Gilead Sciences (NASDAQ: GILD): Still A Strong Buy

Gilead Sciences, Inc., a bio-pharmaceutical company, engages in the discovery, development, and commercialization of therapeutics for the treatment of life-threatening infectious diseases like AIDS, Hepatitis B etc.            

Late in January, Gilead Sciences Inc. reported fourth-quarter profit that beat Wall Street estimates. Net income rose to $568.2 million, or 60 cents a share, from $401.6 million, or 41 cents a share, in the prior year period. On an adjusted basis, the company earned 63 cents a share for the latest quarter. Revenue jumped 30% to $1.43 billion from $1.09 billion. Analysts on average were looking for company to report earnings of 57 cents a share, excluding items on revenue of $1.44 billion.

Looking ahead to the full fiscal year 2009, the company said that the net product revenue guidance for the full year 2009 is in the range of $5.9 billion to $6 billion which reflects a 16% to 18% increase over 2008 product revenues. Many analysts have viewed that guidance as achievable and the median analyst estimate is currently $6.27 billion.

Early in March, the company acquired CV Therapeutics Inc. in$1.4 billion in an effort to broaden its product portfolio and expand its reach in the cardiovascular medicine market. Wall Street analysts have largely mixed opinion on the acquisition. Gilead said that while it will dilute 2009 earnings, the deal will begin contributing to its profit by 2011.

The company virtually dominates in the Aid drugs market. Products like Truvada, Atripla, which are antiviral once-a-day pill are behind company's success. In 2008, Gilead's top three HIV treatments generated 84% of its product sales. In 2008 alone, Truvada sales increased 33 percent to $2.11 billion from $1.59 billion in 2007. Similarly, Atripla sales increased 74 percent to $1.57 billion from $903.4 million in 2007.

The company is quite determined to diversify into various segments and is serious about capturing a piece of other disease areas, like the hepatitis market. Gilead's first drug in this category—Hepsera, for the hepatitis B virus—generated $341 million in sales in 2008. The company recently received approval in the U.S. and other countries to treat hepatitis B patients with its HIV drug Viread. The need of this segment is still largely unmet. For a drugmaker like Gilead Sciences, the hepatitis B segment is quite significant as it is nearly double that of the HIV population in the U.S. Moreover, the company is has already made its presence felt in cardiovascular and respiratory therapeutic segment. In 2006, Gilead acquired Myogen and Corus Pharma that allowed it to branch out from its historical antiviral franchise into the cardiovascular and respiratory therapeutic arenas.

All said, the robust demand in Truvada and Atripla is likely to continue in the coming years. Over 40 million people worldwide are believed to be infected with HIV today and each year 5 million new people become infected by HIV. In the US alone, 1.2 million people are estimated to be living with HIV/AIDS and the figure is expected to hit 2 million in 2019. According to BusinessWeek, 8 of every 10 new patients diagnosed with HIV in the U.S. start on Gilead drugs and, typically, remain on them for many years.

The company has consistently rewarded investors through strong performance and impressive appreciation in stock prices. The company has a strong balance sheet and is currently sitting on a cash pile of $1.79 billion. The stock trades at a forward P/E of 17.04 and PEG ratio of 1.06. The stock looks attractive given the strong potential of industry in particular and company in specific. It is one biotech stock that is too hard to resist.

Shares of Gilead Sciences rose 85 cents or 1.85% to $46.48.

Disclosure: Author does not own any of the stocks discussed here.