Gilead Sciences (GILD, Financial) has been one of the best and safest biotech stocks over the past few months. The stock has shot up over 50% since I recommended buying it last year. While much of Gilead’s growth has been due to the company’s hepatitis-C medicine Sovaldi, the company also has other growth drivers that can push the stock higher.
Gilead Sciences' different HIV medications generated more than $10 billion in sales last year. This year, Gilead Sciences could have five new HIV drugs overshadow the billion-dollar blockbuster-sales level, including the quickly developing blend therapy Complera and Stribild. Since licenses securing these HIV treatments stretch into the 2020s, it’s far-fetched that Gilead Sciences' HIV revenue stream is going to become scarce at any point in the near future.
The pace of Gilead Sciences' upsurge will slowdown this year as new contenders plot for share in hepatitis C; in any case, the organization still hopes to convey low-twofold digit sales growth and earnings growth in 2015.
Fundamentally undervalued
Gilead Sciences frequently has high net income margins. The margin in FY 2014 rose significantly because of the surge in earnings in that year, yet in earlier year’s net income margins remained at more than 26% to 35%. A reliably high net pay margin shows the organization's items or administrations are premium. Also, Gilead Sciences purchased back $3 billion in shares in Q1, and in the quarter before then another buyback for $2 billion was sanctioned. In January 2015, an extra $15 billion in share repurchases was approved. Likewise, the organization started paying a quarterly dividend of 43 cents per share in June, which would be an annualized $1.72.
Despite the many positives, Gilead still trades at 13.32x trailing earnings and has a PEG ratio of 0.81. In addition, the company has close to $15 billion in cash and is clearly undervalued despite being near all-time highs.
Sovaldi in Japan
Sovaldi has been Gilead’s growth driver for the over one year and it still has a lot of room to grow. Sovaldi was recently approved in Japan, which will be another growth driver for the company. As per the World Health Organization (WHO), the number of new Hepatitis C cases in Japan is approximately 350,000 each year. By comparison, the rate is more than twice the 150,000 that regularly occur in the U.S. annually.
According to Barron's, Japan is said to have 29% of the world's hepatitis C patients, or 1.1 million, and counts 216,050 with genotype-2 hep C, the specific type treated by Sovaldi. If all of them opt for Sovaldi, that means sales to U.S.-based Gilead of more than $9 billion, according to Barron's math. The potential business from Japan alone could drive Gilead’s revenue to a lot higher.
Conclusion
Gilead has been one of my best calls and I still remain firmly bullish about the company’s prospects. Gilead is still trading at a relatively cheap valuation and has many growth drivers going forward. The company’s HIV medicine will generate revenue for many years to come while its Hepatitis C treatment will greatly improve the company’s earnings in the short-term. Investors can even expect a dividend hike in the near future. Hence, I think Gilead Sciences is still a buy.
