Gilead Sciences (GILD)

Research and Development

Research and development (R&D) expenses in the third quarter of 2009 were $269.9 million compared to $188.1 million for the third quarter of 2008. Non-GAAP R&D expenses for the third quarter of 2009, which exclude restructuring and stock-based compensation expenses, were $242.2 million compared to $170.4 million for the third quarter of 2008, which excluded stock-based compensation expenses. This increase was driven primarily by R&D expense reimbursement related to Gilead’s collaboration with Tibotec Pharmaceuticals (Tibotec) as well as higher headcount and expenses to support the growth of Gilead’s R&D activities.

Research and Development

Research and development (R&D) expenses in the second quarter of 2009 were $241.6 million compared to $176.5 million for the second quarter of 2008. Non-GAAP R&D expenses for the second quarter of 2009, which exclude restructuring and stock-based compensation expenses, were $206.1 million compared to $161.2 million for the second quarter in 2008, which exclude stock-based compensation expenses. This increase was primarily a result of higher headcount from the acquisition of CV Therapeutics, the overall growth in Gilead’s business and increased clinical study activity.

Research and Development

Research and development (R&D) expenses in the first quarter of 2009 were $188.8 million compared to $155.3 million for the first quarter of 2008. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the first quarter of 2009 were $171.8 million, compared to $138.4 million for the first quarter in 2008, primarily as a result of higher headcount and increased clinical study activity related to the growth in Gilead’s business.

Research and Development

In addition to entering into collaborations with other companies, universities and medical research institutions, we seek to add to our existing portfolio of products through our internal discovery and clinical development programs and through an active in-licensing and product acquisition strategy, such as with our acquisitions of Myogen, Inc. and Corus Pharma, Inc. in 2006. In 2008, we acquired all of Navitas Assets, LLC’s assets related to its cicletanine business, which we are evaluating as a potential treatment of PAH. We have research scientists in Foster City and San Dimas, California; Durham, North Carolina; Seattle, Washington; and Boulder and Westminster, Colorado, engaged in the discovery and development of new molecules and technologies that we hope will lead to new medicines and novel formulations of existing drugs.

Our product development efforts cover a wide range of medical conditions, including HIV/AIDS, liver disease, cardiovascular disease and respiratory disease. Below is a summary of our key products and their corresponding current stages of development. For additional information on our development pipeline, visit our website at www.gilead.com.

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In total, our research and development expenses for 2008 were $721.8 million, compared with $591.0 million for 2007 and $383.9 million for 2006.

Research and Development

Research and development (R&D) expenses in the fourth quarter of 2008 were $201.9 million compared to $184.6 million for the same quarter in 2007. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the fourth quarter of 2008 were $185.3 million, compared to $168.7 million for the same quarter in 2007. For 2008, R&D expenses were $721.8 million compared to $591.0 million for 2007. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for 2008 were $655.2 million, compared to $518.9 million for 2007. Non-GAAP R&D expenses for the fourth quarter and full year of 2008 were higher primarily as a result of increased clinical study activity as well as higher headcount related to the growth in Gilead’s business, partially offset by a net decrease in payments incurred related to its collaborations.

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Research and Development

Research and development (R&D) expenses in the third quarter of 2008 were $188.1 million compared to $140.4 million for the same quarter in 2007. Non-GAAP R&D expenses, which exclude stock-based compensation expense, were $170.4 million, compared to $122.0 million for the same quarter in 2007 as a result of increased clinical study activity, research and related expenses as well as higher headcount related to the growth in Gilead’s business.

Research and Development

Research and development (R&D) expenses in the second quarter of 2008 were $176.5 million compared to $135.9 million for the same quarter in 2007. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the second quarter of 2008 were $161.2 million, compared to $119.3 million for the same quarter in 2007. Non-GAAP R&D expenses for the second quarter of 2008 were higher primarily as a result of increased clinical study expenses as well as higher headcount related to the growth in Gilead’s business.

Research and Development

Research and development (R&D) expenses in the first quarter of 2008 were $155.3 million compared to $130.1 million for the same quarter in 2007. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the first quarter of 2008 were $138.4 million, compared to $109.0 million for the same quarter in 2007. Non-GAAP R&D expenses for the first quarter of 2008 were higher primarily as a result of increased clinical study expenses as well as higher headcount related to the growth in Gilead’s business.

Research and Development

In addition to entering into collaborations with other companies, universities and medical research institutions, we seek to add to our existing portfolio of products through our internal discovery and clinical development programs and through an active in-licensing and product acquisition strategy, such as with our acquisitions of Myogen and Corus Pharma, Inc. during 2006. We have research scientists in Foster City and San Dimas, California; Durham, North Carolina; Seattle, Washington; and Westminster, Colorado, engaged in the discovery and development of new molecules and technologies that we hope will lead to new medicines and novel formulations of existing drugs.

Our internal research is focused on the discovery and development of treatments for diseases in the following areas:

In February 2007, we completed a Phase 2 study of elvitegravir, also known as GS 9137, our novel integrase inhibitor for HIV licensed from Japan Tobacco. We are in discussions with the FDA and the European Medicines Evaluation Agency (EMEA) concerning the design of the Phase 3 program, and pending a positive outcome of these discussions, we hope to dose the first patients in a Phase 3 clinical study for elvitegravir in 2008.

During the third quarter of 2007, we completed a Phase 1 single dose pharmacokinetic study of GS 9131 in healthy volunteers. GS 9131 is a novel nucleotide analog designed to deliver high intracellular concentrations of the active molecule allowing for lower doses with higher potency. Results from the Phase 1 study confirmed the preclinical results of delivery of high intracellular concentrations of the compound at low doses of GS 9131. As a result, pending discussions with the FDA on the design of the Phase 1/2 protocol, we anticipate dosing the first patients in a Phase 1/2 study evaluating GS 9131 in treatment-experienced HIV infected patients with confirmed NRTI resistance during the first half of 2008.

In HBV, in November 2007, we presented positive results from two Phase 3 pivotal studies comparing the efficacy and safety of tenofovir disoproxil fumarate, the active pharmaceutical ingredient in Viread, versus Hepsera in patients with chronic hepatitis B. Based on these data, in October 2007, we filed a supplemental new drug application (NDA) with the FDA, as well as a Type II variation to the EMEA, for marketing approval of Viread for the treatment of chronic hepatitis B in adults.

In HCV, in November 2007, we released preliminary Phase 1a/b data on the single dose and first two doses of a seven-day treatment course of GS 9190, our novel non-nucleoside polymerase inhibitor. The data demonstrated favorable antiviral activity, pharmacokinetics and exposure at the doses evaluated. In this study we also observed a possible QT prolongation at the 120 mg dose, a measure for cardiovascular safety. We conducted and have now completed a pilot QT study in healthy volunteers at the 120 mg and the 40 mg doses, which confirmed QT prolongations at the 120 mg dose, but prolongations at the 40 mg dose were small and we believe clinically manageable. Therefore, we are seeking the FDA’s consent to reinitiate dosing of HCV-infected individuals to further define the efficacy and safety of the compound. Also in HCV, in November 2007, we entered into an exclusive license agreement with LGLS focused on the development of caspase inhibitors for the treatment of fibrotic diseases. The agreement granted us commercialization rights to LGLS’s caspase inhibitors, including GS 9450, LGLS’s lead compound formerly called LB84451. GS 9450 is an investigational

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caspase inhibitor currently being evaluated in a Phase 2a clinical trial in patients with chronic hepatitis C. We anticipate data from this trial by the end of 2008. In addition, our research collaborations with Achillion and Genelabs continue and we hope development candidates emerge from those efforts.

In the respiratory area, in October 2007, we presented data from the second of two pivotal Phase 3 studies of aztreonam lysine for inhalation, an inhaled antibiotic for the treatment of patients with CF who have pulmonary infection with Pseudomonas aeruginosa (P. aeruginosa). In November 2007, we submitted an NDA to the FDA for marketing approval of aztreonam lysine for inhalation (75 mg three times daily) for the treatment of pulmonary P. aeruginosa infection in people with CF. Based on discussions with the EMEA, we plan to submit a marketing authorization application in the second quarter of 2008. In October 2007, we also presented data on GS 9310/11, a proprietary inhaled formulation of tobramycin and fosfomycin, demonstrating the compound’s activity against pathogens commonly found in patients with CF and bronchiectasis. Based on these and other pre-clinical study results, we initiated and completed a single Phase 1a study in healthy volunteers and began enrolling patients with either CF or bronchiectasis in a Phase 1b study in the third quarter of 2007.

In the cardiovascular area, we are conducting two Phase 3 clinical studies for darusentan for the treatment of resistant hypertension, a program we obtained from the Myogen acquisition, and we expect to complete enrollment and receive data from both of these studies in 2009. In addition, our research collaborations with both the University of Texas and Novartis Institutes continue and we seek to identify development candidates for the treatment of cardiovascular disorders.

We face numerous risks and uncertainties with our product candidates, including each of those listed above. These risks include challenges in clinical trial protocol design, our ability to enroll patients in clinical trials, the possibility of unfavorable results of our clinical trials, the need to modify or delay our clinical trials or to perform additional trials and the risk of failing to obtain FDA and other regulatory body approvals. As a result, our product candidates may never be successfully commercialized. Further, we may make a strategic decision to discontinue development of our product candidates. If these programs and others in our pipeline cannot be completed on a timely basis or at all, then our prospects for future revenue growth may be adversely impacted.

In total, our research and development expenses for 2007 were $591.0 million, compared with $383.9 million for 2006 and $277.7 million for 2005.

Research and Development

Research and development (R&D) expenses in the fourth quarter of 2007 were $184.6 million compared to $111.6 million for the same quarter in 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the fourth quarter of 2007 were $168.7 million, compared to $97.6 million for the same quarter in 2006. For 2007, R&D expenses were $591.0 million compared to $383.9 million for 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for 2007 were $518.9 million, compared to $331.7 million for 2006. Non-GAAP R&D expenses for the fourth quarter and full year of 2007 were higher primarily as a result of increased licence payments made to Gilead’s corporate partners related to its collaborations, increased clinical study expenses as well as higher headcount, related to Gilead’s growth in its business.

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Research and Development

Research and development (R&D) expenses in the third quarter of 2007 were $140.4 million compared to $93.3 million for the same quarter in 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the third quarter of 2007 were $122.0 million, compared to $80.0 million for the same quarter in 2006. Non-GAAP R&D expenses for the third quarter of 2007 were higher primarily as a result of increased compensation and benefits related to higher headcount, as well as increased clinical study expenses related to Gilead’s respiratory and cardiovascular franchises, which were acquired in the latter part of 2006.

Research and Development

Research and development (R&D) expenses in the second quarter of 2007 were $135.9 million compared to $90.5 million for the same quarter in 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the second quarter of 2007 were $119.3 million, compared to $77.6 million for the same quarter in 2006. Non-GAAP R&D expenses for the second quarter of 2007 were higher primarily as a result of increased compensation and benefits related to higher headcount, as well as increased clinical study expenses related to Gilead’s respiratory and cardiopulmonary programs.

Research and Development

Research and development (R&D) expenses in the first quarter of 2007 were $130.1 million compared to $88.4 million for the same quarter in 2006. Non-GAAP R&D expenses, which exclude stock-based compensation expense, for the first quarter of 2007 were $109.0 million, compared to $76.5 million for the same quarter in 2006. Non-GAAP R&D expenses for the first quarter of 2007 were higher primarily from increased compensation and benefits related to higher headcount, and increased contract service and clinical study expenses relating to clinical, product development and research activities in our HIV, hepatitis, respiratory and cardiopulmonary programs.

Research and Development

In addition to entering into collaborations with other companies, universities and medical research institutions, we seek to add to our existing portfolio of products through our internal discovery and clinical development programs and through an active in-licensing and product acquisition strategy, such as with our acquisitions of Myogen and Corus during the year. We have research scientists in Foster City and San Dimas, California; Durham, North Carolina; Seattle, Washington; and Westminster, Colorado, engaged in the discovery and development of new molecules and technologies that we hope will lead to new medicines and novel formulations of existing drugs.

Our internal research is focused on the discovery and development of treatments for diseases in the following areas:

In February 2007, we announced that we completed a Phase 2 study of GS 9137, a novel HIV integrase inhibitor licensed from Japan Tobacco. The clinical study met its primary endpoint of non-inferiority in viral load reduction in HIV-positive patients. We have begun designing a Phase 2/3 study, which pending discussion with the FDA, may commence during the second quarter of 2007. Integrase inhibitors represent a relatively new class of compounds that has not had a long history of clinical research and development. Therefore, we may face challenges in clinical trial protocol design and trial enrollment, and the results of clinical trials involving integrase inhibitors may be less predictable than with other drug candidates for the treatment of HIV.

In HBV, in June 2006, we completed the enrollment of two Phase 3 studies comparing the efficacy and safety of tenofovir disoproxil fumarate, the active pharmaceutical ingredient in Viread, versus Hepsera in patients infected with hepatitis B and anticipate data from these studies in the second half of 2007. Pending a positive outcome from these studies, we anticipate filing for regulatory approval of tenofovir disoproxil fumarate for the treatment of hepatitis B in the United States and European Union prior to the end of 2007.

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In HCV, in December 2006, our collaboration partner, Achillion, began dosing patients with GS 9132 (also known as ACH-806), a small molecule inhibitor of HCV, in a Phase 1/2 viral dynamic study. The goal of the trial was to evaluate the pharmacokinetics, tolerability and safety of multiple escalating doses of GS 9132 in HCV-infected patients. In February 2007, based on preliminary data from the study, the companies decided to discontinue development of GS 9132 for the treatment of HCV infection. In the fourth quarter of 2006, we began dosing HCV-infected patients in a Phase 1 study of GS 9190, a non-nucleoside polymerase inhibitor. We anticipate safety and efficacy data from this study in the second quarter of 2007.

We expanded our research and development focus to include respiratory and cardiopulmonary diseases through our acquisition of Corus in August 2006 and our acquisition of Myogen in November 2006. In December 2006, we announced that our Phase 3 AIR-CF2 study of aztreonam lysine for inhalation for the treatment of people with CF who have pulmonary Pseudomonas aeruginosa met its primary efficacy endpoint, the “time to need” for inhaled or intravenous antibiotics, which was assessed by the onset of common symptoms predictive of a pulmonary exacerbation. We completed enrollment of a second Phase 3 study in January 2007 and expect to have data from such study mid-year of 2007. Pending a positive outcome from this second study, we anticipate that we will file for regulatory approval of aztreonam lysine for inhalation for the treatment of CF in the United States in the second half of 2007. In addition to aztreonam lysine for inhalation, we are exploring other inhaled compounds for the treatment of respiratory infections.

In December 2006, we also completed the submission of a NDA to the FDA for marketing approval of ambrisentan for the once-daily treatment of PAH. In February 2007, the FDA granted us priority review status for the NDA for marketing approval of ambrisentan, and established a target review date of June 2007. In June 2006, we initiated Phase 3 clinical trials to evaluate darusentan in patients with resistant hypertension. Because the study has enrolled very slowly, we are evaluating certain modifications to the study’s protocol, which following discussion with regulatory authorities, may be implemented to increase enrollment rate in the study. We also intend to begin enrollment in a second Phase 3 study this year. In addition, we also have a research collaboration agreement with Novartis Institutes focused on the identification of disease-modifying drugs for the treatment of chronic heart failure and related cardiovascular disorders.

In total, our research and development expenses for 2006 were $383.9 million, compared with $277.7 million for 2005 and $223.6 million for 2004.

Research and Development

Research and development (R&D) expenses for the fourth quarter of 2006 were $111.6 million, which included stock-based compensation expense of $14.1 million, compared to R&D expenses of $68.8 million for the same quarter in 2005. R&D expenses for 2006 were $383.9 million, which included stock-based compensation expense of $52.2 million, compared to R&D expenses of $277.7 million for 2005. The higher R&D expenses in the fourth quarter and full year of 2006 were primarily due to increased headcount, increased contract services and clinical study expenses from our clinical product development and research activities relating to our HIV and hepatitis programs and newly-acquired programs in respiratory and cardiopulmonary areas via the acquisitions of Corus Pharma, Inc. (Corus) and Myogen, Inc. (Myogen), as well as stock-based compensation expense from Gilead’s adoption of SFAS 123(R). These higher expenses were partially offset by lower milestone payments made to Japan Tobacco Inc. in 2006 compared to 2005 related to the licensing and development of Gilead’s lead integrase inhibitor candidate, GS 9137, as well as a $15.0 million payment to Emory University (Emory) in 2005 in connection with the amendment of Gilead’s license agreement with Emory related to the company’s obligation to develop emtricitabine for the hepatitis B indication.

Research and Development

Research and development (R&D) expenses for the third quarter of 2006 were $93.3 million, which included stock-based compensation expense of $13.3 million, compared to R&D expenses of $78.8 million for the same quarter in 2005. R&D expenses for the third quarter of 2006 were higher due to increased headcount and increased clinical, product development and research activities associated with our HIV, hepatitis B and hepatitis C programs, as well as stock-based compensation expense from Gilead’s adoption of SFAS 123(R). During the third quarter of 2005, Gilead made a $15.0 million payment to Emory University (Emory) in connection with the amendment of our existing license agreement with Emory related to our obligation to develop emtricitabine for the hepatitis B indication.

Research and Development

Research and development (R&D) expenses for the second quarter of 2006 were $90.5 million, which included stock-based compensation expense of $12.9 million, compared to R&D expenses of $59.7 million for the same quarter in 2005. R&D expenses for the second quarter of 2006 were higher due to increased headcount, increased clinical, product development and research activities with our hepatitis C, hepatitis B and HIV programs, as well as stock-based compensation expense from Gilead’s adoption of SFAS 123(R).

Research and Development

Research and development (R&D) expenses for the first quarter of 2006 were $88.4 million, which included share-based employee compensation expense of $11.9 million, compared to $70.4 million for the same quarter in 2005. R&D expenses for the first quarter of 2006 were higher due to increased headcount, increased clinical and product development activities with our hepatitis C virus, hepatitis B virus (HBV) and HIV programs, as well as share-based employee compensation expense from Gilead’s adoption of SFAS 123(R) on January 1, 2006. The higher R&D expenses were partially offset by an upfront payment of $15.0 million to Japan Tobacco incurred in the first quarter of 2005 related to the signing of a HIV integrase license agreement, compared to the milestone payment of $5.0 million due to Japan Tobacco in the first quarter of 2006 related to the dosing of the first patient in a Phase II program for Gilead’s oral integrase inhibitor, GS 9137.

Research and Development

In addition to entering into collaborations with other companies, universities and medical research institutions, we seek to add to our existing portfolio of products through our internal discovery and clinical development programs and through an active in-licensing and product acquisition strategy, such as our acquisition of Triangle completed in January 2003. We have research scientists in Foster City and San Dimas, California and Durham, North Carolina engaged in the discovery and development of new molecules and technologies that we hope will lead to new medicines and novel formulations of existing drugs. Our therapeutic focus is in the area of life threatening infectious diseases.

Our internal research is focused on the discovery and development of treatments for viral infections, particularly by HIV, HBV and HCV. In HIV, we filed an Investigational New Drug (IND) application in December 2005 for GS 9160, one of our internal integrase clinical candidates, and initiated a Phase 1 clinical study in healthy volunteers in February 2006. In January 2006, we also announced that we have completed a Phase 1/2 study of GS 9137, a novel HIV integrase inhibitor licensed from Japan Tobacco, and based on the results of this study, Gilead anticipates initiating a Phase 2 clinical trial during the second quarter of 2006. In hepatitis B, we are progressing with the enrollment of two Phase 3 studies comparing the efficacy and safety of tenofovir DF, the active pharmaceutical ingredient in Viread, versus Hepsera in patients with hepatitis B and anticipate completing enrollment during the second half of 2006. In addition, using technology licensed from Chiron, we have several in-house programs designed to discover small molecule inhibitors of HCV RNA polymerase and HCV protease. While we believe that small molecule therapeutics for the treatment of hepatitis C could one day lead to better treatment outcomes for patients, such programs will require extensive investments and will take many years. In total, our research and development expenses for 2005 were $277.7 million, compared with $223.6 million for 2004 and $181.8 million for 2003.

Research and Development

Research and development (R&D) expenses for the fourth quarter of 2005 were $68.8 million, compared to $70.2 million for the same quarter in 2004. Excluding $13.0 million of upfront license fees incurred during the fourth quarter of 2004 related to our hepatitis C virus (HCV) collaborations, our R&D expense for the fourth quarter of 2005 was higher due to increased headcount and clinical and product development activities with our HCV, hepatitis B virus and HIV programs. R&D expenses for 2005 were $277.7 million, an increase of 24 percent compared to 2004. The higher R&D expenses during 2005 were primarily attributable to the factors mentioned above, as well as the $15.0

million payment made to Emory University (Emory) in connection with the amendment of our existing license agreement with Emory related to our obligation to develop emtricitabine for the hepatitis B indication and the $15.0 million payment made to Japan Tobacco related to the signing of our HIV integrase license agreement for GS 9137, a novel HIV integrase inhibitor.

Research and Development

Research and development (R&D) expenses for the third quarter of 2005 were $78.8 million, compared to $49.2 million for the same quarter in 2004. The higher R&D expenses during the third quarter of 2005 were primarily attributable to the $15.0 million payment made to Emory University (Emory) in connection with the amendment of our existing license agreement with Emory related to the development of emtricitabine for the hepatitis B indication, as well as increased headcount, purchases of clinical and product development materials, and increased costs and fees incurred by Gilead under its hepatitis C collaborations.

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 Triangle Pharmaceuticals, Inc. completed in January 2003. We have research scientists in Foster City and San Dimas, California and Durham, North Carolina engaged in the discovery and development of new molecules and technologies that we hope will lead to new medicines and novel formulations of existing drugs. Our therapeutic focus is in the area of life threatening infectious diseases. This research includes working with our proprietary nucleotide analogues to develop treatments for viral infections, particularly HIV and hepatitis C infection. In total, our research and development (R&D) expenses for 2004 were $223.6 million, compared with $181.8 million for 2003 and $141.9 million for 2002.

Our research efforts in the area of hepatitis C viral infection (HCV) include our collaborations with Chiron Corporation (Chiron), Genelabs Technologies (Genelabs) and Achillion Pharmaceuticals, Inc. (Achillion). In August 2003, we entered into an agreement with Chiron, to research, develop and commercialize small molecule therapeutics against certain HCV drug targets. In October 2004, we entered into a research and development agreement with Genelabs Technologies (Genelabs) to discover, develop and commercialize nucleoside, RNA polymerase inhibitors for the treatment of HCV infection. In November 2004, we entered into a research and development agreement with Achillion to discover and commercialize novel inhibitors of HCV replication. In addition, we have several in-house programs

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designed to discover small molecule inhibitors of HCV RNA polymerase and HCV protease. While we believe that small molecule therapeutics for the treatment of HCV infection could one day lead to better treatment outcomes for patients, such programs will require extensive investments and will take many years. See Note 10 of consolidated financial statements for further discussion.