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On Mar 26, 2013, we reiterated our Neutral recommendation on Gilead Sciences, Inc. (GILD - Analyst Report) as we believe that the stock is fairly priced at current levels with limited scope for upside. The stock carries a Zacks Rank #3 (Hold) in the short run.

Why the reiteration?

In Feb 2013, Gilead delivered better-than-expected revenues and earnings in the final quarter of 2012. Product sales climbed 18% to $2.51 billion, driven by anti-viral products, such as Atripla, Truvada and Viread (up 19% to $226.7 million). Products sales were also aided by the launch of Complera/Eviplera in 2011. Stribild – an HIV combination pill launched in the US in Aug 2012 – contributed $40 million to total revenue in the final quarter of 2012, up 128.6% sequentially.

On the fourth quarter 2012 conference call, Gilead provided guidance for product revenue in the range of $10–$10.2 billion for 2013, reflecting an increase of 6%–9% over 2012 levels. We expect Gilead to easily achieve the increased guidance driven by its strong product portfolio.

We are also impressed by Gilead’s efforts to develop its pipeline. Gilead has multiple late-stage candidates in its pipeline. The company is highly optimistic about the potential of sofosbuvir, being developed to treat patients suffering from hepatitis C virus (HCV). The company expects to seek approval for the candidate in the second quarter of 2013. Successful development of sofosbuvir would not only boost Gilead’s top line, but also strengthen its position in the lucrative HCV market. A sizeable population suffers from HCV the world over.

Apart from the late-stage pipeline, Gilead has multiple candidates in mid/early stages of development. The successful development of the pipeline candidates will help drive growth.  

We remain concerned about the generic threat looming over key drugs at Gilead. With generic competition looming large over the company, Gilead’s pipeline needs to deliver. We see limited scope for upside until more visibility is obtained on the pipeline development at Gilead. Consequently, we retain our Neutral stance on the stock.

Other Stocks to Consider

Favorably placed stocks in the pharma sector include Athersys, Inc. (ATHX - Snapshot Report), Cytokinetics, Inc. (CYTK - Snapshot Report) and XOMA Corporation (XOMA - Snapshot Report). All three stocks carry a Zacks Rank #1 (Strong Buy) and are worth considering.

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