There Is Potential in This Highly Lucrative Industry

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Gilead (NASDAQ: GILD) is the world’s foremost biopharmaceutical company when it comes to combating deadly virus. It is far ahead of competitors in the field of HIV and hepatitis treatment. Gilead is the only company with an FDA approved AIDS prevention therapy. The governing body has approved Gilead’s Truvada for people in the high risk aids profession such as caretakers of infected personal and nursing staff. The company is already the global leader in HIV treatment due to high sales of Truvada and Atripla.  

According to recent reports doctors have finally been able to cure an infant from HIV. The patient was given a drug cocktail 30 hours after birth to suppress the virus. This could be a breakthrough in the fight against AIDS as this is the first time a newborn has been cured from the disease. The reports also indicate that the patient has been virus free for the last 10 months. According to Bloomberg, approximately 300,000 children are infected yearly, with a large number in developing countries.

AIDS Drug Market

Gilead is currently the leader in the AIDS treatment industry with Truvada and Atripla. Atripla had sales of $3.2 billion in 2011, and Truvada generated sales of $2.8 billion. Truvada is a combination of Gilead drugs Viread and Emtriva. The company has recently received FDA approval for its drug Stibild, which is a combination of four different drugs. Bristol Myers Squibb (NYSE: BMY) is just behind Gilead in this industry with Reyataz and Sustiva generating annual sales of approximately $1.5 billion and $1.4 billion respectively.

Merck is also a serious contender in this industry with Isentress, which generates approximately $1.1 billion in sales. Johnson & Johnsonand Pfizer (NYSE: PFE) are lagging far behind with their drugs Intelence and Selzentry.

Pipeline

Although a number of breakthroughs have been made in the fight against AIDS, the pursuit of complete HIV eradiation is still ongoing. According to reports, a number of companies are trying find a permanent cure for the virus with Gilead, J&J and Merck leading the quest.

Bottom Line

Gilead is still the top dog in the fight against AIDS, but the followers are not far behind. Truvada has been approved as a vaccine for AIDS, but the company is still trying to find a permanent treatment for the affliction. The treatment of the Mississippi child was carried out using BMY/Pfizer drugs zidovudine and lamivudine. This is a major win for the fight against AIDS, but Gilead investors should keep a close eye on further developments in this regard.  

Gilead is trading at forward P/E of 15.9x and 7% below the mean sell side target price of $48. The stock has appreciated by a mammoth 114% in the last two years and still continues to grow. The fight against AIDS is still not over, and there are a number of companies  trying to find a permanent cure. I believe that Gilead will continue to dominate this market and remains a top investment option despite recent price appreciation. 

Pfizer and Bristol Myers Squibb have a diverse drug portfolio and are considered a dividend bet. The companies have stellar dividend yields along with chances for capital appreciation. The market for curing kids from AIDS is a huge market when it comes to numbers, but most reported cases are in the developing world, which makes this market less lucrative. The success should still be a big victory for both companies and should be considered an R&D success. Gilead should watch out for further developments in the oncology pipelines of both companies because these big-pharmaceuticals have proven their R&D strength with this success. 


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