Washington Editor

Gilead Sciences Inc. swung to a loss last quarter, the result of a one-time acquisition cost, but topped consensus estimates with unadjusted earnings of 64 cents per share.

In a conference call, Chief Financial Officer John Milligan labeled the fiscal performance "solid."

For the three months ended Sept. 30, the Foster City, Calif.-based company had a $52.2 million net loss, which included a $355.6 million charge for purchased in-process research and development because of its August buyout of Corus Pharma Inc. Excluding that impact, net income totaled $303.4 million, up from $179.2 million in last year's corresponding quarter, a 68 percent increase.

Wall Street analysts generally had lower expectations, forecasting earnings of 56 cents per share. But Shiv Kapoor with Montgomery & Co. in San Francisco, who anticipated more from Gilead than consensus, still called the company's earnings "pretty spectacular."

Gilead beat those consensus estimates thanks to a 52 percent revenue boost to $748.7 million. Product sales hit a record, $670.1 million, representing a 43 percent gain and marking the 12th consecutive quarter of growth in that category.

That trend continues to be "driven primarily" by Gilead's core HIV product franchise, Milligan said. Sales of those products were $557.3 million, a 53 percent increase from last year.

"This is a very competitive market," Kapoor said, noting that he sees no reason for a slowdown. "They have the best products, and there is nothing in the pipeline that's going to take anything away."

Leading the charge was Truvada (emtricitabine and tenofovir disoproxil fumarate), which totaled $309 million in sales, up 90 percent. That run-up knocked back sales of Viread (tenofovir disoproxil fumarate), which were down 10 percent to $170.6 million primarily because patients have switched from a Viread-containing regimen to one with Truvada in countries in which the combination product is available. For the same reason, Emtriva (emtricitabine) sales also slipped, down 21 percent to $9.3 million. The new combination product Atripla (efavirenz 600 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) had sales of $68.4 million following its U.S. launch at the beginning of the quarter.

Among other contributors was the hepatitis B drug Hepsera (adefovir dipivoxil), with an 18 percent increase to $55.1 million and AmBisome (amphotericin B), a fungal infection drug that generated flat sales of $55.3 million.

The company's gross margins on product sales were about 84 percent, a figure that Kapoor said includes Atripla's non-Gilead component, efavirenz (Sustiva, from Bristol-Myers Squibb Co.). Without that, "the margins are very strong," he said, ranging between 86 percent and 87 percent in the past two or three quarters because of new manufacturing efficiencies. "The underlying business is much stronger than what the numbers tell."

The company also earned $78.7 million in royalty and contract revenues from collaborations, nearly triple in comparison to a year ago, courtesy of $62.7 million in royalties from Tamiflu (oseltamivir) from F. Hoffmann-La Roche Ltd. Those payments are made a quarter after being realized by the Basel, Switzerland-based pharmaceutical firm, and they'll grow next quarter because Roche just reported $529 million in Tamiflu sales this quarter.

Looking ahead, Milligan said the company's HIV franchise would generate full-year sales between $2 billion and $2.05 billion, representing slightly higher guidance than previously issued. He also updated forecasts on full-year research and development costs, increasing that range to between $365 million and $385 million, and full-year selling, general and administrative expenses, upping that range to between $555 million and $575 million.

Gilead closed the quarter with about $3.2 billion in cash, cash equivalents and marketable securities. Some of that is tabbed for closing its $2.5 billion purchase of Myogen Inc., of Denver, a deal that some have criticized as too expensive. But Kapoor noted that Gilead's management has a history of making "value-added" acquisitions, and said Myogen's shares likely were devalued because of the sector's overall slump earlier this year. In addition, he praised the underlying financing for the purchase through a low-interest convertible debt sale "to buy a high-quality company at a very opportune moment in time."

The Myogen acquisition would add the Phase III pulmonary arterial hypertension drug ambrisentan to Gilead's pipeline. The lead product coming from its buyout of Seattle-based Corus, an inhaled antibiotic with activity against Gram-negative bacteria called aztreonam lysine, is in Phase III.

Additional late-stage clinical research at Gilead is focused on the use of Viread for chronic hepatitis B and an investigational compound called GS 9137 for HIV/AIDS. Kapoor praised the company's efforts to "supplement the HIV product stream in the next three to five years," adding that the business would continue to increase its share of a market that's growing faster than many observers think.

"I think it's a great story," Kapoor said, "for the next five years."

On Thursday, Gilead's stock (NASDAQ:GILD) gained 58 cents to close at $68.30.

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