Published: January 10, 2010

The S&P 500 lost ground during the past decade, but this drug maker's shares returned a gravity-defying +1,179%.

That's the good news. The better news is that the company looks like it's setting itself up for a repeat performance.

One reason that its future looks so bright is that its main money-maker is protected by patents that give it exclusive rights that won't expire for a decade. What's more, a string of savvy acquisitions have added other promising drugs to its research and development pipeline, treatments that, if approved, could generate even more profits.

The company is Gilead Sciences (Nasdaq: GILD), a market leader in HIV treatment and other infectious diseases. Gilead's share of this market is nothing short of astonishing: 71% of U.S. patients with HIV use one of Gilead's drugs, Atripla, Truvada or Viread, to treat it. Their market-leadership is unlikely to face a challenge any time soon.

The portfolio managers at the StreetAuthority Market Advisor newsletter actually recommended this stock back in 2001. Their readers have since picked up +521% returns -- and like I said, the company's epic stock gains could be in for a repeat performance.

The company recently said its "all-in-one" HIV treatment, "Quad," was successful in one of the tests the drug needs to pass before it can be approved by the U.S. Food & Drug Administration. Quad worked at least as well as Gilead's current "all-in-one" drug, Atripla. The company considers Quad the most important drug out of the 16 in the its pipeline.

Considering the company already has an "all-in-one" HIV treatment drug, Atripla, this may sound odd. Why would Gilead continue to develop a drug that is only at least as effective as a drug it already sells?

Altripla combines three different drugs, two owned by Gilead and the other by Bristol-Myers Squibb (NYSE: BMY). Instead of having to share profits with Bristol-Myers Squibb, Quad will consist of drugs created and patented by Gilead.

Quad and Altripla are administered once a day and, thus, reduce the amount of pills patients need to take. That's where they get their "all-in-one" name. The new drug, Quad, consists of four drugs, Truvada, a two-drug combination, and two unapproved experimental drugs -- elvitegravir and GS9350. The two experimental drugs are part of Gilead's pipeline.

Initial studies of the drug look promising. Elvitegravir, which stops the virus from spreading, will be used in Quad. It appears to have fewer side effects, like dizziness and birth defects, than similar compounds like Sustiva, which is made by Bristol-Myers Squibb and used in Altripla.

HIV drugs accounted for 81% of Gilead's $5.3 billion in 2008 revenue. Generic versions of its drugs won't be threatening Gilead's revenue any time soon. Most of the company's key patents won't start to expire for another 10 years.

Gilead is not idly sitting around in the meantime. In addition to four HIV drugs in the pipeline, the company has been aggressively acquiring rivals to diversify its drug portfolio.

For instance, Gilead bought Myogen in 2006 to expand its stable of cardiac drugs. The acquisition added Letaris, a drug that treats hypertension, to Gilead's lineup. Letaris accounted for 2.7% of Gilead's $1.8 billion in revenue in the third quarter ended Sept. 30, 2009. That's not a large portion of revenue, but sales of Letaris are increasing fast: They shot up +52% in the third quarter from the year-ago period.

Another drug Gilead is working on is Aztreonam, which recently received good news from the Anti-Infective Drugs Advisory Committee of the FDA. The committee ruled that Aztreonam, which is used to treat lung infections in patients with cystic fibrosis, was safe and effective.

The FDA is not obligated to follow the committees' decision, but it usually does. Aztreonam is already available in Europe and Canada, and it's expected to win FDA approved in the United States. If it does, it will boost Gilead's non-HIV related revenue.

The April 2009 acquisition of CV Therapeutics, another heart-related drug maker, gave Gilead control of Ranexa, a drug used to treat angina. The drug generated $49 million in third-quarter 2009. Sales are predicted to peak at $500 million. Even after this purchase, Gilead still has $1.5 billion in cash on hand.

Gilead has an industry-leading operating margin of 49.7%. In comparison, Johnson & Johnson (NYSE: JNJ) and Bristol Myers both have an operating margin of 28.3%.

Gilead shares are trading at a -38% discount to their historic 5-year average earnings multiple, compared with an average discount of -29% for companies in the S&P Biotech index. Gilead has outperformed its index by an impressive +1,164% during the past decade.

Gilead's command of the market for HIV treatments is secure, as most of its key patents won't expire for another 10 years. This puts the company in an enviable position, and buying shares could be a great opportunity to get shares of a great biotech company at a discount.

-- Francisco Bermea
Staff Writer
Street Authority

P.S. So how did Gilead stock shoot up so fast over the past decade? Two words: profit catalysts. If you remember your high school chemistry, catalysts are agents that speed reactions between substances. It works the same way in investing. A profit catalyst is something that creates a dramatic impact on a company's fortunes... and triggers a sudden rush into its stock. The StreetAuthority Market Advisor newsletter ONLY recommends stocks that have strong profit catalysts. That's why they recommended Gilead back in 2001 -- and that's why their readers have seen +521% gains to date with this stock. So what "profit catalyst" stocks are the folks at Market Advisor recommending today? I'd say to start with their Top Ten Stocks for 2010 report. They just released it last week, so it's a perfect time to get in on their favorite picks at they same time they are. Check out the report here.