Monday, 16 March 2015

Gilead - establishing the range

The US listed biotech company Gilead has had a meteoric last year in share price terms...


...with the rise and rise of its one tablet a day formulation HCV antiviral treatment hugely driving numbers: 

Despite long patents it is small wonder then during December last year that the shares fell sharply (briefly well below US$90/share) when it was announced that low pricing/an exclusive distributor deal from the number two player (an AbbVie product) had forced Gilead to start offering discounts despite a still 90%+ market share (blurred however because Express Scripts with whom AbbVie signed an exclusive agreement) does not provide numbers to various market share watchers.  

Further blurring is possible from a new Bristol Myers product which claims in phase 3 high success especially in combination with the key Gilead Sovaldi product. This development will be a key focus for investors during 2015.  

Of course Gilead are not standing still.  At the end of 2014, Gilead had 225 active clinical studies, of which more than 54 were in phase 3 clinical trials.

Additionally - and easy to forget that HIV products were Gilead's core for all but the last year - there is still a fantastic market share in HIV treatments: 


It is interesting to see where the historic buyback levels were too.  Of course the average is unsurprisingly below the current share price - perhaps it is more interesting that the Q4 14 level is above the prevailing share price as I write.  With a newly announced US$15bn stock buyback facility (equivalent to 10% of market cap) this is also set to be an important source of total returns (especially as there is currently no dividend yield).


So what about 2015 prospects?  If we look at the formal company projections they are for c. US$19bn of operating profit a c. 15% increase versus the FY14A figure.  


With a US$150bn EV this would put the company on a prospective EV/ebit of just under x8...which in almost all eventualities is too cheap for a company growing by a double digit percentage and with strong market positions, an ungeared balanced sheet and lengthy patents.  

For me - still retaining half the position I bought under US$90 back in December - there is enough attraction to retain a position but insufficient to go overboard.  In the absence of new newsflow (clearly the upcoming Q1 2015 numbers on 22 April are an obvious focal point), my range for the stock is US$90-110 to double up again / take some more profit. 

For Gilead keeping an eye on the newsflow - in this important but highly technical area - is of huge importance.  

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