What: Shares of Gilead Sciences (NASDAQ:GILD), a global pharmaceutical giant focused on developing therapies to fight a number of chronic diseases, roared higher by 11% in January per S&P Capital IQ following the announcement of two key agreements for its hepatitis C drugs, and after announcing an acquisition.
So what: In late December, the worry had been that Gilead Sciences was going to see its oral blockbuster hepatitis C therapy Sovaldi, and its cocktail drug Harvoni, pushed out of pharmacy-benefit management circles because of their exorbitant cost (Sovaldi and Harvoni run $84,000 and $94,500 respectively for a standard 12-week treatment course). Following a multi-year exclusive agreement between PBM Express Scripts and AbbVie over Viekira Pak, AbbVie's hepatitis C combo therapy, it looked as if this fear could be a reality.
However, last month we witnessed Gilead form pacts with CVS as well as Aetna to offer them attractive pricing on Sovaldi and Harvoni as long as they remained these providers' therapies of choice for hepatitis C. In other words, this went a long way toward alleviating fears that Gilead's hepatitis C products were going to be pushed to the wayside.
Also, Gilead announced in early January that it had acquired Phenex Pharmaceuticals' development program which contains a number of small molecules targeted at liver diseases, including nonalcoholic steatohepatitis, or NASH. NASH affects millions in the U.S. and could be another broad indication possibility for Gilead.
Under the terms of the deal, Gilead paid Phenex an upfront fee and could be on the line for development milestone payments as well. All told, the deal could end up costing Gilead up to $470 million. But, if it winds up netting the company a NASH drug then it could wind up being pennies on the dollar!
Now what: It's looking as if the only thing that can stop Gilead Sciences stock from advancing are the emotions of investors.
A pricing war between Gilead and its peers isn't out of the question, especially if new drugs come to market in the near future, but any worries over declining usage of Sovaldi and Harvoniover the next couple of years have been tamed for the time being.
Lost in all of this is the fact that Gilead also possesses Stribild, a four-in-one next-generation HIV/AIDS compound that could go a long way toward fighting the most deadly infectious disease in the world based on total annual deaths. It's a drug that I believe has the potential to double in sales in 2015 to possibly $2.3 billion. Gilead investor would be wise not to lose track of Stribild, as it's an important piece of the puzzle.
Looking ahead, Gilead is valued at a mere 11 times forward earnings with a growth rate of around 25%. That's pretty cheap in my book and all the more reason that both growth and value investors should consider this stock for their investment portfolio.
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.
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