GILD Gilead Sciences Inc

For Immediate Release

Chicago, IL – December 7, 2011 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include AutoZone Inc. (AZO), Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY), Gilead Sciences, Inc. (GILD) and Pharmasset, Inc. (VRUS).

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Here are highlights from Tuesday’s Analyst Blog:

AutoZone Beats, Profits Up 24%

AutoZone Inc. (AZO) recorded a 24% rise in profit to $4.68 per share in the first quarter of its fiscal 2012 ended November 19, 2011 from $3.77 per share in the year-ago quarter, beating the Zacks Consensus Estimate of $4.45 per share. In absolute terms, profit increased 11% to $191.1 million from $172.1 million a year ago.

The increase in profit was driven by a 7.4% rise in net sales to $1.92 billion, which surpassed the Zacks Consensus Estimate of $1.90 billion. Domestic same-store sales (for stores open at least one year), increased 4.6% during the quarter compared with 9.5% a year ago.

Gross margin was 51.1% versus 50.7% in the first quarter of fiscal 2011. The higher gross margin was attributable to lower distribution costs due to an increase in sales, lower shrink expense and modestly higher merchandise margins.

Operating margin increased to 17.7% compared with 17.1% in the prior-year quarter, driven by an improvement in operating expenses (as a percentage of sales) to 33.4% from 33.6% a year ago based on lower incentive compensation, favorable legal expense and leverage from higher sales volumes, which was partially offset by higher self insurance costs.

Spotlight on Hepatitis-C Market

Is the hepatitis-C market the next Mecca for the pharma/biotech sector? It seems so if we go by the flurry of activity and heightened interest in this market in the past few quarters. The hepatitis-C virus (HCV) market seems to have caught the eye of several pharma/biotech companies - as evident by the deals being signed for the development of drugs for the treatment of HCV.

We are talking about the recent announcements made by big players like Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY) and Gilead Sciences, Inc. (GILD). All three companies have made it clear they want a piece of the HCV market pie.

Johnson & Johnson’s Tibotec Pharmaceuticals and Bristol-Myers Squibb recently announced that they have decided to join forces for the development of Bristol-Myers’ daclatasvir (BMS-790052) in combination with Tibotec’s TMC435, for the treatment of chronic HCV. What the partners are aiming to do is create an oral once-daily interferon-free cocktail treatment for HCV patients.

Bristol-Myers and Johnson & Johnson’s announcement comes on the heels of Gilead’s announcement regarding its intention to buy Pharmasset, Inc. (VRUS), a company focused on developing HCV treatments. We think the main attraction for Gilead in this $11 billion deal is Pharmasset’s HCV pipeline. Lead candidate PSI-7977 is currently in two phase III studies, with a third phase III study scheduled to commence in the first half of 2012. Successful development could lead to US approval in 2014 thereby making Gilead a front-runner in the oral once-daily interferon-free cocktail treatment HCV market.

We note that both TMC435 and daclatasvir are being evaluated separately in combination with Pharmasset's PSI-7977.

The Allure of the HCV Market

It is estimated that about 170 million people suffer from HCV infection around the world. However, the treated population is much lower. In major markets like the US, EU, Japan, Australia, Turkey, Canada, etc. only 200,000 HCV patients out of a total of more than 12 million are estimated to receive treatment each year. This means a huge number of HCV patients go untreated, leaving the field open for new treatments.

Secondly, the current standard of care comes with several side effects which make it difficult for patients to remain on treatment. A 48-week course of both peg-interferon (peg-INF - weekly injections) and ribavirin (RBV - oral drug), are the standard treatment for genotype 1 HCV infection. However, this treatment regimen is associated with significant side-effects like fatigue, flu-like symptoms, rash, depression and anemia.

With a large number of HCV patients failing to achieve a sustained viral response (SVR) on the current standard of care, there are several patients who would be open to treatment with new and potentially more effective therapies.

These factors have made the HCV market an attractive commercial opportunity for pharma and biotech companies. Victrelis and Incivek are examples of the changing treatment regimen in the HCV market. Both are protease inhibitors which when added to the standard of care reduce the treatment period and also improve the treatment outcome. However, both need to be administered with peg-IFN and RBV – this leaves the path open for the introduction of treatments with fewer side effects.

Cocktail Therapy – The Next Big Thing in HCV

Companies like Johnson & Johnson and Gilead are trying to develop the next crop of drugs, which are expected to change the treatment paradigm for HCV patients by providing them with all-oral treatment regimens. The aim is to develop a treatment which does not require the administration of interferon, thereby doing away with a whole range of side effects. The treatment duration will also be shorter.

Treatments being developed include HCV polymerase inhibitors and HCV NS5A inhibitors. The future HCV market will most likely consist of cocktail treatment regimens developed by combining different oral treatments.

Vertex Pharma has also recognized the need to continually evolve the HCV treatment pattern and is developing an all-oral combination of VX-222 (a polymerase inhibitor) and Incivek without peg-IFN.

Who Will Win the Race?

With several companies pursuing cocktail therapies for HCV, it will be interesting to see which of these companies will be the first to hit the market with a new treatment option. Currently, it looks like Gilead might be the front-runner assuming the Pharmasset acquisition goes through.

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