Analyst Conference Summary

conference date: February 4, 2013 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2012 (fourth quarter, Q4)

Forward-looking statements

Overview: Continued solid revenue growth and cash flows.

Basic data (GAAP) :

Revenue was $2.59 billion, up 6.6% sequentially from $2.43 billion and up 18% from $2.20 billion in the year-earlier quarter.

Net income was $762.5 million, up 13% sequentially from $675.5 million and up 14.6% from $665.1 million year-earlier.

Earnings per share (EPS) were $0.47, up 10.6% sequentially from $0.425 (from $0.85 pre-split), and up 9% from 0.43 year-earlier.

Guidance:

Full 2013. $10.0 to $10.2 billion in product sales. 74% to 76% Non-GAAP gross margin. Diluted EPS impact of acquisition-related, restructuring and stock compensation expense range $0.21 to $0.24. Effective tax rate 26% to 28% due to renewal of R&D tax credit.

Conference Highlights:

There was a two-for-one stock split after the quarter ended, on January 25, 2013.

Revenue set another record. However, a number of one-time events drove the revenue in Q4, in effect detracting from Q1 sales. $80 to $100 million appeared to be results of stategic purchases (before price increases) beyond Gilead's control.

Sofosbuvir (7977) for hepatitis C has continued to turn in positive Phase III clinical data. See today's Sofosbuvir press release for details. Could launch in Q1 2014 in U.S. and Q2 in Europe. Already preparing for launch; will put significant resources towards this (increased operating expenses).

Non-GAAP numbers: net income was $823.4 million, 4% sequentially from $788.9 million, and up 11% from $743.1 million year-earlier. Non-GAAP EPS $0.50.

Payer acceptance of Stribild has been excellent. Reimbursement is mostly in place. Ramping faster than Complera did. Patient profile is different for Stribild than Complera.

In December agreed to acquire YM BioSciences for $510 million.

Product sales were $2.51 billion, up 6% sequentially from $2.36 billion and up 18% from $2.13 billion year-earlier. Royalty revenue was $77.5 million, up 16% y/y.

Cash ended at $2.58 billion. Operating cash flow was $706 million. $200 million was spent on stock repurchases. Total debt after acquisition close was $10.0 billion, consisting of: $2.15 B credit facilities; $4.7 B unsecured notes; $3.15 B convertible notes.

Gilead is suspending share repurchase activity until debt reduction goals (1.5 ratio) are met.

Q&A:

Genotype 3 response? Could do longer treatment periods, or the NEUTRINO regimen. ELECTRON has 2 cohorts looking at this, but not expecting an excellent an excellent response in genotype 3a. Genetype 3 is only 7% of U.S. population.

May do a series of studies comparing 6, 8, and 12 week HVC response rates, to be reflected in the label. It should not delay the filing for combination fixed dose regimen. The sample size for non-inferiority studies is reasonable.

Cyrotic response rate can be calculated from released data, probably more than 90%. We have pre and post transplant studies underway. It is hard to know if those results would get to the label. We have a good broad package with many subtypes of patients that should be in the label.

Transplant patients are very high need, it would be helpful to have that in the label, but it is not a big swing factor for the launch.

Number of diagnosed Hep C patients treated by a specialist? We are not releasing the numbers, we are in a highly competive market. Will share later.

IP domicile of 7977, tax rate? It is Irish. So it could help our tax rate.

2013 guidance for R&D expenses? We are guiding R&D higher both net and as a %, and that could extend beyond 2013. In 2014 the R&D would shift to oncology, but remain at 2013 level. But # of clinical studies should peak in Q2 2013.

LONESTAR data timeline? Should be in early Q2. Then we can compare lengths of therapy. IM1 will be 21 weeks.

TAF Phase III decision? Results of second study will come out in Q2.

Sofosbuvir side effects? If you look at adverse events and laboratory abnormalities, the control arms were higher, even the placebo arm. Cirotics and non-cirotics are similar.

Cost of capital, equity vs. debt? We were rated 8 to 10 months before the acquisition. For re-rating we decided we wanted to be conservative with our debt ratio. But the cost of capital at current interest rates is not that significant.

7977 initial approval, % of population addresses? It will not be a low key entry into the market. The results in all genotypes are an improvement over current care, particularly in the genotypes common in the U.S.

HCV and HIV and HBV sales forces will be separate.

Expectation for austerity measures in Europe in 2013? There could be price pressure in southern Europe. There could also be inventory reductions and prolonged price negotiations.

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