Weekly Equity Idea Highlight - 2018 09 12
The market is expecting GILD to see significant declines in UAFRS-based (Uniform) ROA going forward, to the low end of peer profitability levels, from current best-in-class levels, with slower growth also. The company currently trades at the low end of historical valuations and the low end of peer valuations, highlighting the market's pessimism.GILD has historically done an excellent job at identifying niches they can control, like HIV, and then the liver disease market, and to invest in them organically and through acquisition (like their purchase of Pharmasset). This has enabled them to produce their best in class returns. With their recent acquisition of KITE Pharma, they appear to be executing on this again, investing in the gene therapy market just as it is getting close to market adoption.
Considering the market's pessimism about GILD has been driven by both concerns about their ability to maintain pricing for their HBV drugs, and a lack of confidence in their ability to find another area to invest in that has the same scale as their other markets, this is a likely significant catalyst for the market to gain confidence, and let it refocus on GILD's core business performance too.
Also, while GILD management appears concerned about their US consumer HIV market, they do not show concern about HCV reimbursements, and they are show growing confidence about their ability to innovate and their outlook overall for their products and trials. This confidence points to strong longer-term fundamentals for the business.
Considering overly pessimistic market expectations, management's operational success, intelligent acquisition strategy, and their growing confidence about the business, there appears to be equity upside potential for GILD.
Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and commercializes medicines. The company's primary areas of focus include viral diseases, inflammatory and fibrotic diseases and oncology. The company's products include: Biktarvy for the treatment of HIV-1 infection in certain patients; Vosevi?, a single tablet regimen of sofosbuvir, velpatasvir and voxilaprevir for the re-treatment of chronic hepatitis C virus infection in adults; Vemlidy? for the treatment of chronic hepatitis B virus infection in adults with compensated liver disease; and Yescarta (axicabtagene ciloleucel) for the treatment of adult patients with relapsed or refractory large B-cell lymphoma.
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