Gilead: A Much Bigger Story Than Just Sovaldi

Aug. 5.14 | About: Gilead Sciences, (GILD)

Summary

Most of the commentary on Gilead Sciences recently has revolved around its new blockbuster hepatitis C drug Sovaldi which has done almost $6B in sales in its first two quarters.

However, the company also had a deep stable of other drugs that ring up over $3B in quarterly sales as well as a promising pipeline.

These other factors just add to Gilead's value story and make it one of the most compelling large cap growth plays in the market right now.

My regular readers know by now that Gilead Sciences (NASDAQ:GILD) is the largest position in my portfolio. I have articulated why I think its capital appreciation potential is akin to Apple's (NASDAQ:AAPL) when the tech giant's stock was at its nadir just over one year ago. I have detailed Gilead's recent blowout earnings report which I believe was one of the highlights of this quarterly earnings season. I have even provided a graphical overview of how cheap the shares currently are compared to the overall market, other large cap growth plays and against its large biotech brethren.

I have noticed that 90% of the comments on my articles on Gilead concern its blockbuster new hepatitis C product Sovaldi. This makes sense given the drug has done $5.8 billion in sales in its first two quarters on the market, and is on its way to becoming the biggest new drug launch in history. In addition, the price tag of the Sovaldi regimen (~$1,000 a pill) continues to make headlines and invite some congressional scrutiny. Nomura currently believes Sovaldi will do $22 billion in peak annual sales by 2018 alone. The drug itself justifies Gilead's current stock price in my opinion given the drug's huge margins.

However, Gilead is much more than a one trick pony and this is what we will focus on in today's piece as these other parts of Gilead are a big part of the value story for the company and the stock.

Sovaldi posted sales of just under $2.3 billion in the first quarter and just below $3.5 billion; which is impressive growth by any measure. Gilead's other products are not growing as fast as Sovaldi but they did throw in over $3 billion in sales in the last completed quarter and overall they are growing on the top line at ~10% year-over-year. Most of this came from the company's market leading HIV franchise portfolio of drugs. However, Gilead's commercial products for cardiovascular and respiratory diseases together exceeded $1 billion in annual revenues for the first time in 2013 and are providing a nice growth driver that gets little press.

Gilead should have a one tablet a day regimen widely approved for its HIV franchise next year. It also has promising drugs for RSV, some types of leukemia, hepatitis B, myelofibrosis and other wide spread diseases in Phase II and III trials.

The company is becoming a cash flow machine as operating cash flow came in at more than $4 billion in the first half of this year. The company has also bought back $1.2 billion in stock in the first six months of 2014. As Sovaldi rolls out to additional markets such as the U.K. and Japan in the near future, Gilead should produce between $10 billion to $15 billion in free cash flow in 2015. This cash flow is highly likely to be used to significantly increase its stock repurchase activities (boosting EPS) and maybe even initiating a dividend in 2015. Both of which would boost the stock.

The most amazing part of the value story on Gilead is how cheap the stock still is even after two quarters of blockbuster Sovaldi sales, continued innovation in its core HIV franchise, promising other drugs deep in phase trials and a growing respiratory and cardiovascular business. Earnings will almost quadruple this year to approximately ~$8 a share on better than a doubling of revenues. At current prices, that massive growth can be had for under 12 times this year's earnings; a 25% discount to the overall market multiple. It is hard to find a cheaper stock in the market and I continue to add shares on every market hiccup. STRONG BUY

Disclosure: The author is long GILD. 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.