3 Reasons to Put Gilead On Your Watchlist

For a company in the middle of one of the most successful drug launches in history, Gilead Sciences (NASDAQ: GILD  ) has received more than its fair share of negative press. While its hepatitis C program is important, it's not the company's only opportunity. Let's take a closer look at three reasons that illustrate why this stock is on my watch list.

Accelerating growth
Gilead Sciences has recorded phenomenal sales in recent quarters. Following the launch of its hepatitis C therapy Sovaldi, the company's top and bottom lines have surged.

GILD Revenue (Quarterly) Chart

Gilead Sciences data by YCharts.

This could be just the beginning for Gilead's hepatitis C franchise, as 7% of its first quarter Sovaldi sales originated in Europe. The EC didn't grant marketing authorization for Sovaldi until January, and drug launches generally progress much slower across the region as pricing and reimbursement details are hammered out one country at a time.

Gilead is also awaiting possible approval of a once-daily combination pill. Currently, Sovaldi is given in combination with additional antiviral agents. A New Drug Application for combination therapy with Sovaldi and ledipasvir is under review, and Gilead expects an announcement from the FDA this October.

Being first to the market with Sovaldi is an advantage, but competition could be on its way. Results from AbbVie's (NYSE: ABBV  ) next-generation hepatitis C drug have been promising and investors are expecting this company to bring a competing product to the market soon. The therapy is under review at the FDA and, if approved, could begin taking market share from Gilead before the end of the year.

Drug portfolio
The record-setting launch of Sovaldi and the controversy surrounding the company's pricing model have overshadowed the company's core portfolio of HIV drugs. Although Gilead has a great deal of experience developing and seeling HIV therapies, and two recent developments are worth mentioning.

Recently, the CDC recommended Gilead's Truvada for prevention of HIV infection among at-risk patients. This has helped to boost Gilead's prescriptions of the drug recently. In addition, first quarter sales of Stribild -- Gilead's once-a-day, four-drug, single-pill HIV treatment -- rose 134% to $215 million. Analysts have estimated peak annual sales of more than $3.5 billion. At its current rate of growth, it won't take long to reach that peak.

Oncology program
Gilead's hepatitis C combo therapy isn't the only item Gilead has under review at the FDA. Its PI3K inhibitor, idelalisib is under consideration for two blood cancer indications. Following a series of failures from Aeterna Zentaris with its PI3K inhibitor perifosine, the buzz surrounding idelalisib has been muted despite the drug's clinical success. Last year, chronic lymphocytic leukemia patients receiving idelalisib showed a high enough increase in progression-free survival that investigators recommended stopping the trial early. Impressive efficacy data doesn't guarantee approval, but idelalisib's chances of winning seem awfully good.

Gilead could be the first company to win approval for this emerging drug class. Infinity Pharmaceuticals has taken important steps with its IPI-145, beginning a phase 3 trial with chronic lymphocytic leukemia patients in the first quarter of the year. Even if all goes well, the soonest Infinity could file an application would put it years behind idelalisib.

If idelalisib wins approval it will run directly into competition for chronic lymphocytic patients from a drug in a different class. Imbruvica from partners Johnson & Johnson and Pharmacyclics won approval for the indication earlier this year. Sales of the therapy have grown quickly, but Pharmacyclics stunned the market recently by suggesting flat growth throughout the second half of the year. Whatever Pharmacyclics' reason for Imbruvica conservatism, idelalisib could begin digging into its market share before the year is over.

Risks
Gilead's launch of Sovaldi may be setting sales records, but it has also been part of the recent controversy surrounding drug pricing. Pharmacy benefit managers -- companies largely responsible for negotiating lower prices from drug manufacturers -- are doing their best to spur price competition, and generating a great deal of publicity in the process.

Express Scripts has openly threatened to reduce Gilead's share of the hepatitis C market the moment a competitively priced substitute becomes available. That puts AbbVie's combination in the hot seat, but the company doesn't appear as eager to compete as Express Scripts might like. AbbVie management has wisely refrained from offering pricing details of its combo ahead of a FDA decision. During its latest earnings report, AbbVie management hinted at competing with Gilead based on efficacy, rather than price.

While competition in this market is an important factor for Gilead investors to consider, drama surrounding Sovaldi can easily cloud your perceptions of the company's overall strength. Remember to look at all the important reasons for buying, or holding, Gilead Sciences before you let another media frenzy sway your decision.

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