Is Gilead Sciences, Inc. (NASDAQ:GILD) Stock: A Buy?

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The drugmaker has to work on its HIV segment as well as to look for new frontiers for the revenue generation

Gilead Sciences, Inc. (NASDAQ:GILD) is under fire after the second quarter financial year 2016 (2QFY16) results as the company’s revenue shows a decline in the revenue generation. In the list of the toppers, Gilead is the only one that is trading at the sub-10 price to earnings multiple levels. 

Initially, the drugmaker has shown a spike in its growth over a decade due to its hepatitis franchise from $3 billion to $32 billion, but the saturation of the sales of the HCV drugs Harvoni and Sovaldi is an eye opener for the company and it has to look to other segments to manage the revenue gap at the earliest.  

In the first half of the 2016, the drugmaker has generated $15.332 billion compared to $15.531 compared to the same period of 2015. The decline in the sales of 5.85% of Harvoni give a huge dent to the company in the 2QFY16. The main reason for the decline is less number of patients in the pool. Despite that, the revenue generation of all drugs has shown a spike in sales, compensating a bit of revenue gap. 

On the other hand, Gilead still has the points that can score and bring back the company to the mainstream of the pharmaceutical arena. The company’s newly launched TAF based therapies are making their way deep in the therapeutic area. But the competition is also increasing in the HIV therapeutic market as ViiV’s investigational molecule is in the final stages for the management of HIV infections in comparison to Gilead’s Truvada. The results of this study are expected to be published in 2019, so Gilead has a time window to acquire new novel molecules to face the competition and keep its position in the HIV segment. 

The financial position of the company is stable as currently; the debt is only $22 billion and cash in hand is approximately $8.7 billion with $1.59 billion of long-term investments. The company is in a position to acquire some novel molecules or small companies like Medivation or Kite Pharma that have oncology drugs having capability of becoming blockbuster in the future. 

On the other hand, Piper Jaffray has reiterated target price of $108 with an Overweight rating.

Analyst Joshua Schimmer said: “With a 7x forward multiple, little has to go right with GILD to drive shares higher, especially in a market environment where other sectors feature ~5% earnings growth names trading with P/E multiples >20x. We believe that ongoing conversion of the HIV business to TAF based therapies, introduction of an FDC comprising of a 1/d unboosted integrase inhibitor with Descovy (TAF/Emtriva) along with stabilization of the HCV franchise will be enough to convince investors that a flattish earnings outlook can drive shares up to a modest 10x P/E multiple (~40% upside).”fina

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