10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended June 30, 2004

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to

Commission File No.

0-19731

GILEAD SCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3047598
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
333 Lakeside Drive, Foster City, California	94404
(Address of principal executive offices)	(Zip Code)

650-574-3000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ý      No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rules 12b-2 of the Exchange Act).     Yes  ý      No  o

Number of shares outstanding of the issuer’s common stock, par value $.001 per share, as of July 31, 2004:  215,283,438

GILEAD SCIENCES, INC.

INDEX

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets at June 30, 2004 and December 31, 2003	3
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2004 and 2003	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
	Item 4.	Controls and Procedures	22
PART II.	OTHER INFORMATION
	Item 4.	Submission of Matters to a Vote of Securities Holders	23
	Item 6.	Exhibits and Reports on Form 8-K	23
SIGNATURES			24

We own or have rights to various trademarks, copyrights and trade names used in our business including the following: GILEAD®, GILEAD SCIENCES®, HEPSERA®, Leaf and Shield Design, Leaf and Shield Design (b/w), Liver Design, Tablet Design (b/w), Tablet Design (color), VIREAD®, VISTIDE®, DAUNOXOME®, AMBISOME®, EMTRIVA™, TRUVADA™. TAMIFLU® is a registered trademark belonging to Hoffmann-La Roche. This report also includes other trademarks, service marks and trade names of other companies.

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PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	June 30, 2004			December 31, 2003
	(unaudited)			(Note)
Assets
Current assets:
Cash and cash equivalents	$	226,563		$	194,719
Marketable securities	749,025			512,281
Accounts receivable, net	277,305			235,217
Inventories	105,963			98,102
Deferred tax assets	135,974			197,567
Prepaid expenses and other current assets	36,946			28,012
Total current assets	1,531,776			1,265,898
Property, plant and equipment, net	206,789			198,200
Noncurrent deferred tax assets	32,769			52,494
Other noncurrent assets	37,133			38,130
	$	1,808,467		$	1,554,722
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	29,986		$	35,649
Accrued clinical and preclinical expenses	10,906			11,859
Accrued compensation and employee benefits	32,809			35,772
Income taxes payable	16,368			13,305
Other accrued liabilities	72,170			83,836
Deferred revenue	12,590			5,474
Total current liabilities	174,829			185,895
Long-term deferred revenue	21,171			20,530
Long-term obligations	304			323
Convertible senior debt	345,000			345,000
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $.001 per share; 500,000 shares authorized;  215,211 and 213,253 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively	215			213
Additional paid-in capital	1,492,961			1,453,203
Deferred compensation	(851		)	(1,306		)
Accumulated other comprehensive income	2,594			4,507
Accumulated deficit	(227,756		)	(453,643		)
Total stockholders’ equity	1,267,163			1,002,974
	$	1,808,467		$	1,554,722

Note:The condensed consolidated balance sheet at December 31, 2003 has been derived from audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

See accompanying notes.

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GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenues:
Product sales	$	299,332		$	230,668		$	575,917		$	386,632
Royalty and contract revenue	20,390			8,202			52,932			17,343
Total revenues	319,722			238,870			628,849			403,975
Costs and expenses:
Cost of goods sold	42,092			32,106			77,041			53,478
Research and development	45,643			43,318			104,188			86,882
Selling, general and administrative	73,789			55,674			144,999			100,841
In-process research and development	—			—			—			488,599
Total costs and expenses	161,524			131,098			326,228			729,800
Income (loss) from operations	158,198			107,772			302,621			(325,825		)
Gain on EyeTech warrants	—			—			20,576			—
Interest and other income, net	5,408			3,444			8,336			7,261
Interest expense	(2,071		)	(5,569		)	(4,160		)	(11,183		)
Income (loss) before provision for income taxes	161,535			105,647			327,373			(329,747		)
Provision for income taxes	50,076			5,275			101,486			7,935
Net income (loss)	$	111,459		$	100,372		$	225,887		$	(337,682	)
Net income (loss) per share - basic	$	0.52		$	0.50		$	1.06		$	(1.69	)
Net income (loss) per share - diluted	$	0.49		$	0.46		$	0.99		$	(1.69	)
Shares used in per share calculation - basic	214,562			200,236			214,098			199,288
Shares used in per share calculation - diluted	230,989			230,340			230,586			199,288

See accompanying notes.

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GILEAD SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Six Months Ended June 30,
	2004			2003
OPERATING ACTIVITIES:
Net income (loss)	$	225,887		$	(337,682	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	11,861			9,550
In-process research and development	—			488,599
Gain on EyeTech warrants	(20,576		)	—
Deferred tax assets	81,318			—
Other non-cash transactions	(478		)	3,171
Changes in assets and liabilities:
Accounts receivable	(46,989		)	(66,278		)
Inventories	(7,861		)	(11,906		)
Prepaid expenses and other assets	(12,092		)	(3,107		)
Accounts payable	(5,663		)	(5,867		)
Accrued liabilities	(12,470		)	4,143
Deferred revenue	7,757			(239		)
Net cash provided by operating activities	220,694			80,384
INVESTING ACTIVITIES:
Purchases of marketable securities	(616,023		)	(474,647		)
Sales of marketable securities	278,628			215,854
Maturities of marketable securities	122,687			70,563
Acquisition of Triangle net assets, net of cash acquired	—			(375,507		)
Capital expenditures	(18,197		)	(7,813		)
Net cash used in investing activities	(232,905		)	(571,550		)
FINANCING ACTIVITIES:
Proceeds from issuances of common stock	39,760			49,821
Repayments of long-term debt	(68		)	(1,760		)
Net cash provided by financing activities	39,692			48,061
Effect of exchange rates on cash	4,363			(4,471		)
Net increase (decrease) in cash and cash equivalents	31,844			(447,576		)
Cash and cash equivalents at beginning of period	194,719			616,931
Cash and cash equivalents at end of period	$	226,563		$	169,355

See accompanying notes.

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GILEAD SCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

(unaudited)

1.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information.  The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of Gilead Sciences, Inc. (Gilead, the Company or we) believes are necessary for a fair presentation of the periods presented.  These interim financial results are not necessarily indicative of results to be expected for the full fiscal year.

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Examples include provisions for sales returns, bad debts and accrued clinical and preclinical expenses.  Actual results may differ from these estimates. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  Significant intercompany transactions have been eliminated.  The accompanying financial information should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC).

During the second quarter 2004, in order to better reflect the nature of certain clinical trials being performed in Europe, the Company recorded certain phase IV clinical trial expenses as research and development which were previously recorded as selling, general and administrative. Such expenses totaling $4.9 million, $4.5 million and $6.9 million for the three months ended March 31, 2004 (included in the six months ended June 30, 2004) and the three and six months ended June 30, 2003, respectively, have been reclassified from selling, general and administrative to research and development expenses to be consistent with the current period presentation.

Basic and Diluted Net Income (Loss) Per Share

For all periods presented, basic net income (loss) per share is computed based on the weighted average number of shares of common stock outstanding during the period.  For the three and six months ended June 30, 2004, diluted net income per share includes the effect of options to purchase 9.1 million shares of common stock and the $345.0 million 2% convertible senior debt, which would convert into approximately 7.3 million shares of common stock.  Options to purchase approximately 3.1 million additional shares of common stock were outstanding during the three and six months ended June 30, 2004, but were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of our common stock during these periods; therefore, their effect is antidilutive.  Diluted net income per share for the three months ended June 30, 2003 includes the effect of options to purchase 12.6 million shares of common stock, the $250.0 million 5% convertible subordinated debt, which was converted into approximately 10.2 million shares of common stock in December 2003 and the effect of the $345.0 million 2% convertible senior debt.  Diluted net loss per share for the six months ended June 30, 2003, does not include the effect of options to purchase 11.5 million shares of common stock, the effect of the $250.0 million 5% convertible subordinated debt, or the effect of the $345.0 million 2% convertible senior debt as they were antidilutive.

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Stock-Based Compensation

In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation -Transition and Disclosure (collectively, SFAS 123), we have elected to continue to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation—an Interpretation of APB Opinion No. 25 (FIN 44), in accounting for our employee stock option plans.  Under APB 25, if the exercise price of Gilead’s employee and director stock options equals or exceeds the fair value of the underlying stock on the date of grant, no compensation expense is recognized.  Although we have elected to follow the intrinsic value method prescribed by APB 25, we will continue to evaluate our approach to accounting for stock options in light of ongoing industry and regulatory developments.

The table below presents the combined net income (loss) and basic and diluted net income (loss) per share if compensation cost for the Gilead, NeXstar Pharmaceuticals, Inc. and Triangle Pharmaceuticals, Inc. (Triangle) stock option plans and the employee stock purchase plan (ESPP) had been determined based on the estimated fair value of awards under those plans on the grant or purchase date in accordance with SFAS 123 (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income (loss) – as reported	$	111,459		$	100,372		$	225,887		$	(337,682	)
Add: Total stock-based employee compensation expense included in reported net income (loss), net of related tax effects	99			170			278			242
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects	(22,297		)	(20,794		)	(39,760		)	(39,102		)
Pro forma net income (loss)	$	89,261		$	79,748		$	186,405		$	(376,542	)
Net income (loss) per share:
Basic - as reported	$	0.52		$	0.50		$	1.06		$	(1.69	)
Basic - pro forma	$	0.42		$	0.40		$	0.87		$	(1.89	)
Diluted - as reported	$	0.49		$	0.46		$	0.99		$	(1.69	)
Diluted - pro forma	$	0.39		$	0.37		$	0.82		$	(1.89	)

Fair values of awards granted under the stock option plans and ESPP were estimated at grant or purchase dates using a Black-Scholes option valuation model.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.  To calculate the estimated fair value of the awards, we used the multiple option approach and the following assumptions:

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	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Expected life in years (from vesting date):
Stock options	1.84		1.82		1.84		1.82
ESPP	1.60		1.34		1.60		1.34
Discount rate:
Stock options	3.2	%	2.3	%	3.0	%	2.7	%
ESPP	1.7	%	1.9	%	1.7	%	1.9	%
Volatility	49	%	80	%	49	%	80	%
Expected dividend yield	0	%	0	%	0	%	0	%

In the fourth quarter of 2003, we changed the volatility assumption we used to arrive at a fair value for our stock awards. We began to use an approximate two-year time period for purposes of calculating the expected volatility.  After considering such factors as our stage of development, the length of time that we have been a public company and several drug approvals over the past few years which have enabled us to achieve positive cash flow from operations, we believe this volatility rate better reflects the expected volatility of our stock going forward.

2.Inventories

Inventories are summarized as follows (in thousands):

	June 30, 2004		December 31, 2003
Raw materials	$	72,038	$	54,178
Work in process	9,007		11,775
Finished goods	24,918		32,149
Total inventories	$	105,963	$	98,102

3.Comprehensive Income (Loss)

The components of comprehensive income (loss) are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income (loss)	$	111,459		$	100,372		$	225,887		$	(337,682	)
Net foreign currency translation gain (loss)	174			1,612			(538		)	4,806
Net unrealized gain (loss) on cash flow hedges	(4,190		)	834			(832		)	1,855
Net unrealized loss on available-for-sale securities	(1,382		)	(635		)	(543		)	(1,424		)
Comprehensive income (loss)	$	106,061		$	102,183		$	223,974		$	(332,445	)

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4.EyeTech Warrants

In March 2000, we entered into an agreement with EyeTech Pharmaceuticals, Inc. (EyeTech) relating to our proprietary aptamer EYE001, currently known as Macugen.  Pursuant to this agreement, we received a warrant to purchase 791,667 shares of EyeTech series B convertible preferred stock, exercisable at a price of $6.00 per share.  In January 2004, EyeTech completed an initial public offering of its common stock at which time we adjusted the fair value of the warrant resulting in a gain of $20.6 million which we included in our condensed consolidated statement of operations for the six months ended June 30, 2004.  The fair value of the warrant was estimated using the Black-Scholes valuation model with a volatility rate of 50% and a discount rate of 2.8%.  At the end of the first quarter of 2004, we exercised the warrant on a net basis utilizing shares of EyeTech common stock as consideration and subsequently held 646,841 shares of EyeTech common stock.

In the second quarter of 2004, we sold all of the EyeTech shares we held and realized a gain of approximately $2.3 million, which is included in interest and other income, net, in our condensed consolidated statements of operations for the three and six months ended June 30, 2004.

5.Asset Impairment

During 2003, we recorded an asset impairment charge of $10.2 million on certain of our long-lived assets, primarily leasehold improvements and manufacturing and laboratory equipment, which we have classified as held for use.  This non-cash charge was driven by the decision to terminate our liposomal research and development activities in San Dimas and discontinue the DaunoXome product line. The impairment was based on our analysis of the undiscounted cash flows to be generated from the affected assets as compared to their carrying value.  As the carrying value exceeded the related undiscounted cash flows, we wrote the carrying value of the long-lived assets down to fair value in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  Fair value was derived using an expected cash flow approach.

Subsequent to our decision to discontinue the DaunoXome product line and the filing of our Annual Report on Form 10-K, we received unanticipated requests in Europe asking Gilead to reconsider selling DaunoXome.  As a result of these requests, management decided to continue selling this product in certain countries and is currently evaluating our supply and sales strategy with respect to DaunoXome.  Based on these new facts and circumstances, our fourth quarter 2003 asset impairment charge of $10.2 million would have been reduced, thereby reducing our 2003 net loss per share. In accordance with SFAS No. 144, however, the write down in 2003 of the assets held for use related to the DaunoXome product line established a new cost basis for such assets that will not be adjusted for these new facts and circumstances.

6.Disclosures about Segments of an Enterprise and Related Information

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131), establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports.  SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers.

The Company operates in one business segment, which primarily focuses on the development and commercialization of human therapeutics for infectious diseases.  All products have been aggregated into one segment, because our major products, Viread and AmBisome, which accounted for 95% of product sales in 2003 and 86% of product sales in the six months ended June 30, 2004, have similar economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods, and regulatory environment.

9

The Company derives its revenues primarily from product sales of Viread and AmBisome as well as royalty and contract revenue.  Royalty revenue relates primarily to sales of Tamiflu by Hoffman-La Roche (Roche) as well as sales of AmBisome by Fujisawa Healthcare, Inc. (Fujisawa).  Contract revenue in the three and six month periods ended June 30, 2004 and 2003 primarily relates to license and milestone payments from GlaxoSmithKline (GSK) in connection with the development of Hepsera and payments from OSI Pharmaceuticals, Inc. (OSI) under a manufacturing agreement for the production of NX 211 and GS 7904L.  Contract revenue in the three and six month periods ended June 30, 2004 also includes a milestone payment from EyeTech in connection with our license agreement.

Product sales consisted of the following (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Viread	$	197,162	$	167,035	$	390,258	$	274,307
AmBisome	54,965		51,163		106,838		92,221
Other	47,205		12,470		78,821		20,104
Consolidated total	$	299,332	$	230,668	$	575,917	$	386,632

The following table summarizes total revenues from external customers and collaborative partners by geographic region.  Revenues are attributed to countries based on the location of Gilead’s customer or collaborative partner (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
United States	$	166,340	$	133,468	$	309,417	$	212,654
France	30,353		23,492		61,265		41,343
Spain	25,254		18,644		51,401		34,521
United Kingdom	20,445		15,787		37,915		28,006
Italy	18,301		11,058		34,677		20,085
Germany	13,876		10,848		25,823		17,818
Switzerland	12,074		4,674		41,692		9,849
Other European countries	20,818		13,358		44,372		29,230
Other countries	12,261		7,541		22,287		10,469
Consolidated total	$	319,722	$	238,870	$	628,849	$	403,975

Due to the consolidated nature of the distributor market in the United States, our largest market, we have a concentration of credit risk among the three major US wholesalers as outlined below (in % of total revenues):

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Amerisource	10	%	20	%	11	%	16	%
Cardinal	13	%	18	%	15	%	16	%
McKesson	8	%	12	%	9	%	11	%

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7.Subsequent Events

On July 28, 2004, the Company announced that its Board of Directors approved a two-for-one stock split of the Company’s outstanding common stock.  Stockholders of record as of the close of business on August 12, 2004 will receive a stock dividend of one additional share of common stock for every share of common stock they own.  Based on the total number of shares outstanding as of June 30, 2004, the stock split will increase the total number of shares outstanding from approximately 215,211,000 to 430,422,000.  None of the share amounts within this quarterly report have been modified to reflect this stock split.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. We are a multinational company, with seven approved products and marketing operations in ten countries.  We focus our research and clinical programs on anti-infectives.  Currently, we market Viread (tenofovir disoproxil fumarate), Emtriva (emtricitabine) and Truvada (emtricitabine and tenofovir disoproxil fumarate) for the treatment of HIV infection; Hepsera (adefovir dipivoxil) for the treatment of chronic hepatitis B infection; AmBisome (amphotericin B liposome for injection), an antifungal agent; and Vistide (cidofovir injection) for the treatment of CMV retinitis. Roche markets Tamiflu (oseltamivir phosphate) for the treatment of influenza, under a royalty paying collaborative agreement with us.  In December 2003, we made the decision to discontinue selling DaunoXome (daunorubicin citrate liposome injection), a drug approved for the treatment of Kaposi’s Sarcoma; however, we received unanticipated requests in Europe to reconsider selling DaunoXome and as a result we have decided to continue selling this product in certain countries.  We are seeking to add to our existing portfolio of products through our internal discovery and clinical development programs and through an active product acquisition and in-licensing strategy, such as our acquisition of the assets of Triangle Pharmaceuticals, Inc. (Triangle) completed in January 2003.  Our internal discovery activities include identification of new molecular targets, target screening and medicinal chemistry.  In addition, we are currently developing clinical stage products to treat HIV infection and chronic hepatitis B.

Forward-Looking Statements and Risk Factors

The following discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those discussed in any forward-looking statements.  Some of the factors that could cause or contribute to these differences are listed below.  You should also read the “Risk Factors” included in pages 23 through 30 of our Annual Report on Form 10-K for the year ended December 31, 2003 filed on March 11, 2004 for more detailed information regarding these and other risks and uncertainties that can affect our actual financial and operating results.  All forward-looking statements are based on information currently available to Gilead, and we assume no obligation to update any such forward-looking statements.

Dependence on Viread and AmBisome.We currently depend on sales of Viread and AmBisome for a significant portion of our operating income.  If we are unable to continue growing Viread revenues or to maintain AmBisome sales, our results of operations are likely to suffer and we may need to scale back our operations.  Our sales of these products may decline for many of the reasons described in this Risk Factors section.  In particular, we face significant competition with these products from businesses that have substantially greater resources than we do.

New Products and New Indications.If we do not introduce new products or increase revenues from our existing products, we will not be able to grow our revenues.  Each new product commercialization effort will face the risks outlined in this Risk Factors section.  In particular, Hepsera is a new drug that faces a competitive marketplace in which we have little experience.  We expect that new products for the treatment of hepatitis B virus will be introduced that will be significant competitors to Hepsera.  In addition, we may not be successful in marketing Truvada, our new fixed-dose co-formulation of tenofovir (Viread) with emtricitabine (Emtriva).  If we fail to increase our sales of Hepsera or if we do not successfully market Truvada, we may not be able to increase revenues and expand our research and development efforts.  GlaxoSmithKline, a company with greater resources than Gilead, has recently launched a fixed-dose combination product for the treatment of HIV which may be significant competition for Truvada and may limit our success in marketing Truvada.

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Safety.  As our products, including Viread, AmBisome, Hepsera, Emtriva and Truvada, are used over longer periods of time in many patients, new safety issues may arise that could require us to provide additional warnings on our labels or to narrow our approved indications, each of which could reduce the market acceptance of these products.  If serious safety issues with our marketed products were to arise, sales of these products could be halted by us or by regulatory authorities.

Regulatory Process.  The products that we develop must be approved for marketing and sale by regulatory authorities and will be subject to extensive regulation by the FDA and comparable regulatory agencies in other countries.  In addition, even after our products are marketed, the products and their manufacturers are subject to continual review.  We are continuing clinical trials for AmBisome, Viread, Hepsera, Emtriva and Truvada for currently approved and additional uses and anticipate filing for marketing approval in additional countries and for additional products over the next several years.  If products fail to receive marketing approval on a timely basis, or if approved products are the subject of regulatory changes, actions or recalls, our results of operations may be adversely affected.  In the European Union, marketing approval of Truvada may be delayed if we are required to conduct additional studies.

Clinical Trials.  We are required to demonstrate the safety and effectiveness of products we develop in each intended use through extensive preclinical studies and clinical trials.  The results from preclinical and early clinical studies do not always accurately predict results in later, large-scale clinical trials.  Even successfully completed large-scale clinical trials may not result in marketable products.  If any of our products under development fail to achieve their primary endpoint in clinical trials or if safety issues arise, commercialization of that drug candidate could be delayed or halted.  In addition, clinical trials involving our commercial products could raise additional safety issues for our products.

Manufacturing.  We depend on third parties to perform manufacturing activities effectively and on a timely basis. If these third parties fail to perform as required, this could impair our ability to deliver our products on a timely basis or cause delays in our clinical trials and applications for regulatory approval, and these events could harm our competitive position. Third-party manufacturers may develop problems over which we have no control and these problems may adversely affect our business.

We manufacture AmBisome and DaunoXome at our facilities in San Dimas, California.  This is our only formulation and manufacturing facility for these products.  In the event of a natural disaster, including an earthquake, equipment failure or other difficulty, we may be unable to replace this manufacturing capacity in a timely manner and would be unable to manufacture AmBisome and DaunoXome to meet market needs.

Collaborations.  We rely on a number of significant collaborative relationships with major pharmaceutical companies for our sales and marketing performance. These include collaborations with Fujisawa and Sumitomo for AmBisome, GSK for Hepsera, Roche for Tamiflu, Pfizer for Vistide and Japan Tobacco for Viread and Emtriva.  In certain countries, we rely on international distributors for sales of AmBisome, Viread and Emtriva and in some European and Asian countries, we rely on international distributors for sales of Hepsera.  Some of these relationships also involve the clinical development of products by our partners.  Reliance on collaborative relationships poses a number of risks, including that we will not be able to control the resources our partners devote to our programs, disputes may arise with respect to the ownership of rights to technology, disagreements could cause delays or termination of projects, contracts may fail to provide protection or to be effectively enforced if a partner fails to perform, our partners may pursue competing technologies or devote fewer resources to the marketing of our products than they do to products of their own development and our partners may be unable to pay us.  Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaboration efforts.  If these efforts fail, our product development or commercialization of new products could be delayed and revenue from existing products could decline.

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We recently announced that we are in discussions with Bristol-Myers Squibb Company and Merck & Co., Inc. on the development of a once-daily, fixed-dose combination of three anti-HIV drugs.  We are also discussing co-packaging options for the individual products.  No agreement has been reached on the terms of this arrangement.  We have not reached agreement on several significant commercial terms and we may not be able to complete a final agreement.  In addition, we cannot assure that if an agreement is reached, we will be able to obtain regulatory approval of the three-drug fixed-dose combination.

Fluctuations in Operating Results.  The clinical trials required for regulatory approval of our products are extremely expensive. It is difficult to accurately predict or control the amount or timing of these expenses from quarter to quarter. Uneven and unexpected spending on these programs may cause our operating results to fluctuate from quarter to quarter.  In addition, approximately 90% of our product sales in the United States is conducted with three distributors, Amerisource Bergen Corp., McKesson Corp. and Cardinal Health, Inc.  We do not know whether the inventory management agreements we recently entered into with our three major US wholesalers will be effective in matching inventory levels to end user demand, as we rely on the wholesalers to estimate end user demand.  Inventory levels held by these and other wholesalers may fluctuate significantly, which could cause our operating results to fluctuate unpredictably from quarter to quarter.

Foreign Currency Risk. A significant percentage of our product sales are denominated in foreign currencies.  Increases in the value of the U.S. dollar against these foreign currencies in the past have reduced, and in the future may reduce, our U.S. dollar equivalent sales and negatively impact our financial condition and results of operations.  We have a hedging program to mitigate the impact of foreign currency fluctuations on our results of operations; however, these efforts may not be successful and any such fluctuation could adversely affect our results of operations.

Credit Risks. We are particularly subject to credit risk from our European customers.  Our European product sales to government-owned or supported customers in Greece, Spain, Portugal, and Italy are subject to significant payment delays due to government funding and reimbursement practices.  If significant changes were to occur in the reimbursement practices of European governments or if government funding becomes unavailable, we may not be able to collect on amounts due to us from these customers and our financial position and results of operations would be adversely affected.

Imports.  Our sales in countries with relatively higher prices may be reduced if products can be imported into those countries from lower price markets. There have been cases in which pharmaceutical products were sold at steeply discounted prices in the developing world and then re-exported to European countries where they could be resold at much higher prices.  If this happens with our products, particularly Viread, which we provide at our cost to all countries in Africa and to the 15 other countries designated “Least Developed Countries” by the United Nations, our revenues would be adversely affected.   In addition, in the European Union, we are required to permit cross border sales.  This allows buyers in countries where government-approved prices for our products are relatively high to purchase our products legally from countries where they are sold at lower prices.  Additionally, some U.S. consumers have been able to purchase products, including HIV medicines, from Internet pharmacies in other countries at substantial discounts.  Such cross-border sales could adversely affect our revenues.  In a number of developing countries, manufacturers are able to sell generic versions of pharmaceutical products.  If generic versions of our products are sold in developing countries, exports from these countries may compete with our products in our commercial markets.

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Pharmaceutical Pricing and Reimbursement Pressures.  Successful commercialization depends, in part, on the availability of governmental and third party payor reimbursement for the cost of our products.  Government authorities and third-party payors increasingly are challenging the price of medical products and services, particularly for innovative new products and therapies.  Our business may be adversely affected by an increase in U.S. or international pricing pressures. In the U.S. in recent years, new legislation has been proposed at the federal and state levels that would effect major changes in the health care system, either nationally or at the state level. Our results of operations could be adversely affected by future health care reforms.  In Europe, the success of Hepsera, Tamiflu, Emtriva, Viread and Truvada also depends, largely on obtaining and maintaining government reimbursement because in many European countries, patients will not pay for prescription drugs out of their own pocket.  Even if reimbursement is available, reimbursement policies may adversely affect our ability to sell our products on a profitable basis.  In addition, in many international markets, governments control the prices of prescription pharmaceuticals.

Insurance Coverage.  The testing, manufacturing, marketing and use of our products as well as products in development involve substantial risk of product liability claims.  Although we maintain prudent limits on our product liability insurance, it is not cost effective or in most cases possible to purchase sufficient limits to insure against all risks.  Additionally, a successful product liability claim against us may not be covered by our insurance.  As a result, a successful product liability or other claim could require us to pay amounts beyond that provided by our insurance, which could impair our financial condition and our ability to clinically test and to market our products.

Litigation.  We are named as a defendant in a lawsuit regarding use of average wholesale price and reimbursement rates under Medicaid.  Other defendants in this lawsuit have been named in numerous other lawsuits with comparable allegations.  We have also been named in lawsuits alleging violations of the federal securites laws.  Adverse results from these lawsuits could result in material damages.

Tax Rate.  Various factors may have favorable or unfavorable effects on our effective tax rate.  These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, future levels of R&D spending, future levels of capital expenditures, changes in the mix of earnings in the various tax jurisdictions in which we operate and changes in overall levels of pre-tax earnings.  An increase in our effective tax rate would have a negative impact on our results of operations.

Critical Accounting Policies and Estimates

Reference is made to “Critical Accounting Policies and Estimates” included on pages 37 through 39 of our Annual Report on Form 10-K for the year ended December 31, 2003.  As of the date of the filing of this Quarterly Report, the Company has not identified any critical accounting policies other than those discussed in our Annual Report for the year ended December 31, 2003 and has not otherwise concluded that any of these policies have become out of date or are misleading.

Results of Operations

Executive Summary

Sales increased significantly compared to the second quarter 2003, due primarily to strong sales of Viread.  This resulted in strong growth in pretax income of 53% and a substantial increase in cash flow from operations of 106% compared to the same period last year.  We expect our HIV drug sales to grow in the near term, although we expect it to be at a slower rate than we have experienced in the past.  Enabling this growth is the increasing importance of once-daily regimens in prescribing HIV medications.  The availability of Viread, Emtriva and Truvada now provide physicians the ability to construct once-daily regimens.

Total Revenues

We had total revenues of $319.7 million for the quarter ended June 30, 2004 compared with $238.9 million for the quarter ended June 30, 2003.  Total revenues were $628.8 million for the first half of 2004, and $404.0 million for the first half of 2003.  Included in total revenues are product sales and royalty and contract revenue, including revenue from research and development (R&D) and manufacturing collaborations.

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Product Sales

Product sales consisted of the following (in thousands):

	Three Months Ended June 30, 2004		Change		Three Months Ended June 30, 2003		Six Months Ended June 30, 2004		Change		Six Months Ended June 30, 2003
Viread	$	197,162	18	%	$	167,035	$	390,258	42	%	$	274,307
AmBisome	54,965		7	%	51,163		106,838		16	%	92,221
Other	47,205		279	%	12,470		78,821		292	%	20,104
Total product sales	$	299,332	30	%	$	230,668	$	575,917	49	%	$	386,632

The increase in product sales is primarily due to the increase in the volume of sales of Viread, which was approved for sale in the U.S. in October 2001 and in the European Union in February 2002.  Sales of Viread in the second quarter of 2004 were 66% of total product sales, compared to 72% of total product sales in the same period of 2003.  Of the Viread sales in the second quarter of 2004, $109.2 million were U.S. sales, a decrease of 5% compared to the second quarter of 2003, and $87.9 million were international sales, an increase of 71% compared to the same period in 2003.  We believe the decrease in the U.S. compared to last year is due to significant increases in U.S. wholesaler inventory levels that occurred in the second quarter of 2003.   International sales in 2004 were positively impacted by $5.8 million due to a more favorable currency environment compared to the second quarter of 2003.  In 2004, we expect product sales from our HIV franchise, which includes Viread, Emtriva and Truvada, to be $850 million to $875 million for the full year.

Sales of AmBisome accounted for 18% of product sales in the quarter ended June 30, 2004 compared to 22% of product sales in the quarter ended June 30, 2003.  AmBisome sales in the second quarter of 2004 were $3.5 million higher due to the favorable currency environment compared to the same quarter last year.  On a volume basis, AmBisome sales increased in Latin America and Asia when compared to the second quarter of 2003.  We continue to experience increased competition, particularly in Europe, and as a result, believe that AmBisome sales for 2004 will be lower than 2003 and in the range of $170 million to $190 million for the full year.

Other product sales consist primarily of Hepsera and Emtriva.  Sales of Hepsera totaled $28.0 million during the quarter ended June 30, 2004, an increase of 126% compared to the second quarter of 2003.  This increase was primarily driven by prescription growth in both the U.S. and Europe.  Sales of Emtriva totaled $16.5 million for the quarter ended June 30, 2004.  Emtriva was approved for marketing in the U.S. in July 2003 and in the European Union in October 2003.

In the first six months of 2004, net product sales were $575.9 million, versus $386.6 million in the comparable period of 2003, an increase of 49%.  Sales of Viread for the six months ended June 30, 2004 were $390.3 million, or 68% of total product sales, compared to $274.3 million, or 71% of total product sales, in the six months ended June 30, 2003.  The significant increase in Viread sales is due to increased prescription volume in both the U.S. and Europe.  Of the $390.3 million in Viread sales, $225.1 million were U.S. sales and $165.1 million were international sales.  International sales of Viread in the first six months of 2004 were positively impacted by $15.3 million due to the more favorable currency environment compared to the same period last year.  We also recognized $106.8 million in AmBisome sales for the first six months of 2004, a 16% increase over the six months ended June 30, 2003.  Reported AmBisome sales in the first six months of 2004 were $10.8 million higher due to the favorable currency environment.  On a volume basis, AmBisome sales in the first six months of 2004 increased by 4% in Europe.

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Royalty and Contract Revenue

Royalty and contract revenue was $20.4 million for the second quarter of 2004 compared with $8.2 million for the comparable quarter in 2003.  The most significant source of royalty and contract revenue recorded in the second quarters of 2004 and 2003 was from worldwide sales of Tamiflu by Roche, which generated royalties of $9.7 million and $3.0 million, respectively.  We also recorded $4.8 million of contract revenue during the second quarter of 2004 related to the Macugen NDA filing by EyeTech.  For the six months ended June 30, 2004, royalty and contract revenue was $52.9 million compared to $17.3 million for the six months ended June 30, 2003.  Royalty revenue from worldwide sales of Tamiflu was $37.1 million for the six months ended June 30, 2004 compared to $7.3 million for the comparable prior year period.  The significant period over period increases in Tamiflu royalty was due primarily to the severe U.S. flu season in 2003.  We record royalties from Roche in the quarter following the quarter in which the related Tamiflu sales occur.

Cost of Goods Sold

Cost of goods sold was $42.1 million in the second quarter of 2004, compared with $32.1 million in the second quarter of 2003 and $77.0 million in the first six months of 2004 versus $53.5 million in the same period of 2003.  The increases from 2003 to 2004 can primarily be attributed to increases in the volume of Viread sold, which grew 18% and 42% in the three and six months ended June 30, 2004, respectively, versus the same periods of last year.

Gross Margins

Product gross margins were 85.9% in the second quarter of 2004, compared with 86.1% in the same period of 2003.  For the first half of 2004, product gross margins were 86.6% compared to 86.2% in the same period of 2003.  The slight increase from the first half of 2003 to the first half 2004 is primarily driven by product mix as Viread and Hepsera, both higher margin products, contributed more significantly to net product sales in 2004 compared to the same period in 2003.

Foreign exchange impacts gross margins as we price our products in the currency of the country into which the products are sold while a majority of our manufacturing costs are in U.S. Dollars.  For example, an increase in the value of these foreign currencies relative to the U.S. Dollar will positively impact gross margins since our manufacturing costs will remain approximately the same while our revenues after being translated into U.S. Dollars, will increase.  In the second quarter and first six months of 2004, gross margins were positively impacted by the weakening U.S. dollar compared to the second quarter and first six months of 2003, as discussed in the “Product sales” section above.  Except for the potential impact of unpredictable and uncontrollable changes in exchange rates relative to the U.S. dollar, we expect gross margins for the remainder of 2004 to remain relatively stable compared to 2003.

Research and Development Expenses

Research and development (R&D) expenses were $45.6 million for the second quarter of 2004.  In order to better reflect the nature of certain clinical trials being performed in Europe, the Company recorded certain phase IV clinical trial expenses as R&D during the second quarter of 2004 that previously had been recorded as sales and marketing expenses.  The comparative amounts in prior periods were also reclassified to be consistent with the current period presentation.  The reclassified amounts were $4.5 million and $6.9 million for the three and six months ended June 30, 2003, respectively, and $4.9 million for the three months ended March 31, 2004 (included in the six months ended June 30, 2004).  On a reclassified basis, R&D for the three months ended June 30, 2004, increased by 5% compared to the same period last year.  For the first half of 2004, R&D expenses were $104.2 million versus $86.9 million for the same period last year, an increase of 20%.  The increases in R&D expenses for the second quarter and first half of 2004 are primarily attributable to increased headcount, costs associated with the development of Truvada, and research spending on prodrug technology.  Based on current budgeted programs, we expect R&D expenses for the

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full year 2004 to be approximately $200 million to $220 million, or approximately 20% to 30% higher than 2003, reflecting the costs associated with the development of Truvada.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses were $73.8 million for the second quarter of 2004.  This compares to $55.7 million for the second quarter of 2003 after a reclassification to be consistent with the current period presentation of phase IV clinical trial expenses as discussed above under R&D.  For the first half of 2004, SG&A expenses were $145.0 million versus $100.8 million for the first half of 2003.  The period to period increases from 2003 to 2004 are primarily due to increased global marketing efforts, launch costs for Emtriva and Hepsera and the expansion of our U.S. and European sales forces.  In 2004, we expect SG&A expenses for the full year to be approximately $300 million to $320 million, or 28% to 37% higher than 2003 levels, primarily due to the increase in marketing activities associated with the continued promotion of Viread, Emtriva, Hepsera and AmBisome and launch activities associated with Truvada.

Purchased In-Process Research and Development

In connection with the acquisition of the net assets of Triangle completed in January 2003, we recorded in-process research and development expenses of $488.6 million in the first quarter of 2003. The charge was due to Triangle’s incomplete research and development programs that had not yet reached technological feasibility and had no alternative future use as of the acquisition date.  A summary of these programs at the acquisition date and updated for subsequent developments follows:

Program	Description	Status of Development	Value (in millions)
Emtricitabine for HIV - Single Agent	A nucleoside analogue that has been shown to be an inhibitor of HIV replication in patients.	Four phase 3 studies completed prior to the acquisition date.  U.S. marketing approval received from the FDA in July 2003 and European Union approval received from the European Commission in October 2003.	$	178.8
Emtricitabine/Tenofovir DF Fixed Dose Combination for HIV Therapy	A potential fixed-dose co-formulation of tenofovir and emtricitabine.	As of the acquisition date, work had not yet commenced on the potential co-formulation except to the extent that work on emtricitabine as a single agent was progressing. We have since completed co-formulating tenofovir and emtricitabine into a single pill, completed three stability studies and a bioequivalence study required for approval.  In March 2004, applications for marketing approval were submitted in the U.S. and European Union.	$	106.4
Amdoxovir for HIV	A purine dioxolane nucleoside that may offer advantages over other marketed nucleosides because of its activity against drug resistant viruses as exhibited in patients with HIV infection.	Phase 2 trials at acquisition date. In January 2004, we announced our intent to terminate the licensing agreement with Emory University and the University of Georgia Research Foundation, Inc. and development was discontinued.	$	114.8

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Clevudine for HBV	A pyrimidine nucleoside analogue that has been shown to be an inhibitor of HBV replication in patients chronically infected with HBV.	Phase 1/2 trials at acquisition date. Effective August 6, 2003, the licensing agreement with Bukwang Pharm. Ind. Co., Ltd was terminated and development was discontinued.	$	58.8
Emtricitabine for HBV	An inhibitor of HBV replication in patients chronically infected with HBV.	One phase 3 trial completed.	$	29.8

The efforts required to complete Triangle’s remaining research and development projects primarily consist of clinical trials, the cost, length and success of which are extremely difficult to predict.  Feedback from regulatory authorities or results from clinical trials might require modifications or delays in later stage clinical trials or additional trials to be performed.  We cannot be certain that emtricitabine for the treatment of chronic hepatitis B will be approved in the U.S. or the European Union, whether marketing approvals will have significant limitations on its use, or whether it will be successfully commercialized. We have terminated our rights with respect to the other potential products that we acquired with the acquisition of Triangle’s assets. Emtricitabine for the treatment of chronic hepatitis B faces significant uncertainties associated with pricing, efficacy, and the cost to produce that may not be successfully resolved.  As a result, we may make a strategic decision to discontinue development of this product, as we did with clevudine and amdoxovir.

The value of the acquired in-process research and development was determined by estimating the related future net cash flows between 2003 and 2020 using a present value risk adjusted discount rate of 15.75%.  This discount rate is a significant assumption and is based on our estimated weighted average cost of capital adjusted upward for the risks associated with the projects acquired.  The projected cash flows from the acquired projects were based on estimates of revenues and operating profits related to the projects considering the stage of development of each potential product acquired, the time and resources needed to complete the development and approval of each product, the life of each potential commercialized product and associated risks including the inherent difficulties and uncertainties in developing a drug compound including obtaining FDA and other regulatory approvals, and risks related to the viability of and potential alternative treatments in any future target markets.

EyeTech Warrants

In March 2000, we entered into an agreement with EyeTech relating to our proprietary aptamer EYE001, currently known as Macugen.  Pursuant to this agreement, we received a warrant to purchase 791,667 shares of EyeTech series B convertible preferred stock, exercisable at a price of $6.00 per share.  In January 2004, EyeTech completed an initial public offering of its common stock at which time we adjusted the fair value of the warrant resulting in a gain of $20.6 million included in our condensed consolidated statement of operations for the six months ended June 30, 2004. The fair value of the warrant was estimated using the Black-Scholes valuation model with a volatility rate of 50% and a discount rate of 2.8%.  At the end of the first quarter of 2004, we exercised the warrant on a net basis utilizing shares of EyeTech common stock as consideration and subsequently held 646,841 shares of EyeTech common stock.

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In the second quarter of 2004, we sold all of the EyeTech shares and realized a gain of approximately $2.3 million, which is included in interest and other income, net, in our condensed consolidated statements of operations for the three and six months ended June 30, 2004.

Interest and Other Income, net

We reported interest and other income of $5.4 million for the quarter ended June 30, 2004, up from $3.4 million for the quarter ended June 30, 2003.  Interest income was $8.3 million for the first half of 2004 versus $7.3 million for the first half of 2003. The increases in 2004 to the comparable periods is primarily attributable to the higher cash balances over the past year and also the realized gain of approximately $2.3 million from the sale of all of our shares of EyeTech common stock during the second quarter of 2004.

Interest Expense

Interest expense was $2.1 million for the quarter ended June 30, 2004 and $5.6 million for the quarter ended June 30, 2003.  For the first half of 2004, interest expense was $4.2 million versus $11.2 million for the same period in 2003.  The decreases in 2004 to the comparable periods can be attributed to the conversion of the $250.0 million 5% convertible subordinated debt into common stock in December 2003.  The only outstanding debt during the first half of 2004 consisted of the $345.0 million 2% convertible senior debt issued in December 2002.

Income Taxes

Our effective tax rate was 31% for the second quarter and first half of 2004.  Our provision for income taxes for the second quarter of 2004 was $50.1 million compared to $5.3 million for the second quarter of 2003.  Our provision for income taxes for the first half of 2004 was $101.5 million compared to $7.9 million for the first half of 2003.   The provision in the second quarter and first half of 2003 was primarily associated with income earned by our foreign subsidiaries and federal alternative minimum tax.   The effective tax rate for the second quarter and first half of 2004 is different from the statutory rate primarily as a result of permanently reinvested earnings of our foreign operations.  We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be permanently reinvested.

Various factors may have favorable or unfavorable effects on our effective tax rate during the remainder of 2004 and in subsequent years.  These factors include, but are not limited to, interpretations of existing tax laws, changes in tax laws and rates, future levels of R&D spending, future levels of capital expenditures, changes in the mix of earnings in the various tax jurisdictions in which we operate and changes in overall levels of pre-tax earnings.

Foreign Exchange

The impact to pre-tax earnings during the three and six months ended June 30, 2004 as a result of the strengthening Euro versus the comparable period last year was a positive $4.4 million and $15.0 million, respectively.  This includes the impact from revenues and international spending, as well as hedging activity.

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities totaled $975.6 million at June 30, 2004, up from $707.0 million at December 31, 2003. The increase of $268.6 million was primarily due to net cash provided by operations of $220.7 million and proceeds from issuances of stock under employee stock plans of $39.8 million, partially offset by $18.2 million of capital expenditures.   In addition, we sold our shares of EyeTech common stock for total proceeds of approximately $23.5 million during the second quarter, following our net exercise of the EyeTech warrant during the first quarter when EyeTech completed an initial public offering.

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Working capital at June 30, 2004 was $1,357.0 million compared to $1,080.0 million at December 31, 2003. Significant changes in working capital in addition to the increase in our cash, cash equivalents and marketable securities during the first six months of 2004, included a $61.6 million decrease in current deferred tax assets, a $47.0 million increase in net accounts receivable, a $12.5 million decrease in accrued liabilities, and a $12.1 million increase in prepaid expenses and other assets.  The $61.6 million decrease in current deferred tax assets was due to the utilization of net operating loss carryforwards to reduce the amount of income taxes payable.  The accounts receivable increase was primarily due to increased sales of Viread in the U.S. and Europe.  The $12.5 million decrease in accrued liabilities is primarily the result of a reduction in the liability associated with the fair value of our hedge contracts as the Euro has weakened in value during the first six months of 2004.  The $12.1 million increase in prepaid expenses and other assets is primarily attributable to the $5.0 million receivable recorded upon completion of the Macugen NDA filing by EyeTech.

We believe that our existing capital resources, supplemented by net product sales and contract and royalty revenues, will be adequate to satisfy our capital needs for the foreseeable future. Our future capital requirements and the adequacy of our resources will depend on many factors, including:

•the commercial performance of our current and future products,

•the progress and scope of our research and development efforts, including preclinical studies, and clinical trials,

•the cost, timing and outcome of regulatory reviews,

•the expansion of our sales and marketing capabilities,

•administrative expenses,

•the possibility of acquiring manufacturing capabilities or additional office facilities,

•the possibility of acquiring other companies or new products, and

•the establishment of additional collaborative relationships with other companies, and

•adverse results of litigation.

We may in the future require additional funding, which could be in the form of proceeds from equity or debt financings, such as from our universal shelf registration filed in December 2003 for the potential issuance of up to $500.0 million of our securities, or additional collaborative agreements with corporate partners.  If such funding is required, we cannot be assured that it will be available on favorable terms, if at all.

Subsidiaries and Other

We have established a variety of subsidiaries in various countries for the purpose of conducting business in those locations.  All of these subsidiaries are consolidated in our financial statements.  We do not have any “special purpose” entities that are unconsolidated in our financial statements.  We are also not involved in any non-exchange traded commodity contracts accounted for at fair value.  We have no commercial commitments with related parties, except for employee loans.  We have contractual obligations in the form of capital and operating leases, notes payable, raw material supply agreements and clinical research organization contracts.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2004, our $345.0 million convertible senior notes had a fair value of $497.6 million.  There have been no other significant changes in our market risk compared to the disclosures in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2003.

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ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation as of June 30, 2004 was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures,” which are defined under SEC rules as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that subject to the limitations described below, our disclosure controls and procedures were sufficiently effective to ensure that information required to be disclosed by us in this quarterly report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules on Form 10-Q.

Changes in Internal Controls over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2004, and has concluded that there was no change during such quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.  Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

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PART II.  OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

The Annual Meeting of Stockholders was held on May 25, 2004 in Redwood City, California.   Of the 213,989,757 shares of Gilead Common Stock entitled to vote at the meeting, 186,535,589 shares were represented at the meeting in person or by proxy, constituting a quorum.  The voting results are presented below.

The stockholders elected eight directors to serve for the ensuing year and until their successors are elected.  The votes regarding the election of directors were as follows:

Name	Shares Voted For	Votes Withheld
Paul Berg	175,314,697	11,220,892
Etienne F. Davignon	176,565,947	9,969,642
James M. Denny	175,975,965	10,559,624
John C. Martin	176,639,490	9,896,099
Gordon E. Moore	166,717,710	19,817,879
Nicholas G. Moore	163,778,559	22,757,030
George P. Shultz	172,962,786	13,572,803
Gayle E. Wilson	167,242,540	19,293,049

The stockholders approved the ratification of Ernst & Young LLP as Gilead’s independent auditors for the year ending December 31, 2004.  There were 184,728,369 votes cast for the proposal, 1,751,151 votes cast against, 56,069 abstentions, and no broker non-votes.

The stockholders approved the adoption of Gilead’s 2004 Equity Incentive Plan.  There were 121,053,896 votes cast for the proposal, 41,767,356 votes cast against, 211,869 abstentions, and 23,502,468 broker non-votes.

The stockholders approved an amendment to Gilead’s Restated Certificate of Incorporation to increase the authorized number of shares of Gilead common stock from 500,000,000 to 700,000,000 shares.  There were 180,963,190 votes cast for the proposal, 5,454,302 votes cast against, 118,097 abstentions, and no broker non-votes.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits

No. 10.75	Gilead Sciences, Inc. 2004 Equity Incentive Plan, as Amended July 29, 2004
No. 31.1	Certification
No. 31.2	Certification
No. 32	Certification

(b)Reports on Form 8-K

On April 22, 2004, the Company filed an 8-K announcing the earnings of the Company for the first quarter ended March 31, 2004.

On May 11, 2004, the Company filed an 8-K announcing the implementation of a stock trading program in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GILEAD SCIENCES, INC.
	(Registrant)
Date:  August 5, 2004	/s/ John C. Martin
	John C. Martin
	President and Chief Executive Officer
Date:  August 5, 2004	/s/ John F. Milligan
	John F. Milligan
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

24

Exhibit Index

(a)Exhibits

No. 10.75	Gilead Sciences, Inc. 2004 Equity Incentive Plan, as Amended July 29, 2004
No. 31.1	Certification
No. 31.2	Certification
No. 32	Certification

EX-10.75

Exhibit 10.75

GILEAD SCIENCES, INC.

2004 EQUITY INCENTIVE PLAN

AS AMENDED JULY 29, 2004

1.Purpose of the Plan.  The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company by offering them an opportunity to participate in the Company’s future performance.  If this Plan is approved by stockholders at the 2004 annual meeting of stockholders, it will replace the Gilead Sciences, Inc. 1991 Stock Option Plan and the Gilead Sciences, Inc. 1995 Non-Employee Directors’ Stock Option Plan, no further option grants will be made under those plans, and the remaining shares available for issuance under those plans will be available for issuance under this Plan.

2.Definitions.  As used herein, the following definitions shall apply:

(a)“Administrator” means the Board or any of the Committees appointed to administer the Plan.

(b)“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.

(c)“Applicable Acceleration Period” means:  (i) 24 months, in the case of the Chief Executive Officer, (ii) 18 months, in the case of an Executive Vice President or Senior Vice President, and (iii) 12 months, in the case of all other Grantees.

(d)“Applicable Laws” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein.

(e)“Award” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Performance Unit, Performance Share, Phantom Share, or other right or benefit under the Plan.

(f)“Award Agreement” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.

(g)“Board” means the Board of Directors of the Company.

(h)“Cause” means with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Active Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s:  (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty,

intentional misconduct, material violation of any applicable Company or Related Entity policy, or material breach of any agreement with the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.

(i)“Change in Control” means a change in ownership or control of the Company effected through any of the following transactions:

(i)a dissolution or liquidation of the Company;

(ii)a merger or consolidation in which the Company is not the surviving corporation;

(iii)a reverse merger in which the Company is the surviving corporation but the shares of the Company’s common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or

(iv)any other capital reorganization in which more than 50% of the shares of the Company entitled to vote are exchanged.

(j)“Code” means the Internal Revenue Code of 1986, as amended.

(k)“Committee” means any committee composed of members of the Board appointed by the Board to administer the Plan.

(l)“Common Stock” means the common stock of the Company.

(m)“Company” means Gilead Sciences, Inc., a Delaware corporation.

(n)“Consultant” means any person including an advisor, who is engaged by the Company or any Related Entity to render services to the Company or such Related Entity and who is compensated for such services, provided that the term “Consultant” shall not include Directors who are paid only a director’s fee by the Company or who are not otherwise compensated by the Company for their services as Directors.  The term “Consultant” shall include a member of the Board of Directors of a Related Entity.

(o)“Continuous Active Service” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant is not interrupted or terminated.  In jurisdictions requiring notice in advance of an effective termination as an Employee, Director or Consultant, Continuous Active Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or Consultant can be effective under Applicable Laws.  Continuous Active Service shall not be considered interrupted in the case of (i) any approved leave of absence or (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant.

Continuous Active Service shall be considered interrupted in the case of any change in status or capacity as an Employee, Director or Consultant (except as otherwise provided in the Award Agreement or authorized by the Board).  The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Active Service shall be considered interrupted in the case of any leave of absence approved by the Board or the chief executive officer of the Company including sick leave, military leave, or any other personal leave.  For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds 90 days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Nonstatutory Stock Option on the day three months and one day following the expiration of such 90 day period.

(p)“Covered Employee” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.

(q)“Director” means a member of the Board or the board of directors of any Related Entity.

(r)“Dividend Equivalent Right” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.

(s)“Domestic Partner” means a person who meets and continues to meet all of the criteria detailed in the Gilead Sciences Affidavit of Domestic Partnership when the Domestic Partnership has been internally registered with the Company by filing with the Company an original, properly completed, notarized Gilead Sciences Affidavit of Domestic Partnership.

(t)“Employee” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance.  Neither service as a Director nor payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.

(u)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(v)“Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i)If the Common Stock is listed on any established stock exchange or a national market system, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in common stock) on the last market trading day prior to the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported),

as reported in The Wall Street Journal or such other source as the Board deems reliable; or

(ii)If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and high asked prices for the Common Stock on the last market trading day prior to the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Board deems reliable; or

(iii)In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Board in good faith.

(w)“Grantee” means an Employee, Director or Consultant who receives an Award under the Plan.

(x)“Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, Domestic Partner, a trust in which these persons (or the Grantee) have more than 50% of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent (50%) of the voting interests

(y)“Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(z)“Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(aa)“Officer” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(bb)“Option” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.

(cc)“Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

(dd)“Performance-Based Compensation” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code.

(ee)“Performance Shares” means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria

established by the Administrator.

(ff)“Performance Units” means an Award denominated in U.S. dollars which may be earned in whole or in part based upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.

(gg)“Phantom Share” means an Award denominated in Shares in which the Grantee has the right to receive an amount equal to the value of a specified number of Shares over a specified period of time and which will be payable in cash or Shares as established by the Administrator.

(hh)“Plan” means this Gilead Sciences, Inc. 2004 Equity Incentive Plan.

(ii)“Related Entity” means any Parent or Subsidiary of the Company and any business, corporation, partnership, limited liability company or other entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.

(jj)“Restricted Stock” means Shares or an Award denominated in Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.

(kk)“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto, as in effect when discretion is being exercised with respect to the Plan.

(ll)“SAR” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.

(mm)“Share” means a share of the Common Stock.

(nn)“Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.Stock Subject to the Plan.

(a)Subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including, without limitation, Restricted Stock, Performance Shares, Options, SARs, Dividend Equivalent Rights, and Phantom Shares) is 3,600,000 Shares, plus the number of shares previously authorized for issuance under the Gilead Sciences, Inc. 1991 Stock Option Plan and the Gilead Sciences, Inc. 1995 Non-Employee Directors’ Stock Option Plan which are not required to be issued upon the exercise of options under those plans

outstanding on May 25, 2004.  Notwithstanding the foregoing, no more than 200,000 of such Shares may be issued pursuant to all Awards of Restricted Stock, Performance Shares, and Phantom Shares, in total.  The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.  Performance Units that by their terms may only be settled in cash shall not reduce the maximum aggregate number of shares that may be issued under the Plan.

(b)Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan.  Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at the lower of their original purchase price or their Fair Market Value at the time of repurchase, such Shares shall become available for future grant under the Plan.

4.Administration of the Plan.

(a)Plan Administrator:

(i)Administration with Respect to Directors and Officers.  With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3.  Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.

(ii)Administration With Respect to Consultants and Other Employees.  With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws.  Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.  The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.

(iii)Administration With Respect to Covered Employees.  Notwithstanding the foregoing, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation.  In the case of such Awards granted to Covered Employees, references to the “Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.

(b)Powers of the Administrator.  Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:

(i)to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;

(ii)to determine whether and to what extent Awards are granted hereunder;

(iii)to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;

(iv)to approve forms of Award Agreements for use under the Plan;

(v)to determine the terms and conditions of any Award granted hereunder;

(vi)to amend the terms of any outstanding Award granted under the Plan, provided that (A) any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent, (B) the reduction of the exercise price of any Option awarded under the Plan shall be subject to stockholder approval as provided in Section 7(b), and (C) canceling an Option at a time when its exercise price exceeds the Fair Market Value of the underlying Shares, in exchange for another Option, Restricted Stock, or other Award shall be subject to stockholder approval as provided in Section 7(b), unless the cancellation and exchange occurs in connection with a Change in Control as provided in Section 11;

(vii)to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of award or Award Agreement, granted pursuant to the Plan;

(viii)to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions and to afford Grantees favorable treatment under such rules or laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and

(ix)to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.

(c)Indemnification.  In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board,

the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all reasonable expenses (including attorneys’ fees), actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within 30 days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to handle and defend the same.

5.Eligibility.  Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.  Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company.  An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards.  Awards may be granted to such Employees, Directors or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine.

6.Terms and Conditions of Awards.

(a)Type of Awards.  The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions.  Such awards include, without limitation, Options, SARs, Restricted Stock, Dividend Equivalent Rights, Performance Units, Performance Shares, or Phantom Shares. An Award may consist of one such security or benefit, or two or more of them in any combination or alternative.

(b)Designation of Award.  Each Award shall be designated in the Award Agreement.  In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Nonstatutory Stock Option.  However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Nonstatutory Stock Options.  For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the

Shares shall be determined as of the grant date of the relevant Option.

(c)Conditions of Award.  Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria.  The performance criteria established by the Administrator may be based on any one of, or combination of, the following: (i) revenue, (ii) achievement of specified milestones in the discovery and development of one or more of the Company’s products, (iii) achievement of specified milestones in the commercialization of one or more of the Company’s products, (iv) achievement of specified milestones in the manufacturing of one or more of the Company’s products, (v) expense targets, (vi) personal management objectives, (vii) share price (including, but not limited to, growth measures and total shareholder return), (viii) earnings per share, (ix) operating efficiency, (x) operating margin, (xi) gross margin, (xii) return measures (including, but not limited to, return on assets, capital, equity, or sales), (xiii) net sales growth, (xiv) productivity ratios, (xv) operating income, (xvi) net operating profit, (xvii) net earnings or net income (before or after taxes), (xviii) cash flow (including, but not limited to, operating cash flow, free cash flow, and cash flow return on capital), (xix) earnings before or after interest, taxes, depreciation, and/or amortization, (xx) economic value added, (xxi) market share, (xxii) customer satisfaction, (xxiii) working capital targets, and (xxiv) other measures of performance selected by the Administrator.    Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement.

(d)Acquisitions and Other Transactions.  The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.

(e)Deferral of Award Payment.  The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award.  The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.

(f)Separate Programs.  The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.

(g)Individual Limitations on Awards.  The maximum number of Shares with respect to which Options and/or SARs may be granted to any Grantee in any fiscal year of the Company shall be 1,000,000 Shares.  The maximum number of Shares with respect to which Restricted Stock, Performance Shares, or Phantom Shares, in the aggregate, may be granted to any Grantee in any fiscal year of the Company shall be 100,000 Shares.  In connection with a Grantee’s (i) commencement of Continuous Active Service or (ii) promotion, a Grantee may be granted Options and/or SARs for up to an additional 500,000 Shares or Restricted Stock, Performance Shares, or Phantom Shares, in the aggregate, for up to an additional 50,000 shares which shall not count against the limit set forth in the preceding sentence.  The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below.  The value of all Awards denominated in U.S. dollars granted in any single calendar year to any Participant shall not exceed $7,000,000.  For this purpose, the value of an Award denominated in U.S. dollars shall be determined on the date of grant without regard to any conditions imposed on the Award.  To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitations with respect to a Grantee, if any Awards are canceled, the canceled Awards shall continue to count against the maximum number of Shares with respect to which Awards may be granted to the Grantee.  For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock), if such repricing is approved by the stockholders of the Company, shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR.  If the vesting or receipt of Shares under the Award is deferred to a later date, any amount (whether denominated in Shares or U.S. dollars) paid in addition to the original number of Shares subject to the Award will not be treated as an increase in the number of Shares subject to the Award if the additional amount is based either on a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable by the Company at the later date will be based on the actual rate of return of a specific investment (including any decrease as well as any increase in the value of an investment).

(h)Early Exercise.  The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award.  Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.

(i)Term of Award.  The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Award shall be no more than ten years from the date of grant thereof.  However, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.

(j)Transferability of Awards.  Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee.  Other Awards shall be transferable by will and by the laws of descent and distribution, and during the lifetime of the Grantee, by gift or pursuant to a domestic relations order to members of the Grantee’s Immediate Family to the extent and in the manner determined by the Administrator.  Notwithstanding the foregoing, the Grantee may designate a beneficiary of the Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.

(k)Time of Granting Awards.  The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such later date as is determined by the Administrator.

7.Award Exercise or Purchase Price; Consideration and Taxes.

(a)Exercise or Purchase Price.  The exercise or purchase price, if any, for an Award shall be as follows:

(i)In the case of an Incentive Stock Option:

(A)granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than 110% of the Fair Market Value per Share on the date of grant; or

(B)granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(ii)In the case of a Nonstatutory Stock Option, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(iii)In the case of a SAR, the base amount on which the stock appreciation is calculated shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(iv)In the case of other Awards, such price as is determined by the Administrator.

(v)Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d), above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.

(b)No Authority to Reprice.  Without the consent of stockholders of

the Company, the Board shall have no authority to effect (i) the repricing of any outstanding Options under the Plan and/or (ii) the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of Common Stock.

(c)Consideration.  Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant).  In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:

(vi)cash;

(vii)check;

(viii)surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised, provided, however, that Shares acquired under the Plan or any other equity compensation plan or agreement of the Company must have been held by the Grantee for a period of more than six months;

(ix)with respect to Options, payment through a traditional broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction;

(x)with respect to Options, payment through an internet-based broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall establish and maintain an account with the internet-based broker-dealer to effect the sale of some or all of the purchased Shares and ensure that such account contains sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall execute the transaction with the internet-based broker-dealer who will then cause the purchased Shares to be deposited into the Grantee’s account in order to complete the sale transaction; or

(xi)any combination of the foregoing methods of payment.

(d)Taxes.  No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to

the Administrator for the satisfaction of any federal, state, local or non-U.S. income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option.  Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.

8.Exercise of Award.

(a)Procedure for Exercise; Rights as a Stockholder.

(i)Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.  Notwithstanding any other provision of the Plan to the contrary, except with respect to a maximum of 5% of the Shares authorized for issuance under Section 3(a), any Awards of Restricted Stock which vest on the basis of the Grantee’s Continuous Active Service with the Company or a Related Entity shall not provide for vesting which is any more rapid than annual pro rata vesting over a three-year period and any Awards of Restricted Stock which provide for vesting upon the attainment of performance goals shall provide for a performance period of at least 12 months.

(ii)An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company or its designee in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(c)(iv).

(b)Exercise of Award Following Termination of Continuous Active Service.

(i)An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Active Service only to the extent provided in the Award Agreement.

(ii)Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Active Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.

(iii)Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Active Service shall convert automatically to a Nonstatutory Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.

9.Conditions Upon Issuance of Shares.

(a)Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b)As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.

10.Adjustments Upon Changes in Capitalization.  If any change is made in the Common Stock subject to the Plan, or subject to any Award (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to Section 3(a), and the maximum number of shares subject to award to any person during any calendar year pursuant to Section 6(g), and the outstanding Awards (other than an Award of Restricted Stock that is outstanding at the time of the event described in this paragraph) will be appropriately adjusted in the classes(es) and the number of shares and price per Share subject to such outstanding Awards, including any price required to be paid for Restricted Stock not yet outstanding at the time of the event described in this paragraph

11.Change in Control.

(a)Effect of Change in Control on Awards.  In the event of a Change in Control, then, at the sole discretion of the Board and to the extent permitted by applicable law:  (i) any surviving corporation shall assume any Awards outstanding under the Plan or shall substitute similar Awards for those outstanding under the Plan, (ii) the time during which such Awards may be exercised shall be accelerated and the Awards terminated if not exercised prior to the Change in Control, or (iii) such Awards shall continue in full force and effect.

(b)Acceleration of Award Upon Change in Control. Notwithstanding any other provisions of this Plan to the contrary, if a Change in Control occurs and if within one month before or within the Applicable Acceleration Period after the date of such Change in Control (1) the Continuous Active Service of an Employee or Consultant terminates due to an involuntary termination (not including death or Disability) without Cause (as such term is defined below) or a voluntary termination by the Grantee due to Constructive Termination (as such term is defined below) or (2) the Continuous Active Service of a Director terminates, then the vesting and exercisability of all Awards held by such Grantee shall be accelerated, or any reacquisition or repurchase rights held by the Company with respect to an Award shall lapse, as follows.  With respect to those Awards held by a Grantee at the time of such termination, 100% of the unvested Shares covered

by such Awards shall vest and become exercisable (or reacquisition or repurchase rights held by the Company shall lapse with respect to 100% of the Shares still subject to such rights, as appropriate) as of the date of such termination.

(c)Definition of “Cause”.  For the purposes of Section 11(b) only, “Cause” means (i) conviction of, a guilty plea with respect to, or a plea of non contendere to a charge that a Grantee has committed a felony under the laws of the United States or of any state or a crime involving moral turpitude, including, but not limited to, fraud, theft, embezzlement or any crime that results in or is intended to result in personal enrichment at the expense of the Company or a Related Entity; (ii) material breach of any agreement entered into between the Grantee and the Company or a Related Entity that impairs the Company’s or the Related Entity’s interest therein; (iii) willful misconduct, significant failure of the Grantee to perform the Grantee’s duties, or gross neglect by the Grantee of the Grantee’s duties; or (iv) engagement in any activity that constitutes a material conflict of interest with the Company or a Related Entity.

(d)Definition of “Constructive Termination”.  For purposes of Section 11(b) only, “Constructive Termination” means the occurrence of any of the following events or conditions:  (i) (A) a change in the Grantee’s status, title, position or responsibilities (including reporting responsibilities) which represents an adverse change from the Grantee’s status, title, position or responsibilities as in effect at any time within 90 days preceding the date of a Change in Control or within the Applicable Acceleration Period after the date of a Change in Control; (B) the assignment to the Grantee of any duties or responsibilities which are inconsistent with the Grantee’s status, title, position or responsibilities as in effect at any time within 90 days preceding the date of a Change in Control or at any time within the Applicable Acceleration Period after the Change in Control; or (C) any removal of the Grantee from or failure to reappoint or reelect the Grantee to any of such offices or positions, except in connection with the termination of the Grantee’s Continuous Active Service for Cause, as a result of the Grantee’s Disability or death or by the Grantee other than as a result of Constructive Termination; (ii) a reduction in the Grantee’s annual base compensation or any failure to pay the Grantee any compensation or benefits to which the Grantee is entitled within five days of the date due; (iii) the Company’s requiring the Grantee to relocate to any place outside a 50 mile radius of the Grantee’s current work site, except for reasonably required travel on the business of the Company or a Related Entity which is not materially greater than such travel requirements prior to the Change in Control; (iv) the failure by the Company to (A) continue in effect (without reduction in benefit level and/or reward opportunities) any material compensation or employee benefit plan in which the Grantee was participating at any time within 90 days preceding the date of a Change in Control or at any time within the Applicable Acceleration Period after the Change in Control, unless such plan is replaced with a plan that provides substantially equivalent compensation or benefits to the Grantee, or (B) provide the Grantee with compensation and benefits, in the aggregate, at least equal (in terms of benefit levels and/or reward opportunities) to those provided for under each other employee benefit plan, program and practice in which the Grantee was participating at any time within 90 days preceding the date of a Change in Control or at any within the Applicable Acceleration Period after the Change in Control; (v) any material breach by the Company of any provision of an agreement between the Company

and the Grantee, whether pursuant to this Plan or otherwise, other than a breach which is cured by the Company within 15 days following notice by the Grantee of such breach; of (vi) the failure of the Company to obtain an agreement, satisfactory to the Grantee, from any successors and assigns to assume and agree to perform the obligations created under this Plan.

(e)Effect of Acceleration on Incentive Stock Options.  Any Incentive Stock Option accelerated under this Section 11 in connection with a Change in Control shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded.  To the extent such dollar limitation is exceeded, the excess Options shall be treated as Nonstatutory Stock Options.

12.Effective Date and Term of Plan.  The Plan shall become effective upon its approval by the stockholders of the Company.  It shall continue in effect for a term of ten years unless sooner terminated.  Subject to Applicable Laws, Awards may be granted under the Plan upon its becoming effective.

13.Amendment, Suspension or Termination of the Plan.

(a)The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by NASD Marketplace Rule 4350(i)(1)(A), Section 422 of the Code and regulations promulgated thereunder, or any other Applicable Laws, or if such amendment would change any of the provisions of Section 4(b)(vi) or this Section 13(a).

(b)No Award may be granted during any suspension of the Plan or after termination of the Plan.

(c)No suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall adversely affect any rights under Awards already granted to a Grantee.

14.Reservation of Shares.

(a)The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

(b)The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

15.No Effect on Terms of Employment/Consulting Relationship.  The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous

Active Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Active Service at any time, with or without Cause, and with or without notice.  The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Active Service has been terminated for Cause for the purposes of this Plan.

16.No Effect on Retirement and Other Benefit Plans.  Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation.  The Plan is not a “Pension Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.

17.Unfunded Obligation.  Grantees shall have the status of general unsecured creditors of the Company.  Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended.  Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity.  The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John C. Martin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gilead Sciences, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:  August 5, 2004	/s/ John C. Martin
	John C. Martin
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, John F. Milligan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Gilead Sciences, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:  August 5, 2004	/s/  John F. Milligan
	John F. Milligan
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), John C. Martin, the Chief Executive Officer of Gilead Sciences, Inc. (the “Company”), and John F. Milligan, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1.     The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2004, to which this Certification is attached as Exhibit 32 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.     The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the periods covered by the Periodic Report and results of operations of the Company for the periods covered by the Periodic Report.

Dated:  August 5, 2004

/s/ John C. Martin	/s/ John F. Milligan
John C. Martin	John F. Milligan
Chief Executive Officer	Chief Financial Officer