Last week, biotech giant Gilead Sciences
With Gilead, the most important part of its operations are its HIV franchise drugs like Truvada, Atripla, and Viread. In total, sales of these combination compounds were up 56% in the quarter and accounted for 69% of Gilead's $1 billion in revenues. As can be seen below, sales are not slowing any bit for these compounds, despite intense competition from the likes of GlaxoSmithKline
|
HIV Franchise Sales* |
Y-O-Y Growth |
|
|---|---|---|
|
Q1 2007 |
$705 |
56% |
|
Q4 2006 |
$642 |
67% |
|
Q3 2006 |
$557 |
53% |
|
Q2 2006 |
$475 |
38% |
What makes drug development for most diseases such as HIV interesting is that the biggest competitive threats -- like Merck's
Gilead's financials and near-term earnings strength are not in any doubt. Its top and bottom lines have been climbing at double-digit rates and there are no near-term competitive threats from other companies pipelines to worry about. As the go-go '90s tech stock bubble taught us, though, valuations still do matter.
What's important for investors to figure out is whether the valuation on shares of Gilead needs to shrink or expand in order to meet its future financial fortunes. Trading at 29 times its trailing twelve month non-GAAP earnings per share, I don't see Gilead's shares as very richly priced considering its growth prospects and the competitive landscape of HIV treatment.
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GlaxoSmithKline is an Income Investor recommendation; Merck is a former newsletter pick.
Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
