Analyst Conference Summary

conference date: January 14, 2008 @ 2:15 PM Pacific Time
for quarter ending: December 31, 2007 (4th quarter 2007)

Forward-looking statements

Overview: Second sequential quarterly decline still leaves net income above Q4 2006. Trying to focus analysts on promise of pipeline.

Basic data:

Revenues were $2.970 billion, up 2% from $2.908 billion, but up 9% from $2.714 billion year-earlier (q4 2006).

Net income was $632 million, down 8% sequentially from $685 million but up 6% from $594 million year-earlier.

EPS (earnings per share) of $0.59, % sequentially and up 7% from $0.55 year-earlier.

Guidance:

Full year 2008 non-GAAP earnings expected between $3.30 and $3.45 per share.

There is significant short term uncertainty, especially regarding the FDA ruling on Avastin for breast cancer.

Conference Highlights:

2007 as a whole was a record year.

U.S. product sales were $2,199 million, up sequentially 2% from $2.155 billion, and up 7% from year earlier. Total product sales were $2.349 billion, royalties were $558 million, and contract revenue was $63 million.

Product sales:

Cost of sales was $344 million, R&D $618 million, marketing, general, and administrative was $692 million, collaboration profit sharing $275 million, acquisition charge $43 million; litigation $14 million, for total coast of $1.986 billion. Operating income was $984 million, other income $18 million, $370 million income tax provision.

Emphasized has 20 new molecular entities in pipeline. 8 were added in 2007; the goal is 30 over a 5 year period. Late stage research program for new molecules is robust. Has a hedgehog blocker for cancer that is particularly promising

Non-GAAP net income was $737 million; Non-GAAP EPS $0.69. Stock-based employee compensation expense accounted for $0.07 per share; special items $0.03 per share.

Rituxan had a positive phase III result for a rheumatoid arthitis population. The company dropped telbermin from development after receiving Phase II results.

High dose Avastin use has declined. But believes Avastin is still an important therapy option.

Believes Lucentis is better than off-label Avastin prescriptions.

Recognized $5 million in deferred Avastin sales revenue. 60% penetration of potential patient market. High-dosing use has stabilized for now. Increased competition in 2nd line colon cancer, but that segment has now bounced back. Off label breast-cancer use is up.

Rituxan growth driven by immunology uses. Expects new clinical data in 2008.

A wide spectrum of FDA decisions is possible for Avastin for breast cancer. Two adjuvent Phase III studies on this have begun.

A long presentation was made on the state of various clinical trials.

$3.5 billion cash from operations from all 2007; free cash flow $2.5 billion.

$1 billion capital expenditures expected for full 2008.

$6.5 billion in cash and investments held at end of quarter.

Q&A:

Guidance and Avastin ruling? Ruling is covered by range; only an approval will get us to upper end of range.

Can Avastin grow without breast cancer approval? Further penetration is possible in current indications. Glial-blastoma data presentation may help.

Rituxan and Lupus? It is not clear from the data (net clinical benefit) whether we should file or do the second trial.

Avastin competition in front line lung cancer? Competition is built into guidance. The study data of competitor's (Erbitux?) has not been released.

Rituxan 1/2 gram dose? There is a reason for the 1 gram dose. One study is using 1/2 gram dose.

Avail study had progression free survival as a primary endpoint. Don't know what the survival results will be.

Rituxan and MS? Time to progression is endpoint. Trial is well-powered. No prior therapy has shown benefit in this type of MS; that is the primary risk.

Impact of approval of Avastin for breast cancer? Patient assistance program has a cap of $55,000, but only applies to approved indication. Approval might create cap for those already on for breast cancer. But believe program adoption is low and number of potential new patients is high.

Royalty guidance down? Due to a specific deal that transfered revenues from 2008-2009 into 2007. Also Lucentis ramped up faster in Europe than expected.

Advisory committee seemed to say that progression free survival should be the endpoint for Avastin for breast cancer. The trials were not powered for overall survival. Could get a preliminary indicator for survival from data later in trial.

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