What Lies Ahead For Gilead Sciences, Inc. (GILD)?
Gilead Sciences, Inc. (NASDAQ:GILD) shares have dropped about 11% from the yearly high price. The stock also faced downside pressure after reports indicated 2% slackening of prescriptions for its Harvoni drug meant for Hepatitis C treatment. The drop was on a week-to-week basis and not a month-to-month or quarter-to-quarter to warrant serious changes in the opinion of the stock. None-the-less, it is not favorable news for the drug maker. However, that alone does not decide the future of the stock since it has to focus on other markets, as well as on other drugs that are in the pipeline. In fact, the company appears to be thinking beyond the growth point. Though the company is slightly over dependent on Hepatitis C, there are other things that should take care of its growth prospects.
Strength In Product Pipeline
If IMS Health reported a 2% drop in prescriptions of Harvoni, to 7,333 for the week of September 4, its new prescriptions also fell 3%, to 2,672 in the same period. Total prescriptions of Gilead Sciences, Inc. (NASDAQ:GILD)’s Harvoni and Sovaldi witnessed a 2% drop, to 9,015. That caused some anxiety among investors, as well as traders to resort to selling the stock. It has been nearly a year since the company started generating revenue growth from the two blockbuster products for the treatment of Hepatitis C. Therefore, there is bound to be some slowdown in the United States. However, other markets can play a crucial role. For instance, Sovaldi generated $154 million revenue in the second quarter from international markets other than Europe. In the year-ago quarter, it was able to generate only $49 million. Similarly, in Europe, the drug generated $522 million, compared to $401 million in the previous year quarter. Therefore, there is still a lot left to be tapped by the company in the Hepatitis C category.
Aside from that, Gilead Sciences, Inc. (NASDAQ:GILD) also has a lot of strength in its product pipeline. Currently, the company has 36 compounds with three waiting for approval from the regulator and seven in the final stage of the clinical trials. The company also got some favorable news recently with its TAF-based regimen versus TDF demonstrating higher anti-viral efficacy. That was at a dosage of less than 10% of its TDF drugs and at the same time indicating enhancements in renal function besides reduction in bone impairment. That should enable the drug maker to extend its control in the HIV market. Most importantly, the company faces less competition in the HIV market. The frequent changes in viruses also offered a climatic opportunity for the company.
Oncology And Cancer
For the future, Gilead Sciences, Inc. (NASDAQ:GILD) has got enough chances to grow even within cancer and oncology. The company has the most compounds in the final phase in oncology. To be particular, the company has compound GS-5745, which is in the second phase. The company was developing it for gastric cancer. Currently, the market is worth about $1.1 billion and is predicted to reach $3.8 billion by the year 2023. These factors should cushion any weakness or slowness in the Hepatitis C drug.
There is no doubt that the company is enjoying its leadership position in the HCV and HIV markets in the United States. However, there were bound to be some concerns as to how long they can remain as the leader. Currently, about 30,000 fresh patients are added for Hepatitis C treatment in the United States every month. That means there are enough patients to be treated still leaving enough opportunity to earn a profit on its current platform. In respect of the efficiency level, Gilead Sciences, Inc. (NASDAQ:GILD)’s Solvadi, as well as Harvoni, reached above the 90% level. That left the company to focus on reducing prices to please insurers, as well as the patients who were calling for a reduction in treatment costs.
The company has already guided a discount of 46% in the current year for Hepatitis C, and there are little chances of allowing further discounts. Also, there are fewer chances of rivals coming up with a better efficiency rate than the two drugs.
Is M&A One More Option
The drug-maker disclosed recently that it was raising about $10 billion from the market. The company has given only a standard reason of using it for general corporate purposes. That includes everything, be it working capital or repayment of debt or dividend payments and the buying back of its own shares apart from indulging in any acquisitions.
Though shareholders of Gilead Sciences, Inc. (NASDAQ:GILD) have been urging the company to go for M&A, the company has been avoiding open discussion on the subject. However, the company has never given an impression that it was not interested in M&A. There is a general opinion in the biotech industry that valuations are stretched. The company might be waiting for the right time to make any meaningful M&A.
RBC Capital Markets analyst expects the two Hepatitis C drugs to deliver sales of $12.2 billion in the current year. On the other hand, the Street analysts estimated $12.7 billion revenue from the two drugs.
As far as the risk factors, the company’s drug might face restrictions on foreign nations while TAF-based regimen results can go unfavorable also. The company stands to lose patent protection in 2018 for its HIV franchise, apart from the rivals launching a Hepatitis C drug.
Gilead Sciences, Inc. (NASDAQ:GILD)’s valuation is reportedly below its rivals at 10x 2016 earnings. If the company can stabilize itself then it can command a 14 – 15x three-year advanced earnings multiple compared to other big biotech companies.
The recent fall in shares can be treated as an entry point to those who have not entered so far. Though some weakness could have been there, Gilead Sciences, Inc. (NASDAQ:GILD)’s overall position in HCV or HIV is solid. Therefore, there is nothing to suggest anything downside significantly. There are only favorable pointers for future growth and value.
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.
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