West Coast Editor

Gilead Sciences Inc. walloped forecasts by posting second-quarter net income that was up 11 percent, thanks to the briskly selling HIV treatment Viread and the hepatitis B therapy Hepsera.

"They've evolved from some tough times, and they've proved that a good drug [such as Viread, approved in October 2001] can be a redefining asset," said Gregory Wade, analyst with Pacific Growth Equities LLC in San Francisco.

Earnings rose to $111.5 million, or 49 cents a share, from $100.4 million, or 46 cents a share, for the same period last year. Analysts queried by Thomson First Call had pegged the EPS at 35 cents; Wade's estimate was 30 cents.

Total revenue reached $319.7 million, beating by a solid margin the Wall Street consensus prediction of $284.6 million.

The company's stock (NASDAQ:GILD) closed Friday at $66.16, up $5.14.

Helping Gilead to shine was the $1.6 million gain from liquidating its equity position in Eyetech Pharmaceuticals Inc., of New York. Also sales of Viread (tenofovir disoproxil fumarate) jumped 18 percent to $197.2 million ($109.2 million in the U.S.) from $167 million last year, while Hepsera (adefovir dipivoxil) increased more than twofold, rising to $28 million from $12.4 million in 2003's second quarter.

Also recording gains was the HIV drug Emtriva (emtricitabine), sales of which totaled $16.5 million for the second quarter of 2004, up from $12 million in the first quarter of 2004. The FDA cleared the drug for marketing in July 2003.

The picture might get even brighter. In a conference call, Gilead's management upped guidance for its HIV franchise - including Viread, Emtriva and a potential combination to be launched in September - to estimate sales as high as $875 million for 2004, as compared to an earlier estimate with a top range of $775 million for Viread alone, Wade said. Research and development expenses are expected to range between $200 million and $220 million, as the company said earlier.

Also expected to drive near-term interest in the stock are data expected in September from Study 934, a Phase III trial designed to assess the efficacy of a once-daily regimen containing Viread and Emtriva in combination with efavirenz vs. a twice-daily regimen of Combivir (lamivudine 150 mg/zidovudine 300 mg, from London-based GlaxoSmithKline plc) and efavirenz. The open-label, multicenter trial is enrolling 300 treatment-naive, HIV-infected patients in the U.S. and Europe.

"The stock is expected to appreciate for a significant period of time," said Wade, who owns shares and whose firm makes a market in the stock.

Yet another positive for Gilead is the agreement entered in July with wholesalers. Buyers had been scooping up larger-than-needed quantities of drugs in anticipation of price increases, and the inventory management agreements were made with three companies that distribute more than 90 percent of the firm's product portfolio in the U.S.

"It's a common practice," Wade noted. "Regrettably, though, it created issues - probably more for Wall Street than the company." The deal with wholesalers means "less lumpiness in the top-line" earnings numbers and it means Gilead will get a better bead on actual consumer demand.

AmerisourceBergen Corp., Cardinal Health Inc. and McKesson Corp. conceded to keep inventory to a specified limit not disclosed by Gilead, but Wade told BioWorld Today the amount is probably about three or four weeks' worth.

In May, the company disclosed it was in talks with Whitehouse Station, N.J.-based Merck & Co. Inc. and Bristol-Myers Squibb Co., of New York, about putting Viread, Emtriva and Sustiva (the HIV product given accelerated approval in 1998 with full approval in 2000, marketed by Merck and BMS) into a single, fixed-dose, simplified product. Analysts predicted a launch of the 3-in-1 drug in 2006. (See BioWorld Today, May 18, 2004.)

"It's difficult to target how that would affect sales" of individual HIV drugs, said Wade, who held off calling Viread a blockbuster.

"I'm not sure that I would be comfortable describing it that way, though it's been a tremendous success for the company and a boon for patients as well," he said. "The goalpost [for blockbuster status] is moved here and there in various markets. It's not like we expect Viread to capture 100 percent" of HIV sales.

The HIV market is plenty crowded, making blockbuster status difficult to achieve, but "I don't think the space is too crowded for new therapies that offer distinct advantages," Wade said. "The game is not over yet."

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