I first wrote about Gilead Sciences (NASDAQ:GILD) about two months ago. Since that first article, the stock went up a little, then down a little. It has outperformed the biotech sector but has moved lower with the group in the last few weeks. The other big news since that article was that Gilead was added to the Standard & Poor's 500 index.

On Thursday, Gilead announced second-quarter earnings of $0.49 compared with the $0.36 estimate. Revenue was $319.7 million, up 34% from last year's $238.9 million and well ahead of the $285 million estimate. The company attributed the stellar quarter to an 18% increase in the sales of HIV drug Viread.

The market has responded well to the report, lifting the stock over 10% today. The company guided revenue expectations for Viread and Emtriva -- its two biggest drugs -- to be $850 million to $875 million for 2004. Also, the company on Wednesday announced a 2-for-1 split that will take effect in early September.

Save for the occasional hiccup, Gilead has done a good job of managing Street expectations, growing the top and bottom lines, and most importantly, developing drugs that help people. In addition to the HIV drugs, Gilead also makes medicine for hepatitis and influenza.

Based on its track record, it seems unlikely that management is going to make mistakes running the company. There are two risks that face the company, but neither one is unique to Gilead. Any biotech stock faces Food and Drug Administration risks. Every couple of months or so, we see another biotech get chopped for a bad FDA ruling. Gilead has a good track record here, but it's a risk nonetheless.

The other big risk is too much supply of stock coming to market in the form of initial public offerings (IPOs). Biotech outperformed the S&P 500 in a big way in the middle of 2003. This created demand for IPOs, some of which -- like Eyetech Pharmaceuticals (NASDAQ:EYET) -- had been very successful until the recent downturn in the group. There are quite a few biotech IPOs on the calendar. If demand wanes or too much supply is created, that likely would hold back the entire sector regardless of how well a company like Gilead can execute.

Want to read about those biotech IPOs? Check out the following two articles by Charly Travers:

Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time neither he nor his clients owned any of the stocks mentioned.