Gilead Sciences' (GILD) stock price has almost doubled in the last 52 weeks. The company is successfully rolling one after another drug into the market. It has been successful in receiving FDA approval for Quad and Truvada (for HIV prevention), and is now focusing on the Sofobuvir cocktail for Hepatitis C treatment. I believe at a P/E of 17x, GILD is a bargain for any portfolio. Sofobuvir is expected to garner peaks sales of $3.8 billion, which makes me believe that the GILD growth story is still half told.
Gilead Sciences Inc
Gilead Sciences is a bio-pharmaceutical, which is involved in the development and commercialization of human therapeutics for life threatening diseases. The product portfolio of Gilead includes Truvada, Atripla, Viread, Complera/Eviplera, and Emtriva. The company has also received FDA approval of Truvada for HIV prevention. This means that now Truvada can be used by people involved in professions, where there is a higher risk of getting exposed to HIV virus e.g. nurses. The company has also received approval for its drug Quad; a combination of Emtriva and Viread. GILD is trying to diversify its anti-viral focus by venturing into cardiovascular products. Gilead and the Cardiovascular Research Foundation (CRF) are currently involved in the Phase 3 clinical trials, aimed at assessing the utility of 'Ranolazine to prevent major adverse cardiovascular events (MACE) in patients with a history of chronic angina who have incomplete revascularization following percutaneous coronary intervention (PCI).'
I believe that the approval of Quad, Truvada etc are already priced-in. Therefore, investors should look towards GILD's Hepatitis C drug for stock appreciation.
Sofosbuvir for Hepatitis C
Gilead is pushing Sofobuvir for the treatment of Hepatitis C. The drug will replace Interferon, which is a standard Hepatitis C treatment, but has unpleasant side effects. The drug was initially developed by Pharmasset, which was later acquired by Gilead Sciences (Gilead acquired Pharmasset for $11 billion). Gilead is pushing for a Hepatitis treatment by the combination of Sobuvir and Ribavirin. The company announced positive late-stage trail results for this treatment last week. In the 12 weeks after completing the therapy, 78% patients taking the drug did not have the virus. The safety profile of the drug was similar to previous studies conducted by the company. According to Chief Scientific Officer Norbert Bischofberger, Gilead plans to share the complete data on the study in first half of 2013 and submit its first regulatory filings for Sofosbuvir by mid-2013.
I believe the potential of Sofobuvir success is still not priced in. According to Credit Suisse, the market for Hepatitis C can reach $20 billion by 2015, and according to Barclays, Sofobuvir can reach sales of $3.8 billion at its peak. The only problem remains the downside risk of more entries in to the Hepatitis C market due to its huge potential of $20 billion. There are already some solid competitors in the market ,e.g. Abbott Laboratories (ABT) and Achillion Pharmaceuticals (ACHN). Despite the expected competition, the recent trial results are big news for Gilead investors, and with expected sales of $3.8 billion, Sofobuvir can drive GILD growth.
Valuations
GILD is currently trading at a forward P/E of 16.9x and P/S of 6.0x. The average P/E of NASDAQ is 19x and biopharmaceuticals industry's P/E is 24x. The PEG ratio of GILEAD is 1.03x, i.e. growth of 16%. I believe with the Hepatitis C and cardiovascular products, GILD can drive much more growth than the market is expecting; not to forget Quad and Truvada (HIV prevention). The mean target price from the sell side is $84, an upside of 14% on current valuations. The following targets can be established using average multiples and consensus estimates:
Industry P/E | NASDAQ P/E | ||
P/E | 19x | 24x | |
Consensus EPS | $ 4.39 | $ 83 | $ 105 |
High EPS | $ 5.05 | $ 96 | $ 121 |
Low EPS | $ 3.89 | $ 74 | $ 93 |
The bold values in the table above represent target prices for GILD from each set of EPS estimates and P/E. As the table shows, under each scenario the price is greater than the current price, other than using industry P/E and lowest sell side EPS estimate. This is why I believe GILD is one of the best, if not the best pharmaceutical stock. The stock has the potential to give capital appreciation of up to 40% (using target price of $105 for December 2013). Therefore I believe GILD is a buy and a must have for any portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
