One of the conundrum’s facing any investor looking to buy Gilead Sciences (GILD) is what to make of Sovaldi’s sudden success. The Hepatitis C drug has been so successful, that the market now worries that will cure patients so quickly that sales will rise and then fall faster than anyone inititally expected.
Citigroup’s Yaron Werber believes that even if that happens, Gilead Sciences will be OK. He explains why:
We have revisited our model based on a faster launch, quick peak and then a decline phase. However, as the launch is staggered globally, we see more resilience then feared…
We conducted an analysis of previous demand for hepC drugs and conclude that the market can support strong sales driven by the natural rate of progression into advanced disease annually. More so, as the launch is staggered globally, we see a natural progression of increasing sales globally over time. Based on the strong demand for Sovaldi, we are raising ests in 2014-'16 to $7.5B, $11B, $12B, then flattening sales out from '16-'18, and reducing them to $6.5B by 2023. In essence, our sales are now higher initially but also the peak is lower but we do see sales remaining steady longer than is currently feared.
Gilead trades at 13 times Werber’s 2014 earnings estimate, 9.2 times his 2015 forecast and 8.6 times his 2016 estimate, prices that he thinks make its shares “look cheap.” He also sees value in idelalisib and other drugs Gilead has in the works, and with its massive free cash flow, it can make acquisitions and return capital to shareholders. “Hence, the bear case of a quick peak and then a compounded cliff is unlikely, in our view,” Werber says.
Shares of Gilead Sciences have ticked up 0.1% to $73.69 at 1:58 p.m. today, a solid day given Amen’s (AMGN) 0.7% drop to $125.53 and Biogen Idec’s (BIIB) 0.7% decline to $307.76.The iShares Nasdaq Biotechnology ETF (IBB) has fallen 0.5% to $240.34, while the SPDR S&P Biotech ETF (XBI) has dropped 1.2% to $1434.68.
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