Can Anything Stop Gilead Sciences?

Shares of Gilead Sciences (Nasdaq: GILD  ) hit a 52-week high on Wednesday. Let's take a look at how it got there and see if clear skies are still in the forecast.

How it got here
Can anything actually stop Gilead Sciences? If you twisted my arm right now, I'd probably say "No!"

Gilead has recently benefited from a conglomeration of factors. To begin with, it received great news last week when the Food and Drug Administration approved (yet another) all-in-one combination HIV treatment, Stribild. The attraction of Stribild, as my colleague Brian Orelli has explained, is that relative to its combination therapy Atripla -- which is already on the market and uses a combination of drugs from Bristol-Myers Squibb (NYSE: BMY  ) and Johnson & Johnson (NYSE: JNJ  ) -- Stribild's four components are made completely in-house. That means no revenue sharing and more profits for Gilead, assuming it can get physicians to prescribe newly diagnosed patients the treatment.

Also putting some pep in Gilead's step has been the outstanding clinical trial results for GS-7977, the oral hepatitis-C compound it acquired when it purchased Pharmasset for $11 billion last year. At high doses, the drug has eradicated the virus in patients with still very high efficacy in lower doses. More remarkably, the side effects of the drug have been minimal.

The same can't be said for its peers. Bristol-Myers recently shelved BMS-986094, the drug it acquired for $2.5 billion when it purchased Inhibitex in January, because of the death of a patient and the hospitalization of nine others. Subsequent to this event, Idenix Pharmaceuticals (Nasdaq: IDIX  ) has had two of its hepatitis C clinical trials indefinitely halted because of safety concerns. Achillion Pharmaceuticals (Nasdaq: ACHN  ) has thus far escaped FDA safety scrutiny since its treatment is not nucleotide based; however, that doesn't save it from being miles behind Gilead in terms of clinical development.

How it stacks up
Let's see how Gilead Sciences stacks up next to its peers.

GILD Chart

GILD data by YCharts.

With the exception of Idenix Pharmaceuticals, whose smaller pipeline has make-or-break appeal, Gilead has easily outperformed its peers over the past five years.

Company

Price/Book

Price/Cash Flow

Forward P/E

Dividend Yield

Gilead Sciences 5.5 12.5 12.9 0%
Bristol-Myers Squibb 3.5 11.7 15.8 4.1%
Johnson & Johnson 3.1 12 12.1 3.5%
Idenix Pharmaceuticals 16.1 NM NM 0%

Source: Morningstar. NM = not meaningful (projected to be a negative value over next 12 months).

The comparison above tends to be pretty cut and dried, with these companies separated most by growth prospects and income stability.

Idenix offers speculators exactly what they're looking for: an all-or-nothing line of hepatitis C hopefuls, assuming its clinical halt comes to an end shortly. Bristol-Myers and J&J offer investors the stable income they're seeking, albeit from two different perspectives. J&J has deepened its presence in the medical devices sector recently with its purchase of Synthes, further buffering its future growth forecasts while Bristol-Myers' string-of-pearls acquisition strategy has largely been a dud. Finally, Gilead appears to offer the right balance between growth and stability. You won't get a dividend with Gilead, but you also don't need to worry about profitability or cash burn, either.

What's next
Now for the $64,000 question: What's next for Gilead Sciences? That question depends on its ability to launch Stribild, whether it can get GS-7977 approved by the FDA and effectively launched as a primary or combination therapy drug, and if it decides to begin paying a dividend to shareholders in order to attract a different breed of investor.

Our very own CAPS community gives the company a four-star rating (out of five), with an insane 97% of members expecting it to outperform. I'm in the unfortunate minority on this one, riding a CAPScall of underperform that's currently down 27 points.

At this point I'm seriously considering closing my pick at a loss given the strength we've witnessed from GS-7977 when combined with Bristol-Myers' daclatasvir, and the recent approval of Stribild. Gilead's growth rate looks poised to trounce that of its peers over the coming years, which could propel the stock even higher. However, the only factor keeping me from pulling the trigger on closing that call has to do with recent safety issues in nucleotide-based hepatitis C inhibitors. Even though GS-7977 hasn't reported any patient safety problems, it's an indication that the FDA is actively looking for reasons to put its foot down. For now, I'll keep a very close eye on this situation.

One key to Gilead Sciences' success is its ability to introduce new drugs that hold price and/or treatment advantages over existing drugs. Our analysts at Stock Advisor took this example and applied it to the tech sector to come up with three companies that possess a disruptive technology that could yield big gains over the coming years. Find out the identity of these three companies, for free, by clicking here to get your copy of this latest special report.

Craving more input on Gilead Sciences? Start by adding it to your free and personalized watchlist. It's a free service from The Motley Fool to keep you up to date on the stocks you care about most.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Gilead Sciences and Johnson & Johnson, as well as creating a diagonal call position in Johnson & Johnson. 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.


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