Gilead Sciences: A Top Pick Update

 | Apr 24, 2014 | 12:00 PM EDT  | Comments
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Back in January, I picked Gilead Sciences (GILD) as one of my top picks for 2014.

On Tuesday, Gilead reported blow out first quarter earning for fiscal 2014. But the stock has been on a downward slope since February. In fact, for the year, the shares are down a little more than 3%. What happened? Why isn't the company with the most successful drug launch in history setting new highs?

Gilead reported sales of $4,998.96 billion and earnings per share of $1.48, which beat the average analyst estimate by $0.56. The company's blockbuster drug Sovaldi, used to treat hepatitis C, had sales of $2.27 billion. That beat the estimate by almost $1 billion. You'd think the stock would soar on the news, but it didn't. In fact, it was up just 1.4%. Why?

First, I think the stock has had a considerable run. In the past 12 months, the stock is up 38 percent. Since the beginning of January 2012, Gilead's shares are up over 260%. By now, the story is well known among investors.

Second, I think investors are worried about Sovaldi's price. No doubt $1,000 per pill, or about $84,000 for a 12-week course of treatment, is pretty hard to swallow. Even though the National Institutes of Health estimates that treating the disease costs the U.S $40 billion a year, some insurance carriers are balking at Sovaldi's price tag. There are more than 350,000 deaths each year from hepatitis C. Hep-C is the leading cause of liver cancer.

Finally, competing drugs could be on the market soon. Just this week, Abbie (ABBV) submitted a new drug application to the FDA seeking approval for its new hepatitis C drug. AbbVie's drug has been tested in 2,300 patients in 25 countries. Because of the efficacy of the drug, AbbVie is expecting the FDA to approve the drug sometime next year. AbbVie will announce the results of four more clinical trials sometime next quarter. Strong results from those trials could scare off GILD investors.

Bristol-Myers Squibb (BMY) is also working hard to get into the hepatitis market. BMY is seeking approval of an all-oral combination of its Daclatasvir and Anunaprevir drugs. Bristol could be on the market soon.

Despite the threat of competition, the investment community believes the company has exciting growth prospects. Analysts are expecting Gilead to produce sales of $19.6 billion in 2014, up 75% year-over-year. And next year, sales are estimated to be up 25% to $24.5 billion.

I still like Gilead. I think the shares are just taking a breather. But there are always reasons to worry with a high-flying stock. After the incredible run the stock has had, it's normal for investors to take profits. I'm going to hang on and hope the addressable market for Sovaldi is as large as everyone thinks.  

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