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Gilead Sciences, Inc. (GILD): A Pharmaceutical Growth Story You Can’t Afford To Miss

Gilead Sciences, Inc. (NASDAQ:GILD) is the world’s largest maker of HIV drugs, but has taken on a number of new initiatives to enter other areas of treatment. Gilead’s stock rose almost 80% in 2012, the best increase in 17 years, primarily on the prospects of  its experimental hepatitis C drug, acquired in its $10.8 billion acquisition of Pharmasset. Gilead’s string of deals clearly indicates that the company’s strategy includes blood cancer treatments in addition to hepatitis C. The market for treatment of leukemia and other blood cancers is one of the fastest growing markets in the cancer space.  In this article, I will examine Gilead’s fourth quarter financials, which have just been announced, and look at the market growth prospects for hepatitis C and blood cancer treatments.

Gilead Sciences, Inc. (NASDAQ:GILD)Fourth Quarter Highlights

Gilead recently announced results for the fourth quarter and full year 2012. Total revenues for the fourth quarter of 2012 grew by 18% to $2.59 billion, from $2.20 billion for the same quarter of the previous year. Net income for the quarter was $762.5 million, or an EPS of $0.47 per diluted share compared to $665.1 million, or an EPS of $0.43 per diluted share year on year.

Non-GAAP net income for the quarter, excluding acquisition-related, restructuring, and stock-based compensation expenses, was $823.4 million, or an EPS of $0.50 per diluted share compared to $743.1 million, or an EPS of $0.49 per diluted share, in the same quarter of the previous year. All these numbers have been adjusted to reflect the two-for-one stock split that became effective on Jan. 25, 2013.

For the full year 2012, total revenue was $9.70 billion, up 16% compared to $8.39 billion for the full year 2011. Net income was $2.59 billion, or an EPS of $1.64 per diluted share, compared to $2.80 billion, or an EPS of $1.77 per diluted share for the previous year. Non-GAAP net income for 2012, which does not include acquisition-related, restructuring and stock-based compensation expenses, was $3.08 billion, or $1.95 per diluted share, compared to $3.04 billion, or $1.93 per diluted share for the previous year.

As of Dec. 31, 2012, Gilead had $2.58 billion in cash, cash equivalents, and marketable securities against $9.96 billion as of Dec. 31, 2011. The decrease was caused by the acquisition of Pharmasset in the first quarter of 2012.  The company generated $3.19 billion in cash flow from operations in the full year 2012 and $705.7 million in the fourth quarter.

Phase 3 Studies – Sofosbuvir

Gilead reported that two phase 3 studies evaluating its hepatitis C therapy sofosbuvir had both met their primary endpoints and the data from the trials would support its regulatory filing for sofosbuvir. The company hopes to file for sofosbuvir’s approval with the FDA later this year. If it is approved, the drug, which Gilead acquired as part of its acquisition of Pharmasset, would be the first purely oral treatment for hepatitis C.

Analysts have estimated that the market for the disease could grow substantially in coming years, with a potential of $20 billion in revenue. Dr. Norbert Bischofberger, Gilead’s chief science officer and executive vice president of research and development, commented “These data support the favorable clinical profile of sofosbuvir as the backbone of a potent, safe, and well-tolerated treatment regimen that is effective across a broad range of HCV patient genotypes. The sofosbuvir regimens in these trials allowed us to shorten the duration of effective hepatitis C therapy to just 12 weeks for treatment-naive patients with genotypes 1 through 6.”  The hepatitis C treatment may generate as much as $3.8 billion in sales by 2020, according to Credit Suisse Group which would make it one of the company’s biggest products