Please ensure Javascript is enabled for purposes of website accessibility

Gilead Sciences' 11% Drop in August Could Make It a Steal

By Todd Campbell - Sep 3, 2015 at 8:02AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An industrywide selloff in biotech and fears of growing competition may be creating a buy opportunity in Gilead Sciences.

Source: Gilead Sciences

What: An industrywide selloff that caused the iShares Nasdaq biotechnology ETF to slump 10.5% last month also caused shares in Gilead Sciences (GILD 1.03%) to tumble 10.9% in August.

So what: Even though Gilead Sciences entered August on the heels of reporting better-than-expected second-quarter sales and profit in July, nervous investors unloaded shares on fear that upcoming competition could dent Gilead Sciences' market share in hepatitis C treatment.

While competitors, such as AbbVie and Merck, are undeniably eager to win away sales from Gilead Sciences' top-selling HCV drugs Sovaldi and Harvoni, concerns over their impact on Gilead Sciences' top line may be overstated.

AbbVie's already launched Viekira Pak has done little to slow use of Harvoni in genotype 1 patients, and while Merck's promising HCV therapy could pose a bigger threat, Gilead Sciences could soon roll out data for its next-generation treatment that could blunt that risk.

Investors may also be underestimating the positive impact of easing patient access to these new therapies. While payers were initially reluctant to approve patients for Sovaldi and Harvoni because of their cost, they've been far more willing to give patients the go-ahead this year, and that's offsetting revenue headwinds tied to more aggressive discounting.

Gilead Sciences' potential to deliver better top- and bottom-line results this year is also supported by its market-dominating position in HIV treatment.

The company captures more than $10 billion annually via HIV therapies, including five separate treatments that are on pace to rack up sales in excess of $1 billion each. Following the approval and ahead of the potential launch of a next-generation formulation of Viread -- a staple in HIV combo therapies -- Gilead Sciences' leadership in the space appears even stronger than it was a year ago.

Now what: At the end of July, Gilead Sciences increased its full-year sales outlook to at least $29 billion from prior predictions for at least $28 billion, and that has analysts increasingly optimistic for its bottom line. In the past 90 days, industry watchers have ratcheted up their EPS estimate for this year to $11.69 from $10.78.

Because Gilead Sciences has the potential to hang on to its leading position in HCV and leverage its ongoing market share in HIV for upside, picking up shares at a forward P/E ratio of just 9 could make Gilead Sciences one of the best bargains in biotech -- especially if the company decides to return more money to investors by increasing its dividend next year. 


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$65.01 (1.03%) $0.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.