By Marguerite Ward
1. Gilead’s numbers are looking good:
The California-based biopharmaceutical company continues to see success with its HIV drugs (Stribild, Viread ect.) and Hepatitis C drugs (Sovaldi and Harvoni). Gilead’s stock is up 6.24 percent year-to-date at $100.14, swiftly outpacing the NASDAQ composite index’s 1 percent decline over the same period.
Its earnings per share are $9.48 and are expected to to rise 20 percent over the next year. This is compared to Amgen’s current EPS of $7.55 and Celgene’s $2.64.
Analysts say “buy.” The overwhelmingly majority of 26 analysts in a recent Bloomberg poll are overweight on the stock.
2. The company is poised to make some big moves:
Gilead recently announced that it will issue $10 billion in debt–a move to raise capital that has investors giddy over what could be some big M&A action soon.
“It’s common knowledge that they are the best in the business when it comes to finding undervalued pipeline assets. There’s a lot of pressure to maintain that reputation,” said Karen Andersen, analyst with Morningstar Investment Services.
John Milligan, president and CEO of Gilead, said at the Morgan Stanley Global Healthcare Conference on Sept. 16 that the company is taking its time in deciding how to invest its capital. Milligan said he doesn’t want the company to get so big that it no longer is young, entrepreneurial and able to react to new scientific data quickly.
While biotech analysts eye oncology for Gilead’s next area of expansion, it’s unlikely the company will make the jump just yet. Instead, Gilead will likely continue to work in the HIV and Hepatitis C sphere, according to Milligan’s comments.
“In our view, the company should reinvest its Hepatitis C earnings in the development of new drugs, whether through acquisitions, partnerships, or the in-licensing products from smaller clinical-stage companies,” David Toung, market analyst at Argus Research, said in a Sept. 18 research report.
3. But it’s not all clear skies…
A number of Gilead’s HIV product patents are going to expire in 2018, meaning that more and more of their products will be available as generics, said Andersen. This could put pressure on Gilead’s revenue stream it gets from its expensive drugs.
Competition isn’t going away any time soon, especially for products in Hepatitis C. Gilead will have to continue to find the best research and development in the field in order to stay on top, according to analyst notes.
The high cost of Gilead’s drugs has caused some significant media backlash and won’t go go away any time soon, garnering support for generic alternatives. One of its most popular Hepatitis C drugs Sovaldi costs approximately $1,000 per pill after discounts.
Patients need to take about 81 of these pills for treatment–totaling anywhere from $50,000 (for military veterans) to $81,000 per patient. Several major publications have published articles on the topic, including The Wall Street Journal, The New York Times and The Los Angeles Times.
But Gilead said that its high price reflects the rate at which patients are cured.
For patients with the most common type of Hepatitis C (genotype 1), the cure rate for Solvadi is 90 percent and 94-99 percent for Harvoni, the company said.
“With the availability of new, higher efficacy treatments like Sovaldi and Harvoni, the elimination of HCV could become a reality. The price of Sovaldi and Harvoni reflects this innovation and their value to patients and the healthcare system,” a Gilead representative said in an email.
“Sovaldi and Harvoni offers a cure at a price that will significantly reduce Hepatitis C treatment costs and deliver significant savings to the healthcare system over the long-term,” the company added.
4. What’s next?
Gilead is looking to expand its sales in Asia. So far, the company is happy with the prices it was able to negotiate in Japan, and hopes to continue expanding globally.
In the near future, Gilead expects an FDA decision on an updated version of one of its key HIV drugs, on November 5, according to a recent report by Argus. Positive results could send the stock higher. News of an acquisition would also bode well for the company.
The company’s earnings are expected to come out on Oct. 27, 2015.
Photo Credit: Faculty of Medicine NTNU