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Billionaires Are Bailing on Gilead Sciences -- Should You, Too?

By Todd Campbell - May 25, 2016 at 8:01AM

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Slowing sales growth for the company's hepatitis C drugs may have some Wall Street money managers cautious, but with the company's shares on sale, everyday investors may find that there's value in buying this beaten-up biotech.

Image source: Gilead Sciences, Inc.

While following blindly in the footsteps of billionaires is risky, it's always interesting to see what stocks legendary investing gurus are selling, especially when it involves a widely held stock like Gilead Sciences (GILD -1.07%). Last quarter, five billionaires tracked by The Motley Fool sold 6 million shares of Gilead Sciences. With billionaires heading for the exits in this big biotech, is it time for you to sell shares, too?

Stall speed?

Gilead Sciences' sales have rocketed higher over the past three years thanks to the launch of next-generation hepatitis C drugs that reduce treatment duration and deliver 90%-plus cure rates.

However, now that Gilead Sciences' revenue has tripled since the launch of Sovaldi and Harvoni, growth may be tougher to come by than it has been previously, especially following the introduction of competing HCV therapies from Bristol-Myers Squibb, AbbVie Inc., and Merck & Co. All three of those companies are deep-pocketed and have shown a willingness to battle over price to win away market share in this big market.

Image source: Gilead Sciences, Inc.

Globally, more than 150 million people have hepatitis C, and in the United States alone, there are 3 million hepatitis C patients. Because of the size of this indication, revenue associated with hepatitis C treatments eclipses $20 billion annually.

Gilead Sciences, however, already controls the lion's share of that market, and since new competitors are driving down prices, Gilead Sciences' growth in this indication relies on increasing prescription volume by more than prices are falling.

So far, evidence suggests that script volume is climbing, but that the benefit of higher volume isn't offsetting the drag of lower prices. In Q1, Gilead Sciences' Harvoni revenue fell to $3 billion from $3.58 billion a year ago.

Billionaire sellers

Anticipating stalling sales growth led some of Wall Street's biggest money managers to move to the sidelines in the company's stock last quarter.

The biggest billionaire seller of Gilead Sciences shares in Q1 was D.E. Shaw, the legendary manager of the quantitatively driven hedge fund that's named after him. In Q1, D.E. Shaw cut loose more than 3.9 million shares of Gilead Sciences.

James Simon, whose investing chops have allowed him to amass a net worth of $14 billion, also put Gilead Sciences' shares on the chopping block. Last quarter, Simon's Renaissance Technology sold 1.6 million shares of the company.

Billionaire Glenn Russell Dubin's Highbridge Capital Management also took shares in Gilead Sciences off the table in the first quarter, lightening his load by 672,600 shares.

Image source: Gilead Sciences, Inc.

Looking forward

Although it's disappointing to Gilead Sciences bulls to see these top investors walk away, they might want to take a long-term view and stick it out with their shares.

Gilead Sciences is rolling out a slate of new therapies addressing HIV, and those drugs are insulating the company's market share in that indication while also offering growth. Last quarter, Gilead Sciences' sales of its various HIV therapies improved by over 18% to $2.8 billion.

The company's also expecting an FDA decision soon on its latest hepatitis C drug. If approved, this drug can shore up market share and possibly firm up pricing. The drug, which delivers cure rates in the high 90% range, would be the first pan-genotype HCV drug approved by the FDA.

Additionally, GIlead Sciences' pipeline has intriguing therapies addressing potential blockbuster indications, including nonalcoholic steteohepatitis, a liver disease that's increasingly leading to liver transplants.

If Gilead Sciences can maintain market share in its key indications and then expand into new markets, then the pause in revenue could be short-term. Given that the company's got a balance sheet boasting more than $21 billion in cash, and that it recently upped its dividend payout so that its shares now yield more than 2%, picking up shares for the long haul while they're on sale might be savvy.


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Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$61.81 (-1.07%) $0.67
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
$91.17 (-1.45%) $-1.34
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$77.00 (-0.95%) $0.74
AbbVie Inc. Stock Quote
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$153.16 (-0.64%) $0.98

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