Pat McKeough responds to many requests for specific advice on investing in stocks and other questions on investment strategy and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
This week, an Inner Circle member asked us about a stock that is a leader in developing drugs for viral diseases. Gilead is particularly strong in the treatment of hepatitis, a lucrative market. Pat examines the progress of Gilead’s attempt to win approval for a new hepatitis drug against stiff competition from other major pharmaceutical firms.
Q: My first ever question for you, Pat: What do you think of Gilead Sciences? There is excitement about their new drug, Sofosbuvir, for hepatitis C. There is a huge market for this drug in hepatitis C treatment. Recent published studies have been very favourable. Thanks.
A: Gilead Sciences (symbol GILD on Nasdaq; www.gilead.com) discovers, develops and markets treatments for viral diseases.
The company has a number of drugs on the market, including AmBisome (an antifungal agent), Emtriva (for HIV), Tamiflu (influenza), Vistide (for cytomegalovirus retinitis—or an inflammation of the retina—in AIDS patients) and Hepsera (for hepatitis B).
Hepatitis refers to inflammation of the liver, as well as a group of viral infections that affect the liver. The most common types are hepatitis A, hepatitis B and hepatitis C. Viral hepatitis is the leading cause of liver cancer and the most common reason why patients need liver transplants.
Gilead has developed a wide range of treatments to counteract hepatitis C. This is one of the major reasons why the shares have more than doubled in the past year.
The market for hepatitis treatments is huge. There are over 150 million people worldwide suffering from one of the hepatitis viruses. Hepatitis C is the most common strain and the one Gilead has the most expertise with.
The competition to develop an inexpensive hepatitis C treatment that is easily administered (in pill form, for example) is intense. Besides Gilead, Abbott Labs, Vertex, Merck and Bristol-Myers have developed oral versions of a hepatitis C product. However, Gilead and Vertex remain the market leaders.
The company is now developing Sofosbuvir for treating patients with chronic hepatitis C. The drug has just been granted priority review status by the U.S. Food and Drug Administration (FDA).
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Final decision on Sofosbuvir expected before the end of 2013
Gilead submitted a new drug application to the FDA on April 8, 2013, based on encouraging data from four Phase III studies. Companies must submit this application to propose a new drug for sale.
The FDA reviews the applications and decides which drugs qualify for priority status, which gets them reviewed within eight months of submission as opposed to the usual 12. Since Sofosbuvir has been granted priority status, a final decision on whether the drug can go on the market is expected by December 8, 2013. Sofosbuvir is also under review in the European Union.
Gilead also has a strong position in treatments for HIV/AIDS, as well as other promising drugs in its pipeline. For example, it has received encouraging trial data for Ranexa, which was found to reduce the incidence of angina in Type II diabetes patients.
In addition, the company recently reached a settlement with major generic drug maker Teva Pharmaceutical (symbol TEVA on Nasdaq), under which Teva will hold off on launching a generic version of Gilead’s Viread drug (tenofovir disoproxil fumarate) for HIV and chronic hepatitis until December 15, 2017, when Viread’s patent expires. Teva had developed what it believed was a version of Viread that allowed it to skirt the drug’s patent protection. Viread is Gilead’s third-best-selling drug, with $848.7 million in sales last year (or 8.7% of the company’s $9.7 billion of revenue).
The settlement will give Gilead time to bring its Viread follow-up, tenofovir alafenamide fumarate (TAF), to market. TAF entered the Phase III testing stage last year. Gilead has designed it to reduce some of the side effects of its parent compound, including the risk of kidney problems and bone thinning.
The stock trades at 26.8 times this year’s forecast earnings of $1.95 a share.
In the Inner Circle Q&A, Pat looks at what approval of Sofosbuvir would mean for Gilead. He also examines the implications of Gilead’s settlement with Teva on its Viread drug and Gilead’s long-term plans for a follow-up drug to Viread. He concludes with his clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Pharmaceutical stocks go through an exhaustive approval process for new drugs and then look to make large profits before patent protection for the drug runs out. Do you think it is better to make short-term investments in these stocks when a new drug hits the market and proves to be a best-seller? Or do you think the best pharmaceutical stocks will produce enough successful drugs to be worth holding over the long term? Let us know what you think.
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