Analyst Conference Summary

conference date: July 20, 2010 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2010 (second quarter)

Forward-looking statements

Overview: Sequential decline, year over year growth.

Basic data (GAAP) :

Revenues were $1.93 billion, down 8% sequentially from $2.09 billion but up 17% from $1.65 billion in the year-earlier quarter.

Net income was $709.1 million, down 17% sequentially from $854.9 million, but up 25% from $569.1 million year-earlier.

Earnings per share (EPS) were $0.79, down 16% sequentially from $0.92, but up 25% from $0.63 year-earlier.

Guidance:

2010 guidance lowered to $7.3 to $7.4 billion product revenues due to currency changes.

Conference Highlights:

Growth was mainly driven by Atripla. Gilead is facing economic headwinds, particularly in Europe. Gilead's fixed dose combination products provide a health benefit that should continue. New products, including Quad, can extend the anti-viral revenue stream into the 2020's [as opposed to investor fear of generic competition when patents expire]. Respiratory and cardiovascular revenues are growing as well. Will continue look to use cash to acquire new therapies. Our stock valuations are low, encouraging us to buy back stock.

European revenues declined 9% y/y due to exchange rates and price restraints.

Non-GAAP numbers were: net income $760.7 million, up 17% y/y. EPS $0.85, up 23% y/y.

Royalty, contract and other revenues were $121.2 million, up from $78.8 million year-earlier, driven mainly by Tamiflu royalties.

Product sales were $1.81 billion, up from $1.57 billion year-earlier. $1.6 billion was anti-viral product sales.

Cash and equivalents ended at $4.22 billion. Operating cash flow was $699.0 million. $1.69 billion was spent on stock repurchases during the quarter.

The CGI Pharmaceuticals transaction closed July 8, 2010; it has a total value of $120 million, based on milestones, but mostly cash up front.

Phase III trial of Quad regimen dosed its first patient in April. The Phase III Cayston trial versus tobramycin achieved on of its co-primary endpoints. 5 new molecules are in the pipeline for HCV (hepatitis C).

See also Gilead Pipeline.

New HIV guidelines endorse Truvada and Atripla for first-line therapy, and recommend starting the therapy earlier.

Q&A:

Oral HCV trial timeline? We found the three compound combination we tried did not reduce viral load enough. We are looking at in vitro results; we will have 6 compounds to chose from in 2011. By the end of 2011 we should choose our compounds and move them forward. We are also looking externally for hep c compounds.

Low valuation is partly due to current pipeline, why not be more aggressive? We are looking for earlier stage compounds so we can guide the program before Phase III. CGI brings in kinases, which are useful in a variety of therapeutic areas.

What are end markets looking like? We were really pleased with Q2 U.S. results. Presciptions grew in HIV y/y. ADAP (largest non-retail purchasers, states) purchases are seasonally weak every Q2. Waiting lists finally dropped in some states recently.

Capital structure/dividends? Returning shareholder value is currently done by repurchases. That does not mean we would never issue a dividend. With the share price low, we could be aggressive with the buy back. Not all of our cash is in the U.S. and available for buybacks.

Why is the tax rate increasing? It is a mix between the high U.S. and low Euro tax rates; with Euro revenue down, that accounts for it. If we can renew the R&D tax credit, that would reduce the rate by a half percent.

Health care reform $200 million guidance? We are comfortable with the $200 million, which is loaded towards the second half of the year.

TMC 278 (etravirine) combo? Data is very encouraging because it is a once-daily option. It is better tolerated, but has more virological failures. If we can find some baseline predictors we might eliminate the issue.

Integrase twice daily efficacy versus Gilead 1 per day story? It is not that simple. But the 1 per day is very important because of compliance. Doctors tend to give Atripla unless there is some compelling reason to go to some other combination.

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