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Yale College Student Investment Group . Gilead Sciences Inc. (GILD). Presented by: Sudharshan Mohanram , Frank Han. Investment Thesis. Why is stock ‘undervalued’?

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yale college student investment group

Yale College Student Investment Group

Gilead Sciences Inc. (GILD)

Presented by: SudharshanMohanram, Frank Han

investment thesis
Investment Thesis
  • Why is stock ‘undervalued’?
  • Overreaction: Gilead Sciences reported disappointing results on its hepatitis C drug GS-7977's study, and its market capitalization fell by as much as $6 billion since the announcement. 
  • Why will the price rebound?
  • GS-7977 will likely become the leading therapy in treating Hepatitis C and new trials will be created to allow use in Genotype 1 patients. New data on Genotype 1 patients will be released in the coming weeks.
  • Firm’s HIV business is the global leader in a rapidly growing and highly profitable market, driving growth of company for the foreseeable future.
  • Gradual returns from 11 billion dollar acquisition of Pharmasset
  • Potential FDA approval of revolutionary drugs that will create new, robust revenue streams
  • Company has limited risks, with a diversified portfolio of drugs as well as no major patents expiring until 2018
product line
Product Line
  • HIV/AIDS
  • Atripla: Atripla is the first once-daily single-tablet regimen for HIV intended as a stand alone therapy or in combination with other antiretrovirals.
  • Truvada: An oral formulation dosed once a day as part of combination therapy to treat HIV infection in adults. It is a fixed-dose combination of our antiretroviral medications, Viread and Emtriva.
  • Viread: An oral formulation of a nucleotide analog reverse transcriptase inhibitor, dosed once a day as part of combination therapy to treat HIV infection in patients 2 years of age and older. 
  • Complera/Eviplera: The second complete single-tablet regimen for the treatment of HIV and is a fixed-dose combination of our antiretroviral medications, Viread and Emtriva, and Tibotec Pharmaceuticals’ Edurant.
  • Emtriva: An oral formulation of a nucleoside analog reverse transcriptase inhibitor, dosed once a day as part of combination therapy to treat HIV infection in adults.
  • 2. Liver Disease
  • Viread: An oral formulation of a nucleotide analog reverse transcriptase inhibitor, dosed once a day for the treatment of chronic hepatitis B in adults.
  • Hepsera: An oral formulation of a nucleotide analog polymerase inhibitor, dosed once a day to treat chronic hepatitis B in patients 12 years of age and older.
product line cont
Product Line (Cont.)
  • Cardiovascular
  • Letairis: An oral formulation of an endothelin receptor antagonist (ERA) indicated for the treatment of pulmonary arterial hypertension.
  • Ranexa: An extended-release tablet for the treatment of chronic angina.
  • Lexiscan/Rapiscan: An injection is indicated for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging (MPI), a test that detects and characterizes coronary artery disease, in patients unable to undergo adequate exercise stress.
  • Respiratory
  • Cayston: An inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis (CF) patients 7 years of age and older with Pseudomonas aeruginosa (P. aeruginosa).
  • Tamiflu: An oral antiviral available in capsule form for the treatment and prevention of influenza A and B.
  • Other
  • AmBisome: A proprietary liposomal formulation of amphotericin B, an antifungal agent to treat serious invasive fungal infections caused by various fungal species in adults.
  • Vistide: An antiviral injection for the treatment of cytomegalovirus retinitis in adult patients with AIDS.
  • Macugen: An intravitreal injection of an anti-angiogenic oligonucleotide for the treatment of neovascular age-related macular degeneration.
summar y of business strategy
Summary of Business Strategy
  • Diversify Portfolio Thru Acquisitions
  • Gain product approvals internationally
  • Extend presence in high margin markets, such as HIV/AIDS
  • Continue to maintain stellar profit margins through inexpensive manufacturing, small sales force, and selective R+D
discounted cash flow analysis
Discounted Cash Flow Analysis
  • We used the following assumptions to generate the weighted average cost of capital for GILD
  • Beta: 0.45
  • Risk-free rate: 3.3%
  • Cost of equity: 9.8%
  • Cost of debt: 7.0%
  • Conservative WACC: 8%
  • Our Fair Value: $61
  • Morningstar DCF estimates yield a similar fair value of $57.14
catalysts
Catalysts
  • The European Association for the Study of the Liver decides that it will disclose hepatitis C clinical data online on April 4th
  • Earnings reports on April 18th, announcement of the drug Quad
  • Further clinical experimentation to verify the results of three clinical trials with Truvada, which suggest healthy people should take HIV drugs to prevent infection with the virus that causes AIDS
  • The market for hepatitis C drugs is expected to soar to $16 billion in 2015 from $1.7 billion in 2011 in major commercial markets. Gilead has well positioned itself in the Hepatitis C drug market by acquiring Pharmasset
risks
Risks
  • The public announcement of data from clinical studies evaluating GS-7977 in HCV-infected patients is likely to cause significant volatility in stock price.
  • A substantial amount of generated revenue is derived from the HIV/AIDS division of the company
  • Implementation of health care reform will detrimentally affect profits
  • Operations depend on compliance with complex FDA and comparable international regulations.
  • Industry is competitive and there will be increasing competition and pricing pressures in growing/attractive markets, such as HIV.
conclusions
Conclusions
  • Huge market overreaction in February to clinical trail data
  • 1) Diversified, stable cashflow
  • 2) Promising drug pipeline
  • 3) Extremely attractive metrics
  • In conclusion, GILD is a low beta stock that would be an excellent addition to the YSIG portfolio.