Analyst Conference Summary

conference date: April 22, 2014 @ 1:15 PM Pacific Time
for quarter ending: March 31, 2014 (first quarter, Q1 2014)

Forward-looking statements

Overview: Sovaldi ramp leads rapid revenue growth.

Basic data (GAAP) :

Revenue was $5.00 billion, up 60% sequentially from $3.12 billion and up 98% from $2.53 billion in the year-earlier quarter.

Net income was $2.23 billion, up 182% sequentially from $791.4 million and up 209% from $722.2 million year-earlier.

Earnings per share (EPS, diluted) were $1.33, up 183% sequentially from $0.47 and up 209% from $0.43 in the year-earlier quarter.

Guidance:

Reiterated prior full year results, excluding Sovaldi sales: non-GAAP: core product sales $11.3 to $11.5 billion, up 6% to 8% y/y; excludes Sovaldi. 75 to 77% gross margin. R&D expense $2.2 to $2.3 billion. SG&A $2.1 to $2.2 billion. Effective tax rate 28% to 29%, excluding renewal of R&D tax credit. Acquisition related and stock-based comp expenses estimated at $0.63 to $0.66 per share.

Conference Highlights:

The quarter was an important milestone for Gilead, driven by the launch of Sovaldi for hepatitis C. A robust data package supported the launch. The FDA will rule on the combination with ledipasvir by PDUFA date of October 10, 2014, so a U.S. launch is possible by the end of the year.

Non-GAAP numbers: net income was $2.49 billion, up 168% sequentially from $929.8 million and up 210% from $802 million year-earlier. Non-GAAP EPS was $1.48, up 169% sequentially from $0.55 and up % from $0.48 year-earlier. 87% product gross margin.

Product sales were $4.65 billion, up 53% sequentially from $3.04 billion and up 109% from $2.22 billion in the year-earlier quarter. U.S. sales were $3.63 billion.

Royalty, contract and other revenue was $128.0 million

Cash and equivalents ended at $6.8 billion. Long term liabilities were $8.4 billion. $63.1 million stock-based compensation expense. $1.5 billion cash flow from operations. $450 million was used for repurchase shares. Acquisition-related amortization was $195 million.

Sovaldi European sales only $164 million, as country-by-country reimbursement approvals take time. Recently U.K. approved funding for 500 patients while awaiting a full reimbursement ruling. French and German guidelines recommend Sovaldi. The vast bulk of the $2.3 billion in sales were in the U.S.

HIV therapies continued strong y/y revenue growth both in the U.S. and internationally. Inventories were drawn down in the first quarter, as has been the case in the last few years.

Sales and marketing organization for oncology in the U.S. is being built out, with Europe to follow.

The FDA accepted the NDA for idelalisib for relapsed chronic lymphocytic leukemia with a PDUFA date of August 6, and for refractory indolent non-Hodgkin's lymphoma with a PDUFA data of September 11.

Numerous other studies are underway or planned; see Gilead pipeline.

Cost of goods sold was $813.2 million. Research and development expense was $595.0 million. Selling, general and administrative expense was $548.1 million . Income from operations was $3.04 billion. Interest expense was $76.3 million. Other expense was $17.9 million. Income tax provision was $726 million. Net loss attributable to noncontrolling interest was $4.8 million.

While expenses increased, they were far lower than revenue increases.

Q&A:

Can you change the conversation from cost/benefit to value of Sovaldi therapy? The value of a cure is underestimated in terms of its advantages for the healthcare system. HCV patients cost a lot of money. Papers are being written on this. Systems will prioritize some patients over others, and there will be discussions about priorities, but the goal will be to eradicate HCV.

Restrictions on use of Sovaldi, your thoughts? The regimen cost is not dissimilar from the prior standard of care, over the . Sovaldi provides shorter treatment times, is better tolerated, and has a higher cure rate than prior standards. There is more HCV disease that is not hepatic. Curing someone for HCV has benefits beyond the liver because it is a chronic inflammatory condition. The only reason for restrictions are economic, not health.

Given cash flow and new debt, share buy back thinking? Our plan has always been to accelerate our repurchases after the Sovaldi launch, and that is still the plan, at the current stock price.

Pipeline programs, Simtuzumab? Pre-clinical results supported both fibrosis and tumors. We are trying a number of solid cancers, if we see indicators we will do Phase II data that could be powered for registration.

Sustainability of revenue in Europe? Either it will be big and short or restricted and have a long tail. It will vary country by country. We are confident in our clinical position and pipeline. It is likely to be spread out in Europe, particularly in the southern European countries.

Optimization of length of therapy across HCV genotypes? Our filing is proposed for 8 weeks for basic patients, 12 weeks for cirrhotic patients. 12 weeks is too long for 90% of the general HCV population. We believe Sovaldi is priced appropriately. The 8 weeks for the combination therapy will also be taken into account when we price it.

VA and prison system use of Sovaldi so far? Sovaldi was added to the VA national formulary in the first week of April, but we have not seen a huge amount of orders from them. The federal prison system is updating its guidelines; we anticipate Sovaldi will be in those guidelines.

There was a Sovaldi inventory build during the quarter, but it is hard to quantify at this point.

Payer mix for Sovaldi? Data is scanty so far. We believe about 90% is from private insurance and Medicare, split about evenly, with Medicaid about 7%.

Change in operating margin, will it change R&D & other expense lines? We can't grow R&D up to its previous % level in a short period of time. We will grow R&D at an appropriate pace. Same for licensing in programs. "Just because we have more money does not mean we are going to spend it."

Duration of therapy so far, use with interferon? Data is about 70% are genotype 1, about 65 to 70% of those are on 12 weeks of therapy. Gen 3 are taking 24 weeks. It is not surprising interferon sales are declining.

Potential competition in HCV therapies? Don't want to reveal competitive pricing strategy.

We don't need a cirrhotic study, we included that in our earlier studies.

GS5816 has shown it works for all genotypes, it could go to Phase III in the second half of 2014.

In a typical year about 60,000 patients are treated for HCV, we treated 30,000 in Q1, but in past years there were a lot more patients treated, so we believe there are plenty of patients going forward.

Is there still a warehousing of HCV patients before an all-oral, interferon-free approval? It is clear some physicians would like to hold back their less-sick patients until later this year, but others are just starting using Sovaldi and are not interested in holding back on treating patients.

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