Gilead Sciences Q2 Outlook
GILD

July 6, 2009

Gilead Sciences is a biotechnology pharaceutical company specializing in anti-viral drugs. More specifically, Gilead is the market leader in HIV therapies.

Gilead will be reporting its results for the second quarter on July 21. They will also have their analyst conference. I'll be posting a summary of the Gilead analyst conference as usual. You might want to bookmark that.

I own about as much Gilead stock as my portfolio model will allow.

Gilead's best selling drugs in Q1 were Truvada and Atripla, which together accounted for the bulk of sales. Truvada sales grew 23 % y/y to $590 million. Atripla sales grew 67% from the year-earlier quarter to $510 million. Given these trends, in 2010 Atripla should be Gilead's leading compound.

Atripla seems to be very effective in combatting the HIV virus, the cause of AIDS. It comes in pill form and can be taken once a day, making it easy for patients to comply with compared to older therapies. It contains three components: tenofovir, emtricitabine, and efaverenz. The efavirenz is provided by Bristol-Myers Squibb.

Atripla is effective because it hits the viruses in three different ways. Tenofovir is a nucleotide analogue reverse transcriptase inhibitor. Emtricitabine is a reverse transcriptase inhibitor that is a nucleoside analog of cytidine, while Efavirenz is a non-nucleoside reverse transcriptase inhibitor. Without reverse transcriptase action, the HIV virus cannot reproduce. Because their are numerous strains of the HIV virus, having three inhibitors helps insure that no strain can evade the inhibitors.

Q2 revenues are likely to be higher than Q1 revenues. Atripla is still in the process of getting approvals in many nations. As doctors find that the older drugs lose effectiveness in individual patients, they are now likely to switch patients to Atripla.

There is concern that Atripla sales will eventually eat into Truvada sales. But Truvada is Tenofovir with Emtricitabine, two of the Atripla ingredients. So any leveling off by brand name would be misleading. The underlying compound's sales will keep growing. While it seldom makes the news any more, the number of new HIV cases diagnosed both in the U.S. and internationally is not slowing down.

The usual risk factors for pharmaceuticals are present. If someone ever created an effective vaccine, there would be a decline in new cases. An actual cure would make Gilead irrelevant. A better therapy would also cut into sales. None of these appear to be on the horizon at present. New side effects could also cause the drugs to be withdrawn from the market, but these drugs have been massively distributed already, so that is unlikely. Patents, of course, will expire as well.

Gilead's research budget, however, is now around $750 million per year. That is bringing along a pipeline of anti-viral and other drugs that should more than compensate for expiring patents in the long run.

So you would think Gilead would be an expensive stock with a high P/E ratio. But it is not. According to NASDAQ, today's market capitalization ended at $41.5 billion and the trailing P/E ratio is 20.7.

For details on Q1 results, see my Gilead (GILD) Q1 2009 analyst conference summary.

And keep diversified!

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