West Coast Editor

Gilead Sciences Inc.'s strong fourth-quarter and full-year earnings not only laid to rest investor jitters about hikes in spending to buy a pair of companies in 2006, but pushed the company's stock (NASDAQ:GILD) to its highest price ever, closing Thursday at $71.53, up $7.21.

As in the third quarter, Foster City, Calif.-based Gilead beat Wall Street estimates, recording fourth-quarter revenues of $899.2 million, up 48 percent compared to total revenues of $609.3 million for the fourth quarter of 2005, with full year revenues passing $3 billion for the first time. Non-GAAP net income for the fourth quarter hit $372.8 million, or 78 cents per share.

Gilead's HIV franchise continued to drive product sales, which tallied a record $768.1 million for the fourth quarter, a 56 percent rise over the same period in 2005. For all of 2006, product sales added up to $2.59 billion compared to $1.81 billion in 2005, a 43 percent jump.

Of particular note are sales of Truvada, the combo drug made of Viread (tenofovir disoproxil fumarate)and Emtriva (emtricitabine), selling $337 million. At the same time, Atripla, which combines Truvada with New York-based Bristol-Myers Squibb Co.'s Sustiva (efavirenz), sold $137.4 million in the fourth quarter of 2006, doubling sales in the third quarter when it was launched. The performance of Atripla suggests it's probably taking patients away from London-based GlaxoSmithKline plc's Combivir (lamivudine and zidovudine), and is not cannibalizing Truvada, as some had worried.

Viread sold $159.5 million in the fourth quarter, 13 percent less than in the same period last year, and $689.4 million for the year, dropping 11 percent as compared to 2005. Fourth-quarter Emtriva sales reached $8.5 million, down 24 percent versus 2005's fourth quarter, and $36.4 million for full 2006, down 23 percent from the previous year.

Gilead provided eye-opening, full-year 2007 sales guidance of $3.4 billion to $3.5 billion - numbers to be taken seriously, given the latest earnings. In a research report, analyst Bret Holley at CIBC World Markets, upgraded Gilead to "sector outperform" with a price target of $82, and called the company's 2007 sales targets "somewhat aggressive" but achievable.

Also due to rise by about $200 million are research and development costs, "a significant portion" of which is related to Gilead's pair of buyouts in 2006, said John Milligan, Gilead's chief financial officer, during a conference call.

"Of course, we have ambitions to file additional [investigational new drug applications] during the year," he said, adding the research and development amount represents "the full darusentan budget." Darusentan is the Phase III compound for resistant high blood pressure, gained in the buyout of Denver-based Myogen Inc.

Analyst Shiv Kapoor of Montgomery & Co., started off Thursday by rating Gilead a "buy" and raised his target price from $74 to $82. Stifel Nicolaus & Co., with the same rating, upped the target price from $74 to $80. JMP Securities upgraded Gilead from "market perform" to "market outperform," with a target price of $88.

Other firms made changes, too. First Albany reiterated its "buy" rating and boosted the target price from $76 to $78. Friedman Billings held a "market perform" rating, with a target price adjusted upward to $73 from $68. Joel Sendek, analyst with Lazard Capital Markets, kept his "buy" rating and set the target at $87, up from $76.

Gilead's net loss for the fourth quarter totaled $1.67 billion, or $3.62 per share, including an acquisition-related charge of $2.04 billion and after-tax stock-based compensation expense of $24.9 million.

In July, the firm exercised its option to buy out Seattle-based Corus Pharma Inc. for $35 million, settling an ongoing court fight with Novartis Vaccine and Diagnostics Inc., a division of Novartis AG, of Basel, Switzerland. Several months later, Gilead disclosed its plan to take over Myogen, at a price tag of about $2.5 billion. (See BioWorld Today, July 21, 2006, and Oct. 3, 2006.)