Gilead Sciences Q4 2005 Earnings Conference Call Transcript (GILD)

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 |  About: Gilead Sciences, Inc. (GILD)
by: SA Transcripts

Operator

Ladies and gentleman thank you for standing by and welcome to the Gilead Sciences Fourth Quarter 2005 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. At that time if have a question simply press “*” then the “1” on your telephone keypad. If you would like to withdraw your question please press “*” then the “2”. As a reminder, this conference call is being recorded on Monday January 30, 2006. The speakers for the day are John Milligan, Executive Vice President and Chief Financial Officer, John Martin, President and Chief Executive Officer and Kevin Young, Executive Vice President for Commercial Operations. I would now like to turn the call over to Dr. Milligan, please go ahead sir.

John Milligan, Executive Vice President and Chief Financial Officer

Good afternoon and welcome to Gilead’s fourth quarter 2005 conference call. We issued a press release this afternoon providing results for the fourth quarter and year ended December 31, 2005 and describing the company’s quarterly highlights. The press release is also available on our website. Also joining us on today’s call are, Norbert Bischofberger, Executive Vice President of Research and Development, Mark Perry, Senior Business Advisor, Mat Howe, Vice President of Finance, and Susan Hubbard, Senior Director of Investor Relations.

I will begin the call by reviewing the fourth quarter and full year 2005 financial and then I will provide financial guidance for 2006. John Martin and Kevin Young will take us through the corporate and product-related highlights for the quarter and we will keep our comments relatively brief so have time at the end of this call to answer your questions.

First, let me start with the standard Safe Harbor Statement. I would like to remind you that we will be making forward-looking statements relating to financial results within the meaning of the Private Securities Act of 1995. These statements are based on certain assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statements. I refer you to our latest press release and Form 10-K, our quarterly report on Form 10-Q for the first, second and third quarters of 2005, and other publicly filed SEC disclosure documents for detailed description of the risk factors affecting our business.

In addition, during the call today we will be providing you with information and data from clinical studies that have not yet been reviewed by the FDA nor included in our prescribing information. I want to remind you that our sales forces are permitted to promote our products base only on our FDA approved prescribing information and we cannot guarantee that the FDA will approve the inclusion of any of the clinical information or data discussed on this call in our prescribing information.

We’re sure 2005 was another very successful year for Gilead, so that many corporate successes and achievement of significant, several significant financial milestones. Last year, full year total revenues topped up $2 billion mark for the first time in company history. Driven by the continued strong growth of our HIV franchise, we achieved record product sales in excess of 1.8 billion, a 46% increase compared to 2004. HIV product sales total $1.4 billion during 2005 with continued strong sales across all geographies as well successful provide a launch in all the major European countries.

Our 2005 net income was $814 million, up 81% compared to 2004. Diluted earnings per share grew by 74% to a $1.72 and income from operations increased by 76%. In addition, we generated more than $700 million in operating cash flow during 2005. This strong operating performance with the validation of the significant efforts by the more than 1800 Gilead employees around the world and the strategies we have implemented for growing revenues in cash flow for making control investments in our Research and Development program and sales and marketing infrastructure.

Now turning to the specific results for the fourth quarter and full year 2005, Gilead had a strong financial performance during the fourth quarter as our product sales and earnings improved significantly over the fourth quarter and full year 2004. Total revenues were up 65% compared with same quarter last year and 53% on a full year basis driven primarily by higher sales on our HIV product and higher royalty revenue from collaborations of our corporate partners. Yield by our strong top-line growth, fourth quarter 2005 operating income more than double to $362 million when compared to the same period in 2004. For full year 2005, operating income exceeded $1.1 billion. Our full year operating margin improves substantially from 48% in 2004 to 55% in 2005.

Gilead reported net income of $282 million for $0.59 per share on a fully diluted basis for the three months ended December 31, 2005. This compares to $0.24 per diluted share for the same period last year and $0.38 per diluted share for the third quarter of 2005. Our effective tax rate for the fourth quarter before the impact of the qualified foreign earnings repatriation was 32% unchanged from the effective tax rate for the fourth quarter 2004. During the quarter we repatriated $280 million of qualified foreign earnings under the American Jobs Creation Act. The foreign earnings repatriation resulted in a one-time benefit to the income tax provision of approximately $25 million recorded in the fourth quarter of 2005. Excluding this tax benefit non-GAAP net income was $0.54 per diluted share for the fourth quarter 2005.

Turning to revenue. Total revenues for the fourth quarter of 2005 were $609 million, an increase of 65% from total revenue of $370 million in the fourth quarter of 2004, full-year 2005 revenue increased by more than 52% from 2004 to over $2 billion. Compared to the third quarter of 2005 total revenues increased 23%, revenue from Gilead’s product sales increased sequentially by 6% the fourth quarter of this year as well as our HIV and HDV product franchises continue to grow. Revenue from Gilead’s royalty and contract revenue increased sequentially by more that fourfold, due primarily to the recognition of payments received from Roche and relationship to our dispute resolution, which I’ll describe in more detail later.

Net product sales for the fourth quarter of 2005 were $493 million, a 39% increase over the same period last year. This growth is primarily driven by higher HIV and HDV product revenues as well as continued strong sales for AmBisome. HIV product sales grew to $385 million for the fourth quarter 2005, up 47% compared to $262 million in the fourth quarter of 2004 and 6% sequentially from the previous quarter. This growth continues to be driven by strong uptake of Truvada in the United States and the European countries for the product hasn’t launched and the continued strong sales of Viread in US as well as in countries where Truvada has not yet been launched.

Truvada sales were $191 million for the fourth quarter 2005, up 18% sequentially. In the United States, Truvada sales were up 7% sequentially, primarily due to the use of Truvada in patient Immunotherapy and secondarily from switching the patient on other regimen including both containing Viread and Emtriva. Truvada sales in United States were $149 million for the fourth quarter, three times a $50 million recorded in the same period last year, while Viread sales in the US in the same period decreased by 25%.

Outside the US, HIV products sales for the fourth quarter 2005 were 54% to $152 million from $99 million during the same period last year. It was 7% from $144 million recorded in the third quarter of 2005. The increase is driven primarily by the launch of Truvada in the majority of European countries during 2005 as well as strong sales of Viread when compared to same period last year. Truvada is now available in 15 countries outside of the United States including all of the major European countries. To the fourth quarter 2005, Truvada product line in the European countries doubled when compared to the third quarter of 2005. For the full year 2005, total HIV franchise revenues were $1.4 billion representing a 53% increase over 2004.

Hepsera for the treatment of chronic hepatitis B had sales of $51 million in the fourth quarter of 2005, a 43% increase compared to the fourth quarter of 2004 and a 9% increase on the previous quarter. For the fourth quarter of 2005, US and international sales of Hepsera were $24 million and $28 million respectively. For the full year, Hepsera revenues were $187 million, a 66% increase on the $113 million recorded in 2004. Finally sales of AmBisome were $56 million for the quarter, an increase of 1% over the same period last year, and a 2% increase sequentially from the prior quarter sales level. For the full year, AmBisome revenues were $221 million, a 4% increase when that’s compared to 2004. Higher AmBisome sales volumes for 2005 were largely upset by lower price in most regions.

For the fourth quarter of 2005, Gilead recognized royalty and contract revenues of a $116 million compared to $14 million the same quarter 2004, a $26 million for the third quarter of 2005. The significant increase was primarily driven by the recognition of Tamiflu royalties of $81 million related to a dispute resolution, as well as $21 related to royalty Roche Tamiflu sales in third quarter of 2005. As a reminder, we recognized royalties from Tamiflu sales on a one-quarter lag and when include royalties on fourth quarter sales of Tamiflu in our first quarter 2006 results. In regards to the dispute resolution, the $81 million was comprised of $18 million related to the disputed royalties from 2001 to 2003. $12 million related to the reimbursement of the cost of goods adjustment for 2004, and $51 million relating to the updating of royalties payable to us for the first nine months of 2005 based on current year royalty rates instead of the prior year’s effective royalty rate. We anticipate receiving a blended royalty of Roche full year 2005 Tamiflu sales in a range 18% to 19% as previously announced. Roche scheduled to release the earnings on February 1 and we will be monitoring their guidance on Tamiflu sales and evaluated the potential impact on Gilead’s future financial performance.

Turing to gross margins, product gross margin for the fourth quarter of 2005 was approximately 85% compared to product gross margin approximately 86% for the same quarter of 2004. Slightly lower gross margin is due to product mix changes and switches continue occur from Viread a higher margin product to Truvada and also to foreign exchange adjustments. For the full year, gross margins were approximately 86% inline with our guidance of 85% to 86%.

Turning to expenses. Research and development expenses were $69 million for the fourth quarter of 2005, a decrease of 2% from $70 million in the same period last year, and a decrease of 13% sequentially. R&D expenses decrease slightly from the fourth quarter of 2004, primarily due to the $13 million an upfront license fees and hepatitis C collaboration during the fourth quarter of 2004. R&D expenses decreased sequentially mostly because of the $15 million payment Emory related to amending our existing licensing agreement emtricitabine during the third quarter of 2005. During the fourth quarter of 2005, we continued to invest our R&D by increasing headcount as well as clinical and program development activities with a HCV program, co-formulation of Truvada and Vistide and our HIV Integrase products. Total R&D spending for the full year 2005 was $278, an increase of 24% from 2004.

SG&A expenses in the fourth quarter of 2005 were $104 million, up 22% from the same quarter of 2004 and a 5% increase sequentially. The increased spending in SG&A is principally due to increased headcount, as well as expansion of our sales forces and sales and marketing activities, partially offset by lower bad debt expense resulting from higher cash collections in certain European countries. For the full year 2005, total SG&A spending was $379 million representing a 25% increase compared to 2004, the higher spending in 2005 was primarily due to the factors mentioned earlier as well as severance and other expenses associated with the relocation of our European headquarters from France to the United Kingdom.

Leaving back the foreign exchange favorable on an overall basis during the quarter, due primarily to our foreign currency hedge program which offset the impact of a stronger US dollar head on our revenues when compared top the fourth quarter of last year. The total net impact of the foreign exchange on pre-tax earnings for the fourth quarter and full year 2005 was $6 million and $21 million respectively when compared to the same period in 2004. This includes the aggregate foreign exchange impact on revenues and expenses generated outside the United States and the results of our hedging activities.

Finally, I’d like to turn to the cash flow statement and the balance sheet to highlight our cash flow performance for the quarter. The balance sheet at December 31, 2005 shows cash, cash equivalents and marketable securities of $2.3 billion. This is an increase of 40% when compared to the balance of $1.7 billion of September 30, 2005. This increase is primarily due to the $314 million of operating cash flow generated during the quarter which includes payments received from Roche relating to our dispute resolution. In addition, we generated $335 million from our financing cash flow including $300 million of proceeds from our term loan which our Irish subsidiary entered into in order to facilitate our repatriation of our qualified foreign earnings under the American Jobs Creation Act. We are actively evaluating strategic ways to use our cash and investment including opportunities and license acquire company, substantial products to compliment on our own internal efforts, as well as methods to offset solution from employee stock option exercises including potential stock buyback programs.

Now I’d like to turn to our financial guidance for 2006. First, let me talk about the few words on stock option expense. On January 1, 2006 we adopted FAS 123R, which requires all stock-based compensation expense on the income statement based on the estimated value. We expect the EPS impact from stock-based compensation expenses during 2006 to be in the range of $0.15 to $0.17 per share. As a reminder, this estimated impact is dependent upon certain variables, which are not predictable at this point such as our future stock prices and volatility. Our current plan is that as you provide financial results for each quarter this year, we will also communicate the specific impact of stock-based compensation expensing. In our GAAP financial statement, stock-based compensation expenses we recognized and reported in each operating line, expense line specifically cost of sales, R&D and SG&A. The expense guidance we’re providing key today will be non-GAAP and we will not include the impact of stock-based compensation expensing for now. For entire HIV franchise which includes Viread and Truvada proprieting full year 2006 guidance for next, next product sales for the franchise to be in the range of $1.675 billion to $1.750 billion, which is an approximate 20% to 25% increase over 2005. This does not include any revenues from future sales of the fixed dose regimen of Truvada and Sustiva as they are not yet certain as to the time lines of the FDA reviewed and launched. We will update the guidance in quarterly on future earnings conference calls.

Turing to AmBisome, for the full year 2006 we are providing net product revenue guidance of $205 million to $215 million, this slight decrease in revenue year-over-year taking into consideration pricing pressure on Europe and the higher level of competition in the marketplace. Perhaps SIRA we’re providing net product revenue guidance for 2006 of $200 million to $210 million, this modest increase of 7% to 30% over 2005 revenue factors and the impact of existing of potential competitive products in United States and in Europe. I would like to remind you that we have it in the past and won’t be giving guidance on Tamiflu royalties from Roche. We expect Roche to provide guidance on their estimated 2006 pandemic sales in their February 1 earnings call, we do not anticipate that Roche provide guidance on 2006 seasonal sales of Tamiflu.

For providing gross margin guidance for 2006 was 85% to 86%, this guidance also does not include the impact of the potential launch of the fixed-dose regimen, because as I mentioned earlier we are not yet certain as to the FDA review and our launch time line. We will update this guidance to quarterly on future earnings conference call. We do want point out that the launch of the fixed-dose regimen will decrease our product gross margin percentage. Well, without a corresponding impact on our operating or net profit dollars. This is due to the fact that is the majority owner of our joint venture Bristol-Myers still have a consolidate 100% of the triple product revenues and show the economic value of the see with BMS at the gross margin line. Gilead will get the full product margin of the Truvada portion of the triple products, that’s still we now impact on our share the net profit dollars despite the lower product gross margin percentage.

For providing R&D expense guidance for 2006 from $295 million to $320 million, which is the 6% to 50% increase over the 2005 R&D expenses. This range factors in the progress of 5 point products in the more advanced clinical trials as well as the increases in headcount. We have not included any additional R&D expenses for potential new collaborations of products licensing activity and we will update our guidance as appropriate during the year. We are providing SG&A guidance of $430 million to $455 million, a 13% to 20% increase over 2005, this increase over 2005 spending accounts for cost associated with launching and supporting Truvada in various geographies as well as reflecting overall increased headcounts, the majority of which was higher to the course of 2005. And finally, our effective tax rate guidance in the year 2006 is in the range of 32% to 34% driven by the projected growth of our business.

In summary, as Gilead looks ahead, we will continue to make the investments we’ve now considered, promote our product lines. Further develop our pipeline and continue to evaluate opportunities to build a strong and independent global business. This concludes the earnings reporting section of this conference call. At this point, I’d like to turn the call over to John Martin and Kevin Young, who will review our corporate and commercial highlights for the fourth quarter 2005 and provide an update on the milestones we are describing to achieve during 2006.

John Martin, President and Chief Executive Officer

Thanks John. Good afternoon everyone, and thank you for joining us today. We’re pleased to summarize for you Gilead’s accomplishments during the fourth quarter of 2005. I’ll begin by providing a brief corporate update and discussing our pipeline programs. Then Kevin Young will review our commercial efforts and John Milligan will wrap up the call. 2005 was another year of significant corporate accomplishment and growth for Gilead. We now have more 1800 employees in 11 countries around the world. And as John mentioned earlier, full year total revenue surpassed $2 billion for the first time. Before discussing the progress we’ve made on the commercial side, I would like to take a moment to extend my gratitude to George Shultz, for his decade of service on our Board of Directors. Dr. Shultz’s contributions have been valuable to Gilead as our company has grown into a fully integrated global biopharmaceutical company. Dr. Shultz will continue to serve as a Director Emeritus of Gilead and in that capacity, will remain an advisory to our Board of Directors, we are fortunate to continue to benefit from his expertise.

In addition, we were pleased to announce in December that John Madigan has joined our Board of Directors. Mr. Madigan is the retired Chairman and Chief Executive Officer of the Tribune Company and a special partner of Madison Dearborn Partners. We look forward to benefiting from his broad experience. As John highlighted earlier, we announced in November that we have settled our dispute with Roche and expanded our Tamiflu collaboration. In addition to the financial payment, we received in the fourth quarter, and a more favorable royalty arrangement we will benefit from going forward. As a result of the dispute resolution, we gained an important role in the oversight of the manufacturing and commercialization of Tamiflu.

To that end, we are actively participating with Roche in the commercial strategy and planning for product, and working together with elements around the world. In February an important, an important and timely 2 day summit focused on seasonal and pandemic influenza will be taking place in Washington DC. The sponsors are The Infectious Disease Society of America, The Society of Healthcare Epidemiology of America, The National Institute of Allergy and Infectious Diseases, and The Centers for Disease Control and Prevention. Gilead and Roche are providing an unrestricted educational grant for this event along with several other companies focused on influenza treatment and prevention. This meeting will include our diverse faculty of approximately 20 research scientists, physicians, health policy experts and administrators from the private and government sectors.

Notably, special chemo presentations will be provided by Dr. Anthony Fauci Director of the NIAID and Dr. Julie Gerberding of CDC. The program will cover crucial topics including epidemiology of seasonal versus pandemic influenza H5N1 virus, surveillance measures, vaccine therapy and research antiviral therapy approaches to prevention and pandemic influenza planning. We are pleased to be part of this important initiative and look forward to such events in the future.

Finally, I’d like to highlight new evidences such as Tamiflu as a factor against currently circulate H5N1 avian influenza virus, where I missed early, according to an animal study presented recently at scientific conference in London, Tamiflu was able to prevent mortality 100% when administered 4 hours after infection. But it was somewhat less effective when it’s administered 24 hours after infection. Further studies are underway to new pivotal dose of Tamiflu that administered 24 to 48 hours after infection.

Turning to our HIV and HBV franchises, on the scientific front we are proud that our 48 week data fronts study 934 were published in the New England Journal of Medicine just a few weeks ago. They offer conclude that 48 weeks efficacy and safety of the two components of Truvada, Viread and Emtriva are superior to GSK’s Combivir. Notably the most common cause of this continuation for patients on the Combivir arm was anemia which either required treatments with the retropolitan or in seven cases of blood transfusion.

In addition, data from the sub group of patients revealed that those on the Combivir arm had significantly has less limb fat and those on the Viread and Emtriva arm 348. In a preliminary sub analysis of 255 patients at 96 weeks, these trends and the differences and then limb fat persistent with further loss of limb fat gained in patients on Combivir. Data that clearly defined the long-term strategy of our products relative to those, I’m sorry long-term safety of our products relative to those on the markets have been a essential component of our strategy to provide positions and patients with the unambiguous data needed to make treatment choices.

The success of Viread is a directory solid positive data we generated from study 903, which was a head-to-head study versus Zerit, the number one, NRTI at that time, a big Viread launch. Zerit there at one time held approximately 25% of the new prescription market share and since then data from the Study 903 have contributed to the erosion of the Zerit’s market share to less than 6%. We look forward to using the positive study 934 data as soon as they’re included in our label to highlight that the components of Truvada have not only demonstrated a superior safety profile compared with Combivir, but also as superior efficacy as its concluded by the offers in the New England Journal of Medicine article.

In addition to this important publication we generated and present a key data at several medical conferences in the fourth quarter of 2005. Notably the two HIV meetings European Aids Conference and the Interscience Conference on Antimicrobial Agents and Chemotherapy, also known as ICAAC, as well as the American Association for the Study Liver Disease Conference. At both the European Aids Conference and the ICAAC, we were pleased to present positive preliminary data from the COMET study. As you may recall COMET is a 24-week single-arm study evaluating the switching, evaluating the switching from twice-daily Combivir to once-daily Truvada in HIV patient who are also receiving flagrance and who were biologically suppressed. We plan to present the full 24 week data from this study, during the second half of this year.

In addition, we have several other switch studies that are currently enrolling patients and that we believe will continue to illustrate the beneficial profile Truvada over other NRTIs. At the Annual Liver Meeting in November, we had an opportunity to present 5 year efficacy safety and resistance data from Hepsera study 438. This study was conducted in E-antigen negative patients, and after 5 years of treatment with Hepsera demonstrated reversal of signs of liver damage in this patient population. We have submitted these data to the FDA for inclusion in the Hepsera product label and are hopeful we will achieve this milestone by the end of this year. In an increasingly competitive HBV treatment market, Hepsera is the only antiviral supported by positive long-term data. This is an important distinction for physicians and patients to recognize the need for long-term chronic therapy to treat this disease.

Turning to our product pipeline, we made important advances in our pipeline programs in 2005, and achieve several notable success. At the beginning of January 2006, we were pleased to announce with our partner Bristol-Myers Squibb that we have obtained data supporting bioequivalence of a new formulation of the fixed-dose regimen of Truvada and Sustiva. Despite the challenges we faced earlier in 2005, we are able successfully overcome the formulation issues by using a bi-layer technology where Truvada and Sustiva where physically separated in two layers combined in one pill. We are move forward with a pill that is just over 1500 mg in size and planed to file an NDA during the second quarter of this year. At this time, we don’t know the potential review timeline. But we are hopeful that we will be in abbreviated review based on recent precedent. Once approved, this fixed-dose combination will be the first ever, once-daily, one pill regimen available to HIV patients.

Moving to another exciting compound in our HIV portfolio our novel integrase inhibitor GS 9137. As we’ve mentioned few weeks ago, we’ve completed the Phase I/II study evaluating GS 9137, in a 10 day dose ranging mono therapy study on HIV infected individuals. The study shows that GS 9137 is a once-daily compound when administered in combination with Retinovir and achieve Viread low reduction similar to most important protease inhibitors when evaluated as mono therapy in short-term studies. These data will be presented at the light breaker presentation at the conference on Retroviruses and Opportunistic Infections on Wednesday February 8th in Denver, Colorado. We plan to initiate a 200 patient Phase II study for GS 9137 in the second quarter of this year. This study will evaluate three doses, 20 milligrams, 50 milligrams and 125 milligrams of GS 9137, all boosted with 100 milligrams of Retinovir. The study will have a primary efficacy in point of 16 weeks and the study will continue through 48 weeks to develop longer term safety and efficacy data.

Integrase inhibitors represent a promising new target in the field of HIV research given our experience developing novel compounds in HIV, we are able to move forward, one of our internal integrase clinical and GS 9160 and filed it IND in late December. Although it is very early, we believe that GS 9160 may have the potential to be builds only fairly without Retinovir booster. And we anticipate moving into a single-dose Phase I pharmacokinetics trial with GS 9160 volunteers during the first half of this year.

Turning to our Hepatitis development programs, in Hepatitis C our most advanced candidate, GS 9132, is currently being evaluated in a Phase I study in approximately 20 volunteers. We will initiate a Phase Ib biodynamic study of GS 9132 in HPV infected patients during the first half of this year. As you may recall, GS 9132 has a small molecular inhibitor of Hepatitis C virus replication. That will works through a novel mechanism involved in HCV protease, our partner Achillion will lead the development of GS 9132, through the group of concept study at which time Gilead will have some of responsibility for further developments of the compound.

We are committed to bring forward several compounds in the clinical trails in Hepatitis C, and to that end continue to believe that collaborative efforts are necessary to making progress in this field. In November, we signed early stage Hepatitis C research collaboration with four ACA Biopharmaceuticals, a company based in Lockhart, Belgium. We’re also continued to make progress on our early stage efforts, which include the Genelab’s Nucleoside program and our internal protease and pulmonary programs.

In Hepatitis B, we are progressing with the enrollment of two Phase III 48 week studies comparing the efficacy and safety of Tenofovir versus Hepsera in patients with HPV, and anticipate completing enrollement during the second half of this year. We believe that the 300 milligram dose of Tenofovir the same dose marketed as Viread for HIV has the potential to be an important treatment for Hepatitis C. I’m very proud of the advancements we have made in the last year to augment our pipeline. We are committed to building both through internal research and in licensing and acquisition effort, a pipeline of products that will help yield the growth of the company in the years ahead. I’ll now turn the call over to Kevin Young to review our commercial efforts. Kevin?

Kevin Young, Executive Vice President of Commercial Operations

Thank you, John. Good afternoon, everyone. I will begin by highlighting the overall HIV marketplace. And discussing some of trend that are impacting this dynamic therapeutic area. As we have discussed previously, the HIV market in the United States experiencing demographic shifts, and we continued to recognize significant potential for market expansion through education, awareness and earlier treatment.

According to third party market research, we believe the number of new patients initiating antiretroviral therapy annually in United States is increasing. And it’s currently projected of nearly 55,000. This growth is testament to the introduction of safer more tolerable and easy to take therapies like Truvada. In addition, improvements in diagnostic test for HIV, and the trend among positions to start the HIV multi patients on therapy earlier have all contributed to this increase in newly treated patients.

Out of the total pool of patients on antiretroviral therapy today, independent market research estimates that more than 114,000 patients in the United States were receiving Truvada therapy out of the third quarter 2005. Also, Truvada now captured approximately 60% of the growing pool of new patient starts. We believe this capture rate has the potential to increase particularly once the Truvada and Sustiva the fixed-dose regimen is approved and launched.

Turning to the performance of our HIV franchise, in dollar terms, the HIV franchise achieves a 6% growth in the fourth quarter, over third quarter sales and a 53% growth in year-over-year sales. Truvada continues to be an increasing contributor to our HIV franchise, comprising 60% and 41% of HIV franchise sales in the fourth quarter and full year 2005 respectively. As I’ve prepared to talk about the US market share data for the products in our HIV franchise, I want to point out that these data and compose total NRTI market which includes both generic DDI and generic AZT. And these are the market share data that we will be sharing with you at all our calls going forward.

Since the US launch of Truvada, the combined total prescription market share for all of our HIV products has increased from 27% to 38%. By contrast, the combined total prescription market share for all GSK, HIV products has fallen from 54% to 47% during the same time period. As we informed you on the October conference call, Truvada sales surpassed Combivir in new prescription, which is a leading indicator of performance, during the third quarter of 2005. Truvada continue to pull away form Combivir in new prescriptions during the fourth quarter of 2005. And as of the week ended January 13, 2006 the gap between the 2 products has increased nearly 6 market share points, in terms of prescription volume the spread is even greater. Truvada exhibit 2005 with more than 5,000 of 30% among new prescriptions returned on Combivir. As of the week ended July 15, 2006 Truvada captured 22.4% of new prescriptions and 21.3% of total prescriptions in the NRTI class and it’s firmly established as a number one product.

Viread have a standalone product continues to be used in a variety of treatment regimens in later lines of therapy and captured 14.3% of the new prescriptions and 15.1% of the total prescriptions of the NRTI class as of the same week. We have observed that the expected decrease in Viread new prescription volume has become to fluxion during the fourth quarter of 2005. And we believe that the market share have stabilized at the current new prescription market share levels. Our goal remains to make Tenofovir the number one prescribing molecule in the NRTI class. And we have made significant progress to this end. At the launch of Truvada, Tenofovir was approximately 15 market share points behind 3TC, the leading NRTI molecule. And by the end of 2005, become a decrease to 3 points. Importantly, we have great number tools that continue to drive market share for both Truvada and Viread. In March of this year, we anticipate the 48 weeks to the 934 data will be included in both the Truvada and US port labels. This will allow our US sales force to detail the 934 data directly to positions for the first time.

Turing to our HIV franchise performance to date in Europe, as a reminder, it was less than 1 year ago in February 2005, the Truvada received EMEA approval in Europe. Essentially, this means that we viewed the European up-tick of Truvada about 12 months behind the United States. Because of the additional time required for individual country pricing and reimbursement. However, we firmly believe the growth pattern we evolved in the similar fashion to what we are experiencing in the US. Importantly in Europe, the 48 weeks study 934 data already to Truvada label during the fourth quarter and includes superiority language that’s in GSK’s Combivir. The timely addition of the 934 data in the European Truvada label is favorable, as Truvada is now being launched in all five major countries in Europe. The final 2 countries included in the big 5, Italy and France came on board in October and December of 2005. We look forward to generating our first full year Truvada sales in Europe in 2006 and continue to grow this product into the leading NRTI backbone of therapy across Europe.

As I mentioned earlier, patients and physicians remained committed using Viread in 2005 on the market interest of Truvada is only strength and reputation Gilead’s HIV products. Viread achieved uniform growth in Europe was 25% and sales dollar growth of 21% year-over-year. According t o third party market research, Viread had a 21% market share as of the end of the third quarter 2005. This contrasts to a 16% shift of Combivir. Truvada market share of 4% as of the end of the third quarter 2005 has over taken Kivexa known as Epzicom in the US, despite the fact that GSK had typically a three month lead in launching its combination products. Finally, a key strategy for increasing worldwide market penetration for both Viread and Truvada, is the ongoing presentation of Phase IV, switch to these, involving Viread on Truvada based regimens that is A30 or Combivir based regimens, which I mentioned we will present the complete 24, recommit date of sometime later this year.

Several other acquisition sponsor trials will continue to generate significant switch data in 2006 and into 2007, including the sweet and sonic studies. Coming to Hepsera for Chronic Hepatitis B, in United States, Hepsera’s prescription volumes grew 36% during 2005 of the prior year, resulting in record US sales of $83 million. The total Hepatitis B prescription market grew approximately 26% in 2005, versus the prior year, and had serious grow continued during the year obvious to the slower pace in spite of increase in competition.

As the antiviral market leader for the treatment of chronic hepatitis B, Hepsera has actually benefited from the growth in the market since the entrance of Entacavir by Bristol-Myers Squibb. We anticipate another competitive agent demand to the market in 2006. But we believe that the long-term clinical data, we have generated for Hepsera will support its position as the most durable, proven therapy to treat chronic hepatitis B patients. In Europe, the growth in Hepsera has occurred broadly across the major countries. During 2005, total unit volume of Hepsera in Europe increased by 77% compared to the same period in 2004. And as of the end of the third quarter 2005, Hepsera continue to increase its share in the big 5 European countries, with 38% and 35% market share in France and Spain respectively.

To conclude my prescription of our commercial products AmBisome achieved another year of record revenue at $221 million. On a volume basis, unit sales of AmBisome in Europe where Gilead markets directly or through distributors increased more than 7% during 2005 compared with the prior year. This product continues to benefit from a strong reputation among the European treatment community, and remains the gold standard for serious fungal infections. As of October 2005, AmBisome maintained nearly 22% market share in the intravenous antifungal market, and continuous to hold a steady market share position and had a lead end.

As you may recall, late last year, at the American Society of Hematology meeting, we presented data from the Amble end trial, which evaluated higher loading doses of AmBisome versus the standard 3 mg/kg dose. These data shows that standard 3 mg/kg dose is equivalent to the higher loading dose and confirms that the standard dose is the most appropriate treatment to severe fungal infections. These data have been well received by the treating community, and that has have enabled Gilead to reaffirm AmBisome’s key attributes with positions.

We are very pleased with the continued growth of all our common franchises during 2005. We look forward to another successful year in 2006, and ending regulatory approval to continue to improve patient care with the first ever one-pill, once per day fixed-dose regimen for the treatments of HIV in the United States.

I will now turn the call back over John Milligan.

John Milligan, Executive Vice President and Chief Financial Officer

Thank you, Kevin and thanks to everyone for joining us on the call today. We’re very proud of the financial, commercial, and research and development accomplishments that Gilead had achieved in 2005. We look forward to continued strong product revenue performance during 2006, driven by our growing HIV franchise as well as Hepsera and AmBisome sales. We remain focused on investing wise in our pipeline and our marketing and sales programs are continuing to deliver earnings for our shareholders. I’d now turn the call back over to the operator so that we can take your questions. Operator?

Question-and-Answer Session

Operator

Thank you sir, ladies and gentlemen at this time if you wish to ask a question, you may do so by pressing “*” “1” on your touchtone telephones. If that question has been answered or you wish to remove yourself from the queue, you may then press “*” “2” again “*” “1” at this time for any questions. One moment please.

And your first question comes from the line of Geoff Porges with Sanford Bernstein.

Q - Geoff Porges

Thanks very much for taking the question and I appreciate that you’ve given the additional detail in the products split. Kevin could you give us a little bit more, you mentioned on the Viread inflation, as a molecule in the US and what it is now, and what it could potentially get high. Could you give little bit more on that and then perhaps estimate where you think you are in the 5 top markets in Europe in terms of the Tenofovir molecule penetration now and where it might get to in the future once you rollout of Truvada fully and then the triple?

A - Kevin Young

Hi Geoff, I think what I talked about in the first instance was the Tenofovir in the US were, were now 3 percentage points behind 3TC. So with continued growth of Truvada obviously, we hope the introduction of the fixed-dose combination that we will soon surpass that. So that’s been a, an excellent gain since the differential of 50 percentage points from we launched Truvada back in over to 2004. In terms of Truvada in Europe, really the story in 2005 was pretty much only about Germany and the UK. We didn’t launch in 3 of the other major 5 markets, until end of third quarter and into the fourth quarter. And as you probably know 2 very important markets are France is our #1 market and Spain is #2 market and probably not come on board until actually December in hospitals. So even though we had impressive uptake for example, 40% market share in Germany by the end of the year, we really on the have to ensure that 5 major market. So that looks like, that’s why the number for Truvada is relatively modest, but we expect it to over the lines of the US.

Q - Geoff Porges

Kevin could you just give us a sort of Tenofovir penetration in Europe, where you are now and where you think you could get to?

A - Kevin Young

Though I don’t have that right on my finger tips Geoff, but we can certainly follow up with you after the call and find that for you. But I have to say that, generally the dynamics are very similar to the US, albeit 12 to 15 months behind, because of pricing reimbursement.

Q - Geoff Porges

Right, okay thanks.

Operator

Your next question is from the line of Meg Malloy with Goldman Sachs.

Q - Meg Malloy

Thanks very much, I just wanted to get a repeat on what you said specifically on Truvada share, to be some on my line was fading a little bit in and out in terms of new prescriptions and total prescriptions and where you stood versus GSK’s Combivir. And then secondly for John could you elaborate a little bit on the foreign impact on margins for the quarter and elaborate a little bit more in terms of what you said about how you’d be accounting for the margins impact with the single dose to Truvada and Sustiva formulation. Thanks.

A - Kevin Young

Hi, Meg its Kevin let me answer this share and I will hand it over across to John. In terms of NRX if you take a weekly data, very latest weekly point comes 13th of January. The NRX for Truvada was 22.4% that compares with Combivir currently up 16.7%. TRX just below that of Truvada is 21.3% and Combivir is 16.5%.

Q - Meg Malloy

Thanks Kevin.

A - John Milligan

Meg as I understood, I think you asked a question about the impact of foreign currency for the quarter, this quarter was a $6 million positive impact for, because of our heading programs and because of our relative earnings versus accentor. And then I think the second part of your question was how would margins be impacted, with the lost of the triple and remember though to me more clear than it wasn’t skipped. We book full revenue for the triple, also we still have product revenue that will include the 100% of the Sustiva revenue, that Sustiva had a full price, I think its backed out at accordance line and so that you will artificially decrease the growth margin percentage and so we would anticipate that to go down and the magnitude of how far it goes down will depend on the, how far cannibalizes Truvada and other sales that would have been fairly on the top line, it will be accretive, but remember since we get full Truvada sales and then it doesn’t allow the net impact on the dollar amount that close you down the free tax income.

Operator

And sir your next question is from the line of Craig Parker with Lehman Brothers.

Q - Craig Parker

Hi, first quick question about was there any inventory changes that might have affected the Truvada numbers in the US and then I guess John or Norbert if you could describe a little more broadly this strategy, the development strategy for 9137, it seems like it could possibly move into a Phase III and proven experienced patients. But I think its briadly describe how you envision this thing, positioned and what that means for development strategy and time line, is terrific.

A - John Milligan

Well I will start with the inventory with the regard to inventory levels I would say that they were all well in our banding for our different distributors, so I would anticipate, I don’t think that that was any issue related to the end of the quarter.

A - Kevin Young

With regards to Craig, the development strategy broadly when thinking upon is this way, so we only currently have gained data on safety and efficacy, the first thing we have to do is generate some more long-term safety and efficacy data that could happen in the phase II study and soon after that once we have sufficient safety data particularly safety data more of them moved to phase III program, we’re thinking currently above the next patient, experienced patient population simply because the more quicker adds to approval. The details are still be in the costume forum.

Operator

And sir, our next question is from the line of Thomas Ray with Piper Jaffray.

Q - Thomas Ray

Thanks very much when we look your market share in the US and you looked at that half of your sales on a sequential basis, it looks like one half of your sales from 3Q to 4Q were up 5% do you know what that might look like, if you split it out on the volume versus price basis?

A - John Milligan

Going up sequentially versus, I guess the question is versus what, so we went up quarter-over-quarter to volume increase and that should be the same because there were no price increases during the period of time, so they should near each other almost exactly.

Q - Thomas Ray

I thought previously you’d say that the price increase taken at beginning of the third quarter would partially be implemented over the fourth quarter?

A - John Milligan

Well, what happens is that you do get, you’re correct that do get increase the prices at the quarterly basis inline with the customer price index so that dictates how far you can rise prices in the, for example, in the public sector such a Medicaid and with the, and the public help service, things like that. And the discussion will Aid-out on the other hand, because it only goes up a refraction of a percentage of PPIH quarter had an impact tend to be very small.

A - Kevin Young

And just talk for that’s almost about quarter of our business, is what we call long retail so that’s hospitals, prisons, nursing homes and the change that what John was talking about the rest of the three quarters is retail.

Q - Thomas Ray

Okay thank you.

Operator

And sir our next question from line of Yaron Werber of Citigroup.

Q - Yaron Werber

Yeah hi good afternoon, John if you look at your guidance for say, HIV franchise sales and we just annualized the run rate exceeding Q4 into next year, I get to roughly 1.539 is organic growth kind of, looking at 9% to 14% and you can put in price increases 4.5 % you get to kind of, 5% to10% year-over-year, yet, you depicting fairly bullish outlook with the, all the data that is going to be added to the labor, et cetera and they’ve represented, so how should we think of the value this year?

A - John Milligan

Well, I don’t know about the math about the price increase, the price increases are a subset of what happens in the US we’ve not announced any intention to increase prices during the course of the year. And so, what were seeing here is organic growth based on prescription volume increase, based couple of things, first and foremost, we’re launching into the bigger markets of Europe, it was Truvada finally so that will allow Spain, Italy and France to really start to be major contributors to that of the overall revenue picture, very important countries for us as you can imagine. We’ve also rollout launches into some of the smaller countries around the world as well, so there is overall the geographic growth. And secondly, we’re really looking forward to using a data available to us with the inclusion of 934 data into the label, as of March, to allow us to finally go out and start to work on Combivir versus Viread, I’m sorry, Combivir versus Truvada equation with really having the full amount of armamentarium at our disposal. And of course, the New England Journal article will be very important position but being able to talk about it specifically; due to our wraps will be important to get it those mid and more adaptable doctors. And the finally, other thing that I think is quite interesting with the dynamic continues to shift with more patients coming into the marketplace. We’re estimating now on a forward run rate that about 55,000 patients are coming to therapy over the course of next 12 months. As of we’re continuing to be something we’re evaluating but we really pleased to operate to try to create an environment which more patients are able to get therapy because that’s clearly the best treatment outcome for patients for the result of the best way to stop the spread of the virus and in fact the CDC has up their numbers were estimated patients infected last year and out around 50,000 from 40,000, so, clearly we have to have a better public health initiative to create the, to create an environment where people aren’t being infected. All of that favors more patients seeking treatment and we think that’s going to favor Gilead over the other product.

Q - Yaron Werber

Yes, yes and that’s where you saw and then just a question of the gross margin, the guidance is 85% to 86%, on average this year it would be around 86%, it seems to me that next year you should benefit from the numerous extraction process from Emtriva and also directly from describing the leading to your acquisition of the Emtriva rolled this year. Again there’s a gross margin guidance that’s essentially flat, from ’05, I mean, again how should I think about that are you being conservative here?

A - John Milligan

Well, obviously, there’s gross margin there’s a number of dynamics that come into play here, some of which are positive force and some of which are negative force, so just a quick example AmBisome sales were only up around 4% year-over-year you get the volume increase between 10% and 15%, so it was a big increase in volume so that means that we’re selling more for lesser margin, so that puts a negative pressure on us. We are facing quite a bit of pricing pressure around the world and so that you’re coming to close with large pharmaceutical bills that they have to deal with. And so there’s number of things that are uncertain there. We are seeing some greater economy with the Emtriva that does run through, the cheaper sub terms are run through the, run to the pipeline and getting our inventory and out into the marketplace. On the other hand, the more we sell out Truvada versus Viread, the lesser margin, because again we have a royalty obligation that’s solid, this on Emtriva. So there are lot of different things that are coming into coming to play here, so there’s a long way as did we see as pretty difficult to predict where things are going to play out of the end of the day, just because of the dynamics.

Q - Yaron Werber

Great, thank you.

Operator

And sir, our next question is from line of Bret Holley CIBC world markets

Q - Bret Holley

Yeah, I had question about of mix of the erosion that you’re seeing in Truvada from our patients, the number of patients on Truvada and Sustiva, combination regimens versus Truvada plus PIs and another and then Achillions?

A - Kevin Young

Hi Bret, this is Kevin speaking, about 35% of Truvada is co-prescribed and Sustiva right now, which is kind of latest data point that we have end of 2005, in terms of greater charge Kaletra, about just a little over that shape out 36%, 37% is co-prescribed with those two products. So, in terms total NRTI is about 43% and total PI is about 52% everything out since, so that was both brands as well as the class.

Q - Bret Holley

Great, that’s very helpful. Thank you.

Operator

And sir, our next question is from the line of Ian Somaiya with Thomas Weisel Partners

Q - Ian Somaiya

Thanks for taking question, I’ll just open and out the contribution from the launches in Spain, Italy and France. Maybe you can just share with us what portion of Viread sales in 2005 came from say in Italy and France and let me just take to similar proportion for Truvada going forward?

A - Kevin Young

We don’t typically break those out, but yeah we’ll expect a very, very similar picture once you’ve got a sort of, a full 12 months of launch in each of those countries. Basically our #1 market in Europe is France also Spain is a very, very important market for us, and then, a little way behind those becomes an expertly which is a mix of Germany, UK and Italy. So we’d expect the similar stack up when it comes to having a good 12 months of Truvada sales in each of those countries.

Q - Ian Somaiya

Okay, and just a follow up question, just at sort of at the field level have you seen any impact or has there been any change in the users patterns for Truvada or Viread following the presentation of the comment data, as well as the publication of 934 study?

A - Kevin Young

Well, again please bare in mind that we really, we haven’t had a field force presence in the United States on 934.com, it happened once we have included the label of, that’s, 6, 7 weeks away from now, but you can imagine that the field force here in the US are very excited to long last, we are able to do that, neither we may have to comment about comics either here in the US. So really those affecting factors primarily have only been in 2005 for Europe and of course that’s primarily beat about the UK and Germany and then at the end of the year for launches just taking place in Spain literally in France.

Q - Ian Somaiya

I was just curious more of, more the sense of physicians asking the sales reps about the study results?

A - Kevin Young

I think what we are seeing now is that there is an accumulation of confidence in physicians, that they are now seeing a growing picture that everything stacking out to say that, Truvada is preferable to Combivir, not only in terms of, not only in terms of the night patients, but obviously the patient who has been on longer-term Combivir therapies has pointed out from the New England Journal. So I think on both fronts there is an acceptance now that there is a clear difference between the products.

Q - Ian Somaiya

Okay, thank you very much.

Operator

And sir your next question is from the line of David Whiskey with Banc Of America Securities.

Q - John Watkins

Hi, this is John Watkins in for David Whiskey. I had a quick question on duration of therapy in first line use in Truvada, if you have an estimate across long station to remain on that and also if you had any feeling of what we might expect with the triple combo, again there could be better from fine.

A - Kevin Young

I don’t have any thing at my fingertips on persistency, maybe Norbert might want to comment so many about clinical trials, that might be a proxy for that.

A - Norbert Bischofberger

Well we can, just the only thing that I can point it you, I think its the best study is, study 903 which we have now data on for 7 years, where patients have stayed on study and there is regimen is severance Viread then 3TC which was used in vast study of very taller, well tolerated and durable over that longer period of time.

Q - John Watkins

Great thank you.

Operator

And sir our next question is from the line of Shiv Kapoor with Montgomery & Company.

Q - Shiv Kapoor

Thanks for taking my question, I have a question on Truvada, at US, can you frame how the launch is progressing in different countries in terms of penetration and growth rate.

A - John Milligan

Let me take that, now basically we’ve really haven’t got any data that for the major markets, outside the UK and Germany, just because, the legislature we have is kind of for the end of the third quarter, and, essentially the process has only just been launched in Spain and haven’t yet been launched in Italy and in France. But to give you a legislative points in the UK, which launched at the end of February, there is now a market share in terms of phase of therapy that’s how its expressed in the databases of just over 11% in the UK and in Germany, its now to 14%, and if I just take the example of Germany, Germany launched a 3 months after Kivexa, which is Epzicom, in United States, they launched 3 months and after 3 months on the market, although over taken Kivexa and now the ratio of prescriptions of Truvada to Kivexa, and in excess of 3:1. So I think it’s a very impressive launch both in UK and Germany.

Q - Shiv Kapoor

If I can ask you a follow up contribution from Truvada has been steadily increasing from the second quarter to the fourth quarter, on from 27% to 35% to 39%. What’s the major cost for the increasing or decreasing gross margins on Q3 to Q4, and will we continue to see this trend over 2006, as contribution from Truvada increases?

A - John Milligan

So the question is, so what is the impact of increase in Truvada, well more Emtriva would sell, the monetary we sell either as Emtriva to Truvada, the more marginal the impacted negatively, because as royalty contribution that goes out the door, either if you are counting or directional pain with the royalty. And so that does decrease the gross margin as a result of that. And so that I would, what we are providing guidance for is to be the robust same range that we register about 85% to 86%.

Q - Shiv Kapoor

Great thanks.

Operator

And sir your next question is from the line of Jason Canter with RBC Capital Markets.

Q - Jason Canter

Hi guys thanks for taking my question, I have two questions. First, you said that the erosion in Viread is flattening, and you think this is the new steady state that where people are using Viread enormous part of products, are you saying that, at this point all new Truvada scripts are coming from new patients and there is no more projected future cannibalization and Viread market that’s my first question.

A - Kevin Young

Hi, Jason this is Kevin, basically if you look at the sort of caption of patients going on Truvada for the last 12 months, basically in December 2004, the split was about 30% new patients and about 70% were switch patients. Now in December 2005, 12 months later, it’s about 40%, 60%, so there is a movement I should expect to be an increasing part of our patient capture towards the new patients. So, let’s, coming from switch in total since the launch of Truvada we convert it about 50% of our Tenofovir towards FTC patients, and over 25% of the Tenofovir was 3TC patients. So we expect the picture of the shift of the point for patients going to Truvada to gradually move to more and more night patients, which is good as you heard, we also said that we are picking up now 60% of new patients going on antiretroviral so, that’s the trend that we are happy about.

Q - Jason Canter

Okay that’s all right there is still lot of room to cannibalize interesting Viread patients, what you said?

A - John Milligan

Yes, but you again have to appreciate that like any pharmaceutical market, stabilize patients as you start to scoop out patients from our patients, it become slower and slower and that’s just a natural phenomenon of switching patients and, as you go on and get slower and, eventually there will just be some patients for whatever reason clinically all just patients joins that we are amend on the compounds of Truvada.

Q - Jason Canter

Okay just to clarify the guidance you gave for the HIV patients does not include sales of the tripe combination sale and could you tell us what the relative cause of the Sustiva component is relative to Truvada, assuming there triple sales price, on parity with…

A - John Milligan

So, so you are correct that’s our guidance to give does not include any triplet revenue for this year. We will provide an update guidance that’s for the time we have launch. Or this there truly they are after. And then the relative price is about 2/3 for Truvada and about 1/3 for Sustiva.

Q - Jason Canter

Thanks.

Operator

Yes sir, we have time for one more question from the line of Sabana Srivatsava with Morgan Stanley.

Q - Sabana Srivatsava

Yeah, hi sorry, one quick question on the ramp up of Truvada in the US, could you explain why the sequential growth seems so slow this quarter?

A - John Milligan

I don’t have already answer, I think the we have the good fourth quarter and as I said earlier, we are continue to see we will get a large and large and share of night patients and that’s we have, that’s the increasing cause of the proportion of Truvada.

Q - Sabana Srivatsava

Thanks.

Operator

And with that ladies and gentlemen concludes the question and answer session of today’s conference. I’d like to turn it back over to Dr. Milligan and the group for any further comments.

John Milligan, Executive Vice President and Chief Financial Officer

Thank you operator and thank you all for joining us today, we appreciate your continued interest in Gilead and look forward to providing with updates on our further progress.

Operator

Ladies and Gentlemen, we thank you for your participation in today’s conference this concludes your presentation.

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