4 Convincing Reasons Why Gilead Sciences Should Continue Soaring

| About: Gilead Sciences, (GILD)


Strong sales of Gilead’s Sovaldi inspired a terrific quarter.

Recently-announced insurance program should further boost Sovaldi’s sales.

Stribild is also gaining pace.

Given the massive potential of the Hepatitis C market, Gilead Sciences should continue soaring.

Shares of Gilead Sciences (NASDAQ:GILD) have picked up nicely since mid-April, gaining around 24%. Gilead's strong performance has been driven by its strong first-quarter results, when it reported strong revenue growth.

In fact, Gilead reported net revenue of $4.9 billion in the first quarter of 2014, up 104% from last year. Its revenue beat analysts' estimates of $3.92 billion quite convincingly. The increase in revenue is credited to the launch of Sovaldi, a drug for curing Hepatitis C infection.

Gilead posted strong sales in the U.S., surpassing $3.6 billion, and for the first time, European sales exceeded $1 billion in a single quarter. This performance has been driven by great demand in the company's core HIV business and the launch of Sovaldi, which put in a strong performance with sales totaling $2.3 billion in the quarter. Meanwhile, sales of the HIV drug Stribild rose to about $215 million for the quarter, up around 100% from the last year.

So, Gilead is growing nicely, and going forward, the company should be able to continue its strong performance due to its smart strategies.

Solid prospects

Out of the various drugs and medicines that Gilead makes, Sovaldi is expected to bring about a big boom in sales. Sovaldi's profile has the caliber to transform the treatment of Hepatitis C. The company is selling Sovaldi for $84,000 per treatment cycle of 12 weeks. However, Gilead had come under criticism for the high price of Sovaldi.

But recently, the Centers for Medicare and Medicaid Services announced that the social health insurance program will now cover the costs of HCV screening for some 50 million Americans. This will include the cost of one or multiple screenings per year for individuals. Since the social health insurance program will now cover the costs, analysts expect Sovaldi's sales to increase. Ian Somaiya, an analyst at Nomura Securities International, said,

"The decision to pay for testing "should increase the rate of diagnosis and at a minimum help CMS make informed treatment decisions. The net of all this points to higher Sovaldi sales."

Out of the millions of people suffering from Hepatitis C, around 2.7 million are in the U.S. itself. Sovaldi is among the most efficient medicines available in the market as it can be taken orally and it has no side effects. Since its launch, approximately 32,000 patients have begun treatment for Hepatitis C with Sovaldi. Now, Gilead sells Sovaldi in 13 countries, and it plans to expand its sales in other countries too.

Stribild gaining steam

For HIV, Stribild is among the leading HIV regimens for patients that were beginning therapy. It landed in three out of 10 prescriptions of Gilead's single-tablet regimens, including Stribild, Complera/Eviplera, and Atripla. In the United States, nine out of 10 patients new to the treatment of HIV were prescribed the Gilead medicine, with Gilead's single-tablet regimen being used by seven out of 10 patients new to treatment.

The two Phase 3 studies comparing the single tablet regimen of ECF TAF in Stribild in treatment of naive patients are fully enrolled and the company expects data to become available in the fourth quarter of 2014. This STR is being evaluated in other studies, including treatment of experienced patients, patients on stable therapy, patients with mild-to-moderate renal impairment, and in adolescent patients as well.

Additionally, results from the Phase 2 study evaluating GS-5816, the next generation pan-genotypic NS5A inhibitor, were presented. Treatment of patients with genotype 1 through 6 with GS-5816 with sofosbuvir for 72 weeks resulted in SVR12 rates of 86% to 100%, while the initiation of Phase 3 studies of a fixed-dose combination of GS-5816 and sofosbuvir are expected in the latter half of this year.

The company is coming up with new programs for its core business in the field of HIV, while Sovaldi continues to accelerate the growth and profit of the company.

A huge market

In my previous Gilead article, I said that Sovaldi will surpass all expectations and rake in over $6 billion in sales. I stated:

"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."

So far, only 32,000 prescriptions have been issued, and given that there are almost 3.2 million people suffering from Hepatitis C in the U.S. itself, Gilead still has a lot of room to grow.

Fundamental analysis

Apart from having robust prospects, Gilead also has strong fundamentals. The company trades at a trailing P/E ratio of 30, while its forward P/E ratio of just 10 indicates that its earnings are expected to grow at a terrific rate. In addition, the company has strong cash flow metrics. In the last twelve months, Gilead has generated operating cash flow of $4 billion, while its levered free cash flow is $3.28 billion.

However, one risk for Gilead is a high debt figure. The company's debt stands at a massive $9.80 billion, while it has cash of $6.47 billion. This indicates that the company is having to pay a huge interest to service its debt. But then, strong cash flow generation should allow Gilead to carry on its business without much trouble and growth in sales of Sovaldi will lead to strong growth in revenue and earnings.

Final words

Looking at Gilead's strong growth prospects and fundamentals, the company looks like a solid buy. So, investors should definitely consider investing in this high-growth play for long-term gains.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.