Gilead Buying CVT: Brilliant Move

Highlights include Gilead Sciences, Inc. (GILD - Analyst Report), Pfizer Inc. (PFE - Analyst Report) and CV Therapeutics, Inc. (CVTX).

Gilead’s Outstanding Acquisition Track Record

Gilead Sciences (GILD - Analyst Report) is perhaps world’s premier play on HIV/AIDS therapy. We consider Truvada -- a reformulation of drugs Viread and Emtriva -- to be a potential breakthrough product for the treatment of HIV/AIDS. Additionally, the approval of Atripla offers the next big wave of top-line growth for the company.

Gilead has previously done an outstanding job in strategic acquisitions. The Triangle Pharmaceuticals deal in 2002 was the stepping stone for the basis of leading product, Truvada and Atripla.

Similarly, the acquisition of Myogen, and with it Letairis and darusentan, is also looking like an excellent move. Letairis should become the "best-in-class" ETRA for PAH, and given the lack of drug-drug interactions seen in the phase III trials, it should be used first-line with Pfizer’s (PFE - Analyst Report) Revatio.

We are pleased with the Letairis launch so far, and darusentan could offer huge upside to our forecasts. But Gilead management continues to surprise and impress us with their strategic thinking.

The proposed acquisition of CV Therapeutics (CVTX) is a brilliant move in our view. In one single transaction, Gilead gains knowledge in developing and commercializing cardiovascular drugs, which should enhance the darusentan program, puts into place significant infrastructure to diversify into the cardiovascular business -- all while picking up immediately revenues and future stronger profitability with Ranexa and Lexiscan. We say, "Very well done!"

The rest of the pipeline is also progressing nicely, with drugs such as elvitegravir and GS-9350 looking like potential winners. The only mishap over the past few months was the FDA’s complete response letter on aztreonam lysine in September 2008.

Gilead’s 4th quarter financial results were solid -- nothing new for the company, as management posted upside surprise after upside surprise throughout the past several years. EPS in 2008 totaled $2.21, up 23% year-over-year. For 2009 we see adjusted EPS at $2.62, growth of 18%. Our 5-year CAGR for Gilead is 13%. We see adjusted EPS in 2013 at roughly $4.15.

The stock is currently $45. Our target is $50 based on 20x our 2009 EPS forecast of $2.62 per share. At this level, we would be opportunistic buyers of Gilead’s stock. We recommend aggressive accumulation of the shares if the price dips below $40.