Is Gilead Sciences Still a Buy After the Recent Stock Rally?

With shares of Gilead Sciences (NASDAQ:GILD) trading at around $74.24, is it an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C – Catalyst for the Stock’s Movement

Gilead has made a fortune from realizing a simple fact: patients take their medications in the real world, not in a laboratory with PhDs and MDs supervising dosing schedules and side effects. Their fixed-dose combination pills Truvada and Atripla addressed this issue for HIV treatment, combining multiple HIV medications into a single pill. Consequently, they have been rewarded with an impressive market share in the HIV treatment market, and are now looking to have the same success in the treatment of Hepatitis C. Sofosbuvir, a novel Hepatitis C drug, recently demonstrated promising results in the first of several Phase 3 trials, with 78% of patients having an undetectable viral load 12 weeks following treatment.

There are two attributes of sofosbuvir which make it a potential game-changer. First, if approved by the FDA, it would be the first all-oral Hepatitis C treatment. Second, it avoids the use of interferon, a component of standard Hepatitis C treatments associated with a highly unfavorable side-effect profile. Half the patients that take interferon typically develop flu-like symptoms, and one-third develop psychiatric complications such as depression. These challenges in the current Hepatitis C treatment regiments have led to approximately one-third of patients discontinuing treatment. As an all-oral, low side-effect medication, sofosbuvir has the potential to sharply reduce this rate of non-compliance and, in doing so, establish itself as the dominant drug in the treatment of Hepatitis C. With the market for Hepatitis C treatments estimated at $20 billion, there is ample excitement over sofosbuvir as it progresses through Phase 3 trials.

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Gilead has also recently introduced another HIV drug, Stribild, that is poised to become a lead drug choice in HIV treatment. A four-drug combination pill that builds on the success of Gilead’s single-pill model, Stribild has been predicted to become the market leading HIV drug within the next decade. This addresses the well-known shareholder concerns over Gilead’s older HIV drugs losing patent protection.  Additionally, since Gilead produces all of the component drugs within Stribild, they would avoid the revenue sharing arrangements that have come with their previous HIV medications.

Gilead has also ramped up its research into oncology drugs, with several drugs in its pipeline being tested as treatments for colorectal cancer, pancreatic cancer and a specific type of leukemia. As Gilead’s market presence is largely centered around its Hepatitis C and HIV drugs, expectations for a thriving oncology division are low, and the potential success of these drugs is likely not built into the stock price. Nonetheless, if any of its experimental drugs in this division were to show promising results (the lead contender is currently a drug termed GS-6624 that is in several Phase 2 trials), it would be a welcome addition to Gilead’s product line…