All Is Well That Ends Well; Acquisition By Gilead Sciences Pays Off

Nov.14.12 | About: Gilead Sciences, (GILD)

Gilead Sciences, Inc. (NASDAQ:GILD) on Saturday posted spectacular interim results for the Phase 2 of its Electron Study, the results of which will be presented today at the annual meeting of the American Association for the Study of Disease in Boston. The study examined 25 patients with genotype 1 chronic HCV infection who were treated for 12 weeks with three drugs: sofosbuvir, ribavirin and GS-5885. The study revealed that patients who had never received the combination of the drugs before witnessed a reduction in the infection to undetectable levels. The results point towards the effective use of sofosbuvir-based all-oral regimens. We reiterate our positive stance on the stock.

The news was appreciated by investors in the market which sent the price soaring, near its 52-week high of $74. The drug sofosbuvir was obtained with the acquisition of Pharmasset last year. The deal was criticized initially for being too pricey for a drug that was still unproven. The risk seems to have paid off, as illustrated in the latest results.

This marks an important point in the race for the lucrative market of HCV which the ISI Group estimates at $150bn worldwide. However, Gilead is not alone in this race and as we highlighted in our earlier article, Abbott (NYSE:ABT) and Johnson & Johnson (NYSE:JNJ) seem poised to benefit from this potentially huge market. In fact, during the same annual meeting in which Gilead presented its results, Abbot too presented data which showed that their drugs had achieved unprecedented cure rates for patients who had not benefited from other treatments.


The stock is up ~11 % since our last buy recommendation. We pointed out that results from the aforementioned study should be watched closely by investors. Although we remain optimistic about the performance of the company once the HCV drug hits the market in 2015, we additionally based our investment thesis on the idea that Stribild will continue to drive revenue growth due to its dominant position in the HCV market. This position will be bolstered further with the launch of the product.

Stribild, which was known as Quad before it attained FDA approval, brought in $17.5 million in revenue for the company in the last quarter. The treatment combines four compounds- elvitegravir, cobicistat, emtricitabine and tenofovir, into a single-tablet regiment. The drug is projected to rake in $3.4 billion in annual revenue by 2017.

Table 1: Competitors



Bristol-Myers Squibb (NYSE:BMY)


Merck (NYSE:MRK)


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Revenue figures for the third quarter ending September 2012 stood at $2.43 billion, up by 14 % YoY. Earnings, adjusted for onetime items, stood at $1.00 per share, beating analysts' estimates of $0.94. The company has one of the highest gross margins (75.39%) in the industry, along with respectable operation cash flows of $3.46 billion. In light of the promising results released recently and projected revenue increases in the future, we reiterate our positive stance on the stock. 15 analysts have a buy recommendation on the stock and 10 give the stock an outperform rating. None of the analysts have a sell rating.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Healthcare Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.