Mar 17 2020 - Gilead Sciences - Even Not Counting COVID-19, The Company Has Significant Potential

Summary

Even when we ignore the COVID-19 stock price boost, Gilead Sciences has built up an impressive portfolio with a significant amount of potential.

The Hep C decline is over, the HIV business is growing, and the company's oncology and other viral businesses are growing.

COVID-19 data readouts will be in a few weeks, however, there are numerous other catalysts.

I recommend investing in this company as a long-term holding.

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Gilead Sciences (NASDAQ: GILD) is arguably the largest publicly traded virus focused biotech company. In a world with COVID-19, the company’s stock has performed admirably well since the start of the year, with its share price rising by 9% YTD versus a 17% YTD decline for the S&P 500. As we’ll see throughout this article, despite that performance so far, the company has significant additional potential to generate shareholder rewards.

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Gilead Sciences - Kiplinger

Gilead Sciences 2019 Financial Performance

Despite continuous investor concerns about the company since its Hepatitis C business declined, Gilead Sciences had incredibly strong financial performance in 2019.

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Gilead Sciences 2019 Financial Performance - Gilead Sciences Investor Presentation

In 2019, Gilead Sciences made key decisions to drive the future of its business. An underlying theme throughout this article will be that the company has overcome its difficulties with its declining Hepatitis C business to build a strong business. The company had strong financial performance, with .1 billion in sales. It’s worth noting that the growing HIV business was .4 billion of this (12% YoY growth).

The HIV business is incredibly important because not only has the company been able to do incredibly well with it, but the fact that it’s currently ~70% of the company’s revenue means declines in other businesses pose minimal risk. The company has also worked on new Biktarvy and PrEP launches. These two things together help minimize patent risk and support the business against competitors.

Financially, the company announced a .0 billion share repurchase authorization, worth ~6% of its market capitalization and increased its dividend to .68 / share quarterly (also equivalent to 4% annually). That means ~10% shareholder annual returns. Going into 2020, the company is forecasting ~ billion in sales, effectively the same as FY 2019, although COVID-19 could increase that.

Gilead Sciences Viral Businesses

Moving onto the company’s antiviral businesses, we can start with Hepatitis C since it’s an understood declining business. The treatment the company made, that for one year earned almost billion in revenue, is running out of patients and now makes ~.5 billion annually. Still, however, it contributes cheap cash flow, and that revenue is nothing to sneeze at for a billion company.

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Gilead Sciences Other Drugs - Gilead Sciences Investor Presentation

Moving into the company’s HIV business, and we see a much more impressive business, one that has grown at 14% annually over the past decade. The company’s Biktarvy treatment is a slightly stronger and simpler treatment that the company is utilizing, instead of its old treatment, while simultaneously pushing out patent expiration. The company is expecting this to remain the preferred option until 2033.

That’s incredibly significant for patients. This is a major part of Gilead Science’s portfolio and the revenue and income could be secure for almost 15 years. Biktarvy is expecting to continue its growth, from almost billion in revenue over the past year. Current peak sale forecasts are close to billion - a significant growth in sales that could support shareholder income growth.

For a company with a P/E ratio of almost 17, having potential growth is significant. Additionally, the company has Descovy to help reduce the chance of at-risk individuals getting PrEP. The company has around 20% of at-risk individuals on PrEP. Sales here are significant and could continue their growth. With only 20% of at-risk individuals on PrEP, it could increase significantly going forward.

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Gilead Sciences Other Viral Businesses - Gilead Sciences Investor Presentation

Outside of these HIV and Hep C antiviral businesses, the company has other opportunities to potentially grow its antiviral businesses. The company’s Hepatitis B business has one of the largest potential for growth. The company sees this business growing to a + billion franchise by 2022, significant growth that will help provide several % of the company’s revenue.

The company is also focusing on driving China growth. The company has been slowly getting China disease approvals, and with COVID-19, those could potentially increase. The company has 4 listed for Jan 2020 reimbursement. With more than 1 million people having HIV in China, approval here could allow the company to significantly grow its revenue and income.

Long-term, the company also has Phase 1B trials for a cure. Initial results are promising, and this could be huge, but it could also, after a few years, kill the company’s business like Hepatitis C did. This will be the next phase of the company's business though, as patent expiration comes on the existing businesses in 2033.

Gilead Sciences Cell Therapy Business

The company’s cell therapy business is a major acquisition the company made recently for .9 billion that it’s written down recently.

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Gilead Sciences Cell Therapy - Gilead Sciences Investor Presentation

The company had 73% YoY growth here for FY 2019 sales of 6 million. Survival data is exciting and >168 treatment centers are authorized worldwide. The acquisition is done, and whether it’s worth it is indeterminate, however, peak sales here are still expected to reach almost .5 billion by 2022. That, combined with the Hepatitis B business, could mean almost billion in annual sales from a new business.

That growth is ~15% growth in the company’s annual revenue in 3 years. The company has also submitted regulatory submissions for KTE-X19. Peak sales for this drug are uncertain, especially after the difficulties that Yescarta has faced, however, they could potentially be sizeable.

Gilead Sciences Filgotinib

The last aspect of Gilead Sciences’ portfolio with significant portfolio is the company’s work with Galapagos on Filgotinib. The company has been acquiring increasing stakes in Galapagos, and honestly with Gilead Sciences recent acquisitions, it might be time to buy Galapagos. It has an ~ billion market capitalization. Gilead Sciences already has a ~30% stake.

Filgotinib is a drug that’s rapidly achieving approval and sales growth. Filgotinib has seen its peak sales estimates grow from -3 billion in 2016 to -6 billion in 2019. That significant sales growth, which will come online with the company’s other drugs, will help to provide significant potential new income for the company. As we can see, Gilead Sciences potentially has significant growth potential in the 2020s.

Gilead Sciences Forty-Seven Acquisition

Gilead Sciences is continuing to focus on growing its portfolio. The company recently announced a .9 billion acquisition for Forty-Seven. Interestingly, this acquisition will add to the company’s oncology business, where its original Kite Pharma acquisition hasn’t performed as well.

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Forty Seven - PR Newswire

The drug that Gilead Science is chasing here is Magrolimab, a blood cancer drug. That drug is expected to potentially have peak sales of almost billion, with 2024e peak sales at almost 0 million. That means the potential for significant sales going into the late-2020s in the company. Putting this all together, we can see how Gilead Sciences is building a growth pipeline for the 2020s.

Gilead Sciences 2020 Guidance

Putting this all together, we get Gilead Sciences’ 2020 guidance, which we briefly mentioned above.

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Gilead Sciences Guidance - Gilead Sciences Investor Presentation

The company’s billion in product sales, will come with an 86.5% strong gross margin and GAAP diluted EPS at ~.35 / share. The company is no longer excluding stock based compensation from its non-GAAP estimates, something that I like to see, as it makes the company’s non-GAAP estimate much more reasonable for shareholders to see.

At a .35 GAAP diluted EPS, that puts the company’s P/E ratio at less than 14 for the year. That’s a low P/E ratio in any market and can generate significant shareholder returns.

Gilead Sciences Catalysts

Putting Gilead Sciences’ portfolio together, there’s 3 main potential benefits to pay attention to. That’s the company’s Filgotinib business, oncology business, and Hepatitis B business. The company’s Filgotinib business will have Phase 3 readouts in early 2020, with the potential for 5 launches over the next 4 years. These Phase 3 readouts could generate significant potential revenue.

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Gilead Sciences Catalysts - Gilead Sciences Investor Presentation

The company’s overall milestones through 2021 are visible above. The company has several major oncology data and Filgotinib data readouts that are worth paying attention to. The company’s portfolio of data readouts here could provide the company with several new businesses and potential revenue. That potential revenue means the company’s earnings are worth paying attention to over the next year.

Gilead Sciences COVID-19 Potential

Now let’s talk about one of Gilead Sciences’ most exciting potential opportunities, COVID-19.

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Coronavirus Map - Gis And Data

COVID-19 has spread to more than 150 thousand confirmed cases. The number of cases is likely much larger and could get even bigger. Germany’s chancellor has said that they expect, should trends continue, 70% of the population could get the virus. With a death rate from 1-3%, that means that potentially, tens of millions if not more than 100 million people worldwide could die if the infection spreads at that rate.

More importantly, that doesn’t account for the overwhelmed hospital systems that’ll increase death rates. Gilead Sciences is working to solve this. The company has 2 Phase-3 trials of Remdesivir that should see data readouts in the next few weeks. Those data readouts, assuming they’re positive, could move Remdesivir to a front line treatment and significantly increase demand.

This is a major trial worth looking at and it has the potential to increase the stock price significantly in the next few weeks to months.

Gilead Sciences Risks

Gilead Sciences does have some risks worth paying attention to for investors, however. The company’s biggest risk is the risk of its drug trials failing, midstream companies need to be constantly investing in R&D.

The company is investing heavily in R&D. The company is spending more than billion annually on R&D, and as we discussed previously, has made a significant number of acquisitions recently. Those investors have historically panned out for the company, the company built its Hep C and HIV businesses, along with oncology businesses off of these investments.

However, the company, if it continues investing at these rates, will be investing billion, or half its market capitalization over the decade. If that investment doesn’t pan out, it can significantly hurt shareholders.

Conclusion

Gilead Sciences has significant potential, even when we don’t count COVID-19. The company’s existing businesses are doing well. Most of the company’s Hep C slowdown has completed and the company still has a P/E ratio in the mid-teens. At the same time, the company’s HIV business has a significant history of growth, and has the potential to keep that growth until the 2030s.

The company has a number of new businesses coming online, with recent acquisitions bolstering the pipeline. The company’s oncology and Hep B drugs should be coming online, and these drugs could provide billions in revenue by the mid-2020s. That potential for new sources of revenue could help Gilead Sciences. And that doesn’t even count COVID-19 data readouts in the next few weeks.

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Disclosure: I am/we are long GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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