There Are Many Reasons to Be Optimistic About Gilead's Prospects

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Barry Cohen
May 03, 2016
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After disappointing third-quarter results, Gilead Sciences (NASDAQ:GILD) was saddled up, ridden hard and put away wet. The shares were crushed by an avalanche of selling, taking it down from a high of more than $102 on April 25 to $88.21 four days later, a haircut of nearly 14%.

And even though the stock inched up to close at $89 on May 2, shareholders would need a pair of strong binoculars to view the company’s 52-week high of more than $123 last June.

Was the punishment justified? Obviously, many investors think so, including the New York-based investment bank Maxim Group, which downgraded the stock from “buy” to “hold.” Of course, security analysts are wont to change their recommendations — both up and down after the fact. Aren’t they supposed to do the type of exhaustive research that would tell them in advance that sales would experience a slight hiccup because of changes in the marketplace, including increased competition? Wishful thinking, I guess.

What disturbed investors most was the shaky performance of Gilead’s flagship hepatitis C treatments, which clocked in with worldwide sales of $4.3 billion, a drop of 6% from the same period a year earlier.

Clearly, most alarming was the more than 50% decline in U.S. sales of its biggest seller, Harvoni. Softening the blow was the launch of Harvoni and other antiviral products in Europe and in Japan and a healthy uptick in domestic sales of Sovaldi, the company’s older hepatitis C treatment and its second-leading product.

Wall Street hates companies that disappoint on earnings, and that was certainly the case with Foster City, California-based Gilead. It came in at $3.03 per share for the quarter, falling short of estimates by 12 cents.

Despite the spate of bad news, the company reiterated its guidance for 2016, estimating that full-year sales would be between $30 billion and $31 billion. That’s a reason to be somewhat less dour. Others are a dividend that now yields more than 2%, a promising pipeline and plenty of cash$21 billionto make a sizable acquisition.

Last May, the company made a small but promising move, purchasing EpiTherapeutics ApS, a privately held Danish company, for $65 million. The deal brings several preclinical compounds to Gilead in the field of epigenetic regulation, which holds promise for treating certain cancers. The company already markets Zydelig, which is used in combination with rituximab, for the treatment of certain blood cancers and has several promising candidates in the pipeline.

In addition, Gilead is bent on boosting its line of products to treat human immunodeficiency virus (HIV). It already markets Genvoya, which was launched both in the U.S. and in Europe. In a post-earnings conference call, Paul Carter, the company’s executive vice president of commercial operations, said that five months after Genvoya was introduced in the U.S., “cumulative prescriptions were twofold more than any HIV product from any company since Atripla, which was the first single-tablet regimen to come to market back in 2006.”

So perhaps Gilead’s outlook is somewhat brighter than may have been insinuated in the past few days. On the part of investors, cashing in might just take some patience.

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