Gilead: The ContraVir Call Option

| About: Gilead Sciences, (GILD)

Summary

The hepatitis virus that eludes Gilead's grasps right now is the Hep B cure.

ContraVir is currently working on a product, CRV431, which they believe will help cure the world of Hep B.

The strategy for ContraVir is to combine CRV431 with Gilead's VIREAD for now and potentially other mechanisms in the future.

Gilead Sciences (NASDAQ:GILD) has been a beacon of hope for individuals with life threatening viruses such has Hepatitis C or AIDS. The company specializes in antiviral drugs curing thousands of individuals who have had Hep C for the past couple of years, but the hepatitis virus that eludes Gilead's grasps right now is the Hep B cure which now has a lot of competition because it is the next big blue ocean. I would like to take the time right now to examine the landscape because competitor ContraVir (NASDAQ:CTRV) recently had good results revolving around their Hep B product.

ContraVir is currently working on a product, CRV431, which they believe will help cure the world of Hep B. Hep B is also a liver infection that is most commonly spread via infected bodily fluids. It may be hard to detect at times because some people never actually exhibit any symptoms, but when they do, it usually involves liver failure if not detected early enough. The market here is rather large with nearly 350M people infected around the globe. China alone has roughly 120M individuals which are implicated by this horrid disease.

This is important for Gilead because CRV431 doesn't work alone, it works in conjunction with Gilead's VIREAD, or TXL. VIREAD is used to treat individuals for Hep B but does not cure them of the disease. Because VIREAD doesn't cure individuals of the disease, it means there are substitutes out there that the doctor can prescribe to their patients. If ContraVir can get approval for their mechanism of curing Hep B, it means that VIREAD can potentially increase as it will have to be used in conjunction with CRV431.

CRV431 inhibits the interface between the Hep B virus and a protein called cyclophilin A. Cyclophilin A helps control biological processes predominately in the area of intracellular signaling and transcription. This is important because cyclophilin A actually can work with viral disease like Hep B to replicate them. Because CRV431 can inhibit the interface between the Hep B virus and cyclophilin A, it means that the virus will not have a way of replicating anymore, meaning it can stop the progression in the host.

The strategy for ContraVir is to combine CRV431 with TXL for now and potentially other mechanisms in the future. For now, it has been combined with TXL because TXL can lower the virus in the blood. By stagnating the replication process with CRV431 and lowering the virus count in the blood by using VIREAD, the mechanism of curing Hep B is almost within reach.

At this point, Gilead can only hope that ContraVir's CRV431 gets approved so that they can sell more VIREAD in the process. But it also isn't out of the realm of possibility that Gilead actually purchase ContraVir outright to gain access to CRV431 so they can have the full suite of products to treat this Hep B market. After all, ContraVir only has a market cap of $97.9M which would be a drop in the bucket for Gilead. ContraVir has no debt but is burning cash like crazy and keeps raising capital through share issuances.

CRV431 is about to advance to Stage 1 but can be a massive call option for Gilead if purchased. Even if Gilead were to offer up a 100% premium for ContraVir at $200M, it would probably be a better investment than Gilead repurchasing its own shares. Last quarter, Gilead repurchased its own shares to the tune of $1B and has been complete value destruction for shareholders. If management knew how to manage, it would at least pick up a company that is working on products rather than purchasing shares of a company that's resting on its laurels.

I actually initiated my position in Gilead in early September of 2015 and have been pretty upset with the purchase thus far. I will not be buying shares because I'm now above my 10% threshold. But I do believe that it offers value until around $84 which happens to be the midway point of the 52-week range and a 26% increase from the current price.

When it is all said and done, it matters what the stock has done in an investor's portfolio. For me, Gilead is my largest position and has been doing poorly, as I'm down 17.1% on the name, while the position occupies roughly 18.8% of my portfolio. I own the stock for the speculation portion of my portfolio, and I will continue to hold onto the stock for now. My portfolio is up 17.2% since the inception despite the drag this stock has had on it while the S&P 500 is up 13.3%.

For the year so far, my Portfolio of 12 is up 6.7% while the S&P 500 is up 5.2%. Below is a quick glance of my portfolio and how each position is performing. Thank you for reading and I look forward to your comments!

Company

Ticker

% change incl. DIV

% of Portfolio

Facebook, Inc.

(NASDAQ:FB)

15.8%

9.8%

AbbVie Inc.

(NYSE:ABBV)

12.0%

4.1%

PulteGroup, Inc.

(NYSE:PHM)

5.9%

3.9%

3M Company

(NYSE:MMM)

1.5%

3.7%

Wyndham Worldwide Corporation

(NYSE:WYN)

1.1%

3.7%

SEI Investments Company

(NASDAQ:SEIC)

0.0%

7.3%

General Electric Company

(NYSE:GE)

-1.7%

8.1%

Silver Wheaton Corp.

(SLW)

-3.9%

10.3%

Valero Energy Corporation

(NYSE:VLO)

-4.9%

3.5%

O'Reilly Automotive, Inc.

(NASDAQ:ORLY)

-6.4%

4.1%

VFC MAY 19 2017 52.50 PUT

(NYSE:VFC)

-16.5%

0.5%

Gilead Sciences Inc.

-17.1%

18.8%

Cash

$

22.25%

Disclaimer: This article is in no way a recommendation to buy or sell any stock mentioned. This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am/we are long GILD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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