Gilead Sciences Inc Stock Has Huge Upside Potential

  • Gilead's hepatitis C drugs sales are not going to grow again due to the competition, and the deep discount.
  • Gilead's earnings can grow with new drugs, acquisition of new assets, and even by spinning-off HCV and HIV.
  • The average target price of top analysts is $107.29, indicating an upside of 36.1% from its September 15 close price.

After gaining 82.5% in 2012, 104.5% in 2013, 25.5% in 2014, and 7.4% in 2015, Gilead Sciences (NSDQ:GILD) shares have fallen 23.3% year-to-date. Investors' concern about the decline in Gilead's hepatitis C drugs sales has been the cause for the sharp drop in Gilead stock in the last 15 months. Since it hit an all-time high of $123.37 on June 24, 2015, GILD stock is already down 37.1%. Gilead's hepatitis C drugs sales in the last quarter of $3,986 million were 7.2% lower than in the previous quarter and down 18.6% year-over-year.

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As I see it, Gilead's hepatitis C drug sales are not going to grow again due to the competition from AbbVie's (NYSE:ABBV) HCV drug Viekira, and Merck's (NYSE:MRK) HCV drug Zepatier, and the deep discount it had to offer to maintain its high market share. However Gilead's earnings can return to growth and its shares could surge again due to new drugs it has been developing, the acquisition of new assets, and even by spinning off its HCV and HIV franchises.

New Drugs

Gilead has a rich pipeline of 34 different programs under development, eight of them in phase 3, and is increasing its research and development expenses. Gilead's rich pipeline is creating opportunities that may allow the transformation of the treatment of many diseases, like NASH, HPV, inflammatory diseases, certain cancers, and cardiovascular conditions for which few, if any, options exist. According to the company, in the first half of the year, its pipeline was mostly about HIV and HCV but in the second half of this year the company has 70 different data readouts coming through, most of those are non-viral areas.

The development of drugs for nonalcoholic steatohepatitis or NASH disease is a very promising area for the company. NASH is a common liver disease. It resembles alcoholic liver disease but occurs in people who drink little or no alcohol. The major feature in NASH is fat in the liver, along with inflammation and damage. According to Gilead, it has the components necessary to have a pretty meaningful product or combination of products that can do really good work in the area of reduction of the disease in very severely ill NASH patients. The NASH market is about 15 million patients and growing in the United States.

Also Read: Gilead Sciences Inc. Stock Is Now Poised To Make A Comeback

Also, the recently approved new promising drugs can contribute to the growth in the company's revenues and earnings. On June 28, The U.S. Food and Drug Administration approved Epclusa the first all-oral, pan-genotypic, single tablet regimen for the treatment of adults with genotype 1-6 chronic hepatitis C virus infection. Epclusa is also the first single tablet regimen approved for the treatment of patients with HCV genotype 2 and 3, without the need for ribavirin. On August 22, The European Commission granted marketing authorization for once-daily Truvada in combination with safer-sex practices to reduce the risk of sexually acquired HIV-1 infection among uninfected adults at high risk, a strategy known as pre-exposure prophylaxis, or PrEP.


Some investors believe that Gilead needs to use its strong cash flow to make new major acquisitions in order to return to growth, and they have been disappointed by the fact that the company has been very cautious taking a decision about such a move.

At Morgan Stanley Global Healthcare Conference on September 12, CEO John Milligan said that some investors are advocating the company to do a large deal. However, according to Mr. Milligan, many others are advocating for not doing a big quick fix because those tend to be expensive, they are hard to do, and they are disruptive. Milligan's opinion is that the best way forward is to do a series of deals over time to try to bring assets that can best help the company can augment the pipeline.

As I see it, management commitment to careful research before making any decision about acquisitions is quite reasonable, since a wrong choice of an inadequate acquisition can cost the company a fortune.

Also Read: Gilead Sciences Inc. Stock Will Rise Before Revenue Growth Returns

Spinning Off HCV and HIV Franchises

Although Gilead's management had internally evaluated splitting their HCV and HIV franchises into two companies, on September 7, at an investor conference, they said that that there is a little likelihood of spinning off the two franchises. According to management, they came to the conclusion that practical implications of two companies would limit the upside. According to Gilead, they see the developmental and clinical capabilities in liver disease as essential to the company's longer-term effort in NASH and HBV. As such, they believe, a split could have the contrary synergistic effect to its higher-priority pipeline liver programs.

However, management confirmed that the company remains open to all options to drive growth, both internally and externally. In my view, although spinning off HCV and HIV franchises is not going to happen shortly, the possibility still exists, and management would decide to go on with this program if they are convinced that it will contribute to significant growth.


In my view, Gilead's hepatitis C drugs sales are not going to grow again due to the competition, and the deep discount the company had to offer to maintain its high market share. However Gilead's earnings can return to grow and its shares to surge again by new drugs it has been developing and by acquisitions of new assets, and even by spinning off its HCV and HIV franchises. Considering its compelling valuation metrics GILD stock, in my opinion, is significantly undervalued. According to TipRanks, the average target price of the top analysts is at $107.29, indicating an upside of 36.1% from its September 15 close price, which appears reasonable, in my opinion.

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