss regional sales and the context of these discussions of our commercial efforts for the quarter.

Third quarter product sales were $1.3 billion, marking our fourth consecutive quarter of surpassing $1 billion in product sales. Antiviral product sales grew to $1.2 billion from $885 million, up 39% year-over-year and up 10% sequentially.

Atripla contributed $428 million or 35% to our third quarter antiviral product sales, resulting from the continued uptake of this product in the U.S. and launches in Europe. Efavirenz portion of Atripla, which is distributed back to BMS and reflected in the cost of goods sold line was approximately $156 million.

Truvada sales were $549 million or 45% to our third quarter antiviral product sales, up 34% year-over-year and up 6% sequentially, due primarily to sales volume growth as well as a favorable foreign currency exchange impact.

Viread sales were $156 million for the third quarter of 2008, a year-over-year increase of 5% and a sequential increase of 4%.

Hepsera for the treatment of chronic hepatitis B generated sales of $91 million in the third quarter of 2008, up 15% on a year-over-year basis, driven by a favorable foreign currency exchange impact and sales volume growth. Hepsera sales were up 1% sequentially.

Sales of AmBisome for severe fungal infections was $73 million for the quarter, a year-over-year increase of 6%, primarily driven by favorable foreign currency exchange impacts. AmBisome sales increased by 4% sequentially, due primarily to sales volume growth in certain European countries as well as the favorable foreign currency exchange impact.

Finally, Letairis sales were $32 million for the third quarter of 2008, an increase of 28% on a sequential basis, primarily driven by sales volume growth. Our royalty contract and other revenues decreased by 66% year-over-year and by 46% sequentially, due primarily to the decrease in royalty revenues recognized from Tamiflu sales related to pandemic planning initiatives worldwide.

Royalties received from Roche and recognized in our revenues in the third quarter of 2008 were $9 million. These royalties, which are paid one quarter in arrears, reflect a royalty rate of approximately 19% as applied to Roche's net sales of Tamiflu during its second quarter of 2008.

Turning to product gross margin. As a reminder, my discussions of all margin and expense-related items are on a non-GAAP basis, which excludes the impact of stock-based compensation expense.

Non-GAAP product gross margin was approximately 78.1% compared to a non-GAAP product gross margin of approximately 79.8% for the same quarter of last year and 78.8% for the second quarter of 2008. The decreases from both comparative periods were due primarily to the higher proportion of Atripla sales, which includes efavirenz component at a zero gross margin.

Non-GAAP operating margin was 63.6% compared to 56% for the same quarter last year and 51% for the second quarter of 2008, which also excludes the Navitas purchase in-process R&D. As you are aware, our non-GAAP operating margin is impacted by the efavirenz component of a growing Atripla revenue stream and a declining strength of Tamiflu's royalties as previously discussed. Excluding these factors, our core non-product and operating margin continues to improve as we focus on profitably managing the growth of our business.

Non-GAAP R&D expenses were $107 million, a year-over-year increase of 40% and an increase of 6% sequentially, primarily as a result of increased clinical studies, research and related expenses from the expansion of activities in our R&D pipeline as well as higher headcount, driven by the growth in our business. This includes a $7 million milestone payment this quarter to Japan Tobacco related to the advancement of elvitegravir for HIV at the Phase III clinical studies.

Non-GAAP SG&A expenses were $186 million, an increase of 13% year-over-year, due primarily to increased compensation and benefits from higher headcount that involves infrastructure and technology-related costs to support the continued growth in our business. On a sequential basis, non-GAAP SG&A expenses decreased 16% due primarily to seasonally lower promotional and marketing expense as well as the impact of certain termination-related expenses in our international operations during the quarter.

Foreign currency exchange had a net favorable impact of $59 million and $37 million on our third quarter 2008 revenues and pre-tax earnings respectively when compared to the same period last year. On a sequential basis, the foreign currency exchange impact on our third quarter 2008 revenues and pre-tax earnings was a favorable $13 million [ph] and $10 million respectively. The difference between the net favorable impact of foreign currency exchange on our revenues versus pre-tax earnings is primarily due to the costs related to our hedging activity which are also reflected in interest and other income lines.

With the volatility that we are seeing in the financial markets, these costs as well as foreign currency exchange gains or losses have caused our interest and other income to decrease year-over-year and sequentially.

Our effective tax rate for the third quarter of 2008 was 27.7%, which compares favorably to the full year 2007 effective tax rate of 28.9%. This increase was driven primarily by increased earnings in favorable tax jurisdictions.

Next, I would like to turn to our cash position and our operating cash flow performance for the quarter. Our balance sheet is stronger than it has ever been with cash, cash equivalents and marketable securities of $3.3 billion as of September 30, 2008, an increase of $534 million when compared to our $2.7 billion balance on December 31st, 2007.

As of September 30, 2008, we reclassified our $1.3 billion convertible senior note back into long-term liabilities due to the senior notes not being eligible for conversion into shares of our common stock. The conversion eligibility of the notes in future quarters will depend on the closing price of our common stock during the last 30 consecutive trading days of each quarter. This will determine whether the notes will be classified as current or long-term liabilities.

In the third quarter of 2008, we generated $555 million in operating cash flow and we purchased 4.7 million shares of our common stock at a total cost of $250 million. In the near future, we intend to enter into an agreement to repurchase $750 million of our common stock on an accelerated basis. The commencement of this repurchase program is contingent on market conditions and on Gilead not possessing material, non-public information on the commencement date. After this program is commenced, we will have approximately $1 billion remaining for share repurchases under the $3 billion share repurchase program authorized by the Board of Directors in October 2007 and which expires at the end of 2010. As of September 30, 2008, we have spent 1.2 billion to retire approximately 25.9 million shares of our common stock under this program.

Now I would like to turn to our financial guidance for the full year 2008. You can locate all of our guidance for 2008 on Gilead's corporate website.

We continue to every pleased with the year-over-year and sequential growth in our product sales, particularly with our antiviral franchise. During last quarter's call, we increased our net product revenue guidance for the full year of 2008 by $200 million to a range of $4.9 billion to $5 billion. This guidance assumes that the impact of foreign currency exchange fluctuations will remain consistent.

We are now reiterating that guidance of $4.9 billion to $5 billion and feel confident that even though it is relatively early in the quarter, we are on track to achieve the higher end of that range given the continued strength and growth of our antiviral franchise.

This guidance reflects a change in our previous foreign exchange assumptions given the volatility of the currency market. Changes from these assumptions could affect both our revenues and expenses for the fourth quarter.

We are reiterating our initial 2008 non-GAAP product gross margin guidance range of 77% to 79%. For non-GAAP R&D expenses and non-GAAP SG&A expenses, we are reiterating the guidance we provided last quarter of $650 million to $670 million and $720 million to $740 million respectively. Gilead remains committed to conscientious expense management to sustain the continued profitable growth of our company.

We are reducing our 2008 annual effective tax rate guidance of 28% to 29% to a range of 27% to 28%, due primarily to the federal R&D credit extension.

And finally, we are decreasing our guidance for after-tax stock-based compensation expense and anticipate the 2008 fully diluted EPS and tax to be in the range of $0.11 to $0.13 per share.

In conclusion, our solid operating performance continues to be a validation of the significant efforts made by Gilead's employees 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.

Kevin Young - Executive Vive President of Commercial Operations

Thank you, Robin. I'm very pleased to discuss the significant commercial progress we made during the third quarter, namely the continued strength of our HIV business, the launch of Viread for HPV in the U.S. and Europe as well as the gains we have made in the U.S. PAH market with Letairis.

Before turning to our commercial performance for the quarter, I would like to remind you that for the analysis of market shares in the U.S. and Europe, we rely on the most up-to-date third party data available to us in each market. Since the dates of these data points can fluctuate, we'll identify the reference time periods as appropriate.

I would like to begin by discussing the performance of our antiviral franchise. During the third quarter, U.S. HIV revenues performed strongly, led by Atripla at $346 million, up 44% year-over-year and Truvada at $262 million, up 27% year-over-year. We were pleased to see a return of purchasing in the non-retail sector that was consistent with the strong growth in retail demand seen during the quarter.

As you recall, due to purchases by two of the large ADAP states with warehousing capabilities, namely Texas and Florida, in the first quarter of this year non-retail purchasing in the second quarter was lighter as those inventories came down. Going forward, we believe that non-retail purchasing will increase commensurate with retail demand. Nevertheless, we will likely see quarterly fluctuations as a result of variability in fiscal year-end spending at the state level as well as the recent implementation of a use it or lose it funding. As a reminder, sales to the ADAP programs represent approximately 25% of our overall U.S. HIV business.

In the second quarter of 2008, the number of patients being treated with antiretroviral therapy grew by 8% over the second quarter of 2007 to just over 551,000 patients. We achieved near all-time highs for the total number of patients receiving Truvada as well as Truvada patient share as it continued to be the predominant backbone of choice for antiviral therapy in the U.S., returning to pre-Atripla launch levels with an impressive 192,000 patients on therapy or approximately 35% of all treated patients.

In the third quarter, we saw the largest quarter-on-quarter prescription growth in Atripla since the fourth quarter of 2007 and the largest quarter-on-quarter growth in Truvada since the launch of Atripla in the third quarter of 2006. This recent performance continues to underscore that we have two HIV growth products in the U.S., namely Truvada and Atripla. It's particularly important as new third agents enter the market, most of which are paired with Truvada in their pivotal clinical studies.

Atripla remained the most prescribed regimen in HIV with 28% of patients across all lines of therapy receiving Atripla. Atripla together with Truvada continued to account for greater than four out of five treatment naïve patients with approximately 55% taking Atripla and 30% on a Truvada regimen.

With a launch of Viread in HBV, we will no longer provide the patient numbers for the tenofovir molecule or Viread for HIV. This is due to the challenges associated with differentiating Viread patient data and prescription data for HIV versus HBV.

The growth factors contributing to the HIV... U.S. HIV performance continued to be fueled by positive trends on the HIV testing and screening front where changes continue to be made nationwide. This will be expanded upon by John Milligan in a moment. We also believe we are beginning to see an early reaction to the safety and efficacy concerns surrounding abacavir that emerged early this year with additional supported data having been presented in August at the International Aids Conference.

We believe that ACTG 502 DAD and smart data are starting to impact the choices physicians are making, particularly for treatment naïve patients.

Now turning to our HIV performance in Europe. Comparable to the U.S., the Big Five countries of Europe continue to demonstrate robust growth. At the end of the second quarter 2008, 265,000 patients were being treated with anti-retrovirals within these five markets, representing a 7% year-over-year growth.

We continue to make excellent progress with all of our HIV products and are very pleased with the initial launches of Atripla. During the third quarter of 2008, Atripla contributed $71 million in European product sales and is now available in 14 countries throughout the EU, including four of the Big Five countries.

As we discussed last quarter, we remain in reimbursement discussions with France. We are encouraged with the progress we have made and believe we could complete these negotiations in the first half of 2009.

Of the patients receiving Atripla in the second quarter, approximately 41% converted from Truvada plus Sustiva whilst 25% were switches from other regimens. Importantly, 34% of patients starting Atripla were treatment naïve patients.

Truvada continued to build on the solid base throughout the EU and remained the number one brand in all Big Five markets. During the third quarter of 2008, Truvada contributed $257 million in revenues, up 41% from the same period in 2007. Truvada plus Atripla or Total Truvada achieved new highs in the NRTI market, outperforming Kivexa with a prescription ratio of 2.6:1, up from 2.3:1 in January. This continues to be an important metric for us to track as we monitor the impact of the Atripla launch and prescribing responses to the abacavir safety publications and following changes in treatment guidelines.

Turning to our hepatitis franchise. Since receiving European marketing approval for Viread in HPV, we have launched Viread in 14 countries with Italy, the last of the Big Five countries, launching earlier this month. While it remains early on in the launch, we are very pleased with the feedback we have been receiving on the clinical, safety and cost benefit profile of Viread. In the UK, after some six months on the market, Viread has already overtaken entecavir in market share.

On August 11th, we received FDA marketing approval for Viread in HPV in the U.S. Our sales efforts are being conducted with the existing sales and marketing infrastructure that have been supporting Hepsera. At the time of the Viread HPV launch, we believe that approximately 4% of Viread prescriptions were being written for HPV. And we believe we have already surpassed Epivir in new prescription market share just one month post launch.

The reaction to our Viread label has been very positive. One such marker of best-in-class status is always reimbursement. Already, over 50% of managed care plans have Viread HPV in a preferred position over entecavir either by copay, prioritization or both. For the first time since the launch of Truvada, there was no quarter-on-quarter decline in Viread prescriptions, an early indication that HPV prescribing is perhaps offsetting HIV switching dynamics.

To support the launch of Viread, Gilead is partnering with many screening initiatives within the Asian American communities in the U.S. where the HPV infected patient population remains largely unaware of their risk and status.

Now turning to our cardiovascular franchise and Letairis for the treatment of PAH. Consistent with prior quarters, we conducted our propriety PAH survey. The survey involved over 120 prescribing physicians who are responsible for more than 10,000 PAH patients and included approximately 80% of the physicians surveyed last quarter.

According to our latest data, as we exited the third quarter, more than one in four patients or 28% of those receiving an ERA were taking Letairis, up from 22% in the previous quarter. Letairis is used as a monotherapy in 52% of patients versus 48% as combination therapy. Of all patients taking Letairis, over 30% have switched from placenta.

Additionally, we have expanded the prescribing base of physicians by 14% to almost 1400 physicians. We have four Letairis abstracts that have been accepted for the upcoming CHEST meeting in Philadelphia, including two year safety and efficacy follow up that is arguably the strongest long-term data yet to be seen in PAH. Continuing to generate important long-term datasets such as these should further support the growth of Letairis.

In closing, I am very pleased to say that across franchises and geographies, the Gilead commercial business continue to expand at a robust pace during the third quarter.

I will now turn the call over to John Milligan who will discuss our up and coming milestones and growth opportunities. John?

John F. Milligan, PhD - President and Chief Operating Officer

Thank you, Kevin. In summary, I am very pleased with our continued high level of productivity, the consistent financial performance for the first nine months of the year. We have numerous potential catalysts on the horizon for further growth of our franchises, specifically the presentation of important datasets at upcoming medical conferences, the impact of guideline changes in the U.S. and abroad, an expanding pipeline of promising product candidates and a very strong balance sheet.

In particular, three are four medical conferences that span across our disease areas of focus that are all kicking off at the end of this month. On the HIV front, the ICAAC/IDSA conferences will be taking place in Washington DC where we anticipate the presentation of additional data from the O73 study, evaluating the safety and efficacy of switching to Atripla from other regimens. We also look forward to the continuing dialogue around emerging datasets on the many rifts associated with abacavir use.

The American Association for the Study of Liver Disease Conference taking place San Francisco will feature two year data from both of our pivotal studies of Viread for the treatment of chronic hepatitis B.

And as Kevin just mentioned, the CHEST conference in Philadelphia will highlight unprecedented two year data from our ARIES-E study which is the extension of our two year pivotal studies of Letairis.

And finally, the North American Cystic Fibrosis Conference, taking place in Orlando, Florida will feature 10 Gilead-related posters or presentations and a company-sponsored symposium discussing the management of pseudomonas infection. Gilead remains highly committed to bringing forth advances in the care of patients suffering from cystic fibrosis.

In addition to medical conferences, we'll be closely monitoring legislation at the state level to support HIV testing initiatives, bringing more patients into care and on to therapy.

In September, California passed a bill that requires all groups and individual health insurance plans to cover routine HIV screening. This new mandate on insurers will be a critical tool in driving routine screening, a more we anticipate other states could follow.

Guideline changes are also important drivers for growth. During the third quarter, the European Aids Clinical Society and both the International Aids Society provided revised treatment recommendations based on the ACTG 5202 study results, the DAD study and data release at the International Aids Conference in Mexico City. The revised treatment recommendations mirror each other by putting Truvada as the first line therapy of choice with abacavir containing regimens to be used with caution in patients with a high cardiovascular risk and that abacavir should not be used in patients with a viral load greater than 100,000 copies.

These changes are similar to the Bruce HIV Association recommendations modified earlier in the year. We await potential inclusion of these datasets in the U.S. Department of Health and Human Service guidelines.

In addition, the American College of Obstetricians and Gynecologists provides their recommendations from screening just pregnant women to routinely screening all women aged between 19 and 64 for HIV regardless of risk factors.

In regard to Viread for HPV, just today, the European Association for the Study of the Liver clinical practice guidelines were published online, prominently and favorably positioning Viread for first line therapy. These guidelines are currently in press and anticipated to appear in the January issue of the Journal of Hepatology. We also expect Viread to receive similar positioning in the soon to be released U.S. HPV treatment guidelines.

Gilead's pipeline holds more promising opportunities than every before. 2009 will be the year of the emergence of very important datasets on elvitegravir and GS 9250 for HIV, pivotal data for darusentan in resistant hypertension and earlier stage compounds such as the GS 9190 for HCV and GS 9450 for HPV and NASH.

We look forward to providing you with updates on these research efforts and drug candidates as they progress. And as John Martin stated, we have and will continue to critically evaluate each of these program and will advance only those that have the potential to become market leaders.

Gilead has an extremely strong balance sheet exiting the third quarter with approximately $3.3 billion in cash, cash equivalents and marketable securities. While we recognize these are very challenging economic times, given our cash position and cash flow, we are well positioned for business development opportunities that may augment our already strong pipeline as well as returning value to shareholders through share repurchase activity. The fundamentals of Gilead's business both domestically and abroad have never been stronger.

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

Susan Hubbard - Vice President of Investor Relations

Operator, are you there?

Question And Answer

Operator

Yes, ma'am. Ladies and gentlemen, today's question-and-answer session will be conducted electronically. [Operation Instructions]. And our first question comes from the line of Mark Schoenebaum with Deutsche Bank. Go ahead.

Mark Schoenebaum - Deutsche Bank

Hey guys. Thanks for taking my question. Also, thanks for bringing up a good quarter. The market needed it. Maybe John, I can just ask you a follow up from last quarter's, my question on the last quarter call. What's your current thinking about R&D? And I know you haven't given long-term guidance, but can you make any comments around how you guys are thinking about R&D as a percent of revenues over the long term? There was some confusion on the last call I think where you mentioned a number, and I was just wondering if you could follow up on that and maybe just clarify please.

John F. Milligan, PhD - President and Chief Operating Officer

So Mark, there was a lot of confusion over the last call. In fact, we spent I think the majority of the last quarter trying to explain what was said there, because we talked a little bit about industry averages. So as a result of that, I'm not put out any numbers in this quarter as I promised I would not. I think as John and I have stated, we're going to continue to focus on the most effective ways to manage the business, trying to get the most out of each protocol and each molecule for the least amount of money. That's been our philosophy all along and we'll continue to do this. I think we managed the business very effectively. Even if you look at this quarter, R&D is just under 12.5% of product revenue. I think that we can manage the business very effectively in the range that we're in today.

Mark Schoenebaum - Deutsche Bank

Thank you.

Operator

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

Thomas Wei - Piper Jaffray & Co.

Thanks. I'm just trying to reconcile your revenue guidance with some of the qualitative commentary on revenue drivers from the call. So other than the foreign exchange effect, you didn't really highlight anything else about the third quarter would suggest that you think that growth is an anomaly. And if you were to continue that type of growth for the fourth quarter and you realize no benefit from your hedging activities on foreign currencies and you had to recognize the full effect of the decline in the euro quarter today, you would still be way above the top end of the guidance range. So is there something that we are missing there on the fundamentals of the business that makes you uncomfortable about extrapolating those growth trends in the third quarter?

John F. Milligan, PhD - President and Chief Operating Officer

Tom, this is John Milligan. We are as always uncertain about currency, especially in this environment. So we cannot or won't even pretend to predict where the dollar is going to be going forward. That's the number driver of uncertainty in our business. Beyond that, we don't see any growth drivers which would be contrary to what you've just said in your position statement. So we do feel the fundamentals of the business are very strong, the U.S. and European growth driver are very strong. So I think the only underlying uncertainly for us is currency.

Kevin Young - Executive Vive President of Commercial Operations

AndI'll just talk to that Thomas. You saw the growth in prescriptions. IMS came out I think about a day ago, a week or on Wolters Kluwer this morning which virtually exactly mirrors the growth that we saw quarter-on-quarter in IMS. So that was very encouraging for both Atripla and Truvada. The one thing I just want to reiterate from my text was the non-retail. That does fluctuate. We do have these large buying centers, particularly Florida and Texas. And just depending on where they are placed with their use of funds, they come very close to the quarter. And it was nice to see it come back in the second... in the third quarter because of our low second quarter which would be created by the high first quarter. But just how that lands every quarter is always very difficult to judge.

Operator

Our next question comes from the line of Geoffrey Porges with Bernstein. Go ahead.

Geoffrey PorgesPhD - Sanford C. Bernstein & Co.

Thank very much for taking the question and congratulations on a very solid quarter. Kevin, could you just give us a little bit more information on the HIV numbers? You have given us in the past the number of patients on Atripla, Truvada and Viread HIV patients in the U.S. and in Europe. Could you give that to us and perhaps comment a little bit more on that growth that you're seeing in the U.S. market? What is causing at and how sustainable? Is it temporary or do you think that's going to persist through the end of the year or next year?

Kevin Young - Executive Vive President of Commercial Operations

Okay. Let me try the numbers first for you Geoff. Overall treated patients with anti-retroviral as I said in the text was just over 550,000 patients, 551,000 patients. On Atripla, was 154,000 patients and on Truvada was 192,000 patients. In terms of patients left on Truvada plus Sustiva, there really isn't a lot of patients left now actually to convert. That's only 10,000 patients. And there are 16,000 patients left on Combivir plus Sustiva. So we've done... I've done a great deal of conversion there. In fact, the majority of our business now going on to Atripla is coming from naïve patients at a 75% level.

In terms of Europe, the number of anti-retroviral treated patients is 265,000, just over 9000 patients to date on Atripla and 112,000 on Truvada. So you can still see that Truvada is the lion's share of our business. But as we achieved in U.S., that will start to significantly grow as we're rolling out the countries.

I think in terms of the increase in the U.S. I do feel that it's a mix of reasons. Obviously, as John Milligan pointed out, we're seeing I think some very positive trends around testing and linkage to care. That's the need for testing as well as the need to be starting therapy earlier. And I do think we are starting to get traction on the situation with abacavir. I think the date coming, yes, as a full hearing of the 5202 was quite a significance. We've certainly feel in the U.S. that changes around naïve prescribing. So, I think those were the underlying drivers.

Geoffrey PorgesPhD - Sanford C. Bernstein & Co.

Thank you very much, very helpful.

Operator

Our next question comes from the line of Meg Malloy with Goldman Sachs. Go ahead.

Margaret Malloy - Goldman Sachs & Co.

Thank you very much. Just as a follow up to that, do you have an estimate of the number of patients in the U.S. and EU that you think are on abacavir?

Kevin Young - Executive Vive President of Commercial Operations

I think in terms of abacavir, it's about 200,000 patients. I think that's about the number we have.

Susan Hubbard - Vice President of Investor Relations

Yes, the U.S. HIV molecule share of abacavir is about 104,000 patients and in Europe, it is about 73,000 patients.

Kevin Young - Executive Vive President of Commercial Operations

Thank you, Susan.

Susan Hubbard - Vice President of Investor Relations

So we have documented that with [ph] we talked about 186,000 patients on the abacavir molecule and the datasets are starting to emerge.

Kevin Young - Executive Vive President of Commercial Operations

And I will just add to that, Meg. I think where we see the lead country very much starting to switch patients is the UK. John Milligan was there recently, met with quite a number of the opinion leaders in London. Just this week was the British HIV Association meeting, and one of the presenters put up data around both naïve stocks which was actually very limited as well as switching of the back of the year. And that was quite significant. So there is definitely a trend in the UK market to not only alter initial prescribing but also the fundamentally switching patients off, and our job is to see if that can be recreated in other European markets.

Margaret Malloy - Goldman Sachs & Co.

Okay. Thanks, very helpful.

Operator

Our next question comes from the line of David Risinger with Merrill Lynch. Go ahead.

David Risinger - Merrill Lynch

Yes, thanks very much. I was hoping that you could you clarify the timing for the start of Phase II for the combination of elvitegravir plus the PK enhancer and also the timing for the start of Phase II for the quad [ph]. Thank you.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

David, so as I said in my script, we need three pieces, three things really. First of all, it's the... completing the ongoing bioavailability, bioequivalent study of the quads. That's ongoing. We should have that by the end of the year. Secondly, we need the chronic toxicology data before the booster. We should have that towards the end of this year. And then we actually make arrangement [ph] with FDA about what the whole strategy is going to look like. So with regards to when is it going to initiate the Phase II, I would say towards the middle of next year, we will be in a position to initiate the elvitegravir plus our booster in a Phase II study. And you also asked about the quad. By the way, that is the same thing. We are going to use the quad single tablet complete regimen in the Phase II study to evaluate both the booster and elvitegravir. I hope that answers your question.

David Risinger - Merrill Lynch

Thank you.

Operator

Your next question comes from the line of Yaron Werber with Citigroup. Please go ahead.

Unidentified Analyst

Hi, thanks for taking the question. This is actually Richard asking a question for Yaron. Can you talk about the interest rate on the cash balances in 3Q and give us some predictions for 2009? Thanks.

Robin L. Washington - Senior Vice President and Chief Financial Officer

Richard, can you repeat... what was it you were looking for for the balances?

Unidentified Analyst

Interest rate and cash balances in 3Q and outlook for 2009?

Robin L. Washington - Senior Vice President and Chief Financial Officer

Okay, the interest rate that we earned?

Unidentified Analyst

Yes.

Robin L. Washington - Senior Vice President and Chief Financial Officer

Okay, the interest rates that we earned I mean varies. We have some that are tax exempt and some that are taxable. But on average, it range between about 4% and 6%. It's hard to predict for 2009. I mean here, we are everybody else, because I can't really predict that.

Unidentified Analyst

Okay, thanks for taking the question.

Operator

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

Michael Aberman - Credit Space

Great. I was going to ask you you could predict the interest rate, if you could predict the stock market?

Robin L. Washington - Senior Vice President and Chief Financial Officer

We can't do that exactly [ph].

Michael Aberman - Credit Space

So I have a question. I'm going to try to sneak in two about the pipeline. First is can you comment on the Reyataz boosting market and what a potential pathway could be? And also, I think you may have said it somewhere. Can you remind us what the PK, I mean the viral kinetic in Phase I for 9190 with the dose you are moving forward in Phase II?

Unidentified Company Representative

Michael, just to clarify. You said the Reyataz, the ritonavir boosting market?

Michael Aberman - Credit Space

Well you mentioned with Reyataz, but maybe you can just talk about the boosting market in general.

Unidentified Company Representative

Okay.

Michael Aberman - Credit Space

Including what would be use with Reyataz.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

Maybe I can first make a comment, Michael, on the development questions that you had. So first of all, the dose that we are using with our booster is very similar to ritonavir. So in a milligram... so milligram compares and Reyataz [ph] is a similar booster as we get with ritonavir. So the dose will probably between 75 and 100 milligram, 100 is a good guess. That's what we're currently testing in the PK bioequivalent study.

Secondly, with regards to the Reyataz boosting studies, the first study will simply be a PK study. But after that, we're thinking about doing a clinical study comparing ritonavir boosted Reyataz to Gilead boosted Reyataz. And the reason the doctors said [ph] that will be a controlled head-to-head study of our booster versus ritonavir and we will get some safety and efficacy information.

And then do you have anymore... John, do you --

Kevin Young - Executive Vive President of Commercial Operations

I don't have the exact numbers of total patients on Reyataz boosters in the U.S., but I do know that Truvada plus Reyataz is the second biggest regimen here in the U.S. It's slightly below half the percentage of patients taking Atripla, it's about 12.5% of anti-retroviral treated patients.

John F. Milligan, PhD - President and Chief Operating Officer

I think that's an important metric. I mean we are getting over half patients are now going on Atripla in the United States, about 55%, which means 45% are probably going on protease inhibitors. So still an important component. And Michael, the one thing I do want to say, we spend a little bit of time with people talking about what booster replace ritonavir might look like. From a patient perspective, it's pretty interesting. About half the patients in the United States or over a quarter million are currently taking ritonavir either on its own or in the form of Kaletra and about 120,000 to 125,000 in Europe. So it's pretty big numbers of patients. And want that market would look like and how competitive you could be with ritonavir is uncertain. But it is something that we're certainly considering in terms of the development pathway for this molecule. And Norbert, I think he had a question on 9190.

Michael Aberman - Credit Space

Yes, just the dose and the hepatitis viral connect [ph] you saw in the Phase III.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

The 9190. So the dose is going to be 40 milligram BID. And that's the only dose Gilead has taken further, because as you remember at the higher doses, we had the 30 and 100 dose range, we saw a QT effect. And that QT effect we believe was clinically very manageable at the 40 milligram dose. So that's the reason to take only the 40 milligram BID forward.

Michael Aberman - Credit Space

And the lot reduction you saw, I'm sorry?

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

The lot reduction is dependent on the genotype. It was about 1 milligram [ph] in genotype 1A and about 1.5, 1.6 in genotype 1B.

Michael Aberman - Credit Space

Thank you very much.

Operator

Our next question comes from the line of Geoffrey Meacham with JPMorgan.

Geoffrey Meacham PhD - JPMorgan

Congrats on a good quarter. I want to ask Norbert a question. Is it fair to say for the quad that you guys could have the Phase II data in treatment experienced patients by let's say year-end '09? And then can you talk about the Phase II and Phase III paths for the quad in treatment naïve patients, what you're thinking there?

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

So I want to make one correction. We're not looking at the quad in treatment experienced patients. You will see the data in treatment experienced patients by end of '09. We're only looking at the quad in treatment naïve patients at this point. So we will do a Phase II study in treatment naïve patients starting sometimes towards the middle of next year. And then we'll need some data out of that study, some safety and efficacy international, a negative number of individuals. And people who are immediately able to go into Phase III. And what we're looking at as a Phase III study is simply comparing all Gilead quads to the state of care that could, for instance, Atripla or Atripla protease containing regimen with Truvada.

Geoffrey Meacham PhD - JPMorgan

Okay. Thank you.

Operator

Our next question comes from the line with Maged Shenouda with UBS. Go ahead.

Maged Shenouda - UBS

Sure, hi. Congratulations on a good quarter. I just have a question on Truvada in the U.S. It continues to surprise on the upside. And I was just wondering if you could to what's driving this and how long do you expect above HIV market growth for the product?

Kevin Young - Executive Vive President of Commercial Operations

Well, I think we always felt that Truvada had a very strong position on its own. If you think about it, there are new agent coming to market. A lot of interest, there is a lot of clinical studies with Truvada, always as the backbone. So, you've actually got quite a number of companies promoting the purchase and if it is or indicates of about Viread in the service setting and promote seeing integration EBITDA. So you've got that very strong positioning alongside third agents out side of Sustiva. We've also got a great positioning for Truvada as a follow on to a triplet, when a patient comes from Atripla, normally for the CNS side effects of Sustiva. Almost 70% of patients they've come off Atripla going through a Truvada based regiment. So, that's a very good position to be in. So whether it be in the night setting alongside agents outside the NRTI class, so that would give us follow on Atripla. Truvada has a very, very strong positioning in sound rights.

Maged Shenouda - UBS

Okay. But you saw a drop off in Viread after the introduction of Truvada. I'm just wondering why the dynamics wouldn't be comparable here?

Kevin Young - Executive Vive President of Commercial Operations

Fair because it was Viread, it was essentially going through Truvada. Truvada has always being paired up with the protease inhibitors and there are patients on longstanding treatments. So there was never that full driver if you like for all patients to flip across.

Maged Shenouda - UBS

Okay, thank you.

Operator

Our next question comes from the line of Bill Tanner with Leerink Swann. Go ahead.

William Tanner - Leerink Swann

Thanks for taking the question. For you Norbert. Just on darusentan, it seems pretty likely that the trial... that these trials are going to be effective in terms of efficacy. And just curious how comfortable you guys are with the safety profile. I guess in the Phase II trial, you saw peripheral edema. But just given the mechanism of action, is there... I mean would LFTs been observed already and as you look at the trials, or as we look at it, I guess the age range is pretty broad. Is there any contemplation or do you think that there may be some differential side effects and then how that might play into the actual target market, the average age of people that are multi-drug refractory?

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

So you are exactly right. None of us has any concerns about the efficacy of darusentan because the safety of Phase III study is the same design, the same patient population as we had in Phase II where we saw a 12, 15 millimeter decrease in blood pressure when darusentan was added on to background therapy that included three anti-hypertensives including a diuretic.

And you are exactly right. The issue of darusentan, particular treatment of hypertension, has to do with safety. I am not concerned about LFT elevations, because we personally at Gilead do not believe it's a class effect. I would like to remind you that with ambrisentan, during the 12 weeks of the placebo-controlled studies, there were more LFT elevations on placebo than there were on ambrisentan. So that's clearly an indication that ambrisentan doesn't cause LFT elevations.

And so you are exactly right that the issue could be edema. But we have done a very careful job to exclude patients that are at risk for congestive heart failure. Obviously, those would not be candidates for darusentan and we have to see how the data come out. But I am confident that darusentan will get approved. The question is what kind of a label is it going to have? And that just depends on really what the safety data is going to look like. But unless and until we have unblinded the Phase III studies, we really don't know.

William Tanner - Leerink Swann

So then if you were to size the market based on the exclusion criteria that you put it in in the Phase III, what would that number approach in the U.S. ballpark?

Kevin Young - Executive Vive President of Commercial Operations

I think they will have something that we probably hold back on right now. I mean we really do want to see the data and see the full profile. And I just think it's a bit too early to comment on that.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

But then I want to just in a qualitative way say that the exclusion criteria that we have on our Phase III studies do not in any way diminish the market size. It simply means that the high risk patients are at this point not being treated with darusentan. We can always address that small patient population in a follow on study.

William Tanner - Leerink Swann

Just keeping the trial simpler I guess in design.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

Yes.

William Tanner - Leerink Swann

All right, thank you.

Operator

Our next question comes from the line of Phil Nadeau with Cowen & Company. Go ahead.

Phil Nadeau PhD - Cowen & Company

Good evening. Thanks for taking my question. My questions is actually on Atripla. I believe Sustiva goes off patent in 2013. Is there any opportunity for you to put generic Sustiva into the Atripla molecule and keep all of the revenue, essentially increasing our gross margin once Sustiva does go generic?

John F. Milligan, PhD - President and Chief Operating Officer

So Phil, there are some provisions in the contract that allow us to have, certainly in the United States, greater control of the price and a greater percentage of the economics. And that changes over about a three year period. So there is sort of a tail period with Bristol-Myers looking to compete. And then beyond that, we have the flexibility to do what we want. Europe is a little bit more complicated, but I guess it's fair to say that ultimately, we could do such a thing. And I can't... off the top of my head, I don't remember the exact timeframe from Europe. So we'll have to get back to you on that. But is does become economically more profitable to us once Sustiva goes off patent.

Phil Nadeau PhD - Cowen & Company

Okay. And have you ever disclosed how much more profitable it becomes?

John F. Milligan, PhD - President and Chief Operating Officer

Could not, that's confidential.

Phil Nadeau PhD - Cowen & Company

Okay. Thank you.

Operator

Our next question comes from the line of Bret Holley PhD with Oppenheimer. Go ahead.

Bret Holley PhD - Oppenheimer

Yes hi, thanks for taking my question. Norbert, I was just wondering what some of the key technical challenges were for the development of a next generation boosting agent and what insight did Gilead bring to the table that other companies perhaps didn't have?

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

I'm sorry, can you say that first part of your sentence again?

Bret Holley PhD - Oppenheimer

The technical challenges with the development of the next generation boosting agent and basically why had been someone else done this complete with 1990 if ever?

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

Well, I don't think I can answer the last question why nobody has ever done it. But I want to tell you we were finally decided this is something we wanted to do because we came to the realization that regular authority would not be very favorable towards using anti abacavir listed with in treatment of the patients. Because if it goes up to fear when you will see, you have the systems locked over to integrated class but also to protease inhibitors. That was our main incentive to say we need our own booster. Now essentially the challenges are we just need a minimum number of safety and efficacy data of course. But other than that, I don't see a particular challenge to develop a booster.

How the booster... if the booster stand alone as just a booster, that's a conversation we have to have with the agents. I think that there aren't a lot of precedents for drugs that are just used for pharmacologic enhancements of other agents. And so the agents, you just have to think about what do they want from a labeling perspective, what would that look like.

Bret Holley PhD - Oppenheimer

Okay.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

But I think it's certainly straight forward.

Bret Holley PhD - Oppenheimer

Thanks. Congrats on the quarter.

Norbert W. Bischofberger, PhD - Executive Vice President, Research and Development and Chief Scientific Officer

Thank you.

Operator

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

Sapna Srivastava PhD - Morgan Stanley

Thanks. Most of my questions have been answered. Just a quick one. Considering your balance sheet, the depressed asset valuation, I mean should we expect an acceleration in business development activities over the next few quarters?

John F. Milligan, PhD - President and Chief Operating Officer

She is asking if we should expect more business development activities in the coming quarters, as I understood it, because of the balance sheet. Our activities in business development are really driven by business need and the opportunity they arise. As we mentioned earlier we have a very full pipeline with many things to work on. In fact we could our total bar higher than we had in the past thinking about that. So we would certainly be opportunistic where things are available, but I...we don't feel the need to do anything at the moment, so we'll be very cautious and we'll only do the right thing fort he company.

Sapna Srivastava PhD - Morgan Stanley

Thank you.

Operator

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

Joel Sendek - Lazard Capital Markets

Thanks, I have a question on Atripla in France. You mentioned that the reimbursement discussions will finish sometime in the first half. Can you... will that translate into a launch in the first half and I was just wondering what's taking so long if you just describe it with the percentage of the market the French represents in Europe?

Kevin Young - Executive Vive President of Commercial Operations

Joel, it's Kevin. Yes, just to explain a little a bit about the process here. You obviously get your EMEA approval and then there is really two steps to go through in France. You go to the transparency committee; that's almost like a technical review. They give you a grading of your product which then leads to the pricing committee giving you the actual price, so it's like a two-step process. We're right now with the longer of the processes which is the transparency committee, so I think we are having a very productive active to description with them. We do see that politically that they have kind of changed their stance and probably tightened, are challenging in terms of a process than they have been in the past.

I don't have the exact percentage of where France sits with regards to HIV, but it is our second biggest market outside the U.S. So it is the biggest of the European markets. Our rankings for HIV in Europe are France number one, Spain number two and Italy and the UK about the same.

Joel Sendek - Lazard Capital Markets

Okay. Thank you.

Operator

Our next question comes from the line of William Ho with Banc of America. Go ahead.

William Ho - Banc of AmericaSecurities

Hey guys. Just want to say great job and really congratulations on the quarter. Just want to follow up on a question about your comments about non-retail sales. Just quickly, is there any risk of additional fluctuations next quarter due to the impact of Hurricane Ike or any of the tropical storms that may have hit either Florida and Texas, those large buying centers you mentioned?

Kevin Young - Executive Vive President of Commercial Operations

We have seen a little bit, a little bit like we saw with Hurricane Katrina. But I think things are getting up and running fairly quickly. So we haven't heard from the field if that's going to have a major impact on Q4 or Q1.

William Ho - Banc of AmericaSecurities

Great. Thanks again.

Operator

Our final question comes from the line of Jason Kantor with RBC Capital Markets. Go ahead.

Jason Kantor - RBC Capital Markets

Thanks for scraping me in here at the end of the call and congratulations as well. In terms of penetration in the HIV market in the U.S., you are... you say you are at about 85% penetration in first line. How high do you think realistically that can go? And then how much pull through to the entire HIV mark would that have over time in terms of what your likely peak penetration could be with your current products?

John F. Milligan, PhD - President and Chief Operating Officer

Hi Jason, it's John Milligan. So just to be clear on what we said about the 85% relates to patients who come on to therapy in the most recent quarter measured, which was the second quarter of last year. So we are getting 8.5 out 10 in that quarter. Overall, we are about 57% of U.S. patients across Truvada, Atripla and Viread. So within two-thirds of patients. I think that that 85% holds; in fact, with a little luck, we can move that up. We should be able to continue to grow that market share in the U.S. along those lines because patients are saying on for extremely long periods of time line either Atripla or as Kevin and Norbert mentioned when they switch to Truvada. In Europe, it's about 55%. So there is clearly a long growth rate for Europe as we continue to focus on the launch of Atripla and continue to move Truvada up.

Operator

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

Susan Hubbard - Vice President of Investor Relations

Great. Thank you, operator, and thank you all for joining us today. We appreciate your continued interest in Gilead and look forward to providing you with updates on our future progress. We'll all be back in our offices shortly and more than happy to take your follow-up questions because I am sure there are many. Thanks so much.

Operator

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

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