Wednesday, September 10, 2008

Gilead Should Rise on Penetration, Viread

Many company's stocks are undervalued in the current liquidity sqeeze. Gilead (GILD) is a good example of a growth company that is also a value stock right now. It last reported financial results for Q2 2008 [See my Gilead (GILD) Q2 2008 Analyst Conference Summary] with revenues of $1.28 billion, up 22% from Q2 2007. Operating cash flow was $426 million, demonstrating how profitable the business is.

Gilead is a pharmaceutical company selling six drugs with revenues of over $20 million per quarter. It is mainly known for its drugs for HIV: Truvada, Atripla, and Viread, which had revenues of $516 million, $355 million, and $150 million in the quarter respectively. Hepsera for chronic hepatitis B generated $90 million in income.

Since those results the FDA approved Viread for the treatment of chronic hepatitis B [see Gilead Viread press release]. Since Gilead has an established global sales force, the revenue ramp up should be relatively quick. While Viread will be competing with Hepsera, chronic hepatitis B has a very large untreated global patient population, so revenue from both therapies should grow.

There is no sign of a slowdown in the HIV franchise drugs either. The newest drug, Atripla, had a 67% revenue increase from year-earlier.

So why does Gilead have a relatively low PE ratio of 26 (and 20 forward looking) according to the Nasdaq Gilead summary page? There is no good reason except for the lack of liquidity in the financial markets. Other great companies have even lower PE ratios. Fear has driven investors to low-yield paper such as U.S. Treasuries.

Add to this basic picture Gilead's pipeline of potential new drugs, including Elvitegravir for HIV and some candidates for treating Hepatitis C.

I own Gilead stock. All stocks carry a variety of risks for investors.

So keep diversified!

More data:

No comments:

Post a Comment