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Gilead Sciences (GILD) has had a huge track record of success, becoming one of the first biotech companies to achieve consistent success with its products. The company ended FY 2013 on a great note as it declared a terrific quarterly report in the first week of February. Gilead managed to exceed consensus estimates on both revenue and earnings, however the company killed a good bit of fun from the long-awaited earnings call by excluding sales of its hepatitis C pill Sovaldi from its 2014 product sales guidance. I reckon 2014 will be a great year for the company as it has many growth driving catalysts. I will go into details later, but first let's take a look at the numbers.

For the reported quarter, Gilead's revenue jumped 21% year-over-year to $3.12 billion, beating the analysts' estimate of $2.9 billion, while the earnings came in at $0.52 per share, surpassing the estimates by 3 cents. EPS remained flat year-over-year; however, this figure is slightly misleading as quarterly profit rose 4% to $791 million. Earnings didn't grow on per-share basis simply because of the fact that the company issued extra shares in 2013. So all in all, Gilead's quarterly performance was impressive as it managed to enhance both revenue and earnings despite of the negative impact of currency fluctuation.

For 2014, Gilead anticipates product sales in the range of $11.3-$11.5 billion, well above the $10.8 billion recorded in 2013. But, it is certain that Gilead will surpass these numbers simply because its guidance excludes Sovaldi sales.

Sovaldi: A Game Changer

Gilead's hepatitis C pill, which goes by the name of Sovaldi, was off to a flying start as total prescriptions (TRx) jumped 70% in the week ended January 10. Analysts' estimate for Sovaldi sales is very conservative ($2.4 billion). Sovaldi's TRx for the sixth week came in at 2,488. So, if I assume that this number stays constant throughout 2014, (which is extremely conservative given that it doesn't include sales from other regions such as Europe) Sovaldi could rake in over $6.8 billion in revenue. Here's how.

2, 488 x 50 (weeks) x $55,000 (average worldwide price per patient after discount) = $6,842,000,000.

Not to forget, Sovaldi sales in the fourth quarter totaled $139.4 million, well above the ridiculously low consensus estimate. So, I will not be amazed if Sovaldi sales crush analysts' estimate and send Gilead's share price flying. Thus, I think Gilead is a great buy at $81.

Downside risk to my Sovaldi's sales projection include extreme reduction in volume, intense competition from AbbVie (ABBV) and reduction in price due to rising competition.

Ledipasvir And Sofosbuvir

Right on the back of Sovaldi's approval in Europe, Gilead has submitted a new drug application to the U.S. FDA for a once-daily fixed-dose combination of the NS5A inhibitor ledipasvir (LDV) 90 mg and Sovaldi 400 mg for the treatment of chronic hepatitis C genotype 1 infection in adults. Approximately 75 percent of people infected with hepatitis in the U.S. have the genotype 1 strain of the virus and it accounted for over 70% of Sovaldi's sale in the previous quarter. The combination has been granted breakthrough therapy designation by the FDA, and this should speed up the review process. So far, all trials have shown excellent results for both safety and efficiency.

The hepatitis C war is getting competitive and Gilead may soon face competition from AbbVie. In January, AbbVie also released results on its combination hepatitis C therapy showing promising Phase III data for its three-drug combination treatment with ribavirin. AbbVie will be filing a NDA in the next quarter and expects to launch the regimen by the end of the year. The treatment is expected to bring in nearly $3 billion in peak sales and the increased competition has sparked the discussion of a potential price war between the two companies.

Baird's analyst Brian Skorney wrote:

Sovaldi selling way beyond our expectations. The initial prescription data are so massively outperforming even the biggest weeks Incivek ever had, we believe any reasonable comparison between the two drugs would indicate that U.S. sales in 2014, alone, are going to exceed $5 billion. In 4Q11, Vertex recognized $458 million in Incivek sales and WK reported 11,409 NRx. Sovaldi is already pacing more than 2x that volume in 1Q14. Sovaldi also has ~70% price premium over Incivek. There is almost no way barring an extreme reduction in volume over the next few weeks that Gilead won't hit at least $1 billion in sales in 1Q14 (consensus is at $336 million), and that really only accounts for U.S. sales. While we expect a slower uptake ex-US, we note that historical Incivo sales indicate that there is likely to be an additional $1 billion in Sovaldi sales in 2014 coming from ex-U.S. territories. We believe this volume implies that next year's sofosbuvir/ledipisvir sales are not only set to be the best launch ever, but exceed the highest single year sales of any pharmaceutical product in history…As a result of our model changes, we are raising our price target to $103 and elevating the stock to Outperform.

Despite the competition, Skorney has upgraded his price target to $103. This indicates that Gilead will outperform the market even if AbbVie comes up with its treatment. However, since AbbVie will not be launching its regimen for at least another year, I believe Gilead has an upper hand in this battle, for now.

Wrapping up

Currently, Gilead is leading the hepatitis C race as AbbVie's regimen is not expected to hit the market before the end of 2014. Both the companies have excluded sales from their therapies in their outlook; however Sovaldi's peak sales estimates are more than double than that of AbbVie. Therefore, Gilead Sciences looks a great buy even after the presence of AbbVie.

Source: Gilead Sciences: A Great Buy Despite Competition From AbbVie