Ten years ago, Gilead Sciences (NASDAQ:GILD) got out of the cancer drug business. Now it’s jumping back in with both feet, and if the company’s approach is as successful as it has been in HIV treatments, investors might want to come along for the ride.
Since the end of last year, the Foster City, Calif.-based biotechnology company has ponied up $600 million to buy two companies with experimental cancer therapies and inked a discovery deal with Yale University. That appears to be just a start. According to chief scientific officer Norbert Bischofberger, Gilead plans to spend a lot more on cancer research and continue to search for additional buyouts and licensing deals.
The company’s goal is to do in cancer what it did in HIV: develop a cocktail of drugs that prolong the patient’s life. Today, HIV is manageable with medicines such as Gilead’s two-therapy combination. Bischofberger says he is absolutely convinced that the same approach will apply in cancer, adding “that’s where the field is going.”
Gilead plans to be a major player in cancer within 10 years, if not sooner. The company’s most advanced compound blocks a pathway associated with tumor growth and survival. Currently in Phase II, the drug was acquired with the $375 million takeover of Calistoga Pharmaceuticals in February. It’s being tested on patients with different types of blood cancer.
Analyst opinions about the company lean heavily toward the positive. One skeptic is Alan Carr, a Needham & Co. analyst in New York, who thinks Gilead might be spreading itself too thin with the new emphasis on cancer. Others think the company is a good buy based on its prominence in HIV treatments. Leerink Swann analyst Joshua Schimmer has a price target in the low $50s. Robert W. Baird’s Thomas Russo sets a 12-month objective of $49. JP Morgan added Gilead to its Focus List with a $50 price target, citing an attractive risk/reward at current levels.
Those target prices leave plenty of upside for investors considering Gilead trades at just more than $37, down more than 10% this past month. Analysts estimate the company will earn $3.94 in 2011, which would give it a fairly skinny P/E of less than 10.
Deutsche Bank analyst Robyn Karnauskas says Gilead is the “top value stock” she covers and recently raised her price target to $53 from $45. Her enthusiasm for the company has nothing to do with its cancer push. She’s basing the price on Gilead getting approval early next year of its four-drugs-in-one HIV treatment called QUAD.
Karnauskas thinks QUAD should be able to hold its own against a yet-approved drug from the company’s primary HIV treatment competitor, GlaxoSmithKline (NYSE:GSK). She adds that if the Glaxo pill never makes it to market, Gilead could hit $67 per share.
In addition to a promising outlook, Gilead continues to turn in good results. Total revenues for the second quarter of 2011 were $2.14 billion, up 11% from a year earlier. Net income for the second quarter of 2011 was $746.2 million, or 93 cents per diluted share, compared to net income for the second quarter of 2010 of $712.1 million, or 79 cents per diluted share. Another good sign: Gilead has repurchased more than 80% of the $5 billion in common stock authorized in May 2010.
Barry Cohen does not own any of the aforementioned stocks.
