Gilead Sciences

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fell sharply Wednesday afternoon on fears that its new AIDS drug, Viread, is causing kidney failure in some patients.

The surprising revelation came at the tail end of a conference call sponsored by SG Cowen to discuss hepatitis treatments. A doctor on the call mentioned that some AIDS patients taking Viread had lapsed into renal failure, according to a fund manager listening to the call. The offhand remark about a possible -- albeit unconfirmed -- serious side effect to the drug was enough to get fund managers on the call worked up into a panic.

Gilead shares, trading flat for most of the day, fell off a cliff just after 1 p.m. EDT. Shares dropped more than $3, or 11%, to $33.54 just after 2 p.m. EDT, before recovering slightly to close at $35.35, down $2.61, or 7%, for the day. Just over 8 million shares traded hands, more than 2.5 times the issue's average daily volume.

So, is Viread really causing kidney problems in AIDS patients? Or, is the doctor's remark being blown way out of proportion? Unfortunately, no one seems to know for sure at this point. Gilead executives couldn't be reached for comment, and some fund managers on the conference call, contacted by

, were still trying to reach the doctor to get clarification.

Renal toxicities were not an issue reported during the Viread human clinical trials conducted by Gilead, although the side effect did show up in preclinical animal tests run by the company.

Salomon Smith Barney biotech analyst Elise Wang says she talked to Gilead officials, who insisted they have never been notified about any cases of kidney failure in patients taking Viread.

"Renal failure is very serious, so you'd expect Gilead to be informed if this was a problem," she says, adding, "It sounds like this thing got blown out of proportion." Wang rates Gilead outperform and her firm doesn't have a banking relationship with the company.

Gilead has been one of the brightest stories in an otherwise moribund biotech sector because of the strong launch of Viread, which hit the market last October. In the first quarter, Gilead reported Viread sales of $27.2 million, up strongly from $13.2 million in fourth-quarter sales. Analysts are expecting the company to post 2002 Viread sales of $145 million to $160 million, which should help Gilead turn a 3 cent-per-share profit for the year, according to Thomson Financial/First Call.

Of course, Viread's robust sales growth could be jeopardized if a serious side effect crops up unexpectedly.

Viread is not used to treat hepatitis C, but the drug came up in discussion on the SG Cowen conference call because many AIDS patients are also infected with Hepatitis C.