2 biotech bets: Cepheid and Gilead
Here's a look at a leader in HIV/AIDS treatments and a pioneering play in molecular diagnosis.
Cepheid (CPHD) has a very large idea -- it's aiming to "democratize" molecular diagnostic testing through its revolutionary GeneXpert system.
Gilead Sciences (GILD) is a big biopharmaceutical company with 14 products on the market, including ﬁve medicines for the treatment of HIV/AIDS that accounted for 86% of 2010 revenue.
First, as to Cepheid, the company's system gets the most accurate results for the 11 tests it currently has on the market (many of them critical-care infection tests).
But more important, the system is tremendously easy to use (no highly trained lab techs needed) and, because the tests can be done in very small batches (instead of collecting dozens and sending them out to huge labs), results are available extremely quickly.
Management believes it's at least one or two generations ahead of the competition, and not surprisingly, GeneXpert is selling very well -- more than 2,800 have been placed since 2007, including 175 clinical systems in the fourth quarter alone.
Each of these systems provides a stream of recurring revenue with every test. We think this could be as mass market a product as has been seen in the medical test industry.
The stock staged a huge gap up to over $40 on earnings, though it's gyrated since. We think you can buy some here, but expect volatility.
Gilead Sciences, in addition, to its HIV/AIDS market, focuses on medicines targeted at liver disease, cardiovascular ills, respiratory ailments, fungal infections and other conditions. Its strong pipeline of new drugs means it has plenty of room for growth.
Investors are focused on Gilead's GS-7977 (a drug acquired in last year's takeover of Pharmasset) that has shown remarkable efﬁcacy in clinical trials, completely curing four out of ﬁve hepatitis C subjects.
Fast-moving biopharmas are often companies with no or few marketable products, which makes Gilead Sciences a bit of an anomaly.
But management's strategic acquisitions have kept the heat on, and there is still the potential for expansion of the company's popular HIV/AIDS regimens.
After grinding higher from (split-adjusted) penny stock status in the middle of 2004 to a top at $58 in June 2008, GILD has traded mostly sideways for years.
But the stock took off along with the broad market in the middle of December and ripped from $37 to $49 in just 31 trading days with nary a two-day pullback.
Then came the gap up to $55 in early February following positive results from a clinical trial. The stock has corrected modestly on reduced volume. It's buyable on any pullback.
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