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Investing: Gilead Sciences' HIV drugs expected to drive profit

Ongoing expansion of Gilead's portfolio of HIV therapies and shrewd partnerships are expected to be strong drivers for its earnings. Also: Gamco Gold AAA fund invests in miners, not gold.

November 13, 2011|By Andrew Leckey
  • Gilead Sciences' Atripla, a three-drug pill, touts itself as the No. 1 prescribed HIV regimen.
Gilead Sciences' Atripla, a three-drug pill, touts itself as the… (Allen J. Schaben, Los Angeles…)

Question: Please give your thoughts on Gilead Sciences Inc. stock, which has been recommended to me.

Answer: This biotechnology company is a leader in discovering, developing and marketing therapies for treating life-threatening infectious diseases.

For example, it recently submitted an application to the Food and Drug Administration for marketing approval of its single-tablet, once-daily regimen, called Quad, for treatment of HIV-1 infection in adults.

Atripla, a three-drug pill, touts itself as "the No. 1 prescribed HIV regimen."

Shrewd partnerships and ongoing expansion of Gilead's portfolio of HIV therapies are expected to be strong drivers for its earnings. There is a global trend toward regular HIV testing and early treatment. And Gilead's maintaining of a strong product pipeline provides a good defense against patent expiration worries.

Gilead Sciences stock recently was up 10% for the year. Third-quarter earnings were $741.1 million, compared with $704.9 million a year earlier.

Investors, however, should keep in mind that Gilead is operating in a complex and competitive business of research breakthroughs, regulatory approvals and price discounts. New products can hurt the sales of existing bestsellers, and biotech can be volatile and unpredictable.

It is important that the company move into areas besides HIV for profits. Gilead's other therapies include treatment of hepatitis, and it has, through acquisitions, expanded into pulmonary and cardiovascular diseases and cancer. The non-HIV segment, which represents about one-fourth of its revenue, has room to grow.

The consensus rating of Gilead stock by Wall Street analysts is "buy," according to Thomson Reuters, consisting of 11 "strong buys," 11 "buys" and nine "holds."

This California biotech company, founded in 1987, has operations in North America, Europe and Asia. It is strong financially, with considerable cash despite its share repurchases, corporate acquisitions and global expansion. Gilead recently permitted sales of generic versions of four of its HIV drugs in developing countries.

Gamco fund buys stock in miners, not gold

Question: I want some gold-related investments. What do you think of Gamco Gold AAA fund?

Answer: This fund doesn't buy actual gold but instead purchases the stock of proven gold-mining companies. Unlike the commodity itself, the firms generate cash and provide dividends to shareholders.

Although this strategy has generally been successful, it hasn't worked out so well over the last year. The price of gold rose, but the market didn't believe that could continue indefinitely, so the prices of mining stocks didn't rise along with it.

The $552-million Gamco Gold AAA fund was down 1% over a recent 12-month period and had a three-year annualized return of 44%, placing it in the bottom third of funds investing in precious metals stocks. Its 10-year annualized return was 24%.

"Gamco Gold AAA is in a specialized sector and will tend to be more volatile than more diversified funds," said Janet Yang, a Morningstar Inc. mutual fund analyst.

Caesar Bryan, portfolio manager since the fund's 1994 inception, emphasizes large, established gold-mining companies and has the objective of long-term capital appreciation. Speculative companies represent only about 10% of the portfolio, which means it can lag behind the market when smaller-cap miners dominate.

Bryan seeks undervalued gold-mining stocks with strong management, substantial deposits and recoverable reserves.

The "no-load" (no sales charge) fund requires a minimum initial investment of $1,000 and has an annual expense ratio of 1.44%, which Morningstar considers relatively high.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com

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