Although Gilead Sciences (GILD) has experienced massive success with its hepatitis C franchise, I think the stock is ahead of itself. In fact, with the prospect of additional competition on the horizon, I think Gilead's shares have peaked.
There's no doubt Gilead has had massive success in the last few years. Gilead ended 2010 with revenue of $7.9 billion and earnings per share of $1.85. For 2015, analysts think the company will produce $30.2 billion in revenue and EPS of $10.74. Holy cow!
But consensus estimates for next year call for a flat top line. Analysts are looking for revenue growth of just 0.71%. Earnings per share is expected to rise 2%. Yawn! To me, that sounds like the party is over.
I believe the estimates include growing competition. Last month, Merck (MRK) released results from its Phase 3 C-EDGE drug trial, which examined the effectiveness of its grazoprevir/elbasvir fixed dose combination. While Merck's cure rate was lower (90.2% vs. Gilead's 95.3%) it seems likely Merck will receive U.S. Food and Drug Administration approval for its drug regime anyway. Most expect the FDA to act before the end of January.
And that's the problem. While Merck's solution is less effective, it may be effective enough to force Hep-C drug prices lower. Merck could undercut the competition and make the argument that some part of the patient population really does not need Gilead's drug. Thrifty insurance companies could encourage patients and doctors to consider Merck.
Gilead is already in a price war with AbbVie (ABBV). Another drug on the horizon will only increase competition. Hepatitis C is a $20 billion market, but these drugs cure nearly all patients, which ultimately limits the company's growth.
Investors typically look six to nine months ahead and, if I'm right, they are considering a more competitive environment and slowing growth. I think the party is over for Gilead.