Gilead Sciences, Inc. (Nasdaq: GILD) Could be on Sale

December 30, 2014, 12:15 pm ET, BY Barry C.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Is there anything to say about Gilead Sciences, Inc. (Nasdaq: GILD) that hasn’t be said in the past week and a half? The company has been in the news almost daily as itsstockplunged from near $110 on December 19 to $87 just four days later and climbed back to more than $97 yesterday.

The recovery is at least partly due to the fact that investors have recognized that the news about the deal between hepatitis C therapy competitor AbbVie Inc. (NYSE:ABBV) and big pharmacy benefits manager Express Scripts Holding Company (Nasdaq: ESRX) might not be as damaging to Gilead as first thought.

When Express announced that it would carry only AbbVie’s treatment because the latter agreed to cut its price, investors appear to have panicked, fearing that Gilead’s Sovaldi/Harvoni drug combination would not only lose a huge chunk of the market but that the company would have to dramatically drop prices for its therapy. At least one analyst, Matthew Harrison of Morgan Stanley, called those predictions “unrealistic.” As a result, Morgan on December 29 upgraded the stock to an overweight from hold.

Harrison isn’t the only one buoyant about Gilead’s prospects. Analysts at Oppenheimer point out that the superior clinical profile for Gilead’s hepatitis C drugs give the company a leg up when negotiating with other PBMs. Meanwhile, RBC analyst Michael Yee downplayed the impact of the Express deal and noted that Gilead, anticipating soaring revenues in 2015, has been aggressively purchasing its own stock and will probably buy a lot more in the coming year.

Investors also may have overlooked the fact that Gilead is no one-trick pony. Besides hepatitis C the company markets products for HIV/AIDS,oncology, cardiovascular, and respiratory diseases. Gilead also has a rich pipeline, and some speculate that the recent hiring of Philippe C. Bishop, MD, as senior vice president, hematology and oncology therapeutics will revitalize the company’s efforts on the hematology/oncology front. Philippe has an extensive background in cancer drug development.

And then there’s this wild card: What if Gilead goes to Express Scripts and offers to match the cost of AbbVie’s hepatitis C product? A long shot, certainly. But not out of the realm of possibility Express would almost be forced to accept the deal considering the Gilead product has demonstrated clear superiority.

Among other pharma giants, Gilead appears cheap. For 2015, analysts expect the company to earn $9.91 on sales of more than $28.5 billion. That would give Gilead a P/E of under 10, substantially below the likes expected of  major pharmaceutical players like Bristol-MyersSquibb Co.(NYSE: BMY), Pfizer Inc.(NYSE:PFE) and Merck & Co., Inc.(NYSE:MRK).

Additional details are available to members of Stock Traders Daily, including a technical review.  Although fundamentals look okay, the stock has absolutely broken technical support levels.

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