Gilead Sciences, Inc.

GILD Details

GILD Closes Partnership Deal with Arcus: Gilead Sciences, Inc. (NASDAQ: GILD) is engaged in the development of drugs for the medication of human immunodeficiency virus (HIV), hematology or oncology illnesses, liver diseases, & respiratory disorders. On July 13, 2020, GILD stated that it has closed a 10-year partnership with clinical-stage, oncology-focused company, Arcus Biosciences, Inc to co-develop and co-commercialize current and future therapeutic product candidates in Arcus’ pipeline. The closing occurred after the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  As per the deal, GILD will pay $175 million as direct payment and a $200 million equity asset at a price of $33.54 to Arcus.

GILD Offers Further Data on COVID-19 Drug Remdesivir: On 10 July 2020, the company stated a comparative study of phase 3 SIMPLE-Severe assessment and a real-world presentation cohort of patients suffering from severe COVID-19 infection. The study revealed that remdesivir was related to an enhancement in clinical healing along with a 62% risk reduction of death compared with standard of care. The analysis further revealed that the death rate for patients cured with remdesivir declined to 7.6% on the 14^th day of the treatment as compared with 12.5% among patients not being treated with the drug.

GILD Obtains Approval From European Commission: On 3 July 2020, the company informed the market that it has been granted provisional marketing approval to Veklury (remdesivir) by the European Commission as a therapy for SARS-CoV-2 infection, the virus that triggers COVID-19. Veklury is suggested for the treatment of COVID-19 in adults and youngsters, with a minimum age of 12 years and weighing at least 40 kg, with pneumonia needing additional oxygen.

GILD to Buy Pionyr: On June 23, 2020, the company stated that it will acquire CA-based private biotech Pionyr Immunotherapeutics Inc., for $275 million, representing a 49.9% equity stake in Pionyr. In addition, the company had a further option to buy the balance of Pionyr shares at a later date. As per the deal, shareholders of Pionyr will be entitled to obtain an additional $1.47 billion in option exercise fees and potential expansion target payments. The move is in line with GILD’s strategies to develop new therapies to enhance the treatment of cancer in the coming days.

Other Recent Updates: In another update, the company along with its partner Galapagos NV stated encouraging topline solutions from a late-stage study on its investigational, oral, once-daily, selective JAK1 inhibitor filgotinib.

1QFY20 Key Highlights: During the quarter, the company reported non-GAAP earnings of $1.68 per share, up from $1.67 per share reported in the year-ago period. During the quarter, product sales stood at $5.5 billion, as compared to $5.2 billion reported in the year-ago period. Adjusted product gross margin in 1QFY20 came in at 87.1%, relatively flat with 87% reported in 1QFY19. Research & development (R&D) expenses increased slightly from $1.06 billion to $1.10 billion in 1QFY20.

1QFY20 Key Highlights (Source: Company Reports)

Outlook: In the near-term, the company expects COVID-19 led crisis to impact its business as only a small number of patients are accessing therapies for HIV and HCV. However, the scale of the expected impact remains uncertain. Furthermore, the company commenced advancing remdesivir and rapidly expanding its manufacturing production. The company expects to update its outlook on the second-quarter 2020 earnings call.

Risks: The company’s overall costs went up due to higher research and development spending on experimental coronavirus treatment, remdesivir. However, with the FDA’s stimulus, the company has begun advancing remdesivir and is quickly expanding its production. On the flip side, stay at home orders could lead to fewer patients accessing treatment and prescriptions for HIV or hepatitis C. This could hamper sales of the drugs it markets for those diseases in 2QFY20. Further, stiff competition in the healthcare industry from peers like Amgen Inc., Moderna, Inc. and Incyte Corporation remains a potential headwind.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of GILD closed at $76.68 with a market capitalization of ~$96.2 billion. The stock made a 52-week low and high of $60.89 and $85.97, respectively, and is currently trading above the average of its 52-week trading range. At the closing price of $76.68, current yield for the stock stands at 3.56%. The stock has been in the news from the beginning of 2020, owing to its encouraging experimental coronavirus drug, remdesivir. The stock has given positive returns of ~3.82% and 13.13% in the last three months and one year, respectively. Debt to equity ratio of the company stood at $1.09x in Mar’20, lower than the year-ago debt to equity ratio of $1.21x. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Pfizer Inc (NYSE: PFE), Merck & Co Inc (NYSE: MRK) and Novartis AG (NYSE: NOVN). Hence, we recommend a “Buy” rating on the stock at the closing price of $76.68, up 0.47% on 13 July 2020.

GILD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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