We are maintaining our Neutral recommendation on
Gilead Sciences, Inc.
) with a target price of $61.00. The stock carries a Zacks #3 Rank
(Hold rating) in the short run.
Gilead posted its second quarter 2012 results in July 2012. The
company's second quarter 2012 earnings (excluding special items but
including stock option expense) of 94 cents per share beat the
Zacks Consensus Estimate of 92 cents. Second quarter adjusted
earnings decreased approximately 1.1% from the year-ago period due
to higher-than-expected expenses.
Revenues climbed 12.5% to $2.41 billion, beating the Zacks
Consensus Estimate of $2.29 billion. Product sales spiked 14% to
$2.32 billion, driven by antiviral products, such as Atripla (up
10% to $904.0 million), Truvada (up 10% to $785.9 million), Viread
(up 16% to $215.4 million) and Letairis (up 38% to $101.6 million).
Products sales were also aided by the launch of Complera/Eviplera
The HIV portfolio at Gilead got a huge boost recently when the US
Food and Drug Administration (FDA) cleared its HIV combination
pill, Stribild, in August 2012. Stribild (once-daily) was approved
as a first-line therapy for treating adults with HIV-1 infection.
Stribild is a combination of elvitegravir, cobicistat and Truvada.
We note that Truvada itself is a combination of Viread and Emtriva.
We are impressed by Gilead's robust pipeline led by late-stage HIV
candidates, elvitegravir and cobicistat, which offer significant
commercial potential and should help to drive growth on approval.
In July 2012, Gilead filed a marketing application seeking approval
for elvitegravir in the US.
The candidate is currently under review in the EU. Gilead is
also seeking the US and EU approval for cobicistat. Cobicistat acts
as a "boosting" agent, whose addition increases blood levels of
protease inhibitors, such as
) HIV drug Reyataz and
Johnson & Johnson
) Prezista, thereby enabling the HIV therapy to be dosed once
On the second quarter 2012 conference call, Gilead provided an
update on another pipeline candidate, GS-7977. Gilead stated that
it is evaluating GS-7977 (as a combination therapy) in patients
infected with genotype 1- 6 HCV in four phase III studies.
Regulatory filings are expected in mid-2013.
Gilead also intends to move the fixed dose combination of
GS-7977 and GS-5885 in HCV (genotype 1) patients into phase III
studies by year end. Regulatory filings are expected by
Apart from the late-stage pipeline, Gilead has multiple
candidates in mid/early stages of development. The successful
development of the pipeline candidates will help drive growth.
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However, we are concerned about patent challenges against the
company's key HIV drugs. Most of Gilead's important products are
facing patent challenges from companies seeking to launch generic
versions of those drugs. The entry of generic versions of Gilead's
HIV drugs would be a huge blow to the company.