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Gilead Sciences, Inc. (NASDAQ:GILD)

Q1 2007 Earnings Call

April 18, 2007 4:30 pm ET

Executives

John Milligan - COO and CFO

John Martin - President and CEO

Norbert Bischofberger - EVP of R&D and Chief Scientific Officer

Kevin Young - EVP of Commercial Operations

Matthew Howe - VP of Finance

Susan Hubbard - VP of Investor Relations

Analysts

Meg Malloy - Goldman Sachs

Geoffrey Porges - Sanford C. Bernstein

Thomas Wei - Piper Jaffray

Yaron Werber - Citigroup

Bret Holley - CIBC World Markets

Matt Roden - JP Morgan

Mike King - Rodman & Renshaw

John Craighead - Lehman Brothers

Michael Aberman - Credit Suisse

John Watkins - Banc of America Securities

Sapna Srivastava - Morgan Stanley

Joel Sendek - Lazard Capital Market

Maged Shenouda - UBS

Philip Nadeau - Cowen & Company

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Gilead Sciences First Quarter 2007 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference call is being recorded today April 18, 2007.

Your speakers for today are John Milligan, Chief Operating Officer and Chief Financial Officer; John Martin, President and Chief Executive Officer; Norbert Bischofberger, Executive Vice President of Research and Development and Chief Scientific Officer; and Kevin Young, Executive Vice President of Commercial Operations.

I would now like to turn the call over to Dr. Milligan. Please go ahead.

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John Milligan

Good afternoon. Welcome to Gilead's first quarter 2007 earnings conference call. We issued a press release this afternoon providing results for the first quarter ended March 31st, 2007, describing the company's quarterly highlights. This press release is also available on our website at www.gilead.com.

Also joining us on today's call are Matt Howe, Vice President of Finance and Susan Hubbard, Vice President of Investor Relations. I'll begin the call by reviewing the first quarter financial results and then I'll provide updated financial guidance for 2007.

Norbert Bischofberger, Kevin Young and John Martin will take you through the product related and corporate highlights for the quarter. We'll have time at the end of this call to answer your questions.

First, I would like to remind you that 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 Act of 1995.

These statements are based on certain assumptions that 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.

I refer you to our Form 10-K for the year-ended December 31st, 2006, subsequent press releases, and other publicly filed SEC disclosure documents for detailed description of the risk factors affecting our business. In addition, please note that we undertake no obligation to update or revise these forward-looking statements.

We will be making references to financial measures that are on a non-GAAP basis. We provide a reconciliation between GAAP and non-GAAP in our earnings press release, which is available on our website.

In short, the first quarter of 2007 was another very successful quarter for Gilead. For the first time in company history, total quarterly revenues exceeded the $1 billion mark driven by record quarterly product sales of $841 million, a 50% increase compared to the first quarter of 2006, as well as significant royalties generated by worldwide Tamiflu sales by Roche in the fourth quarter of 2006.

HIV product sales totaled $705 million for the first quarter of 2007, driven primarily by the strong uptake in Atripla, following its U.S. launch in July 2006, as well as continued strong performance of Truvada and Viread.

In addition, we generated approximately $490 million in operating cash flow during the first quarter of 2007. Our solid operating performance is a validation of significant efforts made by more than 2,500 Gilead employees around the world.

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

Now, turning to the specifics for the first quarter. Our first quarter of 2007 net income was $407 million, up 55% compared to the first quarter of 2006. Diluted earnings per share grew by 55% to $0.85 per share, non-GAAP net income per share for the first quarter of 2007 excluding the impact of after-tax stock-based compensation expense was $0.93 per share on a fully diluted basis, a 57% increase over the first quarter of 2006 non-GAAP net income per share of $0.59 per share.

Now turning to revenues. Total revenues for the first quarter of 2007 were $1 billion, an increase of 48% from total revenues of $692 million in the first quarter of 2006. This is driven primarily by a 50% increase in our product sales, as well as a 41% increase in our royalty, contract and other revenues compared to the first quarter of 2006.

Product sales were a record $840 million for the first quarter of 2007, marking more than three years of consecutive quarterly product sales growth. Compared to the fourth quarter of 2006, total revenues for the first quarter of 2007 increased by 14%. Product sales from the first quarter increased sequentially by 9% as both our HIV and HPV product franchises continue to grow.

Royalty contract and other revenues increased sequentially by 44% due primarily to the recognition of royalties received from Roche's sales of Tamiflu in the fourth quarter of 2006.

HIV product sales grew to $705 million for the first quarter of 2007, up 56%, compared to $451 million in the first quarter of 2006 and up 10% sequentially from the fourth quarter of 2006.

Truvada sales were $346 million for the first quarter of 2007, up 39% compared to the first quarter of 2006, and up 3% sequentially from the fourth quarter of 2006. Truvada sales accounted for almost 50% of our total HIV franchise sales in the first quarter of 2007.

In the United States, Truvada sales were $187 million in the first quarter of 2007, up 4% compared to the first quarter of 2006 and the decrease of 5% sequentially as certain patients switched from a Truvada containing regimen to one containing Atripla.

In Europe, where we began launching Truvada in 2006, sales for the first quarter of 2007 increased sequentially by 13%. Strong volume growth and a favorable foreign exchange impact contributed to the increased sales.

In only the third quarter on the market, Atripla contributed $190 million to our first quarter HIV product sales. As a reminder, Gilead recorded 100% of the Atripla product sales since Gilead consolidated the financial results of our joint venture with BMS.

The economic value of Sustiva, which is distributed back with BMS, is captured in our cost of goods sold line. The Truvada component of the Atripla product sales figure is approximately $120 million of the $190 million with Sustiva comprising the remainder.

Viread sales were $161 million for the first quarter of 2007, down 60% compared to the same period last year and an increase of 1% sequentially. In the United States, Viread sales decreased by 11% compared to the same period last year and decreased 6% sequentially.

In Europe, Viread sales decreased 13% over the first quarter of 2006, but increased 10% sequentially. Sequential increase was primarily driven by volume growth in certain smaller European countries as well as a favorable foreign exchange impact.

Hepsera for the treatment of chronic hepatitis B generated a sales of $71 million in the first quarter of 2007, a 35% increase compared to the first quarter of 2006 and an 8% increase sequentially, driven primarily by strong volume growth in both our U.S. and European markets.

Finally, sales of AmBisome were $62 million for the first quarter of 2007, an increase of 14% over the same period of 2006, and an increase of 6% sequentially. This increase was primarily driven by sales volume growth in various European territories, as well as a favorable foreign exchange impact.

Compared to the same period last year, revenue from our royalty, contract and other revenues for the first quarter of 2007 increased by 41%. This increase was primarily driven by increased Tamiflu royalty revenues recognized from higher Tamiflu sales made by Roche.

Royalties received from Roche in the first quarter of 2007 were $168 million. These royalties, which are paid one quarter in arrears, reflect the royalty rate of approximately 21% as applied to Roche's sales of Tamiflu during the fourth quarter of 2006.

As you may have seen, Roche reported their first quarter 2007 earnings this morning with 865 million Swiss francs or approximately $717 million reported in Tamiflu sales. We therefore expected the Tamiflu royalty revenue that we will report in the second quarter will be a blended rate of approximately 17% of that figure.

Both the royalty rate and the anticipated royalty payment will be lower when compared to the first quarter of 2007, due to the reset of the royalty rates at the beginning of the new calendar sales year as well as the historical seasonality of Tamiflu.

During the quarter we also received an $11 million milestone payment from GSK for the validation by European Medicines Agency of the marketing authorization application for Ambrisentan for the treatment of pulmonary arterial hypertension. We have recorded this amount as deferred revenue on our balance sheet and will amortize these amounts in future period.

Turning to product gross margins. Product gross margin for the first quarter of 2007 was approximately 80% compared to a product gross margin of approximately 84% for the same quarter of 2006, and 80% for the fourth quarter of 2006.

Compared to the first quarter of 2006, the lower growth margins are primarily due to product mix changes, especially the higher proportion of Atripla sales which has a lower gross margin due to Sustiva portion at zero gross margin, partially offset by lower API costs and a lower effective royalty rate on emtricitabine net sales resulting from our Emory royalty buyer.

Gross margin stayed flat from the previous quarter primarily due to the higher mix of Atripla sales, upset by the write-down of inventory associated with our access program in the fourth quarter of last year.

Turning to expenses. Non-GAAP R&D expenses for the first quarter of 2007, which excluded stock based compensation expense were $109 million. This is an increase of 43% from $76 million in the same period of last year, and an $11 million or 12% increase from the fourth quarter of last year.

Expenses were higher primarily due to increased headcount and increased contract service and clinical study expenses related to clinical product development and research activities in our HIV, hepatitis, respiratory and cardiopulmonary program. Non-GAAP SG&A expense for the first quarter 2007, which excluded stock based compensation expense were $132 million.

This is an increase of 4% from $128 million in the same period last year and a 33 million or 9% increase from the fourth quarter of last year. SG&A expenses in the first quarter of 2006 included the write-off of certain capital assets related to renovations in our corporate headquarters.

Higher expenses for 2007 were primarily driven by increased headcount. In terms of foreign exchange impact on pre-tax earnings, we've experienced a $10 million favorable impact in the first quarter of 2007 compared to the same period last year.

This favorable impact, which was primarily due to the stronger European currencies relative to the U.S. dollar take into account the product sales and expenses generated from outside the United States and hedging activities.

Our tax rate for the first quarter of 2007 was 29.9%, a decrease from 31.4% tax rate for 2006. The lower tax rate was primarily driven by increased earnings in lower tax jurisdictions.

And finally, I would like to turn our cash position and operating cash flow to highlight our cash flow performance for the quarter. Our balance sheet at March 31st, 2007 shows cash, cash equivalents and marketable securities of $1.9 billion. This is an increase of approximately half a billion dollars when compared to the balance of $1.4 billion at December 31st, 2006.

The increase during the first quarter of 2007 was primarily attributable to $490 million of operating cash flows generated during the quarter, partially offset by the repayment of remaining principal under term loan of $99 million.

We continue to actively evaluate strategic ways to use our cash and investments, including potential opportunities to in license or acquire products to complement our own internal efforts, as well as the other strategies to enhance shareholder value including our share repurchase program.

Now, I would like to turn to our financial guidance for the full-year 2007. You can locate all of our guidance for the 2007 year on Gilead's Corporate Website. As we are only one quarter into this year, at this point in time we will not be altering any of the guidance we have provided to you in January.

We are very pleased with the sequential quarter-over-quarter growth and our product revenues, particularly HIV franchise. Both AmBisome and Hepsera performed solid in first quarter, as well and while there is no active patients they won’t perform as well in the second quarter, we prefer to wait until the end of the second quarter before making any decisions regarding changes to our guidance.

Therefore, I am reiterating the guidance of 3.4 to $3.5 billion of net product revenues for 2007. This was for direct products sales only and does not include revenue from either royalty revenue or contract revenue.

As a reminder, the expense guidance we are reiterating today will be non-GAAP, which excludes the impact of stock-based compensation expense. We reiterate our full-year expense guidance of 510 to $530 million for non-GAAP R&D expenses, and 570 to $590 million for non-GAAP SG&A expenses.

Although our expenses for the first quarter did not ramp up quite as quickly, as we had anticipated, we fully expect to execute our planned 2007 initiatives and program surrounding the anticipated launch for ambrisentan, the Phase III activities related to Darusentan and the anticipated NDA filings for its premium lighting (ph) for evolution and Tenofir for the treatment of chronic hepatitis B.

Thus, we expect a significant ramp-up of spending beginning in the second quarter, as the evidence by a recent hiring of over 100 sales and marketing personnel in the PAH area in April, and the initiation of several large serial contracts to the Darusentan trials.

Regarding stock based compensation expense we reiterate the 2007 fully distributed EPS impact to be in the range of 27 to $0.30 per share as previously communicated.

Our first quarter expense with higher relative historical run rates primarily due to the expenses of accelerated options for personnel of acquired entities were terminated in the first quarter. We expect the expense to normalize over the course of the year keeping us within the full-year fully diluted EPS impact range 27 to $0.30 per share.

And finally, we are reiterating our gross margin guidance of 78 to 80% and tax rate guidance of 30 to 31%.

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

This concludes the earnings reporting section of this conference call. At this point, I would like to turn the call over to Norbert Bischofberger, who will review research and development highlights for the first quarter of 2007.

Norbert Bischofberger

Thank you, John. Good afternoon everyone and thank you for joining us today. We' pleased to summarize for you Gilead's many accomplishments during the first quarter of this year.

I will start by providing an update on our research and development programs. Then Kevin Young, will review our commercial efforts, and john Martin will close out the call with a few comments about our growing organization.

In the first quarter of this year, Gilead achieved several significant product milestones, which will further our research and development efforts over the course of 2007.

To begin with, our most advanced product candidate, ambrisentan, for pulmonary arterial hypertension. Following submission of our new drug application for ambrisentan in December of last year, we were very pleased to announce that the FDA had granted a priority review with a PDUFA date of June 18th, 2007. Currently, we're in the stage of ongoing FDA review and, therefore, cannot comment on the likely language in the label.

GlaxoSmithKline, our partner for ambrisentan and for territories outside the U.S. was notified that their marketing authorization application for ambrisentan for the treatment of PAH was validated by the European medicines agency following a review by the committee for medicinal products for human use. While GSK will provide updates on their application, we are anticipating the standard 10-month review.

GSK has also recently filed a marketing application for ambrisentan with Canadian regulators. We're very pleased with the progress our partner, GSK, has made with filings in two of their key territories.

We also have important presentations, two oral and two posters, related to ambrisentan at the upcoming American Thoracic Society meeting taking place in San Francisco in May.

The first oral presentation will highlight one-year follow-up data from AMB-222, a study evaluating ambrisentan in patients who had previously discontinued both bosentan or sitaxsentan or both due to LFT abnormalities.

And the second will provide long-term safety and efficacy data from ARIES-E, which is the extension study of patients who involved in either of the two pivotal Phase III studies. The posters will describe important integrated safety and efficacy analyses from our two Phase III studies, ARIES-1 and ARIES-2.

This will be a very important conference for Gilead as we continue to create awareness around the capabilities and positive brand of Gilead with the PAH medical community prior to the launch of ambrisentan.

Turning to aztreonam lysine for cystic fibrosis. Last December we reported positive top-line Phase III results from AIR-CF2, the first of two pivotal studies evaluating aztreonam lysine in cystic fibrosis patients with pseudomonas infections.

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

The data from this study will presented in full tomorrow at the cystic fibrosis therapeutic development network conference in Seattle, Washington, by Dr. Karen McCoy, the principal investigator who is Chief of the section of pulmonology at Columbus Children's Hospital.

The second pivotal Phase III study, AIR-CF1 is evaluating the safety and efficacy of aztreonam lysine versus placebo in people with cystic fibrosis with concurrence pseudomonas infections

The key end points in this study are the improvement in the quality of life, respiratory score, as measured by a patient reported outcome tool, and improvement in FEV1. When we completed enrollment in that study in late January, and we expect to have data by midyear, pending positive results from this second Phase III study, we will be in a position to file a new drug application in the U.S. for aztreonam lysine for the treatment of cystic fibrosis patients with pseudomonas infections in the second half of this year.

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

For a brief update on the Darusentan Phase III program. As you know we're in discussions with FDA to implement certain protocol modifications to study 311, which should speed up enrollment and reduce overalls costs. While these discussions are ongoing, we continue to involve patient in the 311 study under the pre-existing protocol.

In addition to evaluating Darusentan for resistant hypertension and ambrisentan for pulmonary arterial hypertension, we're evaluating opportunities for both Darusentan and ambrisentan in other indications as well. We will keep you informed as to our decisions on this front as they evolve.

Turning now to hepatitis. The two Phase III studies evaluating Tenofovir DF for hepatitis B were fully enrolled in the middle of last year. We expect to have data available from both of these studies in the middle of this year with a potential filing both in U.S. and the EU anticipated prior to year-end.

In March of this year, Gilead and our partner, Achillion announced our decision to discontinue the development of 9132 for the treatment of hepatitis C viral infection, based upon preliminary data from our Phase I/II proof of concept trial.

The data from the first cohort of this clinical study indicated that the compound demonstrated antiviral activity, validating the novel anti-HCV mechanism that involves the inhibition of the viral protein NS4A which binds to NS3 to form a fully functioning HCV protease complex.

However, based on small reversible elevations of serum creatinine, which is a marker of kidney function, we decided to shift their focus to the evaluation of other NS4A antagonists discovered by Gilead to identify lead compound for development. The data from this trial were presented in more detail at the European association for the study of the liver in Barcelona just last week.

While we're disappointed that GS 9132 did not warrant advancement, we're very encouraged that the mechanism of action had been clinically validated. Even at the low dose studied of 300-milligram BID for five days, we observed significant reduction in hepatitis C viral load. We're working to identify next-generation compound and if successful, Gilead will lead the clinical development.

In addition, Gilead is also evaluating a novel non-nucleoside polymerase inhibitor GS 9190 in HCV infected patients in a Phase I study. This first part of the study, which is now complete, evaluated single escalating doses of GS 9190.

Based on encouraging pharmacokinetic exposure and antiviral activity we are ramping up for the second part of the study, which is evaluating once and twice-daily doses for eight days. The study is designed to enroll 60 HCV infected patients in total and is assessing safety, tolerability, pharmacokinetics and antiviral activity of GS 9190. We anticipate beginning this segment shortly and hope to have data available from this study in the third quarter of this year.

Turning now to our HIV programs. Last October we, along with our partners, Bristol-Myers Squibb and Merck, announced submission of Atripla marketing authorization application to EMEA in European Union. Based on our expectation for a standard review by EMEA, approval of Atripla in the European Union could occur late in the second half of this year.

In February of this year, we presented the results from the 24-week Phase II dose ranging study of our lead Integrase inhibitor for HIV GS 9137 or elvitegravir as it is known at the conference on retroviruses and opportunistic infections in Los Angeles.

The study compared three doses of elvitegravir, 20, 50 and 125 milligrams. Each boosted with a 100 milligrams of retonovir to a boosted protease inhibitor arm, all in combination with an optimized background regimen consisting of nuclear sites with or without T-20.

Due to the fact that it at the initiation of this study we did not have any information on drug interactions of elvitegravir with protease inhibitors, the use of protease inhibitors in the elvitegravir arms of the study was not allowed.

Importantly, elvitegravir was well-tolerated, no dose relationship was observed for treatment emerging late three or four adverse events, laboratory abnormalities or discontinuations of study drug, and the incidence and severity of events across the safety and tolerability parameters were similar between the elvitegravir and comparative arm of the study.

The study met its primary efficacy endpoint and showed statistic in a superior reductions in viral load, among HIV-positive treatment-experienced patients under 125 milligram elvitegravir, plus 100 milligram retonovir arm compared to the controlled boosted protease inhibitor arm.

All doses showed a potent initial antiviral effect, but there was a high rate of virological breakthrough on the 20-milligram elvitegravir arm by week eight. Based on these observations and as we have previously disclosed, we amended the protocol to discontinue the 20-milligram arm and to allow addition of tipranavir or darunavir to the 50 and 25-milligram arms of the study.

Further analysis indicated that the viral breakthrough on the elvitegravir arms occurred mainly in patients who had no agents present in their optimized background regiment that had activity against the resistant HIV strains. In contrast, in patients on the elvitegravir arms with one or more active agents present the potent antiviral effect was durable over 24 weeks.

We have submitted the 24-week data from this study, along with protocols for our pivotal Phase III studies to FDA for review. Over the past several months we've been working on alternative formulations of elvitegravir in order to facilitate more economical scale up, and therefore we're proposing to use a 150-milligram dose, which should provide equivalent exposure to the 125-milligram dose evaluated in the Phase II program when boosted with ritonavir. Following the outcome of discussions with FDA, we will provide you with an update on our next steps.

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

Data from these preclinical studies were presented yesterday and today, at the 2007 annual meeting of the American Association for Cancer Research, which takes place in Los Angeles. The early data shared at AACR have formed the basis for our decision to initiate Phase I clinical studies in cancer patients later this year.

While Gilead's R&D program is not currently focused on oncology, GS 9219 emerged from our efforts in antiviral nucleotide chemistry and cellular targeting and was advanced based on its promising preclinical profile. GS 9219 was cleared for Phase I human clinical trials by FDA following our IND submission for the compound in late 2006.

We expect to initiate a Phase I study in patients with non-Hodgkin's lymphoma and chronic lymphocytic leukemia later this year at cancer centers in the United States. Based on the outcome from this study, we will make a decision about the development and potential commercialization path of this compound.

In summary, I am proud of the research and development advancements we achieved over this quarter. We have many exciting opportunities to work on over the course of this coming year, and look forward to keeping you updated on our progress.

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

Kevin Young

Thank you, Norbert and good afternoon everyone. To begin, I'd like to provide an update on the commercial progress of our HIV franchise. During the fourth quarter, the total number of patients treated with antiretroviral therapy, in the United States, increased to approximately 500,000, a 5% increase over the prior quarter, the largest quarter-over-quarter increase we have seen in recent years. I will touch upon the drivers of market growth later.

I am very pleased to be able to announce that based on Q4 2006 market data in only second quarter of launch, Atripla became the number one regimen in HIV. Furthermore, based on recent weekly prescription data, the Atripla uptake nine months post launch continued to exceed the uptake of all antivirals launched since the advent of cough therapy.

Other key launch-related highlights from the most up-to-date third-party patient data available from the fourth quarter of 2006 include, approximately 75,000 patients were receiving Atripla therapy, a 120% increase from the third quarter 2006. When there were 34,000 patients on Atripla.

In naive patients, the launch of Atripla has significantly altered the treatment regimens patients start on. Before the launch of Atripla, there was a relatively equal split between the use of third agents, namely protease inhibitors and NNRTI's.

As we ended the fourth quarter of 2006, 60% of naive patients started on NNRTI's, compared to 40% who started on protease inhibitors. Across all lines of therapy, PI still lead NNRTI's 53% to 47%.

Consistent with the information we provided last quarter, approximately 30% of Atripla prescriptions came from patients new to therapy and nearly 70% came from switches. Of the switch patients, approximately 30% came from non- Gilead regimens.

That still remains approximately 19% of the total antiretroviral treated population on Combivir containing regimens. In 27,000 patients on Combivir plus Sustiva. Switching patients from Combivir, Epzicom or Trizivir regimens remain our targets for moving patients to an Atripla regimen.

Turning now to our overall HIV franchise. In the fourth quarter 2006, Gilead's HIV franchise commanded the top four treatment regimens in HIV. With Atripla being the numbers one prescribed treatment in just a second quarter post launch, followed by Truvada plus Kaletra, Truvada plus Sustiva and Truvada plus Reyataz.

Total Truvada, the term we used to describe the sum total of Atripla plus Truvada patients accounted for 82% of new start in treatment naive patients up from 76% in the third quarter of 2006 and 66% just prior to the launch of Atripla. Importantly, as we exited the first quarter 2007, tenofovir and emtricitabine are the two most prescribed molecules in HIV with FTC passing 3TC in March 2007.

Number of patients receiving the tenofovir molecule grew by nearly 10% Q4 2006 over Q3 2006, to approximately 288,000 patients, which represented 58% of all treated patients, up from 263,000 patients or 56% of all treated patients.

Based on multi prescription data received from Walter School of Health, Combivir's total prescription market has decreased by 25%, since the Truvada launched in August 2004.

Reflecting our efforts to take market share from our competition, as of the fourth quarter of 2006, the number of patients receiving Combivir has decreased by 32% since the launch of Truvada. And strikingly, the number of naive patients starting therapy with Combivir has fallen off from a peek of well over 60% to just 9% in the fourth quarter 2006.

We see continued opportunities to grow our HIV franchise, not only based on the approval of our drugs but also based on overall market dynamics that continue to continue to unfold in the U.S. and Europe. I will briefly touch upon the most relevance of these.

We have briefly discussed the new CDC guidelines published in September of last year. The impact of these new guidelines, the Ryan White CARE Act that was reauthorized in December of last year, as well as other HIV awareness programs have all impacted the growth of the HIV market.

A recent article ran in the March 17th, 2007 issue of the Journal of the American Medical Association demonstrates how small changes to a public health program's written consent policy can have a significant impact on market dynamics.

In May 2006, the San Francisco Department of Public Health and medical care system, which includes an acute care hospital, a long-term care facility, a modern 15 primary health centers, eliminated the requirement for written consents.

As NSS the association between the policy change and the rate of HIV testing, the results was a 50% increase in the number of HIV positive tests per month. This type of change will continue to drive the number of patients initiating therapy.

The combination of the improvements in HIV treatments and patients living significantly longer should cause the overall market to continue to experience robust growth similar to the 9% level what we have seen over the last 12 months.

Turning to our HIV franchise performance in Europe, Truvada, is the leading branded NRTI in all big five EU countries and continued to build on a strong launch across the region.

In naive patients, Truvada has increased its market share to almost 50% in the fourth quarter of 2006, an increase from the 39% in the prior quarter. Truvada has also continued to increase its share of patients that switch therapy from Combivir.

In the fourth quarter, of 2006, Truvada captured 52% of all patients that switched from Combivir. Combivir switches still represent significant opportunity with an estimated 40,000 patients remaining on Combivir based regiments in the big five EU countries.

We've also seen Truvada plus Sustiva continue to extend its lead for patients initiating therapy. Growing to 22% patients share followed by Truvada plus Kaletra, with 14% while Combivir plus Sustiva declined to just 3%. This milestone is very important, as we anticipate the approval Atripla in Europe later this year.

In summary, the uptake dynamics of Truvada in Europe followed that of the U.S. albeit we have seen a stronger showing from GSK with Kivexa. We look forward to furthering the momentum with Truvada and continue to target both naive and switch patients.

Turning briefly to Hepsera. In the United States, Hepsera continued to be the leading antiviral agent for the treatments of chronic hepatitis B. Despite the launch of two products in this space over the past 24 months, Hepsera has exhibited quarter-on-quarter growth in total prescriptions each quarter. First quarter 2007, was no exception.

As we exited the first quarter of 2007, Hepsera maintained its place as market leader with a TRX share of 50%. The pool of hepatitis B infected patients treated with oral antivirals in the U.S. increased by 50% over the past 24 months from 32,000 to just over 48,000. Our formulary position remains strong on all national plans relative to our competitors.

We remain committed to protecting our market share, as we believe the long-term safety, efficacy, and resistance data we have generated for Hepsera positively differentiates its profile.

In the Gilead territories outside the U.S., Hepsera made steady gains in market share against lamivudine particularly in Southern Europe. Hepsera has exited the fourth quarter of last year, up 39% market share, up modestly from the previous quarter. During the fourth quarter, one notable milestone took place in France with Hepsera surpassing lamivudine for the first time.

Turning to anti-fungal AmBisome. AmBisome recorded another solid sales quarter at nearly $62 million, up from $58 million in the fourth quarter of 2006. AmBisome continued to maintain its market position thanks to strong brand reputation as a proven treatment for confirmed invasive fungal infections.

And finally, a few comments about the growth of U.S. commercial operations that you will see in the second quarter of this year. As we said earlier in the call, we have a PDUFA date for Ambrisentan on June the 18th. And in anticipation for a favorable outcome, our launch plans are in high gear.

We have virtually completed the hiring and build-out of our sales force with trainings slated to begin this month. Our new Ambrisentan sales team incorporates the previous Flolan team and depending on FDA approval timelines will promote either Flolan alone for a period, or immediately promote Ambrisentan plus Flolan.

In summary, I am very pleased with our performance during the first quarter of 2007. Especially the position achieved by Atripla in the U.S. and the continued growth of Truvada in Europe.

I will now turn the call over to John Martin for an update on our corporate milestones. John?

John Martin

Thank you, Kevin. I’d like to take a moment to recognize the recent appointments of John Milligan to Chief Operating Officer, and Norbert Bischofberger to Chief Scientific Officer.

John, who joined Gilead in 1990, has served as Gilead's Executive Vice President since 2003, and Chief Financial Officer since 2002. His new role as Chief Operating Officer, John will oversee Gilead's commercial organization, manufacturing, finance and business operations and will continue to serve in the role of Chief Financial Officer until a new CFO is identified.

Norbert has served as Executive Vice President of Research and Development since 2000, and has been a member of the Gilead management team for 17 years. As Chief Scientific Officer, Norbert will oversee all aspects of Gilead's research and development efforts including our recently acquired Seattle, Washington and Westminster, Colorado programs in the feeds of respiratory and cardiopulmonary therapeutics as well as our Edmonton, Alberta operations.

With the management team we have in place, I am confident that Gilead's senior leadership team, which includes Norbert, John, Kelvin and also Greg Alton and Kristen Metza has the vision, skills and abilities necessary to lead this company through its next phase of growth.

As Gilead enters its 20th year, we are proud of the many contributions we have made to help address life-threatening diseases worldwide. And we look forward, and looking forward, we have numerous and significant research, development and commercialization goals to complete this year. With an expanded therapeutic focus we look to the support and efforts of our growing and talented employee base of more than 2,500 to help achieve these goals.

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

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Meg Malloy representing Goldman Sachs. Please proceed.

Meg Malloy - Goldman Sachs

Great. Thank you very much. Good afternoon. I guess the two questions would be then, on the HIV Integrase, is it possible that you may have to do additional Phase II studies before you went into the Phase III with the 150?

And then secondly, for Kevin, I just missed the number, but could you quantify in the U.S. the potential Combivir switches that exist, as well as, other candidates on other NNRTI's please? Thank you.

Norbert Bischofberger

Meg, I'll answer the first question. To make it of course always possible that the FDA asks us to do another Phase II study, but we of course believe and the data speaks to that, and that's the package that we submitted to FDA that we are very confident that the existing Phase II study and the data that we have will support moving into Phase III.

Meg Malloy - Goldman Sachs

And Norbert, if I may. What about the impact on different protease inhibitors, is a one dose, the 150 mg dose adequate to handle that?

Norbert Bischofberger

Yes, absolute. So, Meg, we as you know, at week eight, week 16, we allowed additional protease inhibitors and we actually have data that support once you use protease inhibitors, the viral loads, the effect is very durable.

And by the way, the other thing is the 150-milligram dose, that's not really an issue, it's simply a new formulation that has a little bit less bioavailability than the 125-milligram dose that we used previously but you end up with the same exposure.

Meg Malloy - Goldman Sachs

Okay. Thank you.

Kevin Young

Hi, Meg. It's Kevin, in terms of your question about patients. In the fourth quarter, 70% of Atripla came from switches, quite a lot of that was Truvada plus Sustiva. 30%, all of that 70% was from non-Gilead, the majority of that was Combivir plus Sustiva.

If you look at the population that are still remaining, there are approximately 27,000 Combivir plus Sustiva patients, they were the most obvious targets for us to go to switch for Atripla. And still remains 39,000 Trizivir patients and 48,000 Epzicom patients. So they're clearly the buckets that we will be targeting.

And last but not least, there will be further switching of our Truvada plus Sustiva bucket, which currently is running at the end of the fourth quarter at about 40,000 patients.

Meg Malloy - Goldman Sachs

Great. Thanks, I'll get back in queue. Thanks.

Operator

From the line of Sanford Bernstein with the next question we have Geoffrey Porges. Please proceed.

Geoffrey Porges - Sanford C. Bernstein

Yes, thanks very much for taking the question. Just a follow-up on the Integrase inhibitor. Could you talk a little bit more about your overall strategy there? Is this likely in your view to advance to be a front line drug, and if so, do you envision it replacing the NNRTI for replacing protease inhibitor?

And related to that, you feel that even the 125-milligram dose as an adequate dose given the competitive landscape that you face with Merck? It didn't look as though you had reached those some of thing any toxicities at that higher dose. So, are you considering pushing the dose of the Integrase inhibitor to an even higher dose than the dose that you tested?

Norbert Bischofberger

So you asked a number of questions, Geoff, I'm going to answer it as well as I can, if I haven't done answered all of it, just mention it.

So first of all, in the Phase II study, we really didn't see a big difference between the 50 and 125-milligram dose, and that's why we're convinced, if we're not at the top end, we're certainly at the upper end of the dose response curve. And the 125-milligram or 150-milligram equivalent dose will be the dose that is the right dose to take forward into Phase III.

With regards to pricing, that's certainly too early to talk about any effect.

Geoff Porges - Sanford Bernstein

On the first line?

Norbert Bischofberger

On first line, so, yes, initially, of course, we're going to look at experience patients and our study that we're proposing would be very similar to the study that Merck has carried out and that they presented at CROI in Los Angeles.

And we will then, you know, after we've established safety and efficacy in experienced patients, we are planning or we have to think about how do we go into first line treatment.

Geoff Porges - Sanford Bernstein

But, so I know, just to be clear on that. I wasn't asking about pricing, I was particularly wondering about do you envision that the Integrase inhibitors will replace the NNRTI's primarily, or will replace PI's or will we be using sort of four our five drugs?

Norbert Bischofberger

Well, I think in the experienced population, Geoff that will be used as an additional choice for patients that don't have any other options anymore. In the naive patients it really depends on what ultimately the safety and particularly safety and tolerability is, if they turned out to be really safe and no issues and very well tolerated, then they could certainly replace the existing first line NNRTI’s and PIs from the regimens absolutely.

Geoff Porges - Sanford Bernstein

Okay. Thanks very much.

Operator

From the line of Piper Jaffray with the next question, we have Thomas Wei. Please proceed.

Thomas Wei - Piper Jaffray

Hi, thanks very much. The first question is just on, some help on reconciling the sequential sales growth period. It looks like tenofovir sales were up only 3% on a quarter-over-quarter basis, despite the fact that the IMS prescription growth shows an even bigger number and there was a price increase taken at the beginning of the quarter.

Can you just help us understand some of the dynamics around the U.S. HIV franchise?

And then on GS 9190, you mentioned that you were moving forward based on antiviral activity that had been seen. Can you help us understand the magnitude of the viral reduction that you saw?

Norbert Bischofberger

Maybe I'll answer the second question first, Thomas, before, while Kevin tries to get the answer to the first one.

I would prefer not to further elaborate on it, but we are excited about the agent because we have seen a reduction in HCV RNA with just single dose application. And that's what makes us excited about moving ahead into the next phase, the multiple dose phase of this study.

Susan Hubbard

And apologies. This is Susan, can you just clarify your first question on tenofovir, we were not sure if you talking about Viread or all in tenofovir?

Thomas Wei - Piper Jaffray

All in tenofovir, it looks like the volume growth and IMS data is 4% on a quarter-over-quarter basis. There was also a price increase at the beginning of the quarter. But it looks like from a sales standpoint, it was only up a few percent, maybe 3% quarter-over-quarter?

Kevin Young

I think Thomas, we'll have to get back to you on that one. I don’t think we’re quite understanding your question. So, perhaps we could get to you on that.

John Milligan

Well, I think, we understand it, I think we have to back out with the tenofovir molecule. Sure we don’t have it in front of me. So I can’t calculate that, that quickly Thomas.

Susan Hubbard

We'd be happy to follow up with you after the call.

Thomas Wei - Piper Jaffray

All right, thank you.

Operator

Representing Citigroup, the next question comes from Yaron Werber. Please proceed.

Yaron Werber - Citigroup

Yes, hi. Good afternoon. Nice quarter. The first question just has to do sort of follow-on on Thomas' question. Can you, is there any why you can share with us what did you see in terms of inventory globally for your HIV products?

John Milligan

Sure. I mean, if you look at the way we exited the fourth quarter versus the way we exited the first quarter, inventories were largely flat across where we were. So Truvada had come in right in the midrange of our specifications with the wholesalers.

Viread was right in the mid-to-lower range of the inventory. Atripla, we exited the quarter on the lower end, actually, in fact, we were below where we would have liked to have been.

At the end of the fourth quarter, and at the end of the first quarter, we're a little bit lower still. So we didn't quite make up that difference. And that's not usual with a growing product that it's tough to keep that inventory at the level you want to, especially one growing as fast as Atripla.

So we're a little below on Atripla. Across all our products, we're right at the lower end of where we want to be.

Yaron Werber - Citigroup

Okay. And then in terms of just the -- to the extent that you can comment on your guidance, the first quarter certainly was a pretty strong quarter yet you are opting at this point not to change your guidance, which is not necessarily atypical given what you typically do in the past. But what you are looking for to want to revise this guidance or is there anything that you can share with us that maybe can help us understand as to why you're not revising at the moment?

John Milligan

When we were looking at the quarter, a couple things stood out for me. One was that Ambrisentan came in stronger than we had anticipated, which was good news for us. We see volume growth, so that's a big indicator.

Ambrisentan does sometime end up being a little lumpy because of certain outbreak scenarios and so there were some examples of that. And then Hepsera came in much stronger than we had anticipated from our modeling as well.

And so, largely it was a result of wanting to measure those quarter-over-quarter and to make sure that was a robust sales level going forward, and not the result of anything anomalous.

We couldn't identify anything anomalous, but sometime it's tough to go back into a quarter this quickly and figure out that something else is going on there. That was largely the driver of the conservatives.

Yaron Werber - Citigroup

Great. Thank you.

Operator

With CIBC World Markets, you have a question from the line of Bret Holley. Please proceed.

Bret Holley - CIBC World Markets

Yes, hi. Thanks for taking my question. Norbert just a question on the NS4A antagonist program, I think you said in your prepared remarks that you were looking at Gilead-discovered compounds.

Previously, I had understood that you were working on Achillion discovered compounds. Is that to chase the timeline at all for the refractive clinics for this program?

Norbert Bischofberger

No actually, Bret I did see Achillion discovered compounds. So we’re looking through those compounds, evaluating them, in various tests and hopefully identifying a development candidate. But, once we update development candidate identified, then Gilead will take over the clinical development of that compound. That's what I see.

Bret Holley - CIBC World Markets

Okay. And I think previously you said the possible time line to return to the clinic is the first half of 2008. Is that still your anticipation?

Norbert Bischofberger

I don't think we said that, because, we're a little bit reluctant in the absence of having an identified compound to give any time lines. We hope, of course, to identify the compound fairly quickly, but you never know.

Bret Holley - CIBC World Markets

All right.

John Milligan

Roughly clear. I've been asked that question in the past, I think the way I've said it, I think it would be hard from where we are to do anything this year. So at the very best, it would be sometime next year. But as Norbert point out, we don't have a compound we had identified.

Bret Holley - CIBC World Markets

Okay. Thank you very much.

Operator

And your next question comes from the line of Geoff Meacham, representing JP Morgan. Please proceed.

Matt Roden - JP Morgan

Hi, this is Matt Roden in for Jeff today. Thanks for taking our questions. I was wondering if you could comment on the drivers of HIV market growth, talking about the elimination of the requirement for written consent, and the CDC recommendations for routine testing. To what extent are these drivers dependent on adoption at the local level? For example, states basically are overturning the requirement for written consent?

John Milligan

Yes, that's a really good question, Matt. You know, we've talked about the overall driver of being the CDC recommendation to change from a, sort of to an opt-out kind of strategy where patients would normally get tested unless they don't want to be, rather than having to go to significant informed consents to be tested basically.

And so, we are seeing some local adoption, but as you pointed out, there are a number of states that have legislation that are inhibitory towards moving down that pathway.

We are seeing some good movement, specifically here in California. The California State Assembly had a committee on healthcare and recently unanimously endorsed a bill that will go to the full legislature going to an opt-out strategy for all Californians.

So, there are a number of states where this legislation is going. We are pleased to see our California showing leadership in this area to go to the right kind of testing. So, it is happening, it will happen slowly over a number of quarters or years as legislation moves through the specific legislatures throughout the country.

But most of the major states where the HIV epidemic hits the hardest, have such legislation. So we'll have to work through each of those, I mean, I shouldn't agree but the healthcare providers of the nation will have to work through the legislatures to increase the rate of testing.

Matt Roden - JP Morgan

I see. And then as you have seen this growth in a number of treated patients, have you seen any visible evidence that the number of undiagnosed HIV positive individuals has been impacted?

John Milligan

It's much too early to do that. It's always striking to me how consistent the number of HIV infected individuals is that rather be in terms of new infections and I recognize the CDC methodology only samples 33 states. So, I frankly think we are missing some what's going on out there, some of the dynamics, but that's not the only thing we have visibility to, that's really a national health initiative to try to attract that.

Matt Roden - JP Morgan

Well, thank you very much.

Operator

From the line of Rodman & Renshaw with the next question, we have Mike King. Please proceed.

Mike King - Rodman & Renshaw

Hi. Good afternoon guys. Congratulations on a great quarter. I wanted to focus on Hepsera for a minute. John Milligan, you said that your TRX share is about 50%, but that's down a bit from a year ago when it was closer to 60% and Baraclude continues to make gains.

So, I am wondering if you could just talk about the longer-term strategy of how you expect to switch from adefovir to tenofovir especially in light of some of the long-term Baraclude data that was just presented over AASLD with a very low four-year resistance rate?

John Milligan

Yeah. That’s a good question Mike. So the percentage that we have in terms of the Hespera market has gone down, although the number of patients on Hespera has increased, and that’s because the overall number of patients being treated has increased, and that has been driven somewhat by the launch of Baraclude over there.

So, we're so pleased with the continued performance of Hespera, and also very pleased with the growth of the product in Europe in particular and so that's quite pleasing to us.

In particular, in Europe, we’re using it, it's being used more often than not on patients who failed with medicine and as you know, Baraclude is not a good drug for patients who have failed for medicine because of the high failure rate there. So, I think we have a particularly important un-mathematical need that Hespera seems to fill that the other existing improved therapy do not fulfill.

And for the future we know that Hespera, patients who benefit from Hespera have a very low propensity that now offers us at even over five years. So those who go undetectable through year one did very well throughout their therapy. It's those other patients that were worried about and that's why I think Viread has the potential to have broader coverage across those patients, drug and viral load down faster than Hespera and having a more complete response overtime. So, clearly the future of the product is Viread.

Mike King - Rodman & Renshaw

What's the competitive message now?

John Milligan

That we have a very good package for Hespera of safety, efficacy as well as excellent resistance profile. So, I think if you put those three together, it's a very nice package, I think and when you think of the five year data that we have, I think has not been recreated by others as yet.

That's a very, very good all around proposition for physicians. I would also just say as well, I think there are questions around the design of that, the original design of the antagonist study, and I think you do get a mixed reaction to that study in terms of its ability to truly track the resistance profile of anti Viread.

Mike King - Rodman & Renshaw

Why are you saying they're selected patients or what?

John Milligan

Yes, at week 48, Mike, patients were -- part of the patients were discontinued and so it’s not really where is on the death of your arm, everybody that reached week 48 and consented to continue was continued out for five years. So our resistance…

Mike King - Rodman & Renshaw

Okay.

John Milligan

The resistance development that we quote is a truly the best, you can do resistance development in all patients that receive Hespera for five years.

Mike King - Rodman & Renshaw

Okay. So their analysis is sort of a completed analysis, yours is more of an intention to treat?

John Milligan

No, it's more, it's not a way how you analyze it is at the -- in the BMS Phase III studies, at week 48, the patients that had the best response and that had no response were discontinued.

Mike King - Rodman & Renshaw

Right. Okay. Got it. Okay, thanks.

Operator

And representing Lehman Brothers with the next question, we have John Craighead. Please proceed.

John Craighead - Lehman Brothers

I just wanted to follow up on Hespera. Given the difference between the price of Hespera compared to the price of Viread, I was wondering how we should think about the launch of Viread in HPV and how that could impact the utilization of you adding the HIV salvage there setting.

And then secondly, maybe if it's relevant, you could break out the portion of Truvada sales coming from HPV?

John Milligan

We can answer the last one first. We don't track HPV sales either for Viread or for Truvada. So we don't have any idea if there's, if physicians are prescribing it off the package insert. So we don't have any information there for you.

Norbert Bischofberger

You're quite right, there is a large differential between the Hepsera price and the price of Viread. Just to point out that we did take a price increase on Hepsera on the second of April. That was a 5% price increase. I think just to answer the question in short, is that subject to positive data, we're going to be very committed behind the launch of Viread in HPV. I think we'll put our full force, our field force and our marketing efforts behind Viread. So I think it will be a case of very much Viread upfront and then we will decide this sort of position, the secondary position in Viread downstream from or behind Viread.

John Craighead - Lehman Brothers

And then in HIV, is there any impact on salvage settings?

Norbert Bischofberger

We do know that the majority now of Viread is now slipping into the third line in the salvage setting. Again, coming back to price, because of that, we did separate the price of Viread from the components of Truvada at the beginning of the year, as I think you know and took a 9% price increase of Viread then.

John Craighead - Lehman Brothers

Sure, thanks.

Operator

With Credit Suisse you have a question from the line of Michael Aberman. Please proceed.

Michael Aberman - Credit Suisse

Hi guys. It may have been asked, I just want to clarify again. The GS 9137, do you have plans to, is your negotiation with the FDA including going in the naive patient population and do you expect needing additional clinical data before you go into that population?

John Milligan

At the moment, it is our intent not to initiate, immediately initiate studies in naive patients and one concern that the agency has and there are also other people have, is the use of Retonovir concurrently with 9137. So the hypothesis is that if you feel, if a naive feels that regimen potentially the patient could develop resistance to two classes of agents, to protease inhibitors and Integrase inhibitors.

Again, this is a potential concern. We do strongly believe that resistance development is dependent on ongoing viral replication and if you have a fully suppressive regimen, you can't have any resistance development. But again, our strategy is to first show efficacy, safety in experienced patients and than use that information to move into naive patients subsequent to that.

Michael Aberman - Credit Suisse

In that regard, if you generate any data on whether there's cross-resistance between your Integrase and Merck's, aren't they going to have some upfront patients?

John Milligan

Yes, I am not in a position yet to give you the answer, but that's ongoing work. Absolutely, we genotype, phenotype every patient, we look at the Integrase gene, we look at resistance, mutations that develop and look across resistance to the 518 compound.

Michael Aberman - Credit Suisse

And then, I guess the last question on 9190 for hepatitis C. You know, polymerase inhibitors are getting to be competitive in price and development. What should we be looking for and what are you looking for internally in terms of viral load reductions as a goal for this to be sufficient to move forward?

Norbert Bischofberger

You know, we don't have a predefined viral load goal internally. If we see a meaningful reduction in HCVR need in combination with other agents, for instance the Achillion NS4 inhibitor that would make for a very nice. I mean, that's what we're going after ultimately, it should be combination therapy with oral antivirals.

Michael Aberman - Credit Suisse, First Boston

Okay.

Norbert Bischofberger

And if you think about the HIV analogy, some of the nucleosides don't really have a huge potency in terms of HIV RNA reduction, but in the context of a triple combination regimen, they work really well. And that's kind of our philosophical approach to HCV.

Michael Aberman - Credit Suisse, First Boston

And so with your original data that you've seen single dose confirm, so the idea that the polymerase inhibitors are perhaps not as potent potentially as the protease inhibitors and you will need to be using combination unlike, let say another agents out there that have…

Norbert Bischofberger

No, I'm not at the point yet even I’m saying that we simply have to look at how does the viral load reduction look at multiple administrations over eight days. But it's very encouraging that we do see antiviral effect even with one single administration.

Michael Aberman - Credit Suisse, First Boston

Great. Thanks.

Operator

And your next question comes from the line of John Watkins with Banc of America Securities. Please proceed.

John Watkins - Banc of America Securities

Thanks for taking my question. Just when thinking about Atripla, the roll out in Europe, how long do you think would take, roll it out across the whole continent? And also I'm thinking about price of Atripla in Europe, but we had discussion since we have had agency over payers you yet?

Norbert Bischofberger

Well, probably the best benchmark to use is obviously what happened with Truvada. And we rolled out Truvada in Europe in the space of 11 months, which we felt was a pretty good timeframe. And we certainly would be looking to match that if not beat that if we can with Atripla.

I think, if we are able to have approval by the end of the year, I think we'll probably only likely to have a couple of markets with a commercial launch and that's likely to be the countries that don't need initial pricing approval and that's Germany and the U.K.

In terms of price, we are certainly going to be looking for at least one plus one, so that's Truvada plus Sustiva. And again, based on our and I think our success with Truvada, we think we can do that. And that's certainly our goal.

John Watkins - Banc of America Securities

All right. Thank you very much.

Operator

And representing Morgan Stanley with the next question we have Sapna Srivastava. Please proceed.

Sapna Srivastava - Morgan Stanley

Yes. Hi. Thanks. Two quick questions. One, if you could quantify the impact of foreign currency on your revenues after what the favorable impact was? And secondly, just some more clarity on how you get to the 150 dose of the Integrase inhibitors, how you define that if and why you're going with it, I know you spoke a little bit on it, but also the fact that you didn't even test in your Phase I, how you're getting comfort around that?

John Milligan

So Sapna, I will take the first question. The total impact on revenues was a positive, almost $15 million from foreign currency.

Norbert Bischofberger

And the second question, so this is maybe a little bit confusing, but we used 125-milligram with a certain formulation, a certain tablet in the Phase II study achieved a certainly exposure with Cmax and AUC, a certain value.

And now we have a new formulation, which is likely in essence, it's slightly larger particle size, because of that, the viability is somewhat lower and we have to go to 150-milligram dose. And the projection is that 150-milligram of the new formulation larger particle size will give you exactly the same exposure as the 125-milligram, smaller particle size. What we gain by that is better manufacturing efficiencies. It's fairly straightforward.

Sapna Srivastava - Morgan Stanley

Okay. I got that now, thanks. And so you don't believe that FDA is going to ask you to do another Phase II with the new formulation, and you believe you can likely go with the new formulation into Phase III and if yes, so when do we get patent around this year?

Norbert Bischofberger

The new formulation I strongly believe is not going to be an issue. We do this all the time during development, you work on new formulations, you figure out smaller pill size, its manufacturing efficiencies, and as long as you keep the exposure similar, the new formulation is a non-issue.

Sapna Srivastava - Morgan Stanley

So, you expect to go into Phase III second half of the year as originally anticipated?

Norbert Bischofberger

If we get concurrence from FDA, yes, we're ready to move into Phase III as quickly as possible.

Sapna Srivastava - Morgan Stanley

And just lastly, so when do you expect to get concurrence or the decision from the FDA?

Norbert Bischofberger

Well, it's an ongoing, there's not such a thing as a decision point at any time in the future, it's an ongoing conversation and discussion. But, you know, we are obviously doing our best to get to an answer at ASAP.

Sapna Srivastava - Morgan Stanley

Okay. Thank you.

Operator

With Lazard Capital Market, you have a question from the line of Joel Sendek. Please proceed.

Joel Sendek - Lazard Capital Market

Thanks, a question on the U.S. market dynamics that you mentioned. I think this is the second call in a row that you mention that it's up 9% or the number of patients on antiretroviral driven in the U.S. is up 9%, and it seems pretty dramatic to me, obviously I understand the reasons why looking informed concept, I'm wondering if you can share with us any of your thoughts with regard to how long this type of growth at that level will last?

And if you have any estimates as to what the likely number of patients on antiretroviral treatment will be in a couple years. Could it approach 750, up from the approximately 500 that you have now?

John Milligan

Just to qualify and then I will let, John will chip in here. It was a 5% quarter-on-quarter growth. But on an annualized basis, almost like a moving annual totally, it is 9%.

Joel Sendek - Lazard Capital Market

Okay, fine.

John Milligan

That is a little higher than we have seen. So, clearly there has been pickup in the number of patients going on antiretroviral.

Kevin Young

Those are common question, how long is this going to persist? And we don't have any greater ability to look in the future than anybody else. But we will point out the trends are all favorable as patients are seeking therapy, it seems earlier and their disease whether there is data to support that, that we've talked about previously.

There's an increased rate of diagnosis and with more durable easier to comply with regimens, they are the natural ability of doctors to be more flexible although when they start treatment. And so, I think all those factors are coming into play here. Now, it's interesting we have seen, you know, Truvada at the time of Truvada launch, the number of patients seeking therapy did increase. And so I think it’s the new therapies that are having a big effect on that.

Joel Sendek - Lazard Capital Market

So, you don't have a target number and that you work to in your internal plans?

Kevin Young

Well, yeah, of course we've got a projection going forward, but they're based on assumptions about continued rates of growth or not and in terms of, you look at different scenarios in terms of planning. The trend both in the U.S. and Europe is very positively in terms of growth. And all the dynamics suggest that it will continue to grow substantially over the coming years.

Joel Sendek - Lazard Capital Market

Great, that's helpful. Thank you.

Operator

From the line of UBS with the next question we have Maged Shenouda. Please proceed.

Maged Shenouda - UBS

Sure, thanks for taking my question. Just following up on that, from your market research, is there any information on the percentage of patients or increase in percentage of patients starting treatment who fall into the 200 to 350 CD4 count?

John Martin

You know, maybe that's an ongoing question and with something we're trying to dig into. You really have to go back into patient records, which has a lot of private issues associated with it.

So we, and others are trying to big into find out how that has moved. It just makes sense to me intuitively that that's happening, but we don't have specific dataset but I am aware any published dataset would suggest that's happening.

But it seems to me that logically the trend behind the increase in number of patients seeking therapy that happened. So suddenly there was published data plus new therapies and that was the catalyst.

Maged Shenouda - UBS

Great. And then just following up on another comment you made, you said that total Truvada captured 82% of new patients. I'm just wondering what that means in the future for subsequent lines of therapy.

So, what are the market dynamics around patients going for first line to second and subsequent lines of therapy? And how often does a patient stay on Truvada if they've been captured on first line?

John Martin

Yes, that's another good question. What's the persistence of therapy in terms of the length of time on therapy. So, yeah, we've had patients on now seven years on Viread containing regiments from our early studies.

I don't know if that speaks to how things are working commercially but it does seem to us that the first line therapy is some sort of medium time on therapy is the growing metric as better therapies have come to market over the last two years.

So, we don't quite know the persistence on first line and we have not yet really understood the dynamics of first to second line switches. Obviously we have some data that would suggest you stand Truvada, if you fail in NNRTI and go to a protease inhibitor, but we don't know how that's playing out commercially just yet.

Maged Shenouda - UBS

Okay. Thank you.

Operator

And your next question comes from the line of Philip Nadeau representing Cowen & Company. Please proceed.

Philip Nadeau - Cowen & Company

Good afternoon and congratulations on the strong quarter. I want to ask you a couple questions on your SG&A expense line. You mentioned that there were some write-offs included in SG&A expense during Q1 '06. Can you remind us how much those were?

John Milligan

It was $8 million write-off associated with R&D building that we demolished and are rebuilding. So that was just one-way to compare the quarter-over-quarter growth.

Philip Nadeau - Cowen & Company

Okay. And then I guess my second question is on the guidance. I have to admit I'm a little skeptical in the SG&A guidance. By my calculations, you need to increase the quarterly run rate by about 12 to 15 million per quarter to hit the bottom end of the guidance.

And the only added expenses, I think you've mentioned, are really around the launches of Ambrisentan, and there, I think the typical sales force maybe 50 to 80 people. So that shouldn't make up the majority of that expense increase.

What am I missing? What other expenses do you expect to see in Q2 through Q4 to really bring your expenses up to the bottom end of guidance?

John Milligan

Well, I would say that our guidance is there for a reason. We fully expect to spend the money that we have projected. We've already hired over 100 new individuals. We are building out the organization in a number of different areas, including building out our European sales and marketing infrastructure with new geographies.

I was pleased with the way expenses came in this quarter. But I fully expect that we're going to spend the money that we say we're going to spend for the course of this year.

Kevin Young

Yeah. And Phil, I mean, this is a competitive market in terms of PAH, and we certainly want to ensure that we're putting the right level of investments in the right places, and that's both in my commercial area but also in medical affairs to ensure that we are really profiling what we think is a best in class products. So we certainly are going to back these products.

Philip Nadeau - Cowen & Company

Okay.

John Milligan

Medical affairs is an R&D expense, I just wanted to point that out.

Philip Nadeau - Cowen & Company

Okay. So you've hired 100 people. Do you have any or what specific plans do you have to hire people over the next couple quarters? Is there a number that you can disclose?

John Milligan

We don't disclose that number. We have pretty, I would say, aggressive hiring plan in place for this year because we are growing our organization and we need people across all the different functions to help us move forward.

As we pointed out earlier, it's only 2500 people in this organization. We're covering many geographies and so there's a lot of help that we need in terms of continue to build this business. We're looking for good people here as often as we can.

Philip Nadeau - Cowen & Company

Great. That's really helpful. Thank you.

Operator

Ladies and gentlemen, that's all the time we have for questions. I will now turn the call over to Dr. Martin for closing remarks.

John Martin

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. Thanks.

Operator

Thank you for your participation in today’s conference. Ladies and gentlemen, this concludes the presentation. You may all disconnect and have a good day.

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