JPMorgan Confab: Gilead Finds Room to Grow

Here's my scorecard from the first day of the JP Morgan Healthcare conference:

Gilead Sciences' (GILD - commentary - Cramer's Take) shares are likely to remain volatile at least until Jan. 31, when the company reports fourth-quarter earnings -- and more importantly, offers financial guidance for 2007.

But for investors who can get beyond short-term worries, Gilead offers a compelling growth story that should be seen as a core biotech holding.

As I wrote in my conference preview, Wall Street is eyeing warily the company's spending for 2007 in light of last year's $2.5 billion acquisition of Myogen. With that purchase, Gilead is shifting at least part of its focus away from its core strength in infectious diseases like HIV -- and into pulmonary diseases.

How this strategic shift (and the ramp in spending required to make it successful) will hit Gilead's near-term earnings growth has been an open question -- and an overhang on the stock. Since early November, Gilead shares have fallen about 9%. The stock closed Monday down 2 cents to $64.23.

At a Monday breakout session with investors, Gilead executives suggested that the expense guidance they'll offer at the end of the month might be conservative and could end up higher, mainly because clinical development plans for darusentan, one of two drugs acquired in the Myogen deal, are still up in the air.

Darusentan is being developed to treat resistant hypertension, but an ongoing phase III study has been slow to enroll, and Gilead is re-assessing. Gilead executives did say definitively that they plan on retaining rights to darusentan, putting to rest some conjecture that the drug would be sold off.

Company executives were bullish on the prospects for ambrisentan, the other drug (and nearer-term profit generator) acquired via the Myogen deal that is being developed as a treatment for pulmonary arterial hypertension.

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Adam Feuerstein writes regularly for RealMoney.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.