Hepatitis Cure Drives Growth At Gilead

9/15/2014


  Recent Price
$105
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
22
  Shares (millions)
1,664
  Long-Term Debt as % of Capital
33%
  52-Week Price Range
$110.64 - $58.81

None of our recommended picks enjoys stronger recent growth trends than Gilead Sciences ($105; GILD), which earns a maximum Momentum score of 100 in Quadrix. Its sales and per-share-profit growth in each of the past two quarters rank in the top 6% of our research universe.

Gilead owes its recent operating momentum to Sovaldi, a wonder pill known as much for its controversial price tag as for its effectiveness. Sovaldi heals more than 90% of hepatitis C patients in as few as four to six weeks, saving them from the dangers of chronic liver disease. But it also costs $84,000 for a 12-week treatment course, a price tag that has drawn the ire of politicians and consumers alike.

Our biggest hang-up for Gilead is price — the shares have returned 41% so far this year. However, in early September the stock retreated on reports that Gilead plans to partner with generic drugmakers to launch Sovaldi in about 80 developing countries, charging far less for the drug in the poorer regions. This is not a new issue, and a larger pullback could prompt us to add the stock to our Buy List.

For now, Gilead Sciences, projected to average 25% profit growth over the next five years, is a Long-Term Buy based on its 24- to 48-month potential.

Business breakdown

The market potential for Sovaldi is large, even if some of it comes at a severely reduced price. About 70,000 U.S. patients have taken Sovaldi since its December launch. Roughly 3 million Americans and more than 130 million people around the world suffer from hepatitis C. Sovaldi's sales are projected to top $10 billion this year and account for roughly half of company revenue.

Gilead's research efforts also focus on treating HIV, cancer, and serious cardiovascular and respiratory conditions. Just two other drugs besides Sovaldi generated more than 5% of Gilead's revenue in the first half of 2014: HIV treatments Truvada and Atripla, each accounting for 14% of sales. Truvada sales rose 4% in the first half of the year, primarily due to price increases. Atripla sales slid 9% as doctors switched to newer Gilead drugs Complera/Eviplera (sales rose 63%, accounting for 5% of Gilead's revenue) and Stribild (up 153%, 4% of revenue). In July, the company won approval for its first cancer drug, designed to treat a type of leukemia. Gilead and GlaxoSmithKline ($47; GSK) have also reported encouraging late-stage trial results from a combination therapy to treat pulmonary arterial hypertension.

Less than 12% of Gilead's first-half revenue came from drugs with U.S. patents expiring before 2021. Sovaldi's U.S. patent runs through 2029.

Conclusion

Looking backward, the stock appears expensive relative to five-year norms, with its trailing P/E ratio of 22 lingering 9% above the five-year average. But per-share profits are projected to surge 84% in the 12 months ending June, twice the average growth rate for its industry group. The stock trades at less than 12 times estimated year-ahead earnings, well below the peer-group average of 22.

An annual report for Gilead Sciences Inc. is available at 333 Lakeside Drive, Foster City, CA 94404; (650) 574-3000; www.gilead.com.

GILEAD SCIENCES
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '14
2.36
vs.
0.50
136%
84.45
-
63.50
28 - 21
Mar '14
1.48
vs.
0.48
97%
84.88
-
67.63
41 - 33
Dec '13
0.55
vs.
0.50
21%
76.11
-
58.81
38 - 29
Sep '13
0.52
vs.
0.50
15%
64.74
-
52.42
33 - 26
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
11.20
2.04
0.00
76.11
-
36.94
37 - 18
2012
9.70
1.95
0.00
38.56
-
20.67
20 - 11
2011
8.39
1.78
0.00
21.75
-
17.23
12 - 10
2010
7.95
1.66
0.00
24.75
-
15.86
15 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
100
46
99
84
65
96

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com