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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Gilead Science

December 27th 2013 Gilead Science
Industry: Biotech
Price as of 12/27: $74.45

The Santa Claus rally is in full swing. The Dow is up 5% in the last two weeks following a minor correction. It's the best year for the major averages in more than 10 years. Looking forward to 2014, its getting tougher to find attractive stocks. Freeport McMoran is a recent pick that is perking up. If global growth picks up, copper pricing should improve. One of the best sectors this year has been healthcare and the biotechs. Even though the biotechs are up a lot this year, the future remains bright for the sector. This week we'll highlight a drug company with some of the most promising drugs since Pfizer's Lipitor. The stock of the week is Gilead Science. Gilead has been on a tear up 100% year to date, but sales and earnings are expected to soar in 2014 and beyond thanks to the recent approval of their hepatitis C drug, Sovaldi. Sovaldi with the combination of a promising drug, Ledipasvir (approval pending 1st quarter 2014) could produce sales equal to the company. Gilead is not a cheap stock with no dividend, but with sales and earnings expected to more than double in the coming years, Gilead Science is well positioned to benefit from their strong drug pipeline.
Back at the beginning of November, Gilead Sciences beat earnings and sales estimates as well as raising full year 2013 product sales guidance. Excluding non-recurring items, Gilead made 52 cents a share better than estimates of 48 cents. Revenues rose 14.7% year/year to $2.78 billion beating estimates. Product sales were driven primarily by growth in Gilead's antiviral franchise during the third quarter. Antiviral product sales increased 14 percent to $2.33 billion for the third quarter up from $2.04 billion for the same quarter in 2012. In the US sales grew 19 percent and 6 percent in Europe. For the full year of 2013, product sales will come in at $10.3-10.4 billion with non-GAAP product gross margin of 74-76%. Looking forward, investors and analysts are looking to the future with Gilead's Hepatits C drug, Sovaldi. Gilead, already the top maker of HIV drugs, received approval from the Food and Drug Administration for Sovaldi, one-half of the new combo pill (other is Ledipasvir), on December 6th. The drug is priced at $1,000 per pill, or $84,000 for a 12-week cost of therapy. Even by itself, Sovaldi gets rid of the virus in many patients who were failed by other treatments. Surveys of fund managers conducted by International Strategy & Investment Group show they expect sales of Sovaldi to be $3 billion next year, which would make it the most successful drug launch ever. Chronic hepatitis C affects an estimated 3.2 million Americans with the majority of patients coming from the "baby boom" generation. The disease is the nation's leading cause of liver cancer and liver transplantation and, in recent years, has surpassed HIV/AIDS as a cause of death.The combination of Sovaldi with a second drug, ledipasvir has a successful cure rate of 95% with patients in clinical trials with the genotype 1 version of hepatitis C (the virus is identified using its genetics), Three-quarters of Americans with hepatitis C are infected with viruses classified as genotype 1. The combo might work in as little as 8 weeks, and Gilead will file for FDA approval of the second drug, ledipasvir in early in 2014. Gilead has predicted that it could generate $225 million in sales in the first quarter with potential peak sales of up to $8 billion. To put that in perspective, Gilead is expected to achieve total revenue of approximately $10.4 billion this year. However, some bullish analysts are predicting that Sovaldi's annual sales could surpass the record $13 billion achieved by Pfizer's (PFE) Lipitor and the combination pills could generate a possible $16 billion in sales by 2016. Add in all of the other revenue producing drugs Gilead has development and are still developing and you can see why investors and analysts are so high on Gilead.
Within the last two months the list of analyst upgrading Gilead' stock price include RBC with a $90 price target. J.P. Morgan recently raised their price target to $100. Barclay's price target is $90. Citigroup has an $87 price target. Piper Jaffray's target is $91 and BMO Capital has an $85 price target.
Gilead's stock price is not cheap, but even if estimates for Gilead's Hepatitis drugs come anywhere close to estimates, Gilead's shareholders and patents drug users will be very happy.