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Gilead's Got to Prove It's No One-Trick Pony

To understand Gilead Sciences (GILD - Get Report) today, you have to forget about HIV and focus instead on the heart.

Gilead's $1 billion tender offer for CV Therapeutics (CVTX) will add a drug for chronic angina to its medicine chest. Marry that to a Gilead pipeline drug for high blood pressure with important phase III data looming, and you've got a company taking big steps into the cardiovascular disease arena.

This diversification away from Gilead's comfort zone in HIV has investors -- even some of the company's most bullish supporters -- nervous. Investors have come to love Gilead for two main reasons: 1) the market-leading domination and growth of its HIV drug franchise; and 2) operating leverage that is the envy of the bio-pharmaceutical sector.

A move into the cardiovascular disease arena, if not done well, threatens to disrupt all that. And right now, the Street is not entirely convinced that Gilead can be as good outside of HIV as it is inside. Gilead's $2.5 billion purchase of Myogen in 2006, which brought with it the pulmonary disease drug Letairis, has been a disappointment to date. What's to say that the latest push into cardiovascular medicine won't also under-perform?

The worry inherent in that question is clearly evident in the company's stock price. Since announcing the tender offer for CV Therapeutics on March 12, Gilead shares have stood still at $44 while the biotech sector as a whole, measured by the Nasdaq Biotechnology Index and the AMEX Biotechnology Index, has moved up 11% and 17%, respectively, through March 27.

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