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Rough Value Analysis Of Gilead Sciences

|Includes: Gilead Sciences, Inc. (GILD)

Gilead Sciences (NASDAQ:GILD) stock recently dropped from $123 to $82. Its P/E ratio looks very attractive (around 7). This looks like a undervalue stock in fast growing bio-tech industry.

However if you carefully examining the company's earning reports, you will find following fact.

1. Its current earning is heavily relying on two HCV drugs (Harvoni and Solvaldi), about 60% revenue from these two drugs.

2. It earned $1.64/share in 2012, and $1.81/share in 2013.

3. Since it released these two HCV drugs in the end of 2013, its earning grew rapidly to $7.31 in 2014 and $11.91 in 2015.

Based on above data, we can conclude GILD made 80%+ profit from its HCP drugs, which is $1000 per pill. But now the monopoly is broken, AbbVie Inc and Merck released their HCV drugs. This will dramatically lower the price and lower GILD's market share in HCV drugs. So let's assume GILD's HCV drug price lowed to $200/pill, and they still sell to about same number of patients (unlikely), their profit will drop 80% for these two drugs, their total profit will be a little short of $4, we can use their 2013 earning $1.81 for profit from other drugs, and $2 for 2 HCV drugs after price war. So based 15 PE, we can value GILD for a little less than $60/share.

Of course, all this analysis is based GILD's current product line, I do not have knowledge or information for its pipeline. If GILD can find another killer new drug, its earning and share price may be much higher than its current numbers.

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