HIV drugs should give big boost to Gilead

NEW YORK (CNNMoney.com) -- The biotech Gilead could emerge as one of the top performers in the drug industry when it reports earnings on Wednesday, thanks to its fast-growing HIV drug franchise.

Gilead (down $0.94 to $78.42, Charts), based in Foster City near San Francisco, is expected to report a 44 percent surge in first-quarter sales and earnings per share, according to analysts surveyed by Thomson Financial. Analysts project first-quarter revenue of $996 million, up from $693 million during the same period in 2006, and first-quarter earnings per share of 79 cents, up from 55 cents a year earlier.

Gilead's performance for the full-year is also expected to be the envy of the industry. The biotech's total revenues are projected to leap by one third to slightly more than $4 billion from the prior year, and EPS is projected to jump 17 percent to $2.95, according to Thomson Financial's survey. Gilead is due to announce earnings after Wednesday's close.

Sales in the first three months of the year were driven by the relatively new HIV combination drug Atripla, according to Jim Reddoch, analyst of Friedman, Billings, Ramsey. Reddoch projects first-quarter Atripla sales of $180 million. The drug was not yet on the market during the same period in 2006.

Atripla is a once-a-day combination drug that Gilead produces with Big Pharma partners Bristol-Myers Squibb (down $0.01 to $28.28, Charts) and Merck (down $0.09 to $49.92, Charts), companies that are active players in the HIV market. Atripla, a consolidation of complex drug cocktails taken by AIDS patients, was launched in July 2006 following approval from the Food and Drug Administration.

HIV drug sales are often hampered since many patients affected are poor. Most patients worldwide are in sub-Saharan Africa, where the drugs are often provided at cut-rate prices or for free. But according to Reddoch's projections, Atripla's U.S. patient pool will be enough to push it to near-blockbuster proportions. In 2007, Atripla's first full year on the market, the analyst expects U.S. sales of about $822 million.

Reddoch also projected a surge in sales for Gilead's HIV blockbuster Truvada to $343 million in the first quarter of 2007, and $1.4 billion for the full year. That compares to about $250 million in the first quarter of 2006, and slightly more than $1 billion for that year.

Royalties from the bird flu drug Tamiflu, produced by the Swiss drug giant Roche, could also boost full-year sales, according to his projections. Gilead, which developed Tamiflu, has had a marketing partnership with Roche since 1996. But part of the new product sales growth comes from the "cannibalization" of Gilead's older HIV drug Viread, which should experience a modest sales decline to $152 million in the first quarter, wrote Reddoch in a published note.

Despite Reddoch's rosy assessment of the company, his 12-month price target of $73 is lower than Tuesday's close of $79.36. Reddoch was not available for comment, but the bearish price target might be related to Gilead's price/earnings ratio of 31, a premium compared to the biotech sector's average of about 21.

Hamed Khorsand, analyst for BWS Financial who rates Gilead a "buy," believes that Gilead's HIV franchise will continue to grow, and its pipeline containing non-HIV drugs will help the company diversify. Khorsand wrote in a recent note that in June the FDA will probably approve Gilead's ambrisentan, an experimental treatment for high blood pressure involving pulmonary arteries. The company is also in late-stage testing for drugs involving hepatitis B and cystic fibrosis.

New HIV treatments are in high demand because the virus that causes AIDS constantly mutates, developing resistance to older, commonly used treatments. Also, AIDS is no longer considered a death sentence for patients with access to treatment. Many patients survive for decades following their initial infection, but the downside is that they develop resistance to their drugs.

HIV patients will soon find out if they're getting access to another new drug. On April 24, a panel of FDA advisors will vote on Pfizer's (down $0.15 to $26.75, Charts) experimental drug maraviroc, an anti-viral that would help patients live longer by blocking replication of HIV. The FDA, which follows the suggestion of its advisors most of the time, will decide later whether to approve maraviroc.

The analysts quoted in this story do not own shares of Gilead stock and BWS has not done business for the company in the last 12 months. FBR makes a market in Gilead.