Will Gilead Sciences Remain Undervalued Forever?

Gilead Sciences (GILD) has proved itself to be the most innovative and fastest developing biotech firm around the globe. The company displayed stunning bottom-line growth, as it quadrupled its bottom-line two years before, and in 2015, it additionally surged profits by 62 percent. The main reason behind this growth success was it blockbuster medicine Sovaldi.

The main thing shocking to stockholders was despite delivering robust results, how Gilead Sciences was trading at single-digit P/E ratio throughout the past two years.
Furthermore, the company was successively surpassing consensus estimates, therefore nurturing the level of its performance.

Gilead Sciences is not off to a good start this year, and the reason behind this is the declining sales of the company’s hepatitis C drugs in the U.S. In the most recent quarter, the company’s sales of HCV drugs Sovaldi and Harvoni plunged 6 percent compared to a year ago period. That was mainly because of acknowledged price discounts intended to open these drugs up to patients with a less serious disease.

In the upcoming month, it is highly likely that FDA will accept Gilead’s next-generation pan-genotype HCV drug and that could help it the company to strive against other players and alleviate prices. Moreover, if the Gilead’s Sovaldi gets the permission in China, the company will experience a strong sales boost next year.

Apart from this, the company also strategizes to focus on the group of substantial NASH (non-alcoholic steatohepatitis) market to revive its growth engine. And for this, the company recently decided to acquire the Nimbus Acetyl-CoA Carboxylase program, providing the company four experimental compounds specified for NASH.

On the other hand, the company also has an exciting mix of experimental-stage oncology drugs in its pipeline that could help it to reward stockholders in the upcoming years. Gilead will use a lot of cash to acquire a franchise-level drug candidate in oncology. Therefore, it clearly means that the company’s long-term stance is comprehensively dependent on its scientific efforts in oncology as well as various liver diseases like NASH.

The primary reason why Gilead Sciences is trading at a cheap earnings multiple is the lack of long-term growth driver. Gilead’s Sovaldi is a very effective treatment regime and may even lead to the decline in Hepatitis C cases in the next few years. I believe investors see Sovaldi as a one-time earnings booster and not a long-term revenue generator like the company’s AIDS medicine. However, Gilead can prove the doubters wrong by venturing down new growth paths and offsetting the slowdown of Sovaldi sales.
Published on May 31, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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