3 Reasons to Buy Gilead Sciences, Inc.

Gilead offers investors a compelling growth story in the large-cap pharma space.

Jan 14, 2014 at 6:30PM

Gilead Sciences (NASDAQ:GILD) is one of the hottest names in health care this year, after receiving approval from the U.S. Food and Drug Administration, or FDA, for its game-changing hepatitis C drug Sovaldi. Even though Gilead shares have risen more than 90% in the past year in anticipation of the approval, some experts still see another 50% rise in 2014.

These estimates seem lofty, but could actually be conservative in nature; the stock could outperform the broader market again this year. In my view, Gilead is a rare bird in that it's a large-cap pharma that behaves like a small-cap growth stock. So it offers investors healthy growth with the safety of a well-developed commercial pipeline. Indeed, I think this is the very reason so many fund managers are optimistic about Gilead going forward.

With that said, my view is that there are three compelling reasons to buy Gilead shares now.

Reason No. 1
Sovaldi will probably be a megablockbuster, and it could even be the top-selling drug of all time. Although this is the most oft-cited reason to buy into Gilead now, it's a very good one. During my time covering health care, I've never seen so much confusion over "consensus" on peak sales for a drug. Namely, I've seen consensus estimates of $2.4 billion, $5.4 billion, and even mind-altering numbers in the $13 billion range. Perhaps I'm not an expert on sales projections, but this diversity in estimates appears to defy the Webster's definition of the word "consensus."

Where does the confusion come from? The problem is that Sovaldi may radically alter the hepatitis C landscape. With cure rates topping 90% in clinical trials, Sovaldi may be its own worst enemy. The idea is that it will substantially reduce the size of the hepatitis C market over time, causing sales to drop in the long run.

Complicating matters, AbbVie's (NYSE:ABBV) competing oral-based hepatitis C drug should be approved this year, and it also has cure rates in the high 90% range. Bristol-Myers Squibb (NYSE:BMY) and Merck (NYSE:MRK) also have promising hepatitis C drugs under development that could further exacerbate this problem. Taken together, these new orally administered hepatitis C drugs may lay waste to their own market by doing the unthinkable -- eradicating a disease. Time will tell.

What's key to understand is that Gilead's drug requires fewer pills, targets the most common form of the virus, and, most importantly, is the first to market. Moreover, hepatitis C won't be eradicated overnight, not by a long shot.

So I expect Sovaldi to be a major revenue generator for Gilead for years to come, and it may, in fact, achieve some of the higher consensus estimates floating around in the ether right now. So, stay tuned!

Reason No. 2
Idelalisib could be approved this year as a second-line treatment for chronic lymphocytic leukemia. Last December, Gilead announced that a late-stage trial for idelalisib was stopped early because patients receiving a combo of idelalisib plus rituximab showed a highly significant improvement in overall survival and progression-free survival. With the FDA more willing than ever to speed impressive oncology drugs through the regulatory process, I am cautiously optimistic that idelalisib will be approved in 2014, especially since it targets patients with limited treatment options.

Turning to value creation, idelalisib isn't expected to be a blockbuster as a second-line treatment, but the drug could see peak sales of around $700 million a year. That's certainly nothing to sneeze at, and it's yet another good reason to dig deeper into Gilead's compelling growth story.

Reason No. 3
Looking into the future, Gilead has another potential megablockbuster in development with simtuzumab, which is an experimental treatment for non-alcoholic steatohepatitis, or NASH, that's currently in midstage trials. Last week, we saw just how powerful a potential treatment for this disease could be when Intercept Pharmaceuticals (NASDAQ:ICPT) stopped a midstage trial for its experimental NASH drug early because of overwhelmingly positive results, and the company's shares literally quadrupled in value. While simtuzumab isn't expected to report results until early 2016, and the market could change dramatically by then with the potential approval of Intercept's drug, it shows that Gilead isn't remaining idle in its quest for the next blockbuster drug.

For these reasons, I'm optimistic that Gilead will be a top performer in the sector this year, and that's why I'm making one of my Motley Fool CAPS picks.

Could this stock outperform even Gilead?
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

George Budwell owns shares of Bristol-Myers Squibb and Gilead Sciences. The Motley Fool recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information