You might be tempted to write off Gilead Sciences (NASDAQ: GILD).
The once high-flying biotech has lost 45% of its market cap since mid-2015. After the stock climbed more than 20% earlier this year, Gilead lost all of those gains and then some. Sales for the company's hepatitis C virus (HCV) franchise continue to drop faster than a brick. Gilead's other drugs can't generate nearly enough growth to offset the HCV declines.
Despite all of these woes, I think Gilead is a smart stock to buy right now. Here are three great reasons why.
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1. The end is coming (in a good way)
Imagine how much more attractive Gilead stock would look if its HCV drugs weren't dragging down the rest of its business so much. I don't think this scenario will require imagination for too much longer. The end is coming -- and in a good way.
There have been two dynamics that weighed on Gilead's HCV sales over the last three years. First, fewer hepatitis C patients began treatment because so many have been cured, primarily by Gilead's HCV drugs. Second, Gilead faced competition from several rivals, which caused drug prices to fall.
But the worst of the decline in hepatitis C patient starts should be over. Gilead Sciences CFO Robin Washington stated in the company's Q1 earnings call that "patient starts have become more predictable, and we expect a slow and steady decline moving forward." Compared to the past fast and furious plunge in hepatitis C patient starts, "a slow and steady decline" sounds great.
The HCV market has also now come down to a one-on-one battle between Gilead and AbbVie. AbbVie's HCV drug Mavyret has grabbed a solid part of the market. However, pricing appears to have largely stabilized. I expect AbbVie will continue to enjoy success with Mavyret, but I also think Gilead will hold its own with its HCV drugs Harvoni and Epclusa.
2. Mount Everest has arrived
When the bictegravir/F/TAF combo was in late-stage clinical studies, some on Gilead's team began referring to the therapy as the company's "Mount Everest." They thought the combo would be the most powerful HIV drug ever. Mount Everest officially arrived in February with the FDA approval of Biktarvy (the brand name for bictegravir/F/TAF).
Market research firm EvaluatePharma picked Biktarvy as the top new drug expected to launch in 2018. Analysts think the drug will generate peak annual sales of more than $6 billion, a target that would make Biktarvy the best-selling HIV drug of all time.
Will some of Biktarvy's success come at the expense of Gilead's other HIV drugs? Sure. And Biktarvy will face competition from GlaxoSmithKline and Merck. However, even one analyst who thinks that new HIV drugs from GSK and Merck will perform well views Biktarvy as the "gold standard" in HIV treatment.
I think Biktarvy is arriving on the scene at the perfect time for Gilead. Assuming HCV sales stabilize later this year, revenue and earnings growth powered by the ascent of Biktarvy could change investors' sentiment about the beaten-down biotech stock.
3. Other blockbusters on the way
The great news for Gilead is that Biktarvy isn't the only likely blockbuster in its lineup. Gilead's acquisition of Kite Pharma last year made the company an instant leader in the CAR-T arena. CAR-T drug Yescarta, which won FDA approval in October 2017, has had a slow start -- but that was expected due to the complexity of the treatment.
Gilead anticipates winning European approval for Yescarta in Q3. The company has also been busy training and certifying cancer centers in the U.S. to administer the CAR-T therapy. These two factors should help Yescarta pick up momentum. The drug could reach peak annual sales of close to $2.7 billion if it wins approvals for additional indications.
There are also two especially promising drugs in Gilead's pipeline. The biotech hopes to submit for approval next year for filgotinib in treating rheumatoid arthritis. Filgotinib is also being evaluated in clinical studies targeting treatment of inflammatory bowel diseases. Analysts think the drug could generate peak annual revenue close to $3 billion.
Selonsertib should also be on track for regulatory submission in 2019. The drug targets treatment of non-alcoholic steatohepatitis (NASH). Some industry observers predict that the annual market for NASH drugs could grow to between $20 billion and $35 billion in the future. Gilead should be in great shape to claim a nice share of that market with selonsertib and its two other NASH drugs in development.
A couple of nice bonuses
There are also two nice bonuses for investors in buying Gilead. One is that the stock is dirt-cheap right now. Gilead trades at less than 11 times expected earnings. Its enterprise-value-to-EBITDA multiple is a super-low 6.8. The other bonus is that Gilead pays an attractive dividend, which currently yields 3.2%.
Some investors have written off Gilead Sciences. But that sets the stock up as a great pick for others who can look past current problems and see what should be just around the corner.
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