Good things come to those who wait. But those who wait too long can miss out.
I suspect that there are plenty of investors wondering when the best time is to buy Gilead Sciences (GILD +0.39%). The biotech stock isn't the growth story that it was a few years ago. However, a steep decline has caused Gilead to become one of the cheapest healthcare stocks on the market based on one key valuation metric -- enterprise value to EBITDA.
Stocks with low valuations can stay that way for painfully long times. But if you're thinking about buying Gilead Sciences stock, now's the time to do it. Here are three reasons why.
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1. Stabilizing influence
Slumping hepatitis C virus (HCV) franchise sales have become a standard story for Gilead Sciences every time the biotech reports its quarterly results. There hasn't been good news in quite a while on the HCV front, though that could be about to change.
In Gilead's Q1 conference call, CFO Robin Washington said that HCV drug prices have settled down after a period of price cuts. She also stated that the biotech expects its HCV market share to stabilize in mid-2018. AbbVie's Mavyret, which gained Food and Drug Administration approval in August 2017, has been taking market share away from some of Gilead's products in recent months.
Gilead is scheduled to announce its Q2 earnings results on July 25. It's possible that there will be some signs of HCV sales stabilization. I suspect that Q3 will be more of a turning point, though. Either way, when the downward trajectory for Gilead's HCV franchise sales levels off, it should provide a psychological boost to investor sentiment about the stock. If Robin Washington's mid-year projection is right, that boost is just around the corner.
2. Ascending Mount Everest
Gilead Sciences executives took to referring to its bictegravir/F/TAF combination targeting treatment of HIV as its "Mount Everest" in reference to the drug's anticipated superiority over other therapies. This "Mount Everest" drug, now known as Biktarvy, won FDA approval in February 2018.
The financial contribution of Biktarvy so far has been more of a molehill than a mountain. In Q1, the drug generated sales of only $35 million. Don't let that amount fool you, though. Market research firm EvaluatePharma ranked Biktarvy as the top new drug launch of 2018. Peak annual sales for Gilead's HIV drug could top $6 billion.
This potential is important to keep in mind. Biktarvy should begin making a greater impact on Gilead's top and bottom lines beginning in Q2. Rapidly growing sales for the drug, combined with a stabilization in HCV, could be a double whammy that Gilead investors have been waiting on.
3. JAK in the box
As icing on the cake, Gilead Sciences and partner Galapagos NV (GLPG 1.18%) will soon report results from a phase 3 clinical study of JAK1 inhibitor filgotinib in treating rheumatoid arthritis. If those results are positive, the biotech could be looking at peak annual sales of between $2 billion and $3 billion in the indication.
But the good news doesn't stop there. Gilead and Galapagos are also evaluating filgotinib in a phase 3 study targeting treatment of ulcerative colitis. Results from that study could be available by the end of 2019. If approved for the ulcerative colitis indication, it's possible that filgotinib could bring in another $2 billion annually at peak sales.
As they say on the TV infomercials, "Wait, there's more!" Filgotinib is in yet another late-stage clinical study for treating Crohn's disease. This study is also scheduled to wrap up in late 2019. The bottom line is that positive results from the rheumatoid arthritis study could bode well for Gilead having a megablockbuster on its hands outside of its core HCV and HIV areas of focus.
No time like the present
Investors could wait to buy Gilead Sciences stock. After all, it's possible that HCV sales won't stabilize. Perhaps Biktarvy won't deliver on its potential. The phase 3 results for filgotinib could be disappointing.
However, if the opposite scenarios unfold, Gilead had three significant catalysts on the way in the second half of 2018. I wouldn't bet against the big biotech on any of these three fronts. I think Gilead is headed for a nice rebound. And I think there's no time like the present to buy this beaten-down biotech stock.
