Why Gilead Sciences, Inc. (GILD) Is All Set To Outperform?


Gilead Sciences, Inc. (NASDAQ:GILD) reported its financial numbers for the third quarter. At least in the last four straight quarters, its earnings, as well as, the top line beat the Street analysts’ expectations. That has become a habit for it after it launched Hepatitis C drug in the first half of the last year. However, the stock closed in the negative territory on Wednesday. The reason was very simple. Investors were worried over as to what awaits the company next. Currently, its drug is more efficient than any other in the market for liver treatment. As a result, it also commands a premium though it is battling with the insurers on the pricing of the drugs.

Focus On Expanding HIV And HCV

Gilead Sciences, Inc. (NASDAQ:GILD) indicated during the conference call that it would continue to focus on maintaining, as well as, expanding its core HIV and HCV franchises. It has also developed its pipeline, particularly in liver diseases. Reports suggest that there are promising trends in the Phase three test of a product meant to treat hepatitis B patients. If everything goes as per the plan, then the company might be able to launch the compound before the next year ends. That would undoubtedly be good expansion for liver diseases treatment. Additionally the company would also focus on the continued evolvement of its HIV, as well as, HCV treatments so that it would be easier to push it further to make treatments available for both.

Gilead Sciences, Inc. (NASDAQ:GILD) is also trying hard to slash the time duration of its HCV regimen for patients affected by hepatitis C. The company would fuel higher screening to spot more patients of hepatitis C throughout the nation and push the service provider to start treating them earlier. Such steps would make sure that the company was able to maintain its market share of 90% in HCV. Similarly, it would help the drug maker to retain 70% market share in the HIV segment. That suggests that the company is on track to do the right thing in the long run.

Competition Will Not Hurt

One of the main reasons that Gilead Sciences, Inc. (NASDAQ:GILD)’s hepatitis C drug is gaining more and more traction is because of its effectiveness in treating the disease. Even if it meant paying higher, patients would be more comfortable with the company’s drugs because of the relief it provides to them. However, the company was asked to spell out its action on the recent adverse labeling of AbbVie Inc (NYSE:ABBV)’s Viekira Pak. It was also asked about its plan to approach Express Scripts Holding Company (NASDAQ:ESRX) to get the 15% market share enjoyed by Viekira Pak in the biggest PBM network.

Gilead Sciences, Inc. (NASDAQ:GILD)’s COO indicated its readiness to talk to the Express Scripts but pointed out that there was already an agreement in place for 2016. Merck & Co., Inc. (NYSE:MRK) is planning to offer the drug for the treatment of liver. That would be a threat to Viekira Pak and not to Gilead’s HCV drugs though the insurers, as well as, PBMs want the competition to bring down the costs of the treatment for hepatitis C. That meant that there would not be any competition to hurt its sales.

Valuation Of The Stock

There is a strong belief that the company’s earnings estimation of $11.60 a share is too low for the next year. The Street is predicting $12.00 a share whereas another opinion favors $12.50 a share for the next year. In the last two years, consensus earnings productions commenced with low and were boosted steadily. However, it might be unlikely to happen in the current year. Currently, earnings are nine times of future earnings, which is on the lower side. However, based on the conservative 10 – 12 times of earnings multiple on $12.50 earnings per share for the next fiscal year, Gilead Sciences, Inc. (NASDAQ:GILD) shares are worth about $125 – $150. Considering the current market price, it can outperform.

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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