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Gilead Sciences (GILD) is a bio-pharma company that develops and commercializes therapies in the field of HIV, hepatitis, cardiovascular disorders, cancer, and inflammation. About 73% of its revenue comes from its HIV drugs, particularly, Atripla and Truvada. In April this year, the FDA rejected its HIV drug Elvitegravir as a standalone HIV drug, but it has already approved Stribild, which is a combination of drugs that contains Elvitegravir. Stribild is a new once-a-day combination pill that treats HIV-1 infection in adults who have never been treated for HIV infection.

On the other hand, on August 12th the FDA approved ViiV Healthcare's Tivicay, a new HIV integrase inhibitor. GlaxoSmithKline (GSK) holds a 76.5% stake in Viiv Healthcare. Integrase inhibitors are a class of drugs designed to block the action of the virus gene, which tries to enter the DNA of an HIV infected patient. The FDA has approved Tivicay to treat people infected with HIV who have never undergone HIV therapy as well as those who have been treated with other integrase inhibitors. The drug is also approved for children over 12 years, weighing at least 40 kilograms. Tivicay will directly compete with Gilead's HIV treatment drugs.

In the U.S., around 1.1 million people are HIV positive, and about 50,000 are infected every year. Every HIV infected person requires treatment according to his medical condition, because the HIV mutates and develops resistance to the prescribed drug. Tivicay will add another option for physicians treating HIV.

A monthly course of HIV drugs Gilead's Atripla and Truvada, (generated revenue of $6.10 billion in the fiscal year 2012) costs $1567.15 and $1013.45 respectively and Stribild costs $2857.81. Meanwhile, GSK's Tivicay's expected cost is $1175. We expect Tivicay to take away market share from Gilead's HIV drugs with its competitive pricing and its approval to treat a patient who has already been treated by other integrase inhibitors. During the trial phase conducted on 2539 participants, Tivicay has proven to be a better drug over Atripla. In 2011, only 28% of HIV positive people were receiving HIV treatment in the U.S. We are assuming this number will increase to 30% this year creating a market size of 0.33 million patients. Given the strong efficacy rate of Tivicay, we expect it to gain 10% of the HIV drug market in one year timeframe, posing a strong challenge for Gilead's drugs.

Sofosbuvir, the new Hepatitis drug is a star for Gilead

Gilead is in the advance phase of FDA approval for its Hepatitis C virus, or HCV drug, Sofosbuvir. Currently, chronic HCV affects about 3.2 million people in the U.S., which creates a huge market for this drug. Sofosbuvir is expected to launch in the first quarter of 2014.

On June 7, 2013, the FDA granted priority review for Gilead's new drug sofosbuvir, a once daily oral drug for the treatment HCV. FDA grants priority review status to expedite the approval of those drugs that may provide major improvement in the treatment of diseases when compared to existing options. The FDA has set December 8, 2013 as the target review date. Gilead is highly optimistic about the drug's approval and has already started its preparation to launch sofosbuvir in the first quarter 2014. The company has hired its field based sales team who are undergoing a rigorous three month sales training to get ready for the launch.

According to Gilead's management, in the peak period for sofosbuvir, about 150,000 patients would seek HCV treatment per year. Currently the other major hepatitis C drug available in the market is Vertex's (VRTX) Incivek which costs $72,565 for a 12 week regimen. In August 2013, the FDA has placed a partial clinical hold on development of a 200 mg dose of VX-135 in the U.S. This was due to three patients developing liver toxicity in its European study. Vertex's struggle is positive news for sofosbuvir since VX-135 is a potential threat because of its similar mechanism of action and chemical composition.

Gilead's sofosbuvir has proven to be a better drug as compared to the other options available in the market. We believe Gilead can easily launch sofosbuvir at a premium price of around $75,000 per patient for a 12 week regimen. Referring to the company's expectation for peak period, we assume about 45,000 patients would seek sofosbuvir treatment in the launch year, which gives a revenue estimate of $3.3 billion for Gilead from this blockbuster drug.


We forecast Sofosbuvir to be the revenue driver for the company in fiscal year 2014. Gilead is currently trading at a price to earnings, or PE, ratio of 33.73, but its forward PE ratio is 20.09. This shows a growth potential of 67.89%, giving an expected EPS of $3 for fiscal year 2014. The Gilead's other major competitor, GlaxoSmithKline, is trading at a PE of 19.36 and its forward PE is 13.08. This indicates a growth potential of 48%, giving expected EPS of $3.88. On the other hand, Vertex is incurring losses and its outlook is also not so appealing because of stiff competition and the FDA's hold on the HCV drug research.



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As an investor in the pharma industry, you want to look for companies that have a healthy pipeline and a history of successfully bringing drugs to the market. Gilead is one such company that has a history of bringing blockbuster drugs to the market. Its HCV drug Sofosbuvir is in the pipeline and is in its final stage of approval. We expect this blockbuster drug should generate revenue of $3.3 billion in fiscal year 2014. Although the company is feeling pressure from rival GlaxoSmithKline in the HIV drug division, the revenue from its HCV drug will offset the revenue loss in the HIV market. We expect positive news for the company from the FDA on December 8th, which will translate into strong earnings in the coming fiscal year.

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

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Shweta D., one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.