My favorite biotech stock and largest position in my own portfolio, Gilead Sciences (NASDAQ:GILD), continues to trade within a range of ~$100 to ~$110 a share which it has been stuck in for the last past six weeks. This is not necessarily a bad thing given how much more volatility has come into the overall market recently and the stock probably needed some time to consolidate its huge gains made over the last year.
However, the pieces are falling into place for Gilead to have a huge October and I would not be surprised if the stock surges to $120 a share at some point over the next month. While Sovaldi, Gilead's blockbuster new Hepatitis C drug, dominates conversations and sales growth discussions around Gilead; the company is maintaining/expanding its leadership in its core HIV franchise.
Late in September the company positive Phase III results last week on its new version of tenofovir, an anti-viral agent for HIV and hepatitis B. The new version of the core of Gilead's HIV portfolio is more effective than its existing version and appears to have significantly fewer side effects especially to the kidneys as well. Once approved, this should ensure Gilead remains the leader in the space. I don't believe this positive news is yet fully reflected in the stock price.
This is probably because Gilead is set to have its Hepatitis C combination Ledipasvir/Sofosbuvir (Sovaldi) approved by the FDA this Friday. This will be the first all-oral regimen approved by the FDA in Hep C Genotype 1 patients. The total combo should be priced in the $100,000 to $115,000 range for a regimen.
As a previous recent article on Seeking Alpha noted this is a critical development as "Gilead's current regimen for the majority of patients in the US (Genotype 1) is comprised of Sovaldi, Peg-Interferon (PEGASYS), and Ribavirin. Despite the high cure rates (90+%) and the shorter regimen time (12 weeks) compared with the previous standard of care (Incivek, PEGASYS, Ribavirin) many patients do not tolerate PEGASYS well and other options are needed. Based on a Phase II study, physicians have been prescribing Sovaldi in combination with Johnson & Johnson's (JNJ) Olysio off-label to avoid the horrible side effects of PEGASYS and Ribavirin. However, the cost of this regimen is not $90k but $140k based on Olysio's $60k price tag plus Solvaldi's $84k price tag in the US."
When approved, this new combination will have several positive impacts. Patients will have a better and more tolerated regimen to cure Hepatitis C. Second, instead of getting $84,000 per regimen; Gilead will own the entire combination revenues of $100,000 to $115,000 a regimen. The huge surge of sales of Olysio will go away which J&J's management has already stated should be expected. Finally, some non-critical patients that were holding off treatment using the previous treatment, will now use the new and improved option boosting sales again.
Finally, Gilead reports earnings late in October. The company has shattered expectations in each of the two quarters since Sovaldi was released earlier in the year. Even though earnings estimates for the quarter have been ratcheted up since last quarter's impressive results; I still believe Gilead will beat the consensus albeit to a lesser degree than the prior two quarters. Guidance should also be solid and I would not be surprised if the company states it will start to use an increasing part of burgeoning free cash flow ($10 billion to $15 billion in 2015) to buy back an undervalued stock which will force to analysts to revise their 2015 earnings estimates up for Gilead.
In between now and earnings I would also expect analysts to increase their price targets on Gilead in front of quarterly earnings especially after FDA approval of its new Hepatitis C regiment. A wildcard would be if Japan approved the new drug approval for Sovaldi there opening up marketing opportunities to one million Hepatitis C infected individuals there. The bottom line is that by the end of the month of the month or soon thereafter; I believe Gilead will be going for $120 a share or 12 times the $10 a share I expect the company to earn in 2015 (And that could be a conservative estimate). BUY
