Gilead Might Want To Consider Selling Its HCV Drug Business To China

Summary

• Gilead shares have underperformed on concerns about declining hepatitis C, or HCV, product sales and fierce competition in the HIV drug business.
• Large declines in HCV product sales are not unique to Gilead because AbbVie and Bristol-Myers Squibb are seeing the same problems.
• Gilead may want to consider selling its HCV business to China as it is unrealistic to believe that China will pay $900 billion to cure their HCV-infected people.
• Gilead can use the proceeds from the sale of their HCV business to China to make a large acquisition, which will have an immediate impact on its top-line growth.
• It is a no-win situation in the U.S. for HCV drug developers as long as the general population believes that drugs are overpriced.

Shares of Gilead Sciences (NASDAQ:GILD) have underperformed the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), which tracks the total return performance of the Nasdaq Biotechnology Index (NASDAQ:NBI), up only 2.96% in 2017, compared to a 21.08% gain for the IBB, on concerns about their declining hepatitis C, or HCV, product sales and fierce competition from GlaxoSmithKline (NYSE:GSK) in the HIV drug business. Despite analysts and investors pressuring Gilead executives about M&A since early 2016, the company finally decided in August 2017 to acquire Kite Pharma, Inc. for $11.9 billion, or $180.00 per share, in cash.

Kite's CAR-T cell immunotherapy Yescarta (axicabtagene ciloleucel), which received FDA approval in October 2017 for the treatment of patients with relapsed or refractory large B-cell lymphoma, is priced at $373,000 and expected to pull in $90 million in 2018, according to Brian Abrahams, analyst at RBC Capital Markets. The analyst is expecting Yescarta sales to grow to $1 billion by 2026 and a peak revenue potential of $2.7 billion.

Gilead reported Q3 2017 revenues and earnings that exceeded analysts' expectations but gave weak HCV product sales guidance for 2017. Wall Street might be overly bearish though, as Gilead raised the lower end of their full-year, or FY, 2017 net product sales guidance to a range between $24.5 billion and $25.5 billion, from the previous guidance of between $24.0 billion and $25.5 billion. The company also raised both the top and lower end of their FY 2017 non-HCV product sales guidance by $500 million to a new range between $16.0 billion and $16.5 billion, but cut the top end of the FY 2017 HCV product sales guidance by $500 million to a new range between $8.5 billion and $9.0 billion.

Based upon the new guidance, Wall Street is now expecting Gilead's Q4 2017 revenues to come in at $5.26 billion, at

Analyst’s Disclosure:I am/we are long IBB, ABBV. 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.