Gilead Falls on Downgrade

Banc of America Securities says sales of its key HIV drug, Viread, may have peaked.
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Sales of

Gilead Sciences'

(GILD) - Get Report

blockbuster HIV therapy, Viread, appear to be peaking, and with little in the company's pipeline to spur growth in 2004, Banc of America Securities downgraded the stock on Tuesday.

On Tuesday, Banc of America analyst Michael King downgraded Gilead to neutral from buy. King told investors that Viread may have the strongest anti-viral franchise in the industry, but that it won't be able to take full advantage until a co-formulation of Viread and Emtriva is approved -- and that would happen in the fourth quarter at the very earliest. As a result of the negative comments, Gilead shares fell $2.29, or 3.8%, to $58.14.

While analysts expect the Viread-Emtriva co-formulation pill to push Gilead's suite of HIV treatments to billion-dollar status, the company submitted its application for the Food and Drug Administration's approval on March 15. Given that approval usually takes 10 months, the earliest Viread-Emtriva would be approved is mid-January, and that, in King's opinion, would leave shares of Gilead with little upside.

"With little news coming from Gilead's clinical pipeline, we believe investor concerns over fluctuating Viread inventory levels and slowing sales growth will dominate, likely making Gilead shares range-bound for the rest of 2004," said King. (Banc of America and or its affiliates expect to receive or seek investment banking compensation from Gilead in the next three months.)

With Gilead shares up 17% over the last five weeks, King warns that investors may be better off selling shares now and waiting for a better opportunity towards the end of 2004, as anticipation builds ahead of FDA approval. The only major milestone for Gilead in the first half of the year is the commercial launch of Hepsera, its hepatitis fighter, in Korea and Taiwan.

That said, with Gilead shares stumbling and its long-term prospects unchanged, investors should be on the lookout to see if shares are oversold.

"If shares ease back into the low $50s, we would revisit our opinion," said King.