Gilead Sciences (GILD), a biopharmaceutical research company, indeed has traits of a growth stock. Gilead Sciences reported $9.7 billion in sales for the 2012 fiscal year. In the last three fiscal years, the company has consistently recorded massive growth in all key financial metrics. The company's annual gross profit margin, a financial metric that shows the level of management efficiency the company maintained for its production and distribution processes during the quarter or fiscal year, has consistently increased in the last three years. In the ongoing fiscal year, the company has been an outstanding financial performer. GILD's third-quarter 2013 results show that the company exceeded analysts' consensus revenue estimates by $0.06 billion, which translates to an increase of 14.7% year over year. Also, the earnings reported by the company for the quarter increased by 11.4% year over year and its gross profit margin for the quarter came in at a whopping 77.17%.
The Main Drivers of GILD's Improved Quarterly Results
The main drivers of the improved financials of Gilead Sciences in recent quarters have been sales from its HIV and HBV anti-viral drugs. Sales from these drugs alone amounted to about 84% of the total sales reported for its Q3 2013 fiscal year, which was recently released. Another potential growth driver for the financials and stock value of Gilead Sciences is its new oral hepatitis C drug, Sovaldi or Sofosbuvir, recently added to its line of drugs and pipeline. GILD's hepatitis C drug has already been recommended for marketing approval in the European Union by the appropriate EU advisory committee, and there are strong indications that the prescription drug could be available in the EU in the first quarter of 2014. In the U.S., GILD's hepatitis C drug is also being considered for approval by the FDA and a decision is expected to be made by the FDA advisers by Dec. 8.
The Potentials of GILD's Hepatitis C Drug to Improve Company's Future Earnings and Growth
According to available information, the hepatitis C virus (HCV) affects a larger number of people worldwide than HIV/AIDS, meaning that the market for the hepatitis C drug is bigger than the market for HIV and HBV anti-viral drugs. According to the recent global hepatitis prevalence information released by the U.S. Centers for Disease Control and Prevention (CDC), about 400 million people worldwide are suffering from chronic viral hepatitis and out of this number, about 4.4 million are Americans. Unfortunately, CDC says that most of the people infected with HCV do not know that they are infected, meaning that most infected people have not been diagnosed and treated as of this time.
According to an analyst at ISI Group in New York, sales estimates for HCV treatments may attain $100 billion within the next 10 years, providing huge earnings potential for Gilead Sciences and its peers going forward, in addition to the existing huge sales from its HIV/AIDS anti-viral drugs. Another report says the hepatitis C therapy market by 2018 could grow by more than three times its size as at 2012 and yield $20 billion in sales on an annual basis, starting from 2020.
How GILD's Sofosbuvir Ranked Among Other New Treatments for Chronic HCV
Though there's a lot of competition in this market from companies such as Johnson & Johnson (JNJ), Medivir AB (GM:MVRBF), Abbvie (ABBV), and Bristol-Myers Squibb (BMY), yet GILD's hepatitis C drug (Sofosbuvir) seems to have an edge over the competition in a number of ways. For example, if approved by the FDA, Sofosbuvir would be the first all-oral prescription treatment for genotypes 2 and 3 (two forms of hepatitis C) that make up as many as one quarter -- or 25% -- of hepatitis C patients. Besides, while hepatitis drugs such as Incivek by Vertex (VRTX) and Victrelis by Merck (MRK) takes 24 weeks for effective treatment, GILD's Sofosbuvir cut treatment duration to 12 weeks with manageable side effects compared to the competition. Also, Sofosbuvir is meant to be taken once daily with higher cure rates recorded compared to the treatment with drugs like AbbVie's, which requires that three pills be taken in the morning and one at night.
Interestingly, a report published by Bloomberg.com on Nov. 23 announced U.S. FDA's approval for Johnson & Johnson's and Medivir AB's pill -- simeprevir, to be called Olysio -- to bring new treatments to the people afflicted with chronic hepatitis C. That was the first drug to be approved by the FDA to bring new standard to the treatment of hepatitis C, but it is the third FDA-approved protease HCV inhibitor. The approval of Olysio further raises the hope of approval for GILD's Sofosbuvir.
What Analysts Are Saying About Potential of GILD's Sofosbuvir to Add Value to Shareholders
Several Wall Street analysts including those of Bank of America Merrill Lynch, Goldman Sachs, Citigroup, and RBC Capital Markets are optimistic about the performances of Gilead Sciences and, hence, reiterated a buy recommendation on its stock with a consensus price target close to $80. Citigroup reiterated a buy rating and raised its price target to $87 from $85, and also raised its earnings estimate for the biotechnology company for Q1 2014 fiscal year to $3.46 per share. Analysts at Bank of America Merrill Lynch were much more optimistic, such that they not only reiterated the GILD stock as a buy but also raised its price target substantially from $96 to $107, citing strong convictions that GILD's hepatitis C drug will enhance the future earnings of the biotech company. Currently, 15 analysts rate GILD stock a buy, two rate it a hold, and none rate it a sell.
The strength of Gilead Sciences can be seen in multiple areas that include its strong revenue growth that outpaced industry average by 10.4%, encouraging valuation metrics, good cash flow, reasonable profit margins, expanding earnings per share, and solid stock performance. GILD's current net operating cash flow of $753.10 million fairly exceeds its peers' average cash flow growth. Going forward, it is hoped that the finances of Gilead Sciences will continue to be driven by multiple catalysts, including the expected huge sales from its hepatitis C drug once it is cleared for sales by the FDA and the European Union. GILD stock is a buy.