Gilead Is Worth the Wait By Nadine Wong Special to TheStreet.com 6/6/01 2:20 PM ET

If you were lucky enough to have bought Gilead Sciences (GILD:Nasdaq - news - boards) right after its stock split in late February and held onto it, you'd have a 75% gain now. What's the force driving this rise, and more important, will the momentum continue?

Two factors helped Gilead Sciences. First, the company submitted a new drug application to the Food and Drug Administration for marketing approval for tenofovir DF, an HIV treatment. Gilead anticipates FDA review and approval within six months, which puts the announcement at about the end of this year. Gilead also plans to submit its tenofovir application for regulatory approval in the European Union in the near future.

Tenofovir demonstrated significant effectiveness in a Phase III trial among HIV patients who had developed resistance to their current medications. Because of the rise of resistant strains of the HIV virus and tenofovir's activity against resistant strains, the drug has the potential to become important for patients who have been heavily treated.

Second, Gilead signed an exclusive license with Cubist Pharmaceuticals in January to market cidecin in Europe. Cidecin is in a new class of drugs called lipopeptides and is being developed in intravenous and oral formulations to treat serious bacterial infections.

Cidecin has demonstrated an ability to rapidly kill virtually all gram-positive bacteria (a type of common bacteria), including those resistant to current therapies. Cubist is expected to file a new drug application in mid-2002 to expand the drug's labeling to include other disease types including complicated skin and soft tissue infections, hospital-contracted pneumonia and complicated urinary tract infections. U.S. approval could come as early as mid-2003, with European approval in 2004. Cidecin has the potential for sales of up to $200 million.

So far, it appears Cidecin is on track for development. Recently, Cubist announced the first milestone in its collaboration with Gilead Sciences. Gilead is rendering to Cubist a milestone payment for the clinical development of Cidecin. On the completion of Study 9901, Cubist's pivotal Phase III trial examining the safety and efficacy of Cidecin, Gilead has agreed to pay Cubist $1.25 million for meeting the primary endpoint of the clinical trial. The primary endpoint is Cidecin's ability to reduce the number of bacteria in an infection. In addition, depending upon meeting certain clinical and regulatory milestones, Cubist can receive additional payments of up to $31 million. If Cidecin is approved, Cubist will receive a fixed royalty on net sales from Gilead Sciences.

Gilead Sciences is not projected to make a profit this year, nor in 2002. The story will probably change in 2003. The revenue from products such as AmBisome for severe fungal infections, tenofovir for HIV infection, adefovir for hepatitis B and Cidecin for bacterial infections should boost the company to profitability, which analysts project in 2003.

The time it will take Gilead to become profitable is undoubtedly one reason Prudential Securities analyst John Sonnier downgraded Gilead to hold from strong buy. Sonnier said Gilead's stock price has nearly reached his price target of $55. One factor behind the downgrade could be decreased sales of Tamiflu, Gilead's drug for influenza that it is co-marketing with Roche. Gilead expects royalties for Tamiflu to be lowered, due to the mild 2000-2001 flu season. As a result, lowered sales have more than likely been factored into Gilead Sciences' share price by Wall Street.

Among analysts, earnings models, evaluations and projections will vary. But Gilead's outlook looks rosy over the long term. Wall Street likely favors Gilead because it has a good marriage between science and business. You can't have one without the other. If the science is lousy, no amount of business will allow a company to be successful, and vice versa.

Nonetheless, Wall Street can be fickle, and at Gilead's current valuation levels, there could be profit-taking. However, that could offer newcomers an opportunity to invest. The company has my vote.

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