Analyst Conference Summary

conference date: January 27, 2009 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2008 (4th quarter)

Forward-looking statements

Overview: Continues to grow revenues and profits.

Basic data (GAAP) :

Revenues were $1.43 billion, up 4% sequentially from $1.37 billion, and up 30% from $1.09 billion year-earlier.

Net income was $568 million, up 13% sequentially from $504 million, and up 41% from $402 million year-earlier.

Earnings per share (EPS) were $0.60, up 15% sequentially from $0.52, and up 46% from $0.41 year-earlier.

Guidance:

Net product revenue for full 2009 of $5.9 to $6.0 billion, up 18% from 2008. But there is a possible impact from macroeconomics. Non-GAAP product gross margin 76% to 78%. Operating expenses to be essentially flat from 2008. Effective tax rate 26% to 27%. After tax stock-based compensation expense of $0.14 to $0.16 per share.

Conference Highlights:

Another very successful quarter. Sales growth was driven primarily by Atripla and Truvada, gaining market share across all major commercial markets. There was a favorable foreign exchange impact.

Non-GAAP net income, which excludes $30.3 million of non-cash stock compensation, was $598 million or $0.63 per share.

Income tax benefits increased earnings by $0.04 per share.

Cash and equivalents reached $3.24 billion. $750 million was spend to repurchase stock. Operating cash flow was $646 million.

Royalty, contract and other revenues were $40.4 million, down 41% from year-earlier mainly due to decreased Tamiflu royalties. But royalties were up sequentially due to seasonal nature of these sales.

Product sales were a record $1.39 billion, up 35% from year-earlier. Antiviral product sales increased 35% to $1.27 billion.

Cost of goods sold was $321.5 million. Research and development expense $201.9 million. Selling general and administrative expense $193.7 million. Income from operations $711.1 million. Interest and other income $18.5 million. Income tax provision $161.5 million.

77.4% non-GAAP product gross margin, down due to higher proportion of Atripla sales, which has lower margins because one component requires royalties to another company. 52.5% non-GAAP operating margin.

In September the U.S. Dept. of Health issued revised guidelines that Truvada and Atripla are the backbone of choice for new HIV patients. This should lead to continued growth in the HIV franchise.

Viread for Hepatitis B is for sale and is showing promising results. Sales are going well in Great Britain as well as in the U.S. With Hepsera, Gilead now has 48% of market share.

26.5% effective 2008 tax rate; 22.1% Q4 2008 effective tax rate.

Details of market share gains for HIV drugs, versus competitors, were given.

R&D pipeline is stronger than ever. Decided to discontinue development of GS 9131, which was in Phase I/II to focus on integrase program. Elvitegravir program was speeded up and broadened with FDA approval.

Q&A:

What do you have to show in the 9350 Phase II to go to Phase III in Elvitegravir (quad) program? We have to finish a smaller study, call it phase II or III, with 50 to 100 patients, to establish safety over about 12 weeks. It also takes a few months to analyze data. Then we can go on to the larger Phase III study. We already have a fair amount of data on Elvitegravir, and have a separate Phase III study already underway.

Guidance for total product sales is less than street consensus. Why? In U.S. there is healthy underlying growth in prescriptions, but still slowed in Q4. It appears inventory was decreased in chain. This may be due to macroeconomics. We are seeing a change of behavior both at wholesale and retail level, which creates uncertainty. There may also be foreign exchange volatility.

For Q1 we will have 2 less shipping days than normal.

Magnitude of foreign exhange effects? Range in revenue, even with hedging, could be $50 to $100 million if there were a 10% change in rates. We hedge 18 months out, and there is an offsetting natural hedge. You have to look at it on an annual basis.

Are the new HIV guidelines incorporated into the guidance? We believe we will continue to have very healthy growth of our HIV franchise, including taking market share in Europe. 2009 will also be the first year of sales of Atripla in Europe in many countries. Also, we are hoping France will approve Atripla. Pricing could be an issue too.

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