Going international with Gilead Sciences

June 17, 2015
Simon Bonouvrie Photo

Written by Simon Bonouvrie, Cadence Capital

Going international with Gilead Sciences Inc.

June 2015

Gilead Sciences (NASDAQ: GILD) is an international stock currently in the Cadence portfolio and was the first offshore listed position in the fund, initiated in mid-2014.

In summary, Gilead is a large US biotech stock specialising in antiviral drugs to treat patients suffering from HIV, hepatitis C, influenza and other medical conditions.

In 2014 it generated approximately US$25bn in revenue and currently has a market capitalisation of US$180 billion (this is larger than any company listed on the ASX). As the world’s leading anti-viral company, Gilead holds strong market positions in some very lucrative markets.

Sovaldi and Harvoni are new drug products developed by Gilead and used for the treatment and cure of hepatitis C (Harvoni being the more advanced product). It is estimated that globally over 150 million people are living with the hepatitis C virus including 4 million in the United States. Gilead owns the best-in-class drugs for this market.

Sovaldi and Harvoni were launched in 2014 with very promising results. Harvoni is a one-pill anti-viral drug combination taken daily for 8-12 weeks. It has a cure rate of over 90 percent for the hepatitis C disease and exhibits minimal side effects for the patient when being treated. Of the 4 million people in the US with hepatitis C only 260,000 have been treated with either Harvoni or Solvaldi, which shows the large potential market opportunity for Gilead.

[pullquote cite=”Simon Bonouvrie, Cadence Capital” type=”left”]The attraction of Gilead is its valuation, free cash-flow and potential growth opportunity.[/pullquote]

Apart from hepatitis C, Gilead has the world’s leading position in HIV treatment which generates a third of company revenues. 81 percent of US HIV patients, for example, use a Gilead drug for treatment of HIV. Gilead also develops treatments for diseases in the segments of oncology, cardiovascular and respiratory illnesses.

For investors the attraction of Gilead is its valuation, free cash-flow and potential growth opportunity.  Thanks to the revenue from its hepatitis C and HIV treatments, Gilead currently trades on a PE multiple of 12 times forward earnings. Given the huge market opportunity for treatment of these two diseases, company revenue and profits are forecast to grow solidly over the next several years. The company has very strong free cash-flow and is in a position to extend its foothold in oncology treatments through acquisitions.

The company recently initiated a US$15 billion stock buy-back program and declared an annual dividend of US$1.72.

Cadence initiated a position in Gilead in May 2014 at a price of approximately US$82 and we have added to the stock since then. The stock is currently US$122.

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