Analyst Conference Summary

conference date: January 25 , 2011 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2011 (fourth quarter)

Forward-looking statements

Overview: y/y declines on much smaller Tamiflu royalties, but still highly profitable.

Basic data (GAAP) :

Revenues were $2.00 billion, up 3% sequentially from $1.94 billion, but down 2% from $2.03 billion in the year-earlier quarter.

Net income was $626.4 million, down 11% sequentially from $704.9 million and down 22% from $799.4 million in the year-earlier quarter.

Earnings per share (EPS) were $0.76, down 8% sequentially from $0.83 and down 13% from 0.87 year-earlier.

Guidance:

Full year 2011 guidance: product sales $7.9 to $8.1 billion, up 7 to 10% y/y, despite negative 5% healthcare reform impact and forced lower prices in Europe. Non-GAAP product gross margin 74 to 76%. Non-GAAP R&D $950 million to $1.00 billion. Non-GAAP SG&A $1.0 to $1.05 billion. Tax rate 25 to 27%. The negative impact of acquisition, restructuring and stock-based compensation expense should be $0.25 to $0.28 per share.

Conference Highlights:

Non-GAAP net income was $779.3 million, down 10% y/y from $864.4 million. Non-GAAP EPS was $0.95, up 2% y/y from $0.93.

Royalty contract and other revenue, primarily Tamiflu royalties from Roche, were $68.4 million, down from an exceptionally high $228.0 million in Q4 2009.

Excluding royalties, product revenues were up 7% y/y, at $1.93 billion versus $1.80 billion. Antiviral product sales were up 5% y/y to $1.7 billion. 605,000 patients take HIV anti-viral therapies in the U.S. The patient growth rate is about 4% per year. Gilead market share is now 68.5%, compared to 26.5% back in 2004. But there are about 600,000 HIV infected people in the U.S. who are not yet on anti-retroviral therapy.

Another $5.0 billion in stock repurchases have been authorized.

Arresto Biosciences was acquired for $225 million (and possible milestone payments), closing on January 14, 2011.

Cash and equivalents balance ended at $5.32 billion. $725 million cash flow from operations in quarter. $615 million in stock repurchases in quarter.

Gilead will have to re-submit its NDA for combination Truvada with TMC278 for HIV due to questions about verification of manufacturing quality control. The new submission should take place by the end of March. This will not delay the initiation of clinical trials and only a minor delay in bringing the treatment to market.

Two Phase III trials of Viread for hepatitis B had positive data. GS 9190 and GS 9256 for hepatitis C had positive Phase II results. Cayston for P. Aeruginosa infections in cystic fibrosis patients showed positive results versus tobramycin. Many more studies are ongoing or planned. See also Gilead Pipeline.

Cost of goods sold was $496.3 million. R&D expense was $392.8 million. Selling, general and administrative expense was $280.2 million. Leaving income from operations at $829.4 million. Interest and other expense was $30 million. Income tax $173.2 million.

Q&A:

NDA delay? We developed a method of detecting previously undetectable degradation products, which is a common thing. Because of timing, the refuse to file letter was issued.

CD4 count trend effect on HIV market growth? Guidelines impact should not be judged on quarter by quarter basis. Everything we have heard is that physicians want to start HIV patients earlier in the course of the disease.

Phase II quad data versus Atripla? If we just replicate the Phase II data, that would show superiority of quad regimen. But the Phase II number of patients were small.

Hepatitis C infection should be curable by a combination of 4 oral antiviral substances, but determining the right combination is what clinical trials are about.

Rate of buy back? Anticipates completing the $2 billion of the current program in 2011. Rate would be similar to 2010 rate.

NS5a data availability? Will present that data at a science conference. Plan a follow up study starting in Q2 of 2011.

Price cuts in Europe details? In 2010 2% cut from 2009. In 2011 another 3% to 4% cut.

TMC + Truvada launch affect on Atripla? 2011 guidance includes revenue based on expected commercialization in second half of year. Truvada 278 delay slack should be taken up by Atripla. Can benefit some patients that Atripla does not work well for. We are very enthusiastic about the launch.

Ranexa and Letairis outlook for 2011? We are optimistic. We are starting to see untapped potential come through.

Guidance is short of street consensus? We have just taken an overall prudent view on macroeconomics, exchange rates, and pricing.

Some expense increase is due to ramping up Cayston sales in new nations.

Could start multi-drug Hep C studies before the end of 2011.

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