Rebound - Gilead Sciences

The market had a high level of expectation and with the earnings season essentially over, it is now up to the economic calendar to carry the ball for a Santa Claus rally to materialize for the remaining year. Meanwhile the biotech market went through a pullback, the opportunity for investors to buy the leaders finally presents itself after a spectacular year.

For instance, on October 29, Gilead Sciences'(NASDAQ: GILD) stock took a beating because the company missed Wall Street's earnings expectations. Gilead Sciences reported earnings of $0.28 a share and consensus was $0.35. Revenues rose 50% to $200.4 million and consensus was $228.6 million. The miss can be attributed to Viread, the company's lead AIDS drug, which drew sales of $115.4 million, well below the $150 million estimate. Viread sales were down 31%, as wholesalers bought in front of a scheduled price increase and inflated sales last quarter. This led to an inventory build up, which led, in turn, to higher than expected inventory drawdowns at the wholesalers in the range of $33 to $37 million versus the $24 to $30 million, which cut into third-quarter sales. Consequently, Gilead narrowed its yearend Viread revenue forecast to $550 to $570 million from $550 to $600 million.

Gilead is a great company and investors should not worry about one poor quarterly earnings report. Viread wholesaler inventory stocking issues have been clarified and the company guided toward a full tax rate in 2004. The weakness in the stock is a chance to enter in a decent entry point because Gilead's fundamentals are unchanged and that sales growth will significantly accelerate in 2005 with the launch of the Viread/Emtriva co-formulation. In addition, Gilead reported that its HIV drug Emtriva received marketing approval in the European Union. Gilead should rebound back to a $60 stock

Nadine Wong


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