Don't write off Gilead Sciences (GILD -1.96%) just yet. Sure, the biotech's stock is down more than 20% so far this year. And, yes, there are some possible factors that could cause Gilead's shares to fall even more in the short run. However, I think the company has several things going for it that should help the stock continue to be a winner for long-term investors. Here are three ways Gilead's stock could rise.
1. Strong new products
Put Epclusa at the top of the list of solid new market entrants for Gilead Sciences. It's the first all-oral drug that can treat all genotypes of hepatitis C. Epclusa is also the first approved treatment for hep C genotypes 2 and 3 that doesn't require combination with ribavirin, a drug with some pretty serious side effects.
Analysts project that Epclusa could generate sales of over $10 billion as early as next year. Gilead already has seen hints of the drug's sales potential. Epclusa brought in $64 million in just three days at the end of the second quarter.
Epclusa could help Gilead battle for market share against Merck's Zepatier. Merck priced its hepatitis C drug below Gilead's older hepatitis C drugs Harvoni and Sovaldi, causing the big biotech to provide discounts to remain competitive. Gilead is pricing Epclusa lower than its other two drugs but still higher than Zepatier.
Gilead also claims several new HIV drugs that should be big winners. Genvoya won FDA approval last November. It generated $409 million in the first six months of 2016. Odefsey gained approval in March, with Descovy getting a green light from regulators in April.
There is a fly in the ointment with these new hepatitis C and HIV drugs, though. Epclusa seems likely to cannibalize sales of Harvoni and Sovaldi to some extent. Genvoya, Odefsey, and Descovy will take market share from Gilead's older HIV drugs. Still, innovation is a good thing -- and Gilead is definitely continuing to innovate.
2. Great pipeline potential
Speaking of innovation, Gilead's pipeline is chock-full of impressive potential stars. The company claims seven phase 3 clinical trials in progress and 18 mid-stage studies.
I especially like Gilead's nonalcoholic steatohepatitis (NASH) program. Simtuzumab stands out as one drug to watch closely. Gilead appears to be on track to potentially win regulatory approval for the experimental NASH drug by early 2018. Simtuzumab could emerge as one of the biotech's biggest winners, with BMO analyst Ian Somaiya estimating peak annual sales for the drug of $12 billion.
Gilead also has plenty of development going on outside of its traditional antiviral focus. One drug with a lot of potential is filgotinib. Gilead gained rights to the rheumatoid arthritis drug by partnering with Belgian biotech Galapagos. Analysts project that filgotinib could reach peak annual sales of over $3 billion if approved.
3. Dollars and sense
Another reason Gilead's long-term prospects should be bright: its cash position. Cash, cash equivalents, and short- and long-term marketable securities stood at $24.6 billion at the end of the second quarter. The biotech has plenty of money, but more importantly has a good grasp on how to effectively use that financial firepower.
There are three things for investors to like about Gilead having so much cash on hand. First, the company's dividend yields over 2%. Gilead is in great position to increase its dividend down the road. Second, Gilead has been buying back shares at a furious pace -- spending $9 billion on repurchasing shares in the first half of 2016. These buybacks make a lot of sense with the pullback in Gilead's share price.
Third, I expect Gilead to continue making smart deals. The biotech was in the running to acquire Medivation recently, although Pfizer ultimately won out. Gilead's track record on making deals that pay off over time is impressive. Long-term investors should feel good that Gilead will itself be a smart long-term investor.