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Gilead Steady at Neutral - Analyst Blog

Posted: 11/17/2011 11:00:00 AM
Referenced Stocks: BMY;GILD;IPF;JNJ

We have maintained a Neutral rating on Gilead Sciences, Inc . ( GILD ) following appraisal of third quarter 2011 results.

The third quarter was a good one for Gilead, a leading maker of HIV drugs, on all fronts, namely commercial, regulatory and strategic. Gilead's adjusted earnings per share of 97 cents for the third quarter of 2011 beat the Zacks Consensus Estimate by a penny. Earnings were also above the year-earlier earnings of 86 cents. The earnings growth was driven by strong product sales in the reported quarter.

Third quarter revenues were up 9.4% from the prior-year quarter to $2.12 billion. Total revenues edged past the Zacks Consensus Estimate of $2.11 billion. Revenues were, however, below the $2.14 billion recorded in the sequentially preceding quarter. Strong product sales were offset by a decline in royalty, contract and other revenues.

Gilead's strategy of creating fixed-dose combinations of existing HIV/AIDS drugs has been a resounding success. Gilead's most popular HIV combination medicines, Truvada and Atripla, have allowed the company to maintain robust growth in HIV product sales. While Truvada is a combination of Gilead's Viread and Emtriva, Atripla is a combination of Truvada and Bristol Myers Squibb 's ( BMY ) Sustiva.

In August 2011, Gilead received approval for Complera, a fixed-dose combination of Truvada and Johnson and Johnson 's ( JNJ ) HIV drug Edurant which was approved in May 2011. Complera is also expected to be approved in the EU, where it will be marketed as Eviplera, by the end of this year.

Gilead filed the new drug application (NDA) for approval of its investigational HIV combination pill, Quad, in late October 2011. The much anticipated Quad pill is a combination of Gilead's pipeline candidate elvitegravir, cobicistat and Truvada. In the third quarter of 2011, Gilead announced positive data from two late stage studies of Quad, study 102 and 103. The NDA included data from both study 102 and 103. Gilead will request the FDA to grant priority review status to the NDA, which if granted is expected to lead to approval of Quad before mid 2012. We believe the positive outcomes of these studies will ensure the regulatory nod. On approval, Quad has the potential to reach blockbuster status and become a market leading HIV medicine. Quad together with Complera/Eviplera will further fortify the HIV franchise and help mitigate the impact of the upcoming patent expirations.

Other drugs in development for HIV include elvitegravir and cobicistat which have also shown positive data. Besides, Gilead is hoping to build one of the largest HCV pipelines and is conducting eight mid-stage trials, three of which evaluate all oral interferon regimens and five evaluate interferon's daily regimens. These proprietary drug combinations aim to reduce treatment duration to 12-16 weeks and spare the use of pegylated interferon associated with some serious side effects. Other pipeline candidates like GS 6624, being studied for idiopathic pulmonary fibrosis ( IPF ), oncology, myelofibrosis and liver fibrosis, and GS 1101 being studied as a single agent in refractory indolent non-Hodgkin's lymphoma (NHL) and in combination with rituximab in chronic lymphocytic leukemia (CLL) also hold promise.

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.

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