National Editor

Gilead Sciences Inc.'s good fourth-quarter earnings apparently were overshadowed on Wall Street by anxiety about inventory issues, pricing in Europe and potentially lower-than-expected sales ahead.

The company's stock (NASDAQ:GILD) fell $5.88 Friday to close at $54.81, after falling as low as $53.10.

"It's probably the uncertainty in the wholesaler stocking that's led The Street to be a little bit more concerned about the Gilead story," said Gregory Wade, analyst with Pacific Growth Equities in San Francisco. Though investors might be nervous, "we don't think the stocking issue is a serious problem" for Foster City, Calif.-based Gilead, he said.

"Price decreases in the European market for pharmaceuticals are not a new thing," Wade added, noting Europe's price controls. "There should be no surprise for investors."

Revenues for the quarter totaled $263.5 million, up 82 percent over the same quarter in 2002, with net income of $192.6 million, or 85 cents per diluted share, compared to $35.5 million for the fourth quarter of 2002, or 17 cents per diluted share.

Fiscal-year 2003 revenue hit $867.9 million, and the total cash, cash equivalents and marketable securities at the end of the year was $707 million.

"The company continues to do well with respect to growth in its core products," Wade pointed out. Sales leader Viread (tenofovir disoproxil fumarate) for HIV sold $176.8 million and for the year added up to $566.5 million ($355.9 million of which was sold in the U.S.).

AmBisome (liposomal amphotericin B), for systemic fungal infections, generated $54.4 million in the fourth quarter. Hepsera (adefovir dipivoxil), for hepatitis B, sold $15.8 million. Emtriva (emtricitabine), approved in July for HIV, sold $4 million.

Up-and-down inventory levels made Viread something of a moving target. According to Westport, Conn.-based IMS, a drug sales forecasting firm, levels rose from one-half month at the end of September to 1.3 months at the end of December. Wade and colleague Thomas Dietz warned in a research note that those are only estimates, since only two of three wholesalers are tracked by IMS.

Gilead said discussions are ongoing to devise better ways to keep accurate Viread numbers. The company also is "keeping a close eye on shipping requests, and has denied several drug shipments" not needed to keep levels adequate, the note said.

Another complicating factor ahead for Viread is that the drug is becoming a retail-based, rather than hospital-based, product in France, which will mean a price knockdown of about 25 percent there. The price is expected to fall by an unknown, single-digit rate in Germany this year, too.

"We're still fairly early with launch of the product in Europe, so we're expecting fairly significant growth" of 3 percent in 2004 over 2003, Wade said.

Viread's market share has now surpassed that of Epivir (lamivudine, 3TC), the HIV drug from Laval, Quebec-based Biochem Pharma, to become the leading drug among nucleoside reverse transcriptase inhibitors. January's prescription data showed Viread claimed 20.4 percent of new prescriptions in the NRTI class, and a 20.3 percent total market share.

Gilead is expected to file for approval of its Viread/Emtriva combination pill for HIV in April, with a launch likely in the first quarter of 2005. Emtriva is a sister molecule to Epivir, with a longer half-life that provides for once-per-day dosing. In the third quarter of 2004, however, London-based GlaxoSmithKline plc probably will launch its Epivir/Ziagen (abacavir) combo pill - which could pull attention away from Gilead's product, noted a research note by Eric Ende, analyst with Merrill Lynch in New York.

Ende downgraded Gilead to "neutral" from "buy," still calling the company "a top-growth story in the biotech sector." He estimated the inventory stocking of Viread accounted for about $16 million of the drug's U.S. sales, and Wade agreed to a figure in that ballpark.

"We're all coming out with the same basic difference," he said.

Wade downplayed the new GSK pill's threat to Gilead, pointing out "the abacavir component has had some safety and tolerability issues." Gilead's combo pill is expected to compete with GSK's already-marketed Combivir (zidovudine and lamivudine).

"My sense is that there's really not much data required for its potential acceptance in the marketplace," Wade told BioWorld Today.

Hepsera also was beset by inventory-related confusion. Its sales fell well behind analyst Pacific Growth's estimate of $20.4 million. Gilead said Hepsera growth was 18.2 percent quarter over quarter, but cited the reduced inventory levels. At the end of September, IMS data showed levels were at 2.1 months at the end of September, but fell to 0.9 months at the end of December. Also, there was a price hike in early November, which could have led to an inventory drawdown.

Still, Hepsera has 46.3 percent of new prescriptions, Pacific Growth reported, and 46.4 percent of total prescriptions relative to Epivir in the U.S. What's more, Gilead's partner in Asia, GSK, has launched the drug in Hong Kong and Singapore, and plans launches in 2004-2005 in China, Taiwan, Korea and Japan.

In its conference call, Gilead said Viread is expected to sell between $700 million and $750 million in 2004, and AmBisome between $160 million and $180 million, a dip of 10 percent to 20 percent. The company provided no guidance for Hepsera or Emtriva.

Ahead for Gilead: fourth-quarter sales from Hoffmann-La Roche Inc., of Nutley, N.J., for the influenza treatment Tamiflu (oseltamivir phosphate), from which Gilead gets royalties; and 48-week data from a study by Abbott Laboratories, of Abbott Park, Ill., of its protease inhibitor Kaletra (a combination of lopinavir and ritonavir) when given with Viread and Emtriva.

"We continue to think [Gilead] is going to be a great investment for the quarter and for the year," Wade said, adding his belief that the earnings per share could support a $70 price by the end of 2004. Wade, who maintains an "overweight" rating on the stock, holds Gilead in his personal portfolio and Pacific Growth makes a market in the stock but has no banking relationship.

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