Brief thoughts on Gilead Sciences(GILD)

Gilead is a mega-cap biotech company, with strong cash flow generating ability, great balance sheet and an absurd low multiple compared to its peers- Gilead’s P/E is 11. To put this in perspective, Gilead competitors such as (ABBV, CELG) are trading at way higher multiples, despite not being nearly as successful as GILD. These companies are also heavily dependent on one or two drugs, yet the market is rewarding them to sky high levels, while unduly punishing GILD.

The market is over concerned with GILD’s ability to maintain its leading position in the hepatitis C and HIV market-in my opinion, these concerns are overblown at least in the short-term. Granted, when there are high margins, intense competition can and will emerge, but Gilead will be able to maintain strong margins over the next couple of years (at the bare minimum). It’s products on the hepatitis C and HIV market are markedly superior compared to their competitors, who have actually caused harm and deaths to multiple patients.

Additionally, the market does not seem to consider that Gilead can make a profitable acquisition or develop a new, profitable drug in the future. GILD is a prime example of a great company being punished by the market for being great.

Conservative estimation of intrinsic value put GILD around $150, while more realistic/aggressive ones around $170. Currently the company is trading at $108, representing a significant discount from intrinsic value. I anticipate Gilead to maintain a leading market position in hepatitis C and HIV markets for the foreseeable future

Be the first to comment

Leave a Reply

Your email address will not be published.