Is Gilead Sciences, Inc. (GILD) Stock Cheap?


Gilead Sciences, Inc. (NASDAQ:GILD) shares appear to be cheap, despite the stock hitting a one-year high. While there is no doubt about the company’s product with regards to the Hepatitis C virus, there are other interesting factors that boost the sentiments of the stock. For instance, the company has been initiating efforts to expand its presence worldwide. Secondly, there is a strong expectation that the drug maker will resort to some deals in respect of cancer. That will likely provide a significant upside potential from the current level.

Quality Matters

There appeared to be tremendous interest for Gilead Sciences, Inc. (NASDAQ:GILD)’s Hepatitis C product, Sovaldi, which generated $972 million of revenue in the first quarter. Similarly, its other product Harvoni generated $3.6 billion of sales in the first quarter. While Sovaldi is approved for genotype 1 – 4 hepatitis C affected patients, Harvoni is approved for genotype 1 hepatitis infected patients. Both are getting tremendous traction in the United States, as well as the European Union.

The significant point to ponder over here is the quality of the product that is being viewed with utmost interest. That means that there could be some concerns on the quantity of the drugs supplied. The confidence level about the product seems to have increased since patients started to believe that the drug is not an onerous one to take. Patients also believe that the drug treats them. Therefore, the pricing appears to be of no concern. However, insurers were up in arms against the drug maker for pricing it high and expressed their displeasure time and again. In the end, it is the treatment that mattered for patients and the preference for Gilead Sciences, Inc. (NASDAQ:GILD)’s Hepatitis C product appeared to be strong continuously.

Competition

The company does not seem to be unduly worried over the competition from AbbVie Inc (NYSE:ABBV) currently. That is probably due to a not very impressive start by AbbVie’s Hepatitis C product, Viekira Pak, as it generated sales of $231 million in the first quarter. However, the company expressed its confidence that prescriptions will start looking up later in the current year. AbbVie’s objective is to capture nearly 20% of the market.

Gilead Sciences, Inc. (NASDAQ:GILD) will also face competition from Merck & Co., Inc. (NYSE:MRK), once the latter gets approval for its Hepatitis C drug. Merck filed a New Drug Application (NDA) last week with the FDA. The potential launch will be a more real threat to AbbVie’s product than Gilead’s. However, the quality and efficiency of the product will dictate the direction.

Despite the entry of Merck & Co., Inc. (NYSE:MRK) and AbbVie Inc (NYSE:ABBV)’s existing product, there will not be much of a worry for Gilead. That is primarily because of the size of the Hepatitis C market. For instance, a report in Barrons indicated that there are about 3.2 million people affected by Hepatitis C. Based on $50,000 for the treatment of a person, it will lead to a whopping $160 billion market. If this is considered highly optimistic, there is a study conducted by visiongain indicating that the Hepatitis C treatment market will reach $32 billion in 2018. These apart, the company estimates 185 million people with Hepatitis C virus worldwide. That means there is enough space for every drug maker to grow.

Increasing Global Presence

Gilead Sciences, Inc. (NASDAQ:GILD)’s increasing global presence is very essential since a significant portion of its estimated affected people are in the Asian region. The company has entered into licensing agreements with eight generic manufacturers for HIV in India. This apart, the company disclosed a non-exclusive deal with eleven generic manufacturers for HCV in India in the last year and current year. That included the products of Sovaldi and Harvoni.

Gilead also extended its distribution to 91 emerging countries, since over 100 million affected by the Hepatitis C virus are there. So far, the company’s combined access efforts allowed them to reach more than seven million patients in lower and middle income nations. That was part of its focus on emerging markets and access operations.

These apart, the company also reached fresh deals with Medicines Patent Pool (MPP), to extend access to the investigational drug TAF for HIV, as well as HBV, subject to regulatory approval. MPP will enable sub-licensing of TAF to generic drug makers for manufacturing and distributing in 112 developing nations.

Potential Entry

The third quarter is normally a choppy one for the biotech sector in the bourses. RBC Capital believes that the stock might witness some pullback, consolidation, and choppiness. However, the brokerage exuded confidence about the second quarter earnings turning out to be solid. RBC said that it could witness in all its marketing meetings that generalists believe what is working is working as far as the big cap and biotech is concerned. That was partly because investors still consider biotech as one of the growth areas of the economy. Therefore, they believe that Gilead Sciences, Inc. (NASDAQ:GILD)’s shares are going cheap.

This apart, the company is also likely to announce some deals in the current year in respect to cancer. That will be a big surprise for the upside potential, since not much has been shared with investors. Aside from all these, the company also has product candidates in the pipeline on Hematology/Oncology and Inflammation/Respiratory. The company has already submitted its NDA for TAF to the regulator.

Conclusion

As far as Gilead Sciences, Inc. (NASDAQ:GILD) is concerned, much of the valuation is attached to the Hepatitis C virus product. Even if there is going to be growing competition, the company appears to be on a strong wicket on HCV. The expected deal will be additional factors that could boost its bottom line. Also, the company has been buying back its shares significantly. Though the counter might witness some pressures, the stock appears to be going cheap.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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