Did I Mention Healthcare is Safe? Gilead Sciences (GILD) Down 9% on Earnings

Another “safe” sector - healthcare… here you can lose 9% instead of 12% elsewhere aka “it’s safe”

Gilead Sciences (GILD) breaks down below its 50 day moving average this AM, on a 9% drop. Did I mention earnings season is a complete mine field? Even in the punditry’s “safe havens”. 200 day moving average is in the low $48s which might make it interesting so I can have exposure to such “safety”.

• Gilead Sciences Inc (GILD) reported an 8.6 percent increase in second-quarter profit on Thursday, driven by higher sales of its drugs that fight the virus that causes AIDS.


• But the results fell slightly short of Wall Street estimates and Gilead said expenses for the year will rise.


• Foster City, California-based Gilead said net profit rose to $442.8 million, or 46 cents per share, from $407.9 million, or 42 cents per share, a year ago. Excluding in-process research and development expense, Gilead earned 47 cents a share, which fell a penny short of the average analyst estimate, according to Reuters Estimates.


• The company raised its outlook for 2008 sales, but said expenses also will increase as Gilead invests more heavily in research and development. (oh Wall Street hates that, because it reduces profits!)


• Second-quarter revenue jumped 22 percent to $1.28 billion, outstripping the $1.25 billion expected by Wall Street analysts. Product sales increased 34 percent to $1.22 billion during the quarter.


• “We are very pleased with the top-line results,” said Jason Kantor, an analyst at RBC Capital Markets.


• Gilead as benefited from the emergence of AIDS trial data earlier this year showing that regimens containing Epzicom, a two-drug combination pill sold by GlaxoSmithKline Plc (GSK), were less effective at controlling the HIV virus for some patients than regimens containing Truvada, which combines Gilead’s Viread and Emtriva. Glaxo’s drug also was associated with a higher risk of heart attack.


• Gilead’s second-quarter sales of antiviral drugs rose 34 percent to $1.12 million, which included a 34 percent jump in sales of Truvada to $516.1 million.


• Sales of the newer Atripla, which combines Truvada with Bristol-Myers Squibb Co’s (BMY) Sustiva into a single pill, rose 67 percent to $355.1 million.


• Rodman & Renshaw analyst Mike King said some investors had feared that a buildup by distributors of Atripla in the first quarter could hurt second-quarter demand for the HIV treatment. “But that didn’t materialize, so there’s a sigh of relief,” he said.


• Gilead raised its outlook for 2008 drug sales to between $4.9 billion and $5.0 billion from its previous estimate of $4.7 billion to $4.8 billion. Analysts have projected 2008 sales of around $4.9 billion, according to Deutsche Bank analyst Mark Schoenebaum.


• Chief Financial Officer Robin Washington said full-year research and development costs will rise to between $650 million and $670 million from the previous estimate of $610 million to $630 million. The outlook for sales, general and administrative costs was raised to between $720 million and $740 million from $710 million to $730 million.
  Second-quarter royalty, contract and other revenue fell 57 percent to $60.9 million.


• Gilead gets much of its royalty revenue from Roche Holding AG’s (ROG) sales of the Tamiflu flu treatment.


• The company is awaiting word from the U.S. Food and Drug Administration on two drug applications. The agency is slated to decide in August whether to approve Gilead’s AIDS drug Viread as a treatment for Hepatitis B, and has a September deadline for its review of experimental inhaled drug aztreonam lysine for treating cystic fibrosis.

Great company but nothing is truly safe in the bear. Meanwhile since Citigroup (C) “only” wrote down $7 billion the cheers and weeping (joy) on CNBC were overwhelming and the stock is up 7%. What is $7 Billion among friends? And the “trend is going in the right direction”. It’s all about expectations.

Gilead Sciences (GILD) is still very pricey to me, but at $50 is now at 25 forward earnings instead of 28 as it was yesterday. A bit of an improvement.

Right now it appears to be much safer to buy beaten down merchandise with low expectations at least for earnings season. The problem is those stocks are beaten down for a reason. It’s all about time horizon. For a 1-2 week pop, you want junk. For 3-6 month pop, you want the quality that is being slapped all over the place of late. This makes it difficult to apply hedged positions right now.

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