Analyst Conference Summary

conference date: April 16, 2008 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2008 (1st quarter)

Forward-looking statements

Overview: Revenues and earnings growing at a very solid pace.

Basic data:

Revenues were $1.26 billion, up 15% sequentially from $1.09 billion and up 22% from $1.03 billion year-earlier.

Net income was $496.1 million, up 23% sequentially from $401.6 million and up 22% from $407.4 million year-earlier (see also non-GAAP data below).

EPS (earnings per share) were $0.51, up 24% sequentially from $0.41, and up 21% from of $0.42 per share year-earlier.

Guidance:

28 to 29% effective tax rate, lower due to increased revenues in lower-tax jurisdictions.

Reiterating prior full year 2008 guidance. $4.7 to $4.8 billion in net product revenues. Non-GAAP gross margin of 77 to 79%. $610 to $630 R&D expense.

Conference Highlights:

Product sales were $1.14 billion. Growth was driven by Atripla U.S. sales and Truvada U.S. and European sales.

Most robust product pipeline ever was described in some detail. DAD and 5202 studies may have positive effects going forward on Truvada sales.

Non-GAAP net income was $522.1 million or $0.54 per share, up 16% y/y. After-tax stock based compensation was $26 million.

Revenues by product:

Truvada $479.4 million, up 39% y/y.
Atripla $324.2 million, up 70%.
Viread $152.7 million, down 5%.
Hepsera $83.0 million, up 16%.
AmBisome $71.0 million, up 15%.
Emtriva $8.4 million, up 1%.
Latairis $20 million (up from 0 year earlier).

Overall HIV product sales were $964.7 million.

Royalty and contract revenue was $117 million, down 38% from year-earlier, mainly due to lower Tamiflu royalties. However, they were up from Q4 2007.

Cost of goods sold was $240 million. R&D expense $155 million. General, selling and administrative expense was $195 million. Total expenses were $590 million. Income from operations was $668 million. Interest and other income was $19 million. Income tax provision $193 million. 79% product gross margin. 28% effective tax rate.

Currency exchange rates had a $37 million favorable impact compared to year-earlier.

Cash and equivalents ended at $2.59 billion, down $133 million sequentially due to $815 million in stock repurchases. $2.15 billion remained in the repurchase program at quarter end. $577 million in operating cash flow.

In March in Europe the EMEA issued a positive opinion for Viread for chronic hepatitis B. Viread was approved for hepatitis B in Turkey and New Zealand.

Continuing to look at products and programs that will complement our current products. Plan continued expansion in Europe.

Some purchases from State AIDS agencies may have been grant-deadline driven.

Q&A:

Non-retail HIV demand anomalie issue? Tough to quantify. We've observed this sort of thing for a couple of years. It is likely to be a seasonal bump, not an atypical situation.

DAD and 5202 positive news impact? We don't think there was any impact in this quarter. We think it may start with new patients. The number of patients using the competitors is significant. England may be a leader in switching.

9350 development plan? Our goal is a co-formulated, once-daily, single tablet. We need to find out first if it boosts PK in healthy volunteers and safety data. Then HIV infected patients.

Head to head study vs. tobi for cystic fibrosis is likely to succeed because when tobi is used repeatedly it tends to become ineffective.

Why not higher guidance given the DAD and 5202 results? The full data set won't be available until later this year, and then it takes time to impact sales.

How do you ensure darusentan trial subjects are truly resistant to hypertension? There is a standard for that we are following. The two phase III studies we are doing are similar to the Phase II studies which were positive. We think we will replicate that data. But it will have a risk map, like all ERAs.

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