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How Gilead Primed The Pipeline


There was plenty of head-scratching on Wall Street last October when Gilead Sciences Inc. (GILD ) announced it would spend $2.5 billion to acquire Myogen Inc. (MYOG), a smaller biotech company. Myogen's annual sales are just $7 million. Its lead experimental drug will address only a tiny group of patients with a rare form of hypertension, and its second-most-promising drug faces an uncertain path to market. Myogen's shares soared 50% after the October announcement, while Gilead's fell 10%.

On Feb. 2 investors put Myogen concerns on the back burner after Gilead announced record annual revenues of $3 billion, up 49% from 2005, and profits that jumped 51%, to $1.2 billion, before acquisition charges and other expenses. Gilead is enjoying robust demand for its new HIV drug Atripla, a pill that combines three treatments in one. Its stock soared 11%, to 71, on the earnings report. Such performance has landed Gilead on the BusinessWeek 50 list of top-performing large companies two years in a row.

The acquisition of Myogen, based in Westminster, Colo., will help answer a question that has been dogging Gilead for years: How can a company that derives 80% of its sales from HIV drugs keep growing at double-digit rates? In the first nine months of 2006, Gilead spent just 13% of revenues on research and development--a level more typical of a stodgy Big Pharma company than a forward-thinking biotech. Myogen, along with a smaller acquisition Gilead made last year, offers instant diversification. Myogen researchers are developing drugs to treat respiratory and heart disease, giant markets with huge potential payoffs. "In one swoop, Gilead solved the pipeline problem," says JPMorgan (JPM) biotech analyst Geoffrey Meacham.

Myogen's most advanced experimental drug, called Ambrisentan, treats pulmonary arterial hypertension (PAH), a disease that strikes up to 1,000 people per year, causing severe breathing problems and, ultimately, heart failure and death. "It hits people in the prime of their lives," says Gilead CEO John Martin, adding that he hopes Ambrisentan will turn PAH from a death sentence to a chronic disease, much as Gilead's other drugs have done with HIV/AIDS.

GOLD MINE?

Ambrisentan may be a niche product, but its advantages over existing drugs could make it a gold mine. Current PAH treatments can be toxic to the liver and sometimes clash with other drugs. Those risks "may be substantially lower with Ambrisentan," says Dr. Lewis J. Rubin, professor of medicine at the University of California at San Diego. Rubin treated patients as part of a clinical trial for which he received consulting fees. Gilead expects a verdict from the U.S. Food & Drug Administration later this year. Analysts estimate the drug could ultimately bring in annual sales of $500 million.

If Gilead can clear some hurdles, it could have an even bigger opportunity with Darusentan, a Myogen drug being tested in patients with uncontrollable high blood pressure. More than 2 million patients aren't helped by current drugs and are at risk of heart attack and stroke. Analysts estimate that Darusentan could be a billion-dollar hit. But the FDA is requesting that patients in the late-stage trial take the drug along with four other blood pressure treatments, all at the full doses. Most patients balk because such a regimen makes them feel sick. "It will be extraordinarily hard to enroll patients. So this is not a viable drug right now," says Gilead CFO John Milligan. Gilead is weighing alternative trial designs.

Investors who need reassurance that Gilead is not totally reliant on HIV drugs can look forward to trial data that the company expects to release this year for three hepatitis drugs and a cystic fibrosis treatment. Putting an exclamation point on its commitment to long-term growth, Gilead just opened a two-story lab that will house 100-plus scientists.

By Arlene Weintraub


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