Analyst Conference Summary

conference date: October 18, 2007 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2007 (3rd quarter)

Forward-looking statements

Overview: Revenues flat sequentially but up 41% from year-earlier.

Basic data:

Revenues of $1.06 billion, up 1% sequentially from $1.05 billion and up 41% from $749 million year-earlier.

Net income was $398 million, down 1.5% sequentially from $408 million and reversing a $52 million loss in the year-earlier quarter.

EPS (earnings per share) was $0.42, flat sequentially and reversing a year-earlier loss.

Guidance:

For full year 2007, product sales in upper end of $3.6 to $3.7 billion. Non-Gaap R&D lowered to $490 to $500 million. Non-GAAP SG&A expense range tightened to $590 to $600 million. Stock based compensation $0.13 to $0.15 per share non-GAAP. 29 to 30% tax rate.

Conference Highlights:

Non-GAAP net income (which excludes stock-based compensation) was $430 million or $.45 per share.

Product sales were $961.9 million, a record and up 44% from $670.1 million in Q3 2006. Sequential product sales grew 6%, but were offset by a 32% sequential decrease in royalty and contract revenue from Tamiflu products. HIV product revenue was $805.8 million, up 45%.

Revenues by product:

Truvada $409.1 million.
Atripla $241.1 million.
Viread $149.1 million.
Emtriva $6.5 million.
Hepsera $79.3 million.
AmBisome $65.8 million.

Truvada sales increased 32% over year-earlier; Atripla tripled; Viread decreased by 13%; Emtriva decreased 30%; Hepsera was up 44% and AmBisome was up 24%.

Royalty, contract and other revenue were $96.9 million. The net impact of foreign exchange was positive $17.4 million compared to Q3 2006.

Cost of goods sold was $198.5 million; R&D $140 million; SG&A $172 million, leaving income from operations at $547 million. Interest income was $29.5 million. Income tax provision was $177 million. Stock-based compensation expense was $31.8 million.

The company ended the quarter with $2.2 billion in cash and equivalents, up $230 million sequentially. $251 million of operating cash flow was generated in the quarter.

80% non-GAAP product gross margin, a drop due to change in mix.

Approval of Atripla in the European Union is expected to come late in 2007, so any product launches and revenue would not begin until Q1 2008.

Letairis (for pulmonary hypertension) response is favorable so far. Covered by national formularies including Medicare. Year to date sales are $6 million.

A new plant has been acquired in Cork, Ireland.

Clinical and regulatory plans were reviewed; they are extensive and promising.

One in four anti-viral patients now take Atripla. Truvada remained most prescribed HIV brand.

There may be a French stockpiling situation; they are working on fixing it; it is due to trying to resell at a profit in other markets.

Q&A:

French situation? Had noticed German sales had not grown as much as expected. Believes sales to France are going to Germany, where it represents a cost savings for patients.

Is Atripla labelled for true naives in Europe? Truvada is indicated with food. Atripla is recommended for empty stomach at bed time. Reflects studies that were done. Looking for data that would be adequate for regulators to extend label to naive patients.

U.S. HIV patient numbers? Legislation impact has been zero because testing laws have not taking place. So 10% increase was without that.

Patient growth in Europe? Don't have a specific number, but was less than in U.S.

Letairis once day dosing issue? Concern has been raised about peak/trough effects. But believes study will show that daily works fine. Field visits indicate once daily works.

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