Gilead And The Status Of My Model Portfolio

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About: Gilead Sciences, Inc. (GILD), Includes: ABBV, AMGN, BIIB, BMY, CHOP, MRK, PFE, REGN
by: Abrar Hassan Saadi
Summary

Gilead is a high potential firm with an emphasis on HIV, Cancer and Inflammatory Diseases, the firm is on my watch list for my model portfolio.

The firm features a pipeline of strong phase-3 candidates, some have been previously approved for other applications/stages.

A range of studies shows that there is a moderate probability of success for its phase 3 candidates.

I think the firm has downplayed its guidance for the year and a surprise sales figure is highly probable. Pricing looks right, stats show slightly lower risk profile for Gilead.

This will be a long article. I will discuss Gilead and the status of my ratings/opinions, bear with me.

Introduction

In the last 3 years, Gilead's (GILD) top line fell by more than 27% and the stock price fell by more than 35%. Investors in the firm are currently betting on its Phase 3 candidates.

Phase 3 Candidates

HIV / AIDS

Emtricitabine and tenofovir alafenamide

Potential Indication: PrEP

Hematology / Oncology

Axicabtagene ciloleucel

Trial: ZUMA-7 Potential Indication: 2nd line DLBCL

Inflammation / Respiratory

Filgotinib (JAK1 inhibitor)

Potential Indication: Rheumatoid Arthritis

Filgotinib (JAK1 inhibitor)

Potential Indication: Crohn's Disease

Filgotinib (JAK1 inhibitor)

Potential Indication: Ulcerative Colitis

Filgotinib (JAK1 inhibitor), Gilead's phase 3 candidate focusing on various inflammatory disease like Rheumatoid Arthritis, Chron's Disease, and Ulcerative colitis have drawn considerable interest as studies show various levels of efficacy and safety. Another Phase 3 candidate, Axicabtagene ciloleucel (Yescarta) was previously approved for large B-cell lymphoma after two or more lines of systemic therapy, including DLBCL not otherwise specified, now the CAR T cell therapy is a phase 3 candidate being evaluated for the second line treatment of diffuse large B-cell lymphoma. Besides these candidates, Descovy is now being evaluated in phase 3 for pre-exposure prophylaxis (PrEP), an HIV prevention method for HIV-negative individuals with high HIV risk, previously Truvada (by Gilead) was used for PrEP and Descovy was not allowed to be used for PrEP.

But phase 3 trials can fail for a number of reasons that I discuss later.

Gilead has a highly potent pipeline

Global Rheumatic Arthritis market was estimated to be valued at $22.6 billion in 2018 and projected to grow at a cagr of 4.5% between 2019-2025, reaching roughly $30.7 billion. However, the market is crowded because there are several types of medication which includes NSAIDs (Nonsteroidal anti-inflammatory drugs), Steroids, Disease-modifying antirheumatic drugs (DMARDs), biologics and others. Gilead's Filgotinib is a JAK 1 inhibitor which pertains to a family of DMARDs. There are currently two JAK inhibitors approved for RA, Tofacitinib, and Baricitinib, currently Filgotinib's most important competitor is probably Upadacitinib by Abbvie, which is currently approved for RA but under investigation for Chron's disease, Ulcerative Colitis, giant cell arthritis, AND atopic Dermatitis.

Filgotinib has a high probability of approval. A study by Westhovens et al. showed that patients receiving Filgotinib with or without monotherapy (a type of DMARD that's been used for Rheumatoid Arthritis since 1980) achieved ACR 50 response and ACR70 responses. ACR 50 and ACR 70 response are criterions of at least 50% and 70% improvement, respectively, in the number of tenders and swollen joints, global assessment of disease status, patient's assessment of pain and function. The study concluded that Filgotinib n combination with MTX led to significant improvements in RA signs and symptoms, physical function, and patient-reported outcomes compared to MTX alone and was well tolerated in patients with early active RA naïve to MTX.

Westhovens et al.

Please note that one or more authors of the studies presented here has one or more forms of financial relationships with Gilead and other pharmaceutical companies.

Back in 2018, Darwin 1 trial Westhovens et al. concluded that Filgotinib improved the signs and symptoms of active RA (Rheumatoid Arthritis) over 24 weeks and was associated with a rapid onset of action as an add-on to MTX (Methotrexate). Another study by Kavanaugh et al. found that Filgotinib as monotherapy was efficacious in treating the signs and symptoms of active RA, with a rapid onset of action. The researchers also found that Filgotinib was generally well tolerated. A paper with patient-reported outcomes by Genovese et al. also reported that Filgotinib as MTX add-on therapy or as monotherapy demonstrated rapid and sustained (to 24 weeks) improvements in health-related quality of life and functional status in patients with active RA.

Now, the approval of Axicabtagene Ciloleucel in the second line of treatment for large B-cell lymphoma, including DLBCL has a medium probability of success. The primary treatment features a combination of cyclophosphamide, doxorubicin, vincristine, and prednisolone (CHOP), including the monoclonal anti-CD20 antibody rituximab (R-CHOP). In a phase 2 trial heavily pre-treated patients with aggressive B-cell lymphoma delivered 82% in overall response rate with an ongoing complete response rate of 40% after 6 months and expectations of long-term remissions and cure, but the follow-up data is limited. Some common side effects include neurotoxicity and cytokine release syndrome.

Although studies show considerable promise on its phase 3 candidates, there's a high probability of failure attached to the phase in general, even highly efficacious drugs could fail during the phase. A study by Hwang et al. assessed 640 phase 3 trials with novel therapeutics and found that 54% failed in clinical development, with 57% of those failures due to inadequate efficacy. Moreover, reasons like flawed study design, inappropriate statistical endpoints, or underpowered clinical trial may also lead to the failure of efficacious drugs.

Gilead has a large pipeline of phase-1 and 2 candidates.

Financials

Gilead's 2019 midpoint guidance for sales is $21.55 billion, which reflects 2.61% decrease from the last year, and yes, I think it downplayed; the guidance is economically achievable and there's a high probability of a surprise. But the revenue trend will not be impressive. Gilead is a high potential firm, but it has a large pipeline and it might take some time to form a positive/negative conviction of the firm.

Source: Raw data from Intrinio

The market seems to correctly price Gilead. Both Amgen (AMGN) and Gilead's implied P/E was dominated by the non-growth portion. On the other hand, the growth component for Merck (MRK), Abbvie (ABBV) and Pfizer (PFE) was more than 20%.

Source: Raw data from Intrinio, calculations by the author.

Quantitative risks stats show that Gilead's risk profile was slightly lower than the peer average. Higher risk profiles belonged to Biogen (BIIB), Bristol-Myers Squibb (BMY), Regeneron (REGN) and Abbvie (ABBV).

Source: Raw data from Yahoo finance, calculations by the author.

Now let's take a look at my model portfolio

I have published 62 articles (63 including this) and have given ratings and/or opinions on several stocks. Rating here refers to "Bull/Bear" outlook that authors can add to every stock and Opinion refers to the situations where I directly express "Buy/hold/sell". Today I will present various statistics regarding the ratings/opinions.

First of all, let's look at the performance of all the ratings and/or opinions, neutral/hold/inconclusive stocks are excluded. The model portfolio, I'll call it Quantum, is equally weighted to arrive at an average portfolio return. The price on the day of the publication and on the day this article is submitted to editors have been taken from Google Finance, and may slightly fluctuate from the "price on publication" on Seeking Alpha, but the differences should be very small (if I manually input all the price from SA's platform it will take a lot of time and the ending difference shouldn't be much).

TipRanks shows that average return per rating for my recommendation is 9.9% as of 6th July 2019 (vs 10.5% from my calculation), I emailed TipRanks about their mistakes in some cases and their reply was "TipRanks analyzer classifies an article based on the sentiment in the heading of the article and the Summary of the article only", which can often be wrong.

Quantum delivered a return of roughly 10.5% during the period, in other words, based on a hypothetical $1 million dollar beginning value, Quantum's ending value stands at $1.105 million (before closing out positions that I will discuss later).

Here is a complete overview:

Article

DATE

TICKER

Rating and/or Opinion

Price on publication

Price now

Return

A Broad Look Into Valero Energy

4/26/2018

VLO

Bull and/or Buy

111.54

81.84

-27%

Altair: Competing In A Fast Growth Market With Edge

7/3/2018

ALTR

Neutral/NA

33.8

41.57

0%

Growth Meets Value At NVE Corporation

7/5/2018

NVEC

Bull and/or Buy

127.5

68.84

-46%

Only Combined Efforts Can Help United-Guardian Deli...

7/6/2018

UG

Bull and/or Buy

19.75

19.97

1%

NXP Semiconductors Stands Strong

7/10/2018

NXPI

Bull and/or Buy

110.36

96.53

-13%

Economic Moat Has Positioned Bandwidth Well

7/11/2018

BAND

Bull and/or Buy

35.4

75.46

113%

Can Ooma Retain Its Growth Profile?

7/12/2018

OOMA

Neutral/NA

15.2

10.78

0%

Buy PayPal Because It's Headed The Right Way

7/13/2018

PYPL

Bull and/or Buy

87.99

117.16

33%

Quality Systems' Competitors Are Better

7/17/2018

NXGN

Neutral/NA

19.77

20.03

0%

Acacia Back On Track

7/19/2018

ACIA

Bull and/or Buy

34.75

48.14

39%

A Broad Look Into Autonomous Vehicles

7/23/2018

-

Neutral/NA

-

#N/A

0%

Arista Has Competitive Edge

7/24/2018

ANET

Bull and/or Buy

266.3

270.74

2%

A Look Into The Industrial Distribution Sector

7/30/2018

-

Neutral/NA

-

#N/A

0%

The Battle Of Node Shrinking

7/31/2018

-

Neutral/NA

-

#N/A

0%

Nanometrics: A High-Growth Firm For Medium Investme...

9/14/2018

NANO

Bull and/or Buy

36.8

33.79

-8%

KLA-Tencor Is A Firm With Consistent Profitability

9/17/2018

KLAC

Bull and/or Buy

103.27

117.9

14%

Xilinx Is A Rising Star

9/18/2018

XLNX

Bull and/or Buy

77.57

116.11

50%

A Look Into Rudolph

9/21/2018

RTEC

Hold

24.55

27.46

0%

Nova For High Growth Portfolios

9/25/2018

NVMI

Bull and/or Buy

26.18

25.85

-1%

Is MKSI Worth It?

9/27/2018

MKSI

Hold

80.45

78.02

0%

Fiserv: A Solid Fintech Firm

10/1/2018

FISV

Bull and/or Buy

81.53

94.46

16%

Worldpay For Growth Portfolios

10/3/2018

WP

Bull and/or Buy

101.82

128.43

26%

FactSet Means Both Growth And Value

10/5/2018

FDS

Bull and/or Buy

222.56

295.45

33%

A Look Into SAP

10/8/2018

SAP

Hold

117.33

138.16

0%

Textron Looks Overvalued

10/11/2018

TXT

Hold

65.07

53.15

0%

Why I'm Not Buying AGCO

11/13/2018

AGCO

Neutral/NA

57.47

77.66

0%

Lamar For Income Portfolios

11/15/2018

LAMR

Bull and/or Buy

75.52

82.57

9%

Why Brinker May Not Be As Good As It Looks

11/19/2018

BRKR

Neutral/NA

31.44

50.98

0%

Why You Should Stay With MSC Industrial Direct

11/23/2018

MSCI

Hold

149.83

242.29

0%

Multiple Opportunities For MasTec

11/26/2018

MTZ

Bull and/or Buy

45.3

52.22

15%

Waste Management: A Stock For Both Income And Growt...

11/28/2018

WM

Bull and/or Buy

92.81

116.48

26%

B&G Foods: A Risky Bet At A Cheap Price

11/29/2018

BGS

Neutral/NA

30.56

21.42

0%

Nextera: A Strong Business For Your Portfolio

12/4/2018

NEE

Bull and/or Buy

182.17

208.11

14%

Chesapeake: A Broad Look For Income Portfolios

12/7/2018

CHSP

Bull and/or Buy

28.56

28.41

-1%

Consider Ventas For Long Term Income Portfolios

12/9/2018

VTR

Bull and/or Buy

64.79

69.79

8%

Continental: Growing, But Risky

12/10/2018

CBPX

Bull and/or Buy

26.9

26.31

-2%

Medical Properties Trust: A Long-Term Investment

12/14/2018

MPW

Bull and/or Buy

16.85

18.29

9%

Physicians Realty Trust: A Top Choice For Income In...

12/18/2018

DOC

Bull and/or Buy

16.81

17.51

4%

CenterPoint Energy: Attractive Opportunity At A Low...

12/19/2018

CNP

Bull and/or Buy

28.39

29.44

4%

Schlumberger Limited: Hold Just Because Of Its Moat...

12/21/2018

SLB

Hold

35.7

39.57

0%

Reasons Why You Don't Want To Buy Western Digital

12/24/2018

WD

Bear and/or Sell

38.37

55.66

-31%

Ennis: Profitable But Growth Potential Is Not Evident

12/26/2018

EBF

Neutral/NA

19.37

20.59

0%

Seagate: Now Is Not The Time

12/28/2018

STX

Bear and/or Sell

38.35

47.25

-19%

Enbridge: Strong And Growing

1/3/2019

ENB

Bull and/or Buy

31.75

36.39

15%

CyrusOne: A Strong Data Center REIT For Income Port...

1/7/2019

CONE

Bull and/or Buy

51.71

60.08

16%

Boeing Is A Long-Term Play

1/15/2019

BA

Bull and/or Buy

352.24

355.86

1%

It Looks Prudent To Hold Visa

1/18/2019

V

Hold

138.5

176.66

0%

Lancaster Is An Emerging Leader

2/7/2019

LANC

Neutral/NA

159.83

148.84

0%

Church & Dwight: A Solid Firm With Strong Outlook

2/18/2019

CHD

Bull and/or Buy

64.96

74.33

14%

Thermo Fisher: Stellar Results Year After Year

2/20/2019

TMO

Bull and/or Buy

252.22

300.65

19%

Ametek Is A Market Leader But Looks Overvalued

2/25/2019

AME

Bull and/or Buy

79.77

91.09

14%

Garmin: Strong And Steady

3/4/2019

GRMN

Bull and/or Buy

84.74

79.75

-6%

Generac: Multiple Drivers, But Hold For Now

3/6/2019

GNRC

Bull and/or Buy

51.07

71.11

39%

Johnson & Johnson: Brace For Impact

3/8/2019

JNJ

Neutral/NA

138.06

140.57

0%

Xylem: Don't Miss On This Water Technology Stock

3/10/2019

XYL

Bull and/or Buy

76.89

82.84

8%

International Flavors & Fragrances: Buy And Hold Fo...

3/17/2019

IFF

Bull and/or Buy

124.93

145.12

16%

McCormick: One Of The Market Leaders In Its Industry

3/26/2019

MKC

Bull and/or Buy

145.36

161.44

11%

Abbott: Long-Term Hold

6/26/2019

ABT

Bull and/or Buy

82.96

85.42

3%

Merck: Don't Miss It

6/28/2019

MRK

Bull and/or Buy

83.85

85.6

2%

Post Holdings: Risky But Hold For Now

7/1/2019

POST

Hold

105.19

108.22

0%

Apple Inc.: Conjectures, Counterfactuals And More

7/2/2019

AAPL

Neutral/NA

202.73

204.23

0%

These positions are closed: GRMN, NXPI, STX, WD, NVEC, LANC. The model portfolio will continue with the following stocks (equal weightings):

ABT

CHSP

IFF

NEE

XLNX

ACIA

CNP

KLAC

NVMI

XYL

AME

CONE

LAMR

PYPL

ANET

DOC

MKC

TMO

BA

ENB

MPW

VLO

BAND

FDS

MRK

VTR

CBPX

FISV

MTZ

WM

CHD

GNRC

NANO

WP

Based on a $1 million beginning value, the ending value (after position closings) stands at $1.231 million ($125,960 in cash). Right now, Gilead is one of the stocks that are in my watchlist (I'll discuss others in upcoming articles).

Conclusion

Gilead is a high potential firm. The firm has a strong pipeline with promising phase 3 candidates, and a long phase- 1 & 2 pipeline. I am waiting to see any developments about its phase 3 candidates, should any good news pop up, I will add Gilead.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.