Gilead Sciences, Inc. (NASDAQ:GILD) was among the major biotech stocks hit by a recent tweet of Democratic presidential candidate Hillary Clinton in which she promised to try and put a cap on the excessively high prices of specialty drug-makers. Gilead has slumped nearly 3% since Monday, against a 7% plunge in the overall Biotech index.
In past two weeks, the stock gained over 6% on the back of speculation that a massive acquisition may be on the cards. The first week of September was spent trying to recover from the market sell-off of August. Gilead has traded between a range of $85.95-123.37 in the past 52 weeks. Bidness Etc details the stock’s recent value drivers and sell-side reviews.
The recent drivers for Gilead’s stock performance have been Mrs. Clinton’s drug pricing plans, news about the company’s hepatitis C and HIV franchise, and the company’s massive bond offering earlier this month which sparked M&A speculation.
Takeover Speculations/Bond Offering
On September 9, Gilead announced a bond sale worth $10 billion in a six-part offering. Although the company did not explicitly disclose the motive behind the move, analysts came up with their own assumptions. Gilead has been under pressure to secure a maturing revenue stream through acquisitions. Given that the company’s financial position is strong enough to undertake a transformational deal without inflating its debt to EBITDA ratio too much, wild rumors have crossed the wires.
One potential takeover target is Bristol-Myers Squibb Co (NYSE:BMY) which will ensure Gilead’s leading position in the cancer market. Anotjer is Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) which brings with it a blockbuster cystic fibrosis drug, and then there is Incyte Corporation (NASDAQ:INCY) which boasts an attractive cancer pipeline. In a recent research report, Piper Jaffray analysts favored Bristol-Myers and Incyte over Vertex as better fits for Gilead.
Meanwhile, in a research report released by RBC Capital Markets analysts last week, it has been claimed that Gilead management currently has no plans for a large-scale acquisition. The company will instead prefer smaller deals in a “string of pearls” strategy. Michael Yee of RBC learned this in a meeting with Gilead’s executives. Hence, it is also being said that Gilead may utilize its bond sale proceeds to buy back shares. The company has a $5 billion share repurchase program underway since May 2014, to which $15 billion was added this February, and Gilead has exercised only around $2 billion of the buyback till now.
Gilead derives more than 60% of its sales from its HCV franchise, comprising two blockbuster drugs, Harvoni and Sovaldi. The new prescription data from the drugs in the 1HFY15, however, demonstrates a declining trend, giving the impression that the market for the disease may be maturing in the US. Yet, the two drugs generated a combined total of $9.4 billion for the company during this period, although a slowdown is expected down the road.
Consequently, Jefferies recommended a Hold on Gilead stock in a report dated September 8. The research firm believes Gilead has “potential for sustainability” in HCV sales over the next few years, but in the long-term US sales could “decline more than expected.” He also said Gilead’s HCV franchise has set a “high bar for future growth” that may be difficult to match. However, latest prescription data of the two drugs compiled by Symphony Health for the week ended September 4 demonstrated an increase. Harvoni’s new scripts rose 0.1% week-over-week to 3,262, while Sovaldi’s new scripts jumped 8% WoW to 877, making up a combined WoW increase of 2.5%.
Earlier this week, Gilead also announced that one of its HCV combo drug candidates has been successful against multiple virus strains in a large-scale study. As per Bloomberg Intelligence analyst Asthika Goonewardene, "This is a big step forward to proving they’re going to have a pan-genotypic option here." The treatment could significantly increase Gilead’s HCV market, helping to recover maturing sales.
Meanwhile, Gilead got dismal news from a competitor’s camp last week. Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), along with development partner Johnson and Johnson (NYSE:JNJ) released additional interim data from a mid-stage trial of their experimental HCV drug in treatment of naive HCV1 patients. The drug managed to post 100% cure rates within six-eight weeks of therapy, opening the way for continued study into the four-week target treatment time. If Achillion manages to reach the target before Gilead, the company could have the best HCV drug in the entire market.
Gilead has been strengthening its foothold in the HIV as well, which it already leads with its TDF-based single tablet regimens, Atripla and Stribild. Recently, Gilead reported encouraging data from a late-stage trial testing its new F/TAF-based HIV regimens in virologically suppressed adult HIV patients who were on TDF-based therapies beforehand. The F/TAF-based treatments were found to help overcome reduced renal function and bone density side-effects of TDF.
The F/TAF is currently under FDA review for approval and can help Gilead fend off competition from GlaxoSmithKline plc (ADR) (NYSE:GSK). GSK’s non-TDF based Triumeq/ Tivicay franchise has reduced Gilead’s HIV market share from 95.5% in December 2014 to 87% as of August 2015. Recently, GSK posted trial results that showed HIV patients switching to once-daily, fixed dose Triumeq that maintained viral suppression in the same way as antiretroviral drugs. This further positions Triumeq against Gilead’s fixed dose options, Atripla and Stribild.
GSK is now working on new two-drug combo HIV treatments based on Tivicay, that may overcome the need for three-in-one combo drugs and have fewer adverse interactions with other meds.
In the first week of September, Gilead was also reeling from the market sell-off. Gilead shares lost 2.85%, while the iShares NASDAQ Biotechnology Index (IBB) shed 4.58%. In the following two weeks, Gilead climbed 6.25%, outperforming the 5.83% gain in the IBB, as the market recovered its losses and Gilead was buoyed by takeover speculation. The last three trading sessions, Gilead declined 2.72%, against a 6.71% loss in the IBB Index, as Mrs.Clinton unveiled her drug price reduction plans.
So far in the year, Gilead has gained 10.72%, mirroring a 10.64% gain of the IBB index.
Out of 26 analysts’ opinions compiled by Bloomberg, 21 rate Gilead a Buy, four recommend a Hold rating while 1 favors a Sell. The average 12-month price target expected from the stock stands at $127.06, signifying a return potential of 20.4% over last close at $105.49.