Gilead Sciences, Inc. Is More Than an HCV Play (GILD)


A year ago almost to the day, Gilead Sciences, Inc. (NASDAQ:GILD) was riding high. GILD stock was basking in the glow of a 59% gain dished out during the twelve months before that on stabilizing growth in sales of its hepatitis C drugs Sovaldi and Harvoni.

Gilead Sciences, Inc. Is More Than an HCV Play (GILD)

Source: Gilead Sciences

What a difference a year makes. Already down 30% year-to-date before today, on Tuesday, Gilead stock hit a new 52-week low on doubts about the company’s future, and doubts specifically about its once-red-hot hepatitis portfolio that’s increasingly facing lower-cost competition.

Not that the concerns aren’t merited, but the sellers appear to have overshot their target by underestimating everything else Gilead Sciences has going for it.

Impossible Expectations

Calling a spade a spade, there was no way Gilead’s hepatitis therapies Epclusa, Sovaldi and Harvoni were going to maintain list prices of $74,760, $84,000 and $94,500, respectively. If competition wasn’t going to undermine the company’s pricing power, regulatory and economic pressure would.

As it turns out, competitors have done most of that right-sizing work … competitors like Merck & Co., Inc. (NYSE:MRK) and AbbVie Inc (NYSE:ABBV). Merck recently unveiled hepatitis C treatment Zepatier at a price of only $54,600, and while the HCV-fighting Viekira Pak’s price is on par with Sovaldi’s cost, it’s still able to siphon off some of Gilead’s hepatitis C business.

More alternatives have been surfacing, and will continue to do so.

It’s a problem for shareholders now, as the bulk of the bullishness seen from Gilead stock since 2012 has been predicated on smashing sales success with its hepatitis portfolio. As it turns out, as big as HCV was supposed to be for Gilead, it’s still got a huge number of other ways to make money.

Not Just an HCV Play

It’s difficult to recall a time when its hepatitis drugs weren’t the primary reason to own Gilead stock, but don’t forget that Gilead was and still is the HIV/AIDS treatment leader.

As of the latest tally, Gilead controls roughly half of the HIV market, and HIV revenue accounts for approximately 40% of Gilead’s total business. That’s less than the 52% of corporate sales driven by its hepatitis products, but not considerably less. The non-HCV pieces of its portfolio can drive sales growth, too. To that end, the approvals of HIV drugs Odefsey and Descovy earlier this year represent an underappreciated growth opportunity for Gilead.

Both drugs are TAF-based regimens. TAF, short for tenofovir alafenamide fumarate, works using the same basic principle as other Gilead HIV drugs — namely Truvada and Complera — but without the inherent toxicity of those drugs. TAF can be dosed at about one-tenth the necessary dose of its other HIV medications.

However, it’s still going to be a while before it even has a chance of becoming a marketable product, Gilead and R&D partner Galapagos NV (ADR) (NASDAQ:GLPG) recently announced the Crohn’s disease treatment the two were working on showed promising efficacy through its phase 2 trial so far.

Perhaps the most compelling reason one would want to step into Gilead stock as it’s well into new 52-week low territory, however, is the $8.7 billion worth of cash it’s sitting on.

Sangara Narayanan of GuruFocus said it best, explaining “Gilead’s Patience Is Wearing Investors’ Patience Thin.” If Gilead wanted to reinvigorate growth — or even just rekindle some excitement with GILD stock — it could easily make an acquisition. Indeed, if it were to sell its $16 billion worth of longer-term investments, it could make several respectable acquisitions. The company simply says it’s not interested in forcing the wrong deal.

Or if that’s not enough, perhaps this will be … Citi thinks Gilead’s hepatitis C sales are finally poised to improve, with new starts of treatment regimens up 3% at one point in September versus August starts.

Bottom Line for Gilead Stock

Of all the things working against Gilead right now, poor results and tepid prospects aren’t either of them. The company is doing everything it’s supposed to so, and isn’t doing anything it isn’t supposed to do.

The biggest headwind GILD shares face at this time is mostly the pessimistic perception that’s been driving the stock lower since the middle of 2015. In many ways that’s the biggest hurdle any company could face, but in many other ways it’s also the most encouraging one.

When the market finally decides to see the glass as half full rather than empty, sentiment and therefore the stocks could turn in an instant, and turn decidedly once it does.

Waiting is the hardest part. With a trailing price-earnings ratio of 6.5 though, it’s worth the wait.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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