3 Reasons Gilead Sciences Could Soar in 2015

There's no doubt that 2014 was very kind to Gilead Sciences (GILD 0.07%) investors. Shares in Gilead surged 36% this year thanks to blockbuster sales of Sovaldi, the hepatitis C drug the company launched last December.

However, shares have been slipping recently over worries that new competition from AbbVie (ABBV -1.03%) could cut into Gilead Sciences hepatitis C market share in 2015. Although AbbVie's hepatits C drug is likely to win some revenue that would otherwise have gone to Gilead Sciences, here are three reasons that investors may want to stick with the company.

Source: Gilead Sciences via Google Maps.

1. Good not great
AbbVie's hepatitis C drug cocktail is a good therapy, but it's arguably not as great as Gilead Sciences' next generation hepatitis C drug, Harvoni. Harvoni won FDA approval in October, and more prescriptions are being written for Harvoni than were being written for Sovaldi at the same point during its launch.

Whether or not AbbVie will be able to dislodge Harvoni will probably stem from price, rather than efficacy. During trials, the one-pill-once-daily Harvoni cleared hepatitis C from up to 99% of patients over 12 weeks. In the more common and tougher-to-treat genotype 1a variant of the disease, Harvoni boasted cure rates in the mid-90% range. For comparison, AbbVie's 3 pill-a-day therapy had cure rates in genotype 1a of around 90% and it wasn't until side-affect laden ribavirin was added that cure rates in that genotype spiked up into the high 90% range. Given AbbVie's arguably more onerous dosing and its potential reliance on ribavirin for many patients, it remains to be seen just how often doctors prescribe it over Harvoni. Regardless, Harvoni is likely to remain a blockbuster drug that generates billions of dollars in sales for Gilead Sciences next year.

Source: Gilead Sciences

2. Strengthening its core
Much of Gilead Sciences' long-term success has stemmed from its market share leadership in treating HIV patients. The company boasts some of the best-selling HIV therapies available, including five separate drugs that could hit billion-dollar blockbuster status this year.

Two of those drugs, Complera, which was launched in 2011, and Stribild, which won the FDA go-ahead in 2012, are growing sales quickly. In the third quarter, Complera's sales jumped 57% to 330 million and Stribild's sales soared 128% to $328 million.

In the next year, Gilead Sciences' HIV product lineup should become even stronger, given that the company filed for FDA approval of a newly formulated version of its top-selling HIV drug Viread, which offers a better safety profile. If approved, Gilead Sciences is likely to begin replacing Viread in its multi-drug HIV combination therapies.

3. Broadening its reach
This year, Gilead Sciences won approval for Zydelig, its first oncology drug. That drug is approved as a treatment for relapsing chronic lymphocytic leukemia, or CLL, relapsing follicular B-cell non-Hodgkin lymphoma and relapsing small lymphocytic lymphoma. Gilead is also conducting late-stage studies on Zydelig as a front-line therapy in those indications.

Deeper down the pipeline, Gilead is not only developing a slate of potential Harvoni successors for hepatitis C, but is developing drugs for hepatitis B, too. The company also has phase 2 trials under way in pancreatic cancer, colorectal cancer, cardiovascular disease, and respiratory disease as well. If any of these studies pan out as hoped, then investor enthusiasm could drive share prices higher.

And another thing
The FDA is set to make a decision on AbbVie's hepatitis C cocktail this month, and if it's approved, Gilead Sciences shares may come under pressure. But long-haul investors should remember that in addition to Harvoni arguably being a superior drug in terms of efficacy, the hepatitis C treatment market is massive. There are over 150 million people infected with hepatitis C worldwide, and this year Gilead Sciences has treated just 117,000 of them. As Gilead Sciences wins approval for its hepatitis C treatments in other markets, such as Japan, and its launches in Europe pick up momentum, there are a lot of drivers that could support hepatitis C revenue growth next year. Investors should also recognize that the next battleground for hepatitis C market share likely won't focus on cure rate, but on treatment duration. Arguably, Gilead Sciences pipeline is the best prepared to reduce treatment time below the eight and 12 weeks required for Harvoni.

Outside of hepatitis C, Gilead Sciences appears to be on pace to eclipse $10 billion in annual sales of its HIV drugs, and the company could soon see cancer drug sales begin to contribute in 2015, too. For those reasons, investors may want to look beyond the short-term risk and maintain a long-term view when it comes to Gilead Sciences.