Gilead Sciences, Inc. (GILD) Q4 2006 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Gilead Sciences fourth quarter and 2006 yearend earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded today, January 31st 2007. Your speakers for the day are John Milligan, Executive Vice President and CFO; John Martin, President and Chief Executive Officer; Norbert Bischofberger, Executive Vice President of Research and Development; and Kevin Young, Executive Vice President of Commercial Operations. I would now like to turn the call over to Dr. Milligan. Please go ahead.

Good afternoon and welcome to Gilead's fourth quarter 2006 conference call. We issued a pre release providing results for the fourth quarter and year ended December 31st 2006, describing the Company's quarterly and full year highlights. The press release is also available on our website, at www.gilead.com. Also joining us on today's call are Matt Howe, Vice President of Finance, and Susan Hubbard, Vice President of Investor Relations. I'll begin the call by reviewing the fourth quarter and full year 2006 financial results, and then I'll provide financial guidance for 2007. John Martin, Norbert Bischofberger and Kevin Young will take you through the corporate and product-related highlights for the quarter. We will allow time at the end of this call to answer your questions. First, I would like to remind you that we will be making statements related to future events, expectations, trends, objectives and financial results that constitute forward-looking statements within the meaning of the Private Securities Act of 1995. These statements are based on certain assumptions and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those expressed in any forward-looking statement. I refer you to our Form 10-K for the year ended December 31st 2005 and our Form 10-Qs for the first three quarters of 2006, subsequent press releases, and other publicly filed SEC disclosure documents for detailed descriptions of risk factors affecting our business. In addition, please note that we undertake no obligation to update or revise these forward-looking statements. In short, 2006 was another very successful year for Gilead filled with many corporate successes and achievement of several significant financial milestones. Full year total revenues for 2006 exceeded the $3-billion mark for the first time in company history. Driven by the continued growth of our HIV product sales, we achieved record sales of $2.6 billion, a 43% increase compared to 2005. HIV product sales for 2006 exceeded the $2-billion mark and grew 52% compared to 2005, driven primarily by the strong uptake of Atripla following its US launch in July of 2006 as well as the continued strong performance of Truvada and Viread. In 2006, we also generated more than $1.2 billion in operating cash flow. Our solid operating performance is a validation of the significant efforts made by the more than 2,500 Gilead employees around the world. Each employee has played a part in executing the strategies implemented by the Company for growing revenues and operating cash flows, including making prudent investments in both the research and developments efforts and our sales and marketing infrastructure. Now, turning to significant results for the fourth quarter and full year 2006. Gilead reported a net loss of $1.7 billion, or a loss of $3.62 per share on a fully diluted basis, for the quarter ended December 31st 2006. This includes the impact of the purchased in-process research and development charge of $2 billion associated with our acquisitions as well as $25 million of after-tax stock-based compensation expenses reflecting the impact of our adoption of FAS 123(R) on January 1st of 2006. For the full year 2006, net loss was $1.2 billion, or a loss of $2.59 per fully diluted share, including purchased in-process research and development charges of $2.4 billion associated with our Corus and Myogen acquisitions and after-tax stock-based compensation expenses of $102 million. Excluding the impact of the purchased in-process R&D charges, Gilead had a robust financial performance during the fourth quarter and full year of 2006 as well as product sales and non-GAAP earnings improved substantially over the same periods of 2005. Non-GAAP net income per share for the fourth quarter of 2006, which excluded the impact of purchased in-process R&D charge, was $0.78 per share on a full y diluted basis, a 45% increase over the fourth quarter of 2005 non-GAAP net income per share of $0.54 per share, which excluded the tax benefit realized from the repatriation of foreign earnings under the American Jobs Creation Act. For the full year of 2006, non-GAAP net income per share increased 51% to $2.52 compared to $1.66 per share in 2005, reflecting our strong operating performance driven by our topline growth. The non-GAAP figures for 2005 excluded the after-tax stock-based compensation expenses relating to FAS 123(R), as they were prior to our adoption of FAS 123(R). The non-GAAP figures for 2006 do not exclude the after-tax stock-based compensation expense and, therefore, reflect the impact of our adoption of FAS 123(R) on January 1st 2006. Total revenues for the fourth quarter of 2006 were $899 million, an increase of 48% from total revenues of $609 million in the fourth quarter of 2005. Product sales were a record $768 million for the fourth quarter of 2006, up 56% over the same period in 2005, making more than three years of consecutive quarterly product sales growth. Full year 2006 total revenues increased by 49% from 2005 to $3 billion. This is driven primarily by a 43% increase in our product sales as well as our royalty revenues, which more than doubled from 2005. Compared to the third quarter of 2006, total revenues for the fourth quarter of 2006 increased 20%. Revenue from our fourth quarter product sales increased sequentially by 50% as well as our HIV and HVA product franchises continued to grow. Revenue from our royalty and contract revenues increased sequentially by 67%, due primarily to the recognition of royalty revenues received from Roche's sales of Tamiflu. HIV product sales grew to $642 million for the fourth quarter of 2006, up 67% compared to $385 million in the fourth quarter of 2005 and up 15% sequentially from the third quarter of 2006. For the full year 2006, HIV franchise product sales were $2.1 billion representing a 52% increase over 2005, with Truvada leading the way with a record $1.2 billion in sales. Truvada sales were $337 million for the fourth quarter of 2006, up 76% compared to the same period last year and an increase of 9% sequentially. Truvada sales accounted for more than half of our total HIV franchise sales in the fourth quarter and full year of 2006. In the United States, Truvada sales were $196 million in the fourth quarter of 2006, an increase of 31% compared to the fourth quarter of 2005 and a decrease of 3% sequentially, as certain patients began switching from a Truvada containing regimen to one containing Atripla. Viread sales in the United States for the fourth quarter of 2006 decreased by 7% compared to the same period last year and remained flat sequentially. In its second quarter in the market, Atripla contributed $137 million to our HIV product sales As a reminder, Gilead records 100% of the Atripla product revenue to the Gilead consolidates the financial results of our joint venture with BMS. The economical value of Sustiva, which is distributed back to BMS, is captured in our cost of goods sold line. The Sustiva component of the Atripla sales figure is approximately 51 million of the 137 million, with Truvada comprising the remainder. In Europe, Truvada sales for the fourth quarter of 2006 increased sequentially by 28%, while Viread sales decreased sequentially by 9%. Hepsera for the treatment of chronic hepatitis B had sales of $66 million in the fourth quarter of 2006, a 29% increase compared to the fourth quarter of 2005, driven primarily by strong volume growth in our European markets. For the full year, Hepsera product sales were $231 million, a 24% increase from the $187 million recorded in 2005. And finally, sales from AmBisome were $58 million for the fourth quarter of 2006, an increase of 5% over the same period of 2005. For the full year, AmBisome revenues were $223 million, a 1% increase when compared to 2005. Compared to the same period last year, revenue from Gilead's royalty and contract revenues for the fourth quarter of 2006 increased 13%. Sequentially, royalty and contract revenues increased by $52 million or 67%. The year over year and sequential increase in fourth quarter revenues is primarily driven by increased Tamiflu royalty revenues recognized from higher Tamiflu sales made by Roche. Royalties received from Roche for the fourth quarter of 2006 were $113 million. These royalties, which are paid one quarter in arrears reflect a royalty rate of approximately 22% as applied to Roche's sales of Tamiflu during the third quarter of 2006. And turning to gross margin. Product gross margin for the fourth quarter of 2006 was approximately 80% compared to product gross margin of approximately 85% of the same quarter for 2005. For the full year, product gross margin decreased to 83% from 86% in 2005. The lower gross margins are primarily due to the launch of Atripla, which carries the Sustiva-related portion of revenue and a zero gross margin, a write-down of our inventory in Access Program, as well as product mix changes. This is partially offset by the benefit associated with the purchase of the emtricitabine royalty interest owed to Emory University, which was completed in 2005, and lower API costs. Now, turning to expenses. Research and development expenses were $112 million for the fourth quarter of 2006, which included stock-based compensation expense of $14 million. This is an increase of 62% from $69 million in the same period of last year and an increase of 20% from $93 million sequentially. In addition to stock-based compensation expense, other factors which led to an increase in R&D expenses for the fourth quarter of 2006 were increased headcount and increased contract services and clinical study expenses from our product development and research activities related to our HIV, hepatitis and newly acquired programs in the respiratory and cardiopulmonary areas through our acquisition of our Corus and Myogen. Total R&D spending for the full year 2006 was $384 million, which included stock-based compensation expense of $52 million, an increase of 38% from 2005. SG&A expense in the fourth quarter of 2006 was $147 million, which included stock-based compensation expense of $19 million. This is an increase of 38% from $107 million in the same quarter of 2005, an increase of 11% from $133 million sequentially. For the full year of 2006, total SG&A spending was $574 million, representing a 50% increase compared to 2005. The higher SG&A expenses in the fourth quarter and the full year 2006 was primarily due to increased headcount and expenses driven by our business growth, our acquisition of Corus and Myogen and other business development activities, as well as stock-based compensation expense from our adoption of FAS 123(R). Our tax rate for the fourth quarter of 2006 before the purchased in-process R&D charge was 27.6%, a decrease from the 32.3% tax rate for the fourth quarter of 2005, after excluding a tax benefit realized from the repatriation of foreign earnings in the fourth quarter of 2005. The decreased fourth quarter tax rate was a result of the December 2006 extension of the federal research credit as part of a Tax Relief and Healthcare Act of 2006. The credit was retroactively extended from January 1st 2006 in accordance with the -- and in accordance with the US GAAP, the cumulative benefit was recorded in the fourth quarter of 2006. Our full year tax rate before the purchased in-process R&D charge was 31.4%. And finally, I would like to turn to cash flows to the balance sheet to highlight our cash flow performance for the year. The balance sheet at December 31st 2006 shows cash, cash equivalents, and all marketable securities of $1.4 billion. This is a decrease of $1.8 billion when compared to the balance of $3.2 billion at September 30th 2006. The decrease during the fourth quarter was primarily attributable to $2.4 billion in net cash paid for the acquisition of Myogen and Raylo partially offset by $480 million of operating cash flow generated during the quarter. Now, I'd like to turn to our financial guidance for the full year 2007. As you know, with Gilead's adoption of FAS 123(R) in January of 2006, we opted at that time to write GAAP expense guidance that would include the impact of our stock based compensation option expense on the various line items. A year has now passed, and based on feedback from our investors as well as peer benchmarking, we believe that reporting actual results and issuing expense guidance excluding the impact of stock-based compensation is more relevant and consistent with investors' evaluation of Gilead and our peers as well as our own internal management reporting. Therefore, the expense guidance we are providing you today will be non-GAAP and excludes the impact of stock based compensation expense. You can locate all of our guidance for the year 2007 on Gilead's corporate website. Additionally, for 2007, we are altering the way we are giving net product revenue guidance. Due to the number of products in our portfolio and due to the increasingly complex dynamic of our four HIV products, we are now going to aggregate our guidance to include all our marketed products. We are providing full year 2007 product sales guidance in the range of $3.4 billion to $3.5 billion, which is approximately a 31 to 35% increase over 2006. This guidance does not include any potential revenues for ambrisentan, consistent with our practice of not issuing any guidance prior to product launch. We are providing product gross margin guidance for the full year 2007 of 78 to 80%. The lower gross margin compared to 2006 is entirely due to the higher revenue, which includes the Sustiva portion at zero gross profits, partially offset by gross margin improvements driven by lower API costs and lower amortization of prepaid emtricitabine royalties due to the royalty buyout executed in 2005. We are providing non-GAAP R&D expense guidance for 2007 from $510 million to $530 million, which is a 54 to 60% increase over the 2006 R&D expenses excluding the impact of stock based compensation expense. This range factors in the absorption of full year R&D expenses for our recent acquisitions as well as additional R&D investments we expect to make in the respiratory and cardiopulmonary areas, including the continued development of darusentan resistant hypertension. Norbert will elaborate on this later in the call. We are providing non-GAAP SG&A guidance of $570 million to $590 million, a 13 to 17% increase of our 2006 SG&A expenses excluding the impact of stock based compensation expense. This increase over 2006 spending reflects our overall higher headcount and spending to support our business growth as well as the sales force expansion planned for the anticipated ambrisentan launch in the United States. And finally, our effective tax rate guidance for the full year 2007 is expected to be in the range of 30 to 31% driven by the projected growth of our international business and the extension of the R&D tax credit by Congress. Regarding stock based compensation base, we expect the 2007 fully diluted per share impact to be in the range of $0.27 to $0.30 per share compared to $0.21 per diluted share in 2006. This increase is primarily driven by the assumption of Myogen unvested stock options as part of the acquisition. In summary, as Gilead looks ahead, we'll continue to make the investments we believe necessary to promote our product lines, further develop our pipeline, and continue to evaluate opportunities to build a strong independent global business. This concludes the earnings reporting section of this conference call. At this point, I would like to turn the call over to John Martin to review our corporate highlights for the fourth quarter of 2006.John Martin: Thank you, John. Good afternoon, everyone, and thank you for joining us today. We are pleased to summarize for you Gilead's many accomplishments during the fourth quarter of 2006. I will start by providing an update on our business. Then Norbert Bischofberger will summarize our pipeline efforts and research programs. And then Kevin young will review our commercial efforts. To begin, I'd like to highlight the progress we made with our HIV portfolio. As you know, the FDA approval of Atripla in July of last year marked the introduction of the first and only once-daily single tablet for the treatment of HIV. This simplification of therapy was highly anticipated by physicians, resulting in a robust launch, making Gilead the HIV market leader in the United States. During the fourth quarter, we along with our partners, Bristol-Myers Squibb and Merck, announced the submission of the Atripla marketing authorization application to the EMEA and the European Union. Based on our expectation for standard review by the EMEA, we anticipate approval of Atripla maybe some time late in the second half of this year. Also, you will recall that in August last year Gilead and Merck established a separate agreement for distribution of Atripla in developing countries utilizing a different trade trust than our tablets tested for the US or European markets. Merck is now working to register Atripla in these territories. Kevin will discuss in greater detail our commercial progress with Atripla later in the call. We have continued to expand our efforts to ensure access for Viread and Truvada in developing countries, while protecting for profit markets. Applications for registration of Viread have been completed for nearly all of the 97 developing world countries included in our access program. In addition, agreements have been forged with the 11 India companies to manufacture and distribute a generic form of Viread to these countries. These agreements reward Gilead for its innovation and should facilitate greater availability of Viread. Over the course of 2006, we achieved a number of milestones that supported our continued growth. In addition to advancing the pipeline programs in HIV, Hepatitis B and C, we completed three key acquisitions. With the acquisition of Raylo late last year, we brought to Gilead a much-needed increased capacity for processed research and scale up of clinical development candidates to support the aggressive timelines for our multiple R&D programs, on which Norbert will elaborate shortly. Through the acquisitions of Corus and Myogen, we brought into our existing focus beyond anti-infectants and into respiratory and cardiopulmonary disease. While these are therapeutic areas new to Gilead, we expect to leverage our demonstrated experience in registering and commercializing highly different specialty products. This expanded focus provides the opportunity for additional product launches to fuel both near-term and long-term revenue growth. And in a short period of time, the combined organizations have successfully integrated and have already begun working together effectively to advance our clinical programs. Norbert and Kevin will elaborate on the progress of both aztreonam lysine for cystic fibrosis related lung infections and ambrisentan for pulmonary arterial hypertension later in our call. We are pleased with the progress Roche made in 2006 in raising the profile of the potential of Tamiflu for both seasonal as a treatment and prevention and pandemic influenza. As Roche stated last year, they have now successfully ramped up their production capacity to 400 million treatment courses annually, largely before international stock piling for the potential of an avian influenza and pandemic. Currently, Roche has received orders or letters of intent to purchase Tamiflu from the governments of more than 75 countries, accounting for 200 million treatment courses. Over 30 countries have now -- now have in place stock piles that would cover at least 5% of their population. I would also like to highlight Carla Hills has joined our Board of Directors. Mrs. Hills previously held positions as US Trade Representative under President George H. W. Bush and as US Secretary of the Department of Housing and Urban Development under President Gerald Ford. Her expertise in trade policy and business will be invaluable to us as we continue to expand our international operations. And finally, this year, 2007, marks the 20th anniversary of Gilead. Since the company's founding, we have made significant progress on advancing therapeutics against life threatening diseases worldwide. Our success is due to the hard work and dedication our employees exemplify every day. In addition, we appreciate the support that you, our investors, have provided over the years. Now with 10 marketed products, one product under review by the FDA and three products in Phase III clinical studies, we have a strong foundation to support continued growth for the years to come. I will now turn the call over to Norbert to review our pipeline and research programs.

Thank you, John and good afternoon, everyone. Gilead has made significant investments in and achieved considerable progress with its pipeline in 2006. Our efforts have resulted in the identification of a number of development candidates, the advancements of clinical development compounds, and the achievement of late stage development milestones. To begin with, I would like to give you an update on the Phase II dose ranging study of GS 9137, our lead integrase inhibitor candidate for the treatment of HIV. As you know we completed enrollment in this Phase II study last June, amended the protocol in October, and the last patient enrolled in this study crossed the 24-week end point in December. We are pleased to report that an abstract for this study has been accepted as a late-breaker presentation at the upcoming 14th conference on Retroviruses and Opportunistic Infections taking place in Los Angeles late February. We will present the study results at that time, but due to guidelines issued and enforced by the conference organizers, we are not at liberty to share any of the data prior to the presentation. We can say that we are very encouraged by the preliminary results which we have allowed -- which have allowed us to select a dose for further studies. We have begun designing the protocols for our Phase III program which we will share with the FDA in the near future along with the Phase II results. Pending on the outcome of these discussions, we anticipate being in a position to begin enrollment in the first Phase III studies in treatment experience patients towards the mid part of this year. In addition to GS 9137 which is boosted with Ritonavir, we also advanced a second integrase inhibitor GS 9224 into clinical development to explore its potential as a once-daily agent which would not require boosting. Based on data from a Phase I clinical study obtained recently, we have decided to discontinue development of GS 9224 due to its short half life. Despite this disappointing result, we remain committed to pursuing the integrase class of drugs, in particular our lead compound GS 9137 which, as I indicated previously, is advancing into Phase III studies. We have also made progress on our programs focused on developing antivirals for the treatment of hepatitis C. Our collaboration with Achillion resulted in the identification of GS 9132, a small molecule antiviral that works through another mechanism involving HCV protease. Achillion began dosing patients with 9132 in a Phase I/II viral dynamic study in December of last year. This dose escalating trial will serve as a proof-of-concept study determining the antiviral activity and safety of GS 9132 in HCV infected patients. We expect data from this study in the second quarter of this year. In addition, Gilead began dosing HCV infected patients in a Phase I study of a novel non-nucleoside Polymerase Inhibitor GS 9190. We anticipate safety and efficacy data from this study in the second quarter of this year as well. For tenofovir DF for chronic hepatitis B, we expect 48-week results from both of our Phase III studies in the second half of this year. And we anticipate regulatory filings in the US and European Union occurring by the end of this year. I would like to turn now to the advanced product candidates resulting from the Corus and Myogen acquisitions last year, which have enabled us to broaden our focus in respiratory and cardiopulmonary diseases. First, last September, we reported positive Phase III results from AIR-CF2, which is the first of two pivotal studies evaluating aztreonam lysine in cystic fibrosis patients with pseudomonas infections. The study met its primary efficacy end point of time-to-need for inhaled or intravenous antibiotics which was assessed by the onset of common symptoms predictive of a pulmonary exacerbation. Enrollment in the second Phase III study was completed just last week and we expect to have data by mid-year. Pending positive results from the second Phase III study, we would be in a position to file a new drug application in the US for aztreonam lysine for the treatment of cystic fibrosis in the second half of this year. Turing now to our cardiopulmonary product candidates. We are very pleased that the new Gilead employees in Colorado completed in December the new drug applications submission to the FDA for ambrisentan for pulmonary arterial hypertension or PAH. We believe that based on the safety and efficacy data obtained in various clinical studies involving approximately 480 patients with PAH, once daily ambrisentan has the potential to be the best-in-class endothelin receptor antagonist. We are pleased to announce we have just been notified that two abstracts related to ambrisentan have been accepted for oral presentation at the American Thoracic Society Meeting taking place in San Francisco in May. The first presentation will highlight one year follow-up data from AMB-222, a study evaluating ambrisentan in patients who had previously discontinued bosentan or sitaxsentan or both due to LFT abnormalities. The second study -- the second presentation will provide long-term safety and efficacy data from ARIES-E, which is the extension study of patients who enrolled in either of the two pivotal Phase III studies. As part of our NDA filing we have requested priority review and we will inform you of the PDUFA day for ambrisentan once we receive official notification from FDA. Our team is also working closely with GSK to pursue regulatory submissions in the European Union, which we expect will occur by the end of this quarter as well as in other territories. Finally, I would like to provide you with an update on darusentan. As you know both ambrisentan and darusentan are a specific endothelin receptor antagonists that Myogen in-licensed from Knoll and Abbott respectively. Myogen evaluated darusentan in a Phase II study in resistant hypertension and showed that the addition of darusentan to three or more antihypertensive drugs resulted in a significant reduction in blood pressure versus placebo. Based on these results and on safety data from approximately 1,400 patients who had received darusentan in various studies, Myogen planned to advance darusentan for resistant hypertension into two Phase III studies, one of which, study 311, was initiated mid 2006. After a careful review of the program, we are convinced of the medical potential of darusentan as a potential agent for the management of resistant hypertension, and we have decided to continue its development. We're planning on making certain protocol modifications to study 311, however, which should speed up enrollment and reduce overall development costs. We have not yet informed regulatory authorities of our intentions, so would prefer not to speak about the specifics surrounding the studies until that occurs. In summary, I'm proud of the research and development advancements we have achieved over the last quarter and year. We have many exciting opportunities to deliver on over the course of this coming year, and look forward to keeping you updated on our progress. With that, I will now turn the call over to Kevin Young to discuss our commercial efforts. Kevin.

Thank you, Norbert. Good afternoon, everyone. To begin, I'd like to provide an update on the commercial progress of our HIV franchise in the fourth quarter. I'm pleased to report that we continue to see rapid uptake of at Atripla since its US launch six months ago. The launch trajectory of Atripla when looking at prescription data continues to surpass that of Truvada, which was the number one antiviral launch in the history of new HIV medications in terms of market share gain. In its 28th week on the market, Atripla's NRTI share of the new prescription and total prescription market was 11.7% and 11.2% respectively as compared to 10.8% and 9.4% for Truvada at the same time point. As we stated on last quarter's call, the Atripla launch was supported by successful series of activities focused on former acceptance with private payers, Medicaid, the national VA system and AIDS Drug Assistance Programs. In record time since its launch, Atripla has now been added to all state Medicaid and ADAP formularies. And with most payors, patients have the additional benefit of only one copay for the three medications in Atripla. We have received updated third-party patient data, some of which we previewed at the JP Morgan Conference early this month that began to give us some insight into where the Atripla business is coming from. This data is from the third quarter of 2006 and is therefore reflective of progress achieved in the timeframe immediately following the Atripla launch in mid July of last year. Noteworthy is that 34,000 patients or 7% of the total treated population were on an Atripla regimen. Approximately one quarter of the Atripla business came from new patients and three quarters came from switches with over half of that from the obvious switch of Truvada plus Sustiva. And importantly, switches from Combivir accounted for 15% of the switches to Atripla during the first full quarter of launch. That said, 30,000 patients remain on a Combivir plus Sustiva regimen, which along with 37,000 Trivizir patients remains our largest target for garnering switches to Atripla. Gilead's HIV franchise commanded a place in each of the top four most prescribed regimens, with Atripla debuting in the third spot within just one quarter of launch, proceeded only by Truvada plus Sustiva, and Truvada plus Reyataz, and followed by Truvada plus Kaletra. Truvada maintained its position as the backbone of choice with either protease inhibitors or non-nucleoside reverse transcriptase inhibitors as well as across all patient demographics, including African Americans and women. One metric we utilize to measure our success in HIV franchise growth is to follow the trajectory of what we call total Truvada; that is the combined growth of Truvada and the Truvada component of Atripla. For total Truvada -- in terms of total prescription volume, total Truvada grew by 29% over the first six months of the Atripla launch compared with the six months prior. Patient share of new stocks has grown to 76%, up from 66% of new stocks just prior to the Atripla launch. And the number of patients receiving total Truvada grew by more than 4% quarter-over-quarter to 203,000 patients, which represents 43% of all treated patients. Based on weekly prescription data received from Wolters Kluwer Health, Combivir's new prescription market share has dropped five market share points since the launch of Truvada in August 2004, reflecting our efforts to take market share from our competition. As of the third quarter 2006, the number of patients receiving Combivir has decreased by 35% since the launch of Truvada. And strikingly, the number of patients starting therapy with Combivir has fallen off from a peak of well over 60% in 1999 to 11% currently. In terms of total molecule share, tenofovir, the molecule in Viread, Truvada and Atripla has continued its growth as the most prescribed molecule in HIV, with total prescriptions exceeding the 3TC molecule by 25% in December 2006. With the launch of Atripla emtricitabine, Gilead's molecule in Emtriva, Truvada and Atripla is on the verge of joining tenofovir as the top two most prescribed molecules in HIV. In fact as of the week ending January 19, 2007, the new prescription market share for emtricitabine now slightly exceeds that of the 3TC molecule for the first time, capturing 21.2% new prescription share compared to 21.1% for 3TC. We see continued opportunities to grow our HIV franchise, not only based on the profile of our drugs, but also based on dynamics that are now unfolding in the United States. For the sake of time, I will not go into great detail, but will briefly mention a few highlights. And we are happy to take your questions later. First, new CDC guidelines were published in September of last year recommending that every individual between 13 and 64 years of age be tested for HIV as part of their routine healthcare. The impact of these guidelines from administrative healthcare and economic perspective were explored in a recent HIV summit meeting in late November, which brought together individuals from treatment community, government industry and media. Several key themes emerged from the meeting. First the improvements in HIV therapy warrant increased testing. Second, historical HIV testing strategies have failed. Third, normalizing HIV testing can help identify and triage new persons into care. And finally, more people in care will help with prevention, lowering the rates of new infections. This meeting was considered a first for bringing together all of the relevant stakeholders and a very important step in the potential implementation of the CDC recommendations. Secondly, the Ryan White CARE Act was reauthorized in December, which as you may know, is the safety net program for HIV and aids patients without private healthcare insurance or who do not qualify for other public programs. Several key elements of the reauthorized bill will include priority on co-medical services, priority on early diagnosis of HIV-positive individuals through home self-testing and a redistribution of funds to areas with increased HIV incidents. And third, we have seen an increase in a number of patients initiating therapy over the past few years. That combined with the advancements in HIV treatment leading to patients living significantly longer has grown the number of patients taking antiretroviral therapy by 9% over the course of last year. Turning to our HIV franchise performance in Europe, as a reminder Truvada was approved at the end of February 2005 and was launched within 10 months in the UK, Germany, Spain, Italy and France. We have seen strong uptake of Truvada across all European countries. In November, Truvada achieved a significant milestone as it is now the leading branded NRTI in all of the big five EU countries, including most recently Italy. And in fact, every one in four treated patients in the EU is on a Truvada-containing regimen. In terms of patients new to therapy, Truvada continued to be the dominant NRTI backbone and has held its 39% patient share in the third quarter 2006 compared to Combivir, which declined to 24% during the same period. We have also seen Truvada plus Sustiva become the top regimen in all treated patients, growing to 10% patient share, surpassing Combivir plus Sustiva, which declined to 7%. This milestone is very important as we anticipate the approval of Atripla in Europe later this year. On a molecule basis, tenofovir DF, which is the active molecule in both Truvada and Viread, increased 1% quarter-over-quarter to a strong 40% patient share. In summary, the uptake dynamics of Truvada in Europe mirrored that of the US, which is a testament to the changes we have made in commercial operations over the past two years to improve the precision of our marketing -- our sales and marketing execution. We look forward to furthering the momentum of Truvada and will continue to target both naive and switch patients who can benefit from a Truvada-based regimen, all of which will strengthen the foundation for the European Atripla launch later this year. Turning briefly to Hepsera. In the United States, Hepsera continued to be the leading antiviral agent for the treatment of chronic hepatitis B. For the more Hepsera was prescribed in fourth quarter of -- more in the fourth quarter of 2006 than in any previous quarter. Nearly two years after the launch of Emtriva from Bristol-Myers, had zero prescription volume continue to increase with the growth of 3.6% from the third quarter of this year. Importantly, Hepsera has maintained total prescription market share of above 50% and has held steady in the number of patients currently receiving Hepsera quarter-over-quarter. As we have pointed out previously, the introduction of Hepsera as well as more recently launched competitor products has actually grown the market for patients receiving oral antiviral therapy. The pool of hepatitis B treated patients in the US increased 36% over the last 12 months from 33,000 to 45,000. We remain committed to protecting our market share in the face of increasing competition, as we believe the long-term safety efficacy and resistance data we have generated for Hepsera positively differentiates its profile from that of our competitors. In the Gilead territories outside the US, Hepsera made steady gains in market share against Lamivudine, particularly in southern Europe. Hepsera exited the third quarter of this year at 38% market share up from 36% over the previous quarter. Turning to our antifungal products. AmBisome recorded another solid sales quarter of nearly $58 million. This product continued to maintain its position, thanks to strong brand reputation as a proven treatment for confirmed invasive fungal infections. And finally, a few comments about the growth of our commercial organization in anticipation of the ambrisentan for pulmonary arterial hypertension, and the progress we're making in expanding our reach in Europe. In preparation for the US launch ambrisentan later this year, we are not working hard to finalize the size and shape of our launch sales force. We plan to augment our existing team of 17 and depending on FDA approval timelines, they will either promote Flolan alone for a period or immediately ambrisentan plus Flolan. On an EU expansion fronts, we have opened offices in Austria, Switzerland and Turkey with the Netherlands and Belgium slated for later in the year. As we stated, in our second quarter call last year, we believe our business in these additional countries has matured to the extent that each is now large enough to support a Gilead subsidiary. We believe this will enable us to better manage the commercialization of our HIV hepatitis and cystic fibrosis products, but more importantly the launch of Atripla later this year in partnership with Bristol-Myers and Merck. Moreover, we believe this expansion will place Gilead in even stronger position with respect to the licensing of new products making Gilead an ideal partner for like minded biotech companies seeking European sales and marketing capabilities. In summary, I am pleased with the performance during the fourth quarter and full year 2006, especially the earlier Atripla in the US and the continued growth of Truvada in Europe. The Gilead commercial operations area looks forward to this year and the exciting challenge of preparing for the anticipated 2007 and 2008 launches of ambrisentan for pulmonary arterial hypertension and aztreonam lysine for cystic fibrosis and tenofovir DF the treatment of HBV. I will now turn the call back over to the operator so that we can take your questions. Operator?

[Operator Instructions]. And your first question comes from the line of Meg Malloy with Goldman Sachs. Please proceed.

Thanks very much for the call and for taking the questions. Just two very quick ones on the pipeline. First, on ambrisentan, could you just remind us, that isn't the date by which you would know about the priority review 6 or 10 months -- 45 days not business days after filing? And then second, darusentan, I can totally respect that you don't want to go into specifics at this point. But I'd just wanted to get some clarity on your comfort level for changing the design. As I recall, it may not have been an FDA but that requirements were for optimal dosing of three meds, including a diuretic. Can you comment on your comfort level that you could change the trial design at this point? Thanks very much.

Hi, Meg. It's Norbert. Meg, the first question the official notification from FDA comes 60 days after the filing. We filed on the 18th of December. So we should receive that notification sometime middle of February.

Great. Thank you

But we -- we've not heard anything yet. Secondly, with regard to darusentan, we feel after review of the data very comfortable with going ahead and making a protocol change. And by the way, the protocol change does not have to do with the requirement for full dose. The full dose thing after looking at it and after talking to a number of thought leaders and investigators, we are completely comfortable with. The full dose, by the way, I just want to make it clear, does not mean maximum dose. It means either maximum dose or something lower if there is adequate documentation and reasoning by the investigator.

Thank you.

Your next question comes from the line of Geoff Porges with Sanford Bernstein. Please proceed.

Thanks very much for taking the question. And congratulations on 20 years of Gilead. And John, also on the great slides. It helps a lot. You obviously must have finally got some help. Couple of questions about Europe. It's very helpful to have the breakout. But could you give us the sense of approximately what percentage of OUS reported revenue for Truvada and Viread comes from Europe. And then related to the European markets could you talk about Epzicom, which seems to be doing better in Europe. And finally, about pricing exposure, I mean its likely that you will able to get bang pricing for Atripla in Europe or do you have pricing disparities now emerging in Europe with the legacy products.

Hi, Jeff, it's Kevin. I'll take your last couple of questions first while John might provide the firs Kevin. In terms of Atripla, I do think that we can at least cross our major markets get a one plus one of Truvada plus Sustiva for Atripla. If we can get a premium obviously that's a negotiation we'll go through. As you remember, we were very successful with Truvada getting a one plus one on Viread plus getting our Emtriva. The only country where there was a marginal decrease on that was in Spain. But we were successful, in fact we got a premium in for example the in Nordic area. In terms of the ratio, if you like, of Truvada to [Exicor] or Trivizir, is it called, you are correct in that there seemed to be a better execution against in the European territories than here in the US. There is a range of ratios. In Germany, it's particularly strong whereas in the UK it's slightly lower. But as you know with the nationalized sort of healthcare care system in Europe and large purchasing groups, that's to be expected. I also think that GSK probably had a little bit more traction on their sort of philosophy of sort of doing absence testing upfront. So that is probably resignated more with certain European healthcare systems. But overall, you know there is still a gap between ourselves and then Trivizir and we certainly think we can maintain that if not actually grow that. One of your questions was how much of the international business is Europe versus the rest of the territories. And I'll just give you a couple of metrics for HIV franchise, the European business total was $203 million and the other component international the ROW was $38 million. And that was for Q4'06. I don't -- Truvada was quite small it was only $13 million for the quarter because we are just now getting Truvada launched in a couple of other territories.

Your next question comes from the line of Thomas Wei with Piper Jaffray. Please proceed.

Thanks very much. I had wanted to understand a little bit more on the guidance for R&D. It's going to be up about $200 million it seems like on a non-GAAP basis from '06 to '07. Can you help us how much of that increase is what you had previously been working on versus say the addition of Myogen or Corus? And does it also assume that you're -- have you built in expenses for both Hepatitis C compounds working and moving forward into much larger trials?

This is John Milligan. The answer is a couple of different ways, please proceed. If you look at both a majority of it is related to the programs that we're acquiring and perhaps even expanding on with Corus. And so what I call right now in Seattle and the Colorado site. In terms of the increase, trying to decide how much color I want to give on it. It is a significant portion of it. For example the continuing research in Colorado and the continuing research in Corus. There is a component build into that that has several things? One, new products that we're developing in Seattle. And then secondly, the new trials that we'll be doing, which will include it is Seattle going into Phase III. That is our budget the items for the continuation of our current clinical products including 9190 and 9132. And then of course, we have ambitions to file additional R&D during through the course of the year. So there is a considerable amount of money associated with that. Also in that budget this is the full value incentive budget. So we are budgeting this as if we are going ahead with the study. So any alterations or delays could in fact lower that cost. I don't think they would increase much from where we are. As Norbert put it in his script and the question, we do think we can decrease the overall cost it would take to run the study by changing the entry criteria and that is something we are working on.

And your next question comes from the line of Yaron Werber with Citigroup. Please proceed.

Yeah. Hi, good afternoon. Congratulations on a nice quarter and thanks for giving guidance on a non-GAAP basis, I think it's really going to make things a lot simpler for us.

We heard your feedback from everybody yes.

Terrific. Thanks. So I have two questions, the first is Hepsera and Truvada were very strong outside the US in the quarter. Could you give us a little bit of a sense as to what were you seeing in terms of trends that increased that volume? And how much of that is potentially inventory stocking? And then I have a follow-up as well.

Hepsera and Truvada outside of the US there is no inventory stocking associated with those products. Because we, in fact in Europe have a direct distribution of that model. We distribute directly into those countries. So there isn't any for stockpiling. And the question will come up again later, I just want to in the United States. We have looked at our wholesale inventories carefully and they have been very consistent quarter-over-quarter on the mid to lower side of all the inventory levels. Atripla is on the lower side of those bands and all our wholesalers as is consistent with behavior when you are launching a product as rapidly as Atripla has launched.

In terms of the -- you know just say sort of a competitive landscape, in terms of Hepsera I think we're seeing a very nice up take in the southern European market. So Italy, you know, Spain, Greece and Turkey and we also had a very quarter in France. So I think those markets are performing particularly well for Hepsera. In terms of Truvada, I think we know what's nice in Europe is you always have the ability for each market to learn from the subsequent markets. And you know we've seen a very, very consistent performance from country to country. And if you remember, we've always had what you might call a stronger label in Europe, because we've actually got the advantage where you know, we have a significant difference to Combivir actually in the label because of our 934 study. So I think we've been -- had a high degree of impact in actually executing on that competitive advantage. So you know it's just been a really, really focused effort from all the countries.

What, in terms of the US, there's been a tremendous amount of discussion over the last quarter and the Atripla versus Truvada in a sense Truvada continued to be fairly flat while Atripla continued to grow the market, but perhaps flattened a little bit too. Can you give us a little bit of sense as to what were you seeing in terms of the usage of Atripla? Did you see early conversion? Or is it mostly growth coming from new patients? Can you give us a little bit of sense of the lumpiness in the market in terms of new patient growth?

Well, just to sort of frame that, I think you have got to appreciate that basically, the total market for Atripla to capture patients from in terms of the switch is significantly lower than the bucket that Truvada had when it launched, because actually it's really in very sort of high terms it's half the market because of the patients -- approximately half of the patients on antiretrovirals have a protease inhibitor as part of the regimen. And they wouldn't necessarily be an obvious switch to Atripla. But if we look specifically at Truvada and Atripla, Atripla got a quarter of its prescriptions from new patients in the third quarter. And got 75%, three quarters from switches. And about half of those switches were the obvious switch of Truvada plus Sustiva. So you're always going to see with Truvada kind of a balancing act because some of its prescriptions, particularly in combination with the Sustiva will convert across to Atripla. But it will be continued to grow and be fed by Garnering prescriptions from Combivir plus a PI or Atricon plus a PI, which we consider our switches to the product. So there is always that balancing act. And as I said in the script, there are still 30,000 patients on Combivir plus Sustiva and 37,000 for the new patients. And they are obvious patients for Atripla. So the reason we talk total Truvada at Gilead is because our sales representatives do a double detail. First detail is Atripla. And for patients who -- combining essentially Truvada plus an NNRTI. And then we have Truvada plus the PI sales. So we do both of those, so that's why we are not just concerned about at Atripla, we're concerned about the two products together.

Your next question comes from the line of Eric Ende with Merrill Lynch. Please go ahead.

Thanks a lot. We appreciate the non-GAAP guidance. But for the purposes of this quarter it does get a little bit confusing. So I just wanted to make sure that I backed into the R&D and SG&A numbers, including the options correctly. I'm hoping that you do have that in front of you. R&D I think would be 580 to 610 and SG&A 670 to 710. Is that correct?

That's about right if you use the Q4 numbers for stock options based on Q4 results that we just presented here today that's approximately correct. There is a bit of a lumpiness. And I would say the acquisition of Myogen, you know and the assumption of stock options and you have to revalue them at the new value. So the prices of those options are not quite higher than a Gilead option. That's one thing that is driving higher options costs for next year, option expenses for us next year versus this year. But, Eric, your math is approximately correct.

But is that to say also that if the fourth quarter -- if we base it off with the options off the fourth quart, and you are saying that '07 option expense is higher, the actual number would be even higher than what I just said?

Remember the guidance that we gave for the full year was $0.27 to $0.30 per share. And the option expense for 2000 -- I'm sorry -- for fourth quarter 2006 was approximately $0.5 cents. So that was the decrease in EPS. It would have been $0.83 if we had excluded stock options on an basis. So it is slightly higher for next year on a quarterly basis than it is for this year. Yes.

Okay.

I hope that's helpful. It is a little lumpy because of when the options are issued.

Your next question comes from the line of Bret Holley with CIBC World Market. Please proceed.

Yes. I've a question about darusentan your level of comfort at this point being higher and you commitment going forward with the development plan, how has that changed the commercialization plan or what you might do there?

Hey Bret, this is John Milligan. So in terms of how we're going to detail this? This is something that we're going to continue to doodle on this. Obviously it will be a few years before this product is approved. We are going to look at how we can commercialize that. We haven't yet explored in great detail how in fact we commercialize it in different territories. If we look specifically at resistant hypertension, we do see a very nice area, which is specialty sales force could do a significant amount of sales for those patients who are under care are at full doses and who are still not fully -- have focus on their blood pressure. And so we see a very nice market with a smallish sales force. It's going to depend a lot on how the studies turn out and the profile of the product. The greater the applicability to general hypertension the more we may try to broaden that through other partnership arrangements. But it's really just too early to know that until you start to see the data.

Yes, Bret, just add to that, you know, it doesn't alter in shape of form, the sizing we're doing for the ambrisentan launch, depending on the successful development of darusentan you could see it expanding that, but as John, said it's still a specifics market, which is not a -- which is nothing like a primary care market. So we still believe it's a specifics sizing opportunity for us.

And then one follow-up on GS-9132. The data we're going to see in the second quarter, will that be considered Proof-of-concept and will Gilead take over the drug and what would you consider proof-of-concept for that drug?

Proof-of-concept is defined by seeing at least a one-log reduction in each HCV RNA after the dosing. And according to contract yes Gilead would then fully be responsible for further development of the compound.

Yes. I want to remind you, this target, you know, it's a novel target that involves HCV protease and as such has not been validated by anybody clinically. So the proof-of-concept really means that we're validating this target that we can say, yes if you inhibit this particular protein that you get an antiviral affect in the clinic.

Your next question comes from the line of Geoff Meacham with JP Morgan. Please go ahead.

Hi guys. Thanks for taking the question. One question for Norbert on 9224, can you give us a little bit more color on the dosing issues and then whether these increases are likelihood perhaps co-formulating 9137, and I have a follow-up on darusentan

So, I'm not sure that I understood your questions on 9224 was the integrase inhibitor that didn't require boosting that we have discontinued and we discontinued that program simply because the half-life that we saw on the Phase Ib study was very, very short. It would have required three times or four times a day dosing. And that's just not something we think is very interesting to go forward within development. And secondly, you asked me question about co-formulating 91.

Co-formulating Truvada?

For Truvada? Yes, sure. That's absolutely a possibility, that we could co-formulate Truvada with 9137. It would, though, still require the addition of ritonavir. So it would not be a standalone complete regimen single-pill. It would require the addition of /ritonavir.

Okay. Then on Darusentan I know you don't want to go into too much detail. But can you tell us where you are in terms of number of patients in the 311 trial? And then is it fair to characterize the potential changes as mostly to the line of therapy? In other words number of prior therapies? Rather than actual full dose or optimized?

I'll tell you the enrollment status in 311 and the reason I want to do that is really signifies, what the issue is. The study was opened in May and we have enrolled in all the sites about 50 patients or so that will randomize. So the rate at which the trial accrues is about a little bit more than one patient per site per year. And that's just simply we felt going forward is not the pace that we want to continue to enroll. And so we are going to make -- we are contemplating making changes to the enrollment criteria, so that more patients would qualify. And if -- I really would prefer not to go into any more detail than that.

Your next question comes from the line of Ian Somaiya with Thomas Weisel. Please proceed.

Thank you. And congratulations on another great quarter. Two questions, first is just on dynamic related to Atripla and Truvada. Would you have -- would you be able to guesstimate how many patients remain on the combination of Truvada and Sustiva at this time? And when would you expect them to transition to Atripla?

Hi, Ian, it's, Kevin. Basically that's now we believe from the stimulate data 51,000 patients still on Truvada plus Sustiva. And we expect to be able to eat into that fairly quickly. Today we think about -- over the first quarter launch there's been something like about 20% penetration into the Truvada plus Sustiva.

Okay. And just a follow-up question regarding the R&D guidance. You know, we've seen I guess two years of significant increase in R&D spent '06 and what's anticipated to be another relatively significant increase in '07. Relatively – you know, relative to your major clinical programs Phase III and some of the major Phase II efforts, are we looking at a near plateau in the R&D spending '07 or at least a plateau in terms of the growth, in R&D spend?

Well, Ian, it's John Milligan. So a couple of ways to say this, yeah, we did accelerate our R&D this year. And as we've been talking about it, our R&D had not been growing nearly at the pace that the revenues were growing. And we certainly felt that the rate of investment was getting onto the low side, certainly much, much lower than our peers. Now if you look at '05, we did about 13.7% of R&D expenses versus revenue. This year, without stock options it would have been 11%. So very -- it is getting down very much to the low side. So even with this increase here today, that with the guidance we've given let's call it the mid-point in the guidance, that's just over 13%, where as most companies are in the sort of 17% to 20% range. And not to say that I think that's the right metric. I -- what I would say for the future is it will continue to increase. But without some sort of major event happening and I don't anticipate any of those, I don't see that the rate of change could possibly be as high as this year. But we have a lot of good programs going on and the success of those programs may call for us to invest more money next year. And I would expect R&D to go up again next year.

Your next question comes from the line of Craig Parker with Lehman Brothers. Please proceed.

Hi, guys. First question is a short one. The status of the darusentan active controlled study, the 312 study? And then my second question for, Kevin is on the Hepatitis B market. If you could just characterize what you think is behind the patient growth, if you think that's sustainable? And it looks like you have lowered the Hepsera price, is that accurate?

Yes. First, hi, Craig, It's Norbert. The status of the 312. So the 312 was ready to go. We have put a hold on that pending the outcome of our analysis. And now that we are going to move this program forward, we were going to initiate the 312 study.

Okay.

Hi, Craig it's, Kevin. Yeah, there's been a nice growth, but bearing in mind it's still a relatively small market compared with the HIV market that we operate in. I think that's really down to if you like the energy, of now three companies, actively promoting you know their products. So I think, you know, that's noise in the market. We certainly have led a lot of initiatives on patient education, and I think you know, that put together with – with, you know, lots of noise, has had the growth. We certainly have not have taken any price decreases on Hepsera. We increased prices in January of our HIV products, but that didn't include a price increase on Hepsera. So there's been no change downwards of Hepsera.

All right.

Your next question comes from the line of Mike King with Rodman. Please proceed.

Thanks for taking my question, and let me add to the congratulations. Can you discuss, you guys are generating an awful lot of cash flow, John, if I heard you correctly $1.2 billion in operating cash flow last year?

Yes, that's correct.

What you are going to do with all that? Will that be used for further acquisition, or buyback stock, some combination or?

Well, this is what I can tell you, we are generating a lot of cash. I do think, in fact we're going to be spending quite a bit of time thinking about the perfect – I should say the correct capital structure for the Company coming forward. I do think there is a right amount of cash that you need because this business is uncertain. And we would like to get back to that level and we can't do so through just the organic generation of cash. We do have authorization from the board to repurchase up to a $1 billion in stock. We had a two-year window to do that beginning 2006. Last year we repurchased $545 million worth of stock. So we have authorization to do more. We are not at this time going to give any guidance as to whether we will or will not, do so in the future. But I with tell you we don't have an active program doing so here today. So there's going to be some consideration as to the right uses of cash going forward. I think talking of 2007 is all about execution. We really need to execute on the acquisitions that we've had to date. So I would say that with our current portfolio products, we certainly have everything we need for both the near-term and I think frankly the long-term. I do think we'll be opportunistic in licensing where we can bring in products, which complement our existing franchises. And that's where you will find most of our activity, and that's where I think the cash that we have could be quite a strategic asset going forward.

Okay. Great. And if I might -- if I'm allowed a follow-up, when you guys look at the hepatitis B market longer term, in any of your scenario outcomes, do you assume at some point the market goes to combination therapy? And sort of can you give us some sense of when you think that might happen and in what geographic territories you -- we might see that?

Well, marketing is looking at research and research is looking at marketing. So I guess that answers the question. So there is quite a bit of enthusiasm from the investigators and the key opinion leaders and in fact the regulator to combination therapy. It's very attractive. And based on the model that happened of HIV of more products give you better, long-term viral suppression, there are many people who would think that will be quite successful. The difficulty for us and for anybody in this area is the fact that many of the single agents, in particular when we look at the profile of TDF, it's going it be a very long expensive trial to show a difference between Truvada and TDF as mentioned in most simple patient populations. And so at this point in time, we are not really ready to commit to that unless we or somebody else can come up with a hypothesis of a patient population where we could determine a difference between the double versus the single agent in a way that's cost-effective for us. And so that's the quandary that we are in right now.

Your next question comes from the line of Michael Aberman with Credit Suisse. Please proceed.

Great. I hope I can get one question. It doesn't really count, but just could you clarify that your product and sales guidance does not include the royalty and contract revenue?

That's correct. We don't give our contract or royalty guidance. This is just product sales guidance. So royalty and everything would be above and beyond that.

All right. I hope --

That doesn't count.

Thank you. My two questions are, I guess, one on integrated inhibitor, if you could update your status on discussions with the FDA in terms of moving into the naive market and naive clinical trials. And the question was -- on darusentan is some comments had been made, perhaps that off-label -- pricing might be difficult in terms of what price points can you set in the hypertension market and how might that potentially lead to off-label use in the T8 market? And can you talk about how you are thinking about that as well.

Michael, as I've said -- I'll answer the first question. So the first trial that we anticipate doing is in treatment-experienced patients. We think that's the appropriate patient population. Number one, you know, there isn't enough known yet about the long-term safety and efficacy of this compound. It's really an experimental compound. And secondly, it also gives you a faster pathway to approval. We will have 10 subsequent conversations with FDA about entering the naive patient population as well but we have been done that yet.

You had discussed in the past, the issue of protease inhibitors in the naive. Is that an issue that has been discussed with the FDA?

Yeah. I think you said the issue was the use of protease inhibitors in the naive patients. Is that correct?

Yeah. And it's low dose protease inhibitors.

Low dose, right. It's a Ritonavir?

Yeah.

Well, that's certainly at least -- a theoretical issue that some people have brought up. And that's something we'll have to discuss with regulatory authorities, how that's being viewed.

Okay.

And in terms of pricing of darusentan, I think the first thing to say is that, you know, we want to put the patient first here at Gilead. And we certainly think there is a high unmet need and we also think there is a lot of patient who could benefit from darusentan, if indeed it is successful in development. We have given initial thoughts to pricing and, you know, this is not a general antihypertensive. We think we can garner a good price for this. That would be commensurate with the need as well as the size of the market. So you know, first things first, which is can we develop the product?

Your next question comes from the lane of David Witzke with Banc of America Securities. Please proceed.

Yes. Thanks. What was the magnitude of price increases on HIV products this month? And I believe you took an increase across the board nine months ago, April. And given this, how should we think about for modeling purposes timing and magnitude of price going forward?

Well, we don't -- we don't normally issue forward statements regarding our pricing policy. But I can tell you that we did take some price increases in January. For Atripla that was an increase of 6.1%, for Truvada 5.9%, for Viread 9%, and for Emtriva 5%.

Thanks. That's helpful. And then, what's behind the durability of the 37,000 patient on Trizivir, which seems a bit surprising given the data.

Well. That's a very good question -- and the question, we scratch our heads -- we scratch our heads commercially and I think we scratch our clinically sometimes. I think it really is a lot of prescribing outside the high decile doctors. I think if you ask opinion leaders, they would be very supportive of Truvada being the treatment of choice. But, I think you've got some lower decile doctors who, you know, are fairly ingrained in their prescribing habits. And I think that's probably the reason.

Your next question comes from the line of Sapna Srivastava with Morgan Stanley. Please proceed.

Hi. Thanks for taking my question. Just couple of clarifications. One, does your full year guidance on the revenue include Atripla launch in Europe? Just because I know it didn't include ambrisentan. Do you include Atripla in Europe? And secondly on the darusentan, if you can just tell us, what gives you the conviction to take it to Phase III considering the profile in this class of drivers had in almost every indication outside PAH safety should have emerged.

So coming on the first question, I couldn't understand all the second questions who may have to go back ask the first question, yes, our product revenue guidance does include a late 2007 launch in Europe for Atripla.

And that's what's driving the COGS of roughly 20% to 22%?

If -- that plus the general product mix exchange in the United States. Those are the assumptions, that's going to drop the overall cost of goods, yes, increased cost of goods and decreased gross the margin.

And second question is just like what gives you the conviction to take darusentan to Phase III? Like what about the day data convinces you? Because you know in many discussions I think even the company has gone from oscillating between keeping it or you know explaining some other indication with it. Just now what has convinced you that you want to take it to Phase III, in our edge?

Well, see, it is I think -- fairly straightforward in my mind. First of all there is safety experience in a total of 1,400 patients, you know while that does guarantee or anything, at least it is a good indication for you to feel relatively comfortable with the safety profile. Secondly, we have shown -- Myogen has shown that in the Phase II study in the 201 study there was indeed efficacy when you add on darusentan in resistant hypertension. And thirdly, there is an identifiable patient population that's at need. And, you know, that came from our discussions with thought leaders and investigators. So you know all those things together, in my mind, are sufficient for us to feel comfortable with a Phase III program.

Your next question comes from the line of Shiv Kapoor with Montgomery and Company. Please proceed.

Thanks for taking my questions. I've got two, one on tax-rate and other one on AmBisome and I'll start with the tax-rate. Can you give us some more color on what affects your tax-rate over the next two to three years? It seems like your tax-rate was pretty low this quarter. And is 30% to 31% a stable tax rate to model?

Shiv, a couple of things. Our tax-rate for the quarter was low because we didn't take the cumulative effect of the R&D credit being passed by Congress. So that, we got it take the full year benefit of that. That benefit will also transcend into 2007. So that will help lower the rate. But the biggest driver of our overall tax rate is the ratio of US to foreign profit right now. And our foreign profit is growing considerably with the Truvada increase in Truvada sales, increase in Hepsera sales, the continued strength of AmBisome, and into the future, the Atripla launch will drive that next year as well. So I do expect that 2008 will be a good year for European growth and that will help drive it in a good direction for us.

Thanks. And then on ambrisentan, can you give us some more information about the ongoing clinical programs for ambrisentan? Any ongoing trials, including class 2 patients, or any in combination with agents approved for PAH?

So Shiv, there are two studies noteworthy that are ongoing. One is the extension study of the -- all the patients that were in the Phase III program. That's continuing. The other one is the study 222 that I mentioned in my script that was patient that previously failed bosentan or sitaxsentan. And then, there is a third study ongoing. We're currently enrolling patients that have non-idiopathic pulmonary arterial hypertension. And then we have a number of other studies planned. None of them are ongoing yet. And those are mostly, as you said, combination studies potentially compare its studies with -- comparing it with comparative products and further drug interaction studies. And the other thing I want to mention, pediatric studies are on the -- planned as well.

Dr. Milligan, there is no more time for questions. Back to you, sir.

Thank you, operator, and thank you all for joining us today. We appreciate your continued interest in Gilead and look forward to providing you with updates on our future progress.