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GILD---The Train Has Finally Left The Station

|Includes: Gilead Sciences, Inc. (GILD)

After a severe correction in the Spring (along with the rest of the high-growth pharmaceutical sector), GILD has broken through the $84 resistance level and is making new all-time highs on almost a daily basis. Despite this run up, the stock remains incredibly attractive (more so than any other similarly misclassified "biotech"), trading at less than 11x 2015E EPS, with a forward growth rate of 18%. The argument as to the size of the Hepatitis C drug market is largely resolved but still underestimated, and so to that concerning the duration of significant sales. I would not be short this stock for the expectation of a price war, especially as I expect Gilead's FDC to be priced at a "course of therapy" discount to current regimens (both reflecting a shorter medication period and less use of other drugs). While I believe that, time of introduction independent, Merck has the next best regimen, I maintain that the market is sufficiently large for both companies to do extremely well. In my opinion, the near-term losers are JNJ (Olysio should largely disappear) and Roche (it should have become a factor), with AbbVie unlikely to garner significant share.

Near term, Gilead's earnings will be driven by its Hepatitis C franchise. Over the intermediate term, and largely absent from discussion, its earnings will be augmented by its research and development efforts in oncology, hepatology and nephrology, as well as its TAF program in HIV.

Gilead is scheduled to report Q2 results next week, and while I expect them to readily exceed expectations, this is "only the beginning". Q3 results should reflect additional patient warehousing ahead of the FDC launch, whereas Q4 results (as well as Q1'15) should be awesome. The upcoming Q3 warehousing is a known phenomenon, and should not be used as a reason to avoid the stock. My target price remains $140.


Disclosure: The author is long GILD.