Can Gilead Regain its charm in 2018?

GILD has become one of the top big pharma in recent years, with market cap around $100B. It dominates anti-HIV and anti-HCV drug markets.

The company was founded in June 1987 by Dr. Michael L. Riordan, who was 29 at the time. It became a public company in 1992. After that, its stock price has increased 10616%, without considering the dividends (started in 2015). In the same period of time, Nasdaq has grown 1038%. If you invested $1k in Gilead 25 years ago, it is $106k now; or if in Nasdaq, it is $10k.

In January 2012, Gilead acquired Pharmasset for $11B, which was proven a genius acquisition. In December 2013, Gilead received approval from the U.S. Food and Drug Administration (FDA) for sofosbuvir, now known commercially as Sovaldi, a cure for HCV. Along the anti-HCV pipeline, Gilead has generated more than $54B revenue in 4 years with gross margin close to 90%.

Well, while Gilead's HCV-cure drug has saved thousands lives, it also sets up the revenue decline scheme. The Anti-HCV drug peaked in 2015 and revenue kept dropping in the recent two years as most patients have been cured. Followings are figures of EPS and Revenue in recent quarters from 2013Q4, when Sovaldi was approved. Both EPS and Rev peaked at 2015Q4.

GILD EPS in $

GILD Revenue in B$
If we break down its revenue into HCV-related products (blue) and non-HCV-related products (orange), the trend is better presented.


In 17Q3, HCV revenue is less than half of peak value ($5B). The stock price suffered from above $120 to below $70 despite the company is still running like a cash-cow and P/E as low as 8.5.

Investors had blamed the company for not taking big acquisitions in recent years., --- cash was piling up rather than investing and generating revenue. In January 2016, the company announced that Gilead Sciences CEO John Martin would step down after two decades in that role.

In August 2017, Gilead Science acquired Kite Pharma for $11.9B. In October, Kite’s Yescarta™ was approved by the FDA for the treatment of adult patients with relapsed or refractory large B-Cell lymphoma, with price tag of $373k per patient. Stock priced jumped 20% on this acquisition before retreated back half of the gain.

Although Yescarta is another life-saving drug, insurers are slow to process the applications. As reported on 12/15, there were only 5 patients who had received the treatment, as another dozen had started weeks-long process to get Yescarta. In the 15 authorized hospitals, the waiting list had grown more than 200, shrinking only as some very sick patients had died. The total cost per patient, including doctors and hospital fees, will be between $0.6M and $1M. MD Anderson, which has more than 100 patients on a waiting list, has started treatment for a few after getting them to sign waivers. Stanford has decided to take patients regardless of insurance provider to save their lives..

On 1/3/2018, Credit Suisse Analyst Alethia Young and her team reiterated a Neutral rating and $80 PT on Gilead Wednesday, warning that estimates on the buy side (asset managers, institutional investors) are still above her 2018 forecast. Young lowered her Hepatitis C figures for the year from $4.6 billion to $3.2 billion. As it relates to Yescarta (CAR-T product), the general sentiment is that the launch in 2018 will not be a big driver to the GILD story. Therefore, if the launch does go faster than consensus at $202M, we think that it would be upside to GILD shares. Overall, investors agreed with us that 2018 likely reflects a bottoming of revenues and earnings. Beyond 2018, we think (and investors agreed) that the company can likely growth post this bottoming in 2018 which will likely create an attractive buying opportunity at some point. 

Looking beyond HCV and T-cell therapy, Gilead still dominates anti-HIV drugs with 10% growth rate, as shown the orange columns in revenue breakdown chart. The pipeline is also strong.

Here is a link to Gilead's pipeline update. CLICK

From their pipeline besides oncology, the company is also betting on Nonalcoholic Steatohepatitis (NASH), which is a multi-billion market. In April 2016, Gilead acquired Nimbus Apollo, Inc. from Nimbus Therapeutics, and its ACC inhibitor program. Nimbus Therapeutics will receive an upfront payment of $400M, with the potential to receive an additional $800M in development-related milestones over time. On Oct 24 2017, Gilead reported phase-2 results of GS-0976: patients on the high dose (20mg) showed significant decreases in liver fat content compared to a dummy treatment after three months, while there was also a “significant decrease in TIMP-1,” a biomarker used for liver fibrosis. The lower 5mg dose, however, did not beat out placebo. 

Gilead has also Selonsertib in phase 3 (Primary Completion Date by Jan 2020) and GS-9674 in phase 2.  Gilead is competing with other biotech companies in this area. By some estimates, there are some 40 drugs in mid- and late-stage clinical development that treat various aspects of the metabolic disorder.

Conclusions


  1. Gilead revenue is likely to hit bottom in 2018.
  2. HIV business is growing steadily and profitable.
  3. Oncology (CAR-T) has a slow start, but could bing bright future to cure cancer.
  4. NASH pipeline is still years away to generate revenue. However, any positive news from clinic trials could be catalyst for stock price.
  5. The company has lot of cash for more acquisitions.

Final thoughts


  • HCV drug revenue boom has passed. 
  • Gilead is moving to the right direction. 
  • With stable HIV drugs, the downside risks are limited. 
  • Oncology and NASH pipeline will provide plenty of upside. 
  • I would like to buy any dips and wait for Gilead to regain its charm.


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