Gilead Sciences: A Great Long-Term Buy And Heading Bullishly Into Earnings

| About: Gilead Sciences, (GILD)

Gilead Sciences, Inc. (NASDAQ:GILD) is a research-based biopharmaceutical company, which develops and markets therapies to treat life-treating infectious diseases with the core portfolio focuses on HIV, liver diseases, such as hepatitis B and C, and cardiovascular/metabolic and respiratory conditions. Since our last article of "How To Play Gilead Sciences At Its Sizzling Hot 52-Week High", GILD had increased 6.26% and closed at $40.56 on February 1, 2013. GILD had 2:1 split on January 28, 2013. Recent developments will be updated for GILD in the following article.

Major Highlights

TAF Phase III study: On January 24, 2013, GILD announced the initiation of the first of two Phase III clinical trials (Study 104) evaluating a single tablet regimen containing tenofovir alafenamide, TAF, for the treatment of HIV-1 infection in treatment-naïve adults. As reported, "The Phase III studies will examine a once-daily single tablet regimen of TAF 10 mg/elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg compared to Gilead's Stribild® (elvitegravir 150 mg/cobicistat 150 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) among patients new to HIV therapy. The second Phase III study (Study 111) will be initiated later this quarter." GILD's management believes that TAF's smaller milligram size has the potential to offer safety and tolerability advantages over existing therapies and may enable the creation of new single tablet regimens for HIV. Topline results from a Phase 2 study comparing TAF/elvitegravir/cobicistat/emtricitabine single tablet regimen to Stribild were received in October, 2012. Stribild was approved by the U.S. Food and Drug Administration, FDA, in August 2012 and is Gilead's third single tablet regimen for HIV, which is currently pending for marketing in Europe. Forecasts from the new report indicate that the global HIV/AIDS therapeutics market will increase in value at a Compound Annual Growth Rate, CARG, of 7% between the years 2011 and 2018, from $13.5 billion to $21.8 billion.

DART: GILD will pay $30M in license fees in a deal to develop antibodies using technology from MacroGenics Inc. Depending on how the technology, Dual-Affinity Re-Targeting or DART, works out, GILD could end up paying as much as $85M in this deal. DART platform technology focuses on dual specificity "antibody-like" therapeutic proteins capable of targeting multiple different epitopes with a single recombinant molecule. As quoted from MacroGenics website,

"A key technological advancement and distinguishing feature of MacroGenics' DART is a proprietary covalent linkage which results in a molecule having superior stability, optimal heavy and light chain pairing and predictable antigen recognition."

Hepatitis C development programs:

GILD is on track to submit the initial regulatory filing for sofosbuvir by mid-2013 and to file for approval of the fixed-dose combination of sofosbuvir and GS-5885 in 2014. As reported for Phase 2 ELECTRON study,

"Preliminary data, presented in November at the annual meeting of the American Association for the Study of Liver Diseases, AASLD, demonstrated that three of nine patients (3/9) remained HCV RNA undetectable four weeks after completing therapy, SVR4. Today's announcement confirms that all nine patients (9/9) in this cohort achieved SVR4. These patients will continue to be observed to determine sustained virologic response rates at weeks 12 and 24 of follow-up (SVR12 and SVR24)."

GILD is also evaluating a once-daily fixed-dose combination tablet containing sofosbuvir and GS-5885 in several Phase 2 and 3 trials. As reported,

"Four ongoing Phase III studies will support Gilead's initial regulatory filing in mid-2013 for an all-oral therapy with sofosbuvir plus RBV among genotype 2/3 treatment-naïve, treatment-experienced and interferon-intolerant patients, and for sofosbuvir in combination with RBV and peg-IFN among treatment-naïve patients with HCV genotypes 1, 4, 5 and 6. Topline results from the first Phase III study, POSITRON, were announced in November 2012, and results from the remaining three studies (FISSION, FUSION and NEUTRINO) are anticipated in Q1 2013. Results from ION-1, ION-2 and LONESTAR are intended to support a regulatory filing for the fixed-dose combination of sofosbuvir/GS-5885 by mid-2014."

Other Large-Cap Biotechnology Competitors

Celgene Corporation (NASDAQ:CELG) had been on a bullish run with 29.27% increase since the beginning of 2012. CELG closed at $101.44 with a new 52-week high of $102.29 on February 1, 2013. CELG reported a strong Q4 for 2012 reaffirmed FY2013 guidance. CELG expects total net product sales to increase about 11% year-over-year to around $6B and adjusted diluted EPS to increase approximately 13% year-over-year to a range of $5.50 to $5.60 as reported by Reuters. CELG's overweight rating was reiterated by JPMorgan Chase with a $115 price target on January 30, 2013.

Amgen, Inc. (NASDAQ:AMGN), another major biotechnology competitor, stayed relatively flat since the beginning of the year and closed at $86.30 on February 1, 2013. On January 23, 2013, AMGN reported a weaker Q4 report with a 16% decrease in Q4 profit due to high production cost, marketing, research and other items counter balance higher sales. Net income, excluding one-time items, would have been $1.40 a share, which is 4 cents lower than analysts' expectation, according to FactSet. AMGN was upgraded by Argus to Buy on January 25, 2013 but downgraded by Credit Suisse to Neutral on January 22, 2013.

Key Stats and Valuation

GILD has an enterprise value of $67.46B with a market cap of $61.46B. GILD has a total cash of $1.70B with a total debt of $8.77B. GILD generates an operating cash flow of $3.47B with a levered free cash flow of $3.42B. By using Morningstar's data, GILD's key stats will be compared to its competitors in the biotechnology industry, including Amgen Inc., Biogen Idec Inc. (NASDAQ:BIIB) and Celgene Corporation. GILD has higher revenue growth (3 year average) of 16.3, which is higher than the industry average of 13.6. GILD has higher operating margin of 40.5%, ttm, and net margin of 26.8%, ttm, as compared to the industry averages of 25.9% and 13.7%, ttm, respectively. GILD generates higher ROE of 33.9, comparing to the average of 13.5. GILD's P/E of 24.6 is lower than the industry average of 47.4 but higher than GILD's 5 year average of 17.0. GILD's forward P/E of 9.2 is lower than S&P 500's average of 13.3.


Analysts, on average, are estimating an EPS of $0.48 with revenue of $2.43B for the current quarter ending in December, 2012. Analysts are also expecting an EPS of $1.93 with revenue of $9.54B for fiscal 2012. GILD will report the earnings on Monday, February 4, 2013 after the market close. In the last 4 earnings reports, GILD had two negative and two positive surprises, as seen from the table below.

(Click to enlarge)

Source: Yahoo! Finance

Analysts' Calls

On January 30, 2013, Deutsche Bank changed its price target for GILD from $95 (pre-split) to $48 with a buy rating and wrote,

"We are updating our TP and EPS estimates for Gilead's recent 2:1 stock split. Our new TP is $48 & our pre-split TP was $95. Our new 4Q12, FY 2012 and 2013 non-GAAP EPS estimates are $.51, $1.98, and $2.35 respectively. New 4Q12 fully diluted share count is 1582 with average share count of 1568 for FY 2012. We have made no changes to our revenue projections or expenses. Our thesis remains unchanged on HCV & HIV."

Analysts at UBS Ag raised their price target on GILD from $43.50 to $47.00 with a buy rating on the same day. On January 25, 2013, RBC Capital reiterated an outperform rating on GILD with a $88.00 price target (pre-split). Lastly, Barclays Capital raised their price target on GILD from $76.00 to $84.00 (pre-split) with an overweight rating on January 22, 2013.

Technically, GILD is bullish with the MACD (12, 26, 9) indicator showing a bullish trend and the RSI (14) indicating a strong buying momentum at 68.54. GILD is currently trading above its 50-day MA of 37.99 and 200-day MA of $31.05.

Reviewing Options

For the last reviewed credit put spread of February 16, 2013 $31.25/$33.75 (pre-split of $62.50/$67.50), investors can consider taking the profit now before the earnings or wait until options expiration to gain the maximum profit if GILD closes above $33.75 on February 16, 2013.

Note: All prices are quoted from the closing of February 1, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GILD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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