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Gilead: A Buying Opportunity

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Gilead Sciences Inc. (GILD - Free Report) performed impressively in the second quarter of 2013. The company reported higher-than-expected revenues driven by strong product sales. Gilead’s second quarter 2013 adjusted earnings were above the year-ago figure by a penny. Revenues climbed 15% to $2.77 billion and surpassed the Zacks Consensus Estimate of $2.68 billion.

The robust sales of newly launched products like Complera/Eviplera and Stribild are indeed encouraging. Stribild has performed well ever since its launch in the U.S. in Aug 2012. Sales of the drug climbed 8% sequentially to $99.4 million in the second quarter of 2013. The EU approval of the drug in May 2013 has boosted the sales potential of the drug. Sales of Complera/Eviplera, launched in 2011, climbed 27% sequentially to $188.7 million in the second quarter of 2013.

We expect these products to continue performing well. Gilead expects 2013 product revenue 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.  Following the strong second-quarter results, we raised our earnings estimate for 2013.

We are also impressed by Gilead’s robust pipeline led by the late-stage hepatitis C virus (HCV) candidate, sofosbuvir. The candidate is under review both in the U.S. (target date: Dec 8, 2013) and the EU. Gilead is highly optimistic about the potential of sofosbuvir. We expect sofosbuvir to be approved in the U.S. in December and have consequently increased our 2014 earnings estimate significantly.

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.  We note that companies such as Johnson & Johnson (JNJ - Free Report) and Bristol-Myers Squibb (BMY - Free Report) are also developing therapies to combat HCV.

The improving prospects of Gilead have prompted us to hold an Outperform recommendation on the stock. We expect the stock price to appreciate significantly from current levels. We believe that the current price represents an attractive entry point for investors. Our investment thesis is supported by a Zacks Rank #1 (Strong Buy).

Apart from Gilead, Actelion Ltd. too appears to be attractive in the biopharma space with a Zacks Rank #1.

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