3 Reasons the Market Is Down on Gilead Sciences

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Post on 23-Aug-2014

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After a solid two-year run, Gilead Sciences (NASDAQ: GILD) has fallen from investors graces, down for the year. The biotech has become increasingly reliant on its hepatitis C drug Sovaldi with competition from AbbVie (NYSE: ABBV) and Merck (NYSE: MRK) around the corner

TRANSCRIPT

  • 3 Reasons the Market Is Down on Gilead Sciences
  • 2013s Market Darling...
  • ...Hasnt Seen the Love Continue
  • 1. Remember That First Chart? The stock has doubled over the last year, but if we zoom out a little more its been quite a run. Some investors are likely selling to lock-in gains.
  • 2. Sovaldi, Sovaldi, Sovaldi Hepatitis C drug approved in Dec. Multi-billion dollar potential. Combination product under FDA review will increase use. With 2013 revenue of $11.2 billion, Sovaldi sales will have a substantial impact on Gileads earnings. With reliance, comes worry... Source: Gilead Sciences
  • About Pricing and...
  • Competition AbbVies (NYSE: ABBV) combination product is just a few months behind Gileads (Nasdaq: GILD) Sovaldi combination, but it doesnt appear to be as convenient to take. Merck (NYSE: MRK) is further behind, but looks like it has a combination pill that works as well as Gileads combo cure rates in the 95%+ range and could be taken just once per day. Phase 3 data should be available next year.
  • 3. The Whole Industry Is Down Gilead has underperformed the index for the year...
  • 3. The Whole Industry Is Down But if you look since the peak, its matching the index. Investors are shying away from the biotechs risk.
  • Wheres the Bottom? Hard to predict. Pricing issues might blow over, but worry about competition will continue until Gilead proves its dominance. End of industry downturn will be determined by investors risk tolerance, which could tighten further.
  • Think Long Term If youre planning on holding for multiple years, catching the bottom doesnt matter too much. Gilead is expected to generate its market cap in cash over the next seven years. Even if it takes 10 years, its a substantial deal for a company with growth potential.
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