Gilead Sciences (GILD) has soared more than 100% in the last year. However, the last few days have been a little rough. The strong run up in the stock price has led many insiders to take their profits off the table. Five of the company's big executives have sold their shares in the last month, which has consequently instilled fear into investors. For example, Chairman and CEO John Martin sold 282,242 shares for $20.96 million on December 2.
Even though insiders selling shares when the stock price is high is a common thing, it seems to have had a negative impact on Gilead as the short interest in the company has risen to the highest level of 2013. With more than 5% of the float short, Gilead is leading the pack in rising short interest among all biotech companies. However, I believe it's not the right time to short this high-flying biotech giant. Let's take a look why.
Revolutionizing Hepatitis C treatment
Gilead has dominated the HIV treatment space for a fairly long period of time but the company has made big moves this year to set it and its investors up for a great future. Gilead's $11 billion acquisition of Sovaldi, along with its developer Pharmasset, back in 2011 is panning out nicely and now may be the perfect time for investors to reap the benefits of it.
A few weeks ago, the Food and Drug Administration approved Gilead's Sovaldi for the cure of hepatitis C. This opens up a huge growth opportunity for Gilead as there are nearly 3.2 million people in the U.S. who are estimated to be suffering from hepatitis C. The hepatitis C virus is an enveloped single stranded RNA virus that needs to infiltrate a host cell in order to replicate. If left untreated, the virus can lead to liver failure and cancer by replicating itself.
Comparing Sovaldi with the other treatment methods will paint a clearer picture of why it is a revolutionary development in this space. The current standard of care for hepatitis C involves up to 48 weeks of therapy with an interferon and ribavirin regimen, which are injected into the patients and can have some unpleasant flu-like symptoms as its side effect.
On the contrary, Sovaldi is an oral pill and patients will have to consume one pill daily for 12 weeks. It is an oral nucleotide analog inhibitor of the hepatitis C virus NS5B polymerase enzyme, which plays a vital role in the virus replication. Though Sovaldi will be used in combination with ribavirin and interferon, depending on the genotype of hepatitis C, it offers higher cure rates on a shortened 12-weeks course of therapy.
Sovaldi's price of $1,000 per pill, which translates to $84,000 per treatment cycle, has come under a lot of criticism. By comparison, Johnson & Johnson's (JNJ) Olysio, which was the first to acquire approval and is not part of interferon-free drug regimens, costs approximately $66,000 for 12-week treatments. However, I don't think the criticism is warranted as the patients will only co-pay a mere $5. Also, Olysio is only effective against a genotype 1 (most common) of hepatitis C, while Sovaldi has a much broader treatment range.
While Sovaldi may not be a perfect drug for the treatment of hepatitis C, it is undoubtedly a game changer as its peak sales are projected to be more than $9.5 billion by 2017.
The recent developments in the space of hepatitis C have convinced many analysts to raise their estimate for Gilead Sciences. Following the 3% dip in Gilead's share price, many analysts have revised their estimates upwards. Gilead has landed a spot in Credit Suisse's list of top biotech stocks to buy in 2014 and it raised the price target to $110 from $90. Also consensus price target from the Thomson Reuters consensus has risen to $84.60.
Gilead is the first biotech company that has crossed the $100 billion mark in market capitalization and has generated nearly $9 billion in the first three quarters of the present fiscal year. UBS analyst Matthew Roden has estimated that its annual sales may surpass the record of $13 billion set by Pfizer's Lipitor.
So investors shouldn't be unnerved by the recent insider selling at Gilead as the company seems to have a bright future. The company has a strong pipeline and its earnings are expected to grow at a CAGR of 36% over the next five years. Thus, at a trailing P/E of 41, Gilead seems to be a good buy as its earnings are expected to grow at a fast rate going forward and investors should stick to it for the long run.