Analyst Conference Summary

conference date: April 26, 2012 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2012 (first quarter, Q1)

Forward-looking statements

Overview: Strong quarter despite cost of Pharmasset acquisition.

Basic data (GAAP) :

Revenue was $2.28 billion, up 4% sequentially from $2.20 billion and up 18% from $1.93 billion in the year-earlier quarter.

Net income was $442.0 million, down 34% sequentially from $665.1 million and down 32% from $651.1 million year-earlier.

Earnings per share (EPS) were $0.57, down 34% sequentially from $0.87 and down 29% from $0.80 year-earlier.

Guidance:

Full year 2012 product sales $8.6 to $8.8 billion. Gross margin 73% to 75%. R&D expense $1.325 to $1.4 billion; SG&A expense $1.225 to $1.3 billion. Effective tax rate 26% to 28%. Impact of acquisition, restructuring and stock-based expenses on EPS negative $0.56 to $0.59. [reiterates prior guidance with exception of stock-based compensation and restructuring acquisition-related expenses]

Conference Highlights:

Pharmasset acquisition on January 17, 2012 took $11.1 billion in cash. Accounted for as $10.7 billion in-process R&D, $74.8 million goodwill, $63.6 million assumed assets and $193.9 million stock-based compensation expense.

Non-GAAP numbers: net income $704.4 million, up slightly from $702.8 million year-earlier. EPS $0.91 versus $0.87 year-earlier. Operating margin 47.3%. Gross margin 74.5%.

Product sales were $2.21 billion, up 19% y/y. Antiviral sales were $1.93 billion, up 18% y/y. Royalty, contract and other collaboration revenue was $74.1 million, up 10% sequentially from $67.0 million, and up 19% y/y. Performance in the U.S. was particularly robust.

ADAP demand was greatly increased, and their wait lists are down. Atripla and Complera are now listed by all the major ADAP states. But ADAP revenue probably carried an inventory-build performance.

Complera now being seen as a robust regimen for HIV, and is now 2nd most prescribed for treatment-naive patients.

Pending successful advisory panel in May and FDA approval for Quad, sales organization will be ready to go in the U.S. in June.

Cash and equivalents ended at $1.5 billion, down sequentially from $9.96 billion due to acquisition of Pharmasset. Operating cash flow was $453 million. Debt (from financing acquisition) ended at $5.5 billion

Viread combinations were approved for HIV in pediatric patients in January.

A Phase 2 trial for GS-7340 for HIV-1 initiated in January.

Quad single tablet regimen for HIV-1 is being reviewed for market approval by the FDA and European agency. PDUFA date is August 27. Phase III results showed Quad is non-inferior to Atripla. More studies are being conducted.

GS-7977 plus ribavirin Phase 2 hepatitis C (HCV) genotype 1 PHase 2 study showed no detectible virus after 12 weeks of treatment, but at end of treatment majority of patients relapsed.

GS-7977 plus BMS-790052 (Bristol Myer) showed high hepatitis C cure rates: >90% for genotype 2/3 and 100% for genotype 1.

Based on those and other results, designing Phase III studies that could be fully enrolled by the end of May. Several paths are available to get therapies to market, but need to talk more to regulators.

See also Gilead Pipeline.

Cost of goods sold was $580.9 million. Research and development expense was $458.2 million. Selling, general and administrative expense was $443.1 million. Leaving $800.2 million income from operations. Interest expense was $97.3 million. Other expense was $34.1 million. Income taxes $231.3 million.

Q&A:

Hepatitis C, waiting for a new data set prior to a Phase III oral trial? Not a data set, but discussions with FDA. We really don't know what they think at this point. Two data sets are coming up, 24-week data in QUANTUM GS-7977 + Ribavirin, and 12 week Bristol data, that would be interesting. For Phase II we are looking for something short because we are comfortable with the safety profiles.

Why not just do the naive patients, instead of the hard to treat patients? We are going to do both.

It appears GS-7977 can either be given for a long time, or given for a shorter time in combination.

Taking 7977 and 5885 combo directly into Phase 3? You would do a Phase 2/3 approach, enrolling a cohort, then going to full enrollment.

Why is the QUANTUM data so bizarre? Quantum population was different from Electron population for cc genotype, and very small number of patients, so that might explain it. We will know when we get more combination treatment results.

We cannot predict the impact of ADAP inventory changes on Q2, we will just have to wait and see.

Believes being flat in Europe is good overall, given the situation there. With increasingly recommendation of single-tablet therapies, should be good going forward.

5885 with genotype variations? The one polymorph that did not do well was very rare, in fact it was lab-generated.

Most patients starting Complera are below 100,000 copies, and 30% are female, so a high proportion because of better pregnancy safety.

Risk of possibly letting Bristol-Myer win the Hep C race? We will see, we think we have a very effective set of agents available and can be first to market.

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