Gilead Continues To Shine, But Watch The Competition

Gilead (GILD) once again posted stellar numbers last week when it announced its third quarter earnings. The company earned $0.42 per share on $1.06 billion in revenues. Also, the company announced Monday that its board has authorized the repurchase of $3 billion worth of its stock through 2010.

To start with, I think the earnings strength is no surprise. However, it did "surprise" and beat the Street by three cents. Gilead's core strengths are dominant right now. Sales from the HIV franchise grew by 45% year-over-year, thanks to Truvada and Atripla. Also, Atripla was approved by the European Union last week, so sales should continue to increase for that product.

The company also guided toward $3.6-$3.7 billion in total product revenues for the full year 2007, raising previous guidance. As an investor in Gilead, a buyback is always great to see, especially since the company has been buying back shares for a few years now (Gilead bought $455 million worth of shares in the second quarter, in connection with the stock split). The company has about 929 million shares outstanding and this buyback could buy nearly 69 million of those shares, or roughly 7% of the company, at a trading price of $43. I also hope to see a continuation of Gilead's acquisitions, if the right opportunities present themselves.

With all of the positives, I remain bullish on the stock and I am going to raise my year-end price target to $50 from $45. However, some headwinds might pose problems for Gilead in the future, which we will need to keep an eye on. First, the HIV growth is beginning to slow, and competition might begin to stiffen; Merck (MRK) just got the approval for a new HIV drug.

Also, while Gilead's pipeline looks strong, it is playing catch-up in some areas with strong competition. Finally, we will have to wait and see if Letairis can pull significant market share in pulmonary arterial hypertension. Sales have been slow so far, but that could be attributed to rebates offered by Gilead.

Disclosure: Authors owns stock in GILD.

Comments

[Amar Narayanan:]

Your article has several factual errors. Just a couple of them...

1. Atripla is still not approved for use in the EU. The approval you seem to be referring to came from the Committee for Medicinal Products for Human Use of the European Medicines Agency. This is only a preliminary approval. The final approval from the European Commission is yet to be obtained, though it is widely expected to come through by end of the year.

2. There is no real competition for GILD's HIV franchise. The Viread-Truvada-Atripla franchise is best-in-class. There is another ten years for patent expiration on the tenofovir molecule used in these drugs.

This franchise remains the dominant method of therapy in the developed world. 65% of all treated patients in the US are put on either Atripla/Truvada/Viread... 80% of new patients in the US receive Atripla/Truvada. With a 10% annual growth in diagnosis in the US and with many of the 250,000 undiagnosed HIV positive Americans soon to begin treatment (following Center For Disease Control & Prevention's recommendation of mandatory HIV testing for patients in 13-64 age group), this number is only likely to grow.

As regards competition, Merck recently got an approval for an integrase inhibitor, Isentress. Gilead plans to counter this with Phase III trials of its own integrase inhibitor, GS9137 or Elvitagravir, in 2008.



Despite the errors in your analysis, I share your bullish sentiment. The story here is mostly HIV. Other products such as Letairis, Darusentan, Viread for Hep-B and Aztreonam Lysine are only poor cousins of the HIV franchise.

Cheers,
Amar

2007 Nov 12 06:16 AM