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Gilead Retained at Neutral

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We recently maintained our Neutral recommendation on biopharmaceutical company, Gilead Sciences, Inc. (GILD - Free Report) . Our target price is $55.00 per share.

Why the reiteration?

In May 2013, Gilead reported lower-than-expected earnings in the first quarter of 2013. Lower-than-expected revenues were responsible for the earnings miss during the first quarter of 2013. Revenues climbed 11% to $2.53 billion but missed the Zacks Consensus Estimate of $2.56 billion. The year-over-year increase in total revenue was attributable to higher product sales.

We are encouraged by the approval of Complera/Eviplera, which together with Stribild has further fortified the HIV franchise at Gilead. The company is looking to combat the threat of genericization by inking deals and acquisitions and introducing new products. Gilead still expects product revenue for 2013 in the range of $10–$10.2 billion, reflecting an increase of 6%–9% over 2012 levels. We expect Gilead to easily achieve the increased guidance driven by its strong product portfolio.

We are also impressed by Gilead’s efforts to develop its pipeline. The company is highly optimistic about the potential of its pipeline candidate sofosbuvir, which aims to treat patients suffering from hepatitis C virus (HCV). The candidate is under review both in the US and the EU. Approval of the candidate would not only boost Gilead’s top line, but also strengthen its position in the lucrative HCV market. A sizeable population suffers from HCV the world over. However, the treated population is much lower. This leaves the field open for new treatments.  

Apart from the late-stage pipeline, Gilead has multiple candidates in mid/early stages of development. The successful development of the pipeline candidates will help drive growth.  

We remain concerned about the generic threat looming over key drugs at Gilead. With generic competition looming large over the company, Gilead’s pipeline needs to deliver. We see limited scope for upside until more visibility is obtained on the pipeline development . Consequently, we retain our Neutral stance on the stock.

Other Stocks to Consider

Gilead carries a Zacks Rank #4 (Sell), reflecting short-term pressure on the stock. Favorably placed stocks in the biopharma sector include Jazz Pharmaceuticals Public Limited Company (JAZZ - Free Report) , Alnylam Pharmaceuticals, Inc. (ALNY - Free Report) and Alexion Pharmaceuticals, Inc. (ALXN - Free Report) . While Alexion Pharma and Alnylam Pharma carry a Zacks Rank #2 (Buy), Jazz Pharma carries a Zacks Rank #1 (Strong Buy).

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