is trading near all-time highs, but there's still potential for
the stock price to go even higher. Here are three things that
could send shares higher if they come to fruition.
1. Sales of Gilead's hepatitis C drugs don't
Talk about a low bar for success. All Gilead really has to do
is keep sales from dropping, and investors will be happy.
In the second quarter, Gilead made $2.36 per share on a
non-GAAP basis thanks to $3.5 billion in sales of its
hepatitis C drug Sovaldi. At that run rate, Gilead is trading
at a P/E below 10, and that's with its all-oral cocktail
expected to be approved before year's end.
Investors are clearly worried about the long-term
stability of its hepatitis C sales. There's expected
's all-oral cocktail and others that are further back, and
worries over the high prices of the drug. The big "problem"
is that the hepatitis C drugs are a cure, so patients only
need to take the drug for one course of treatment, unlike its
HIV franchise where patients remain on HIV drugs forever.
There are certainly a lot of hepatitis C patients out
there, and likely more who don't even know they're infected.
Without a doubt, drugmakers will eventually run out of
patients; but as long as it doesn't happen relatively quickly
and Gilead is able to hold onto a substantial market share,
investors should be happy.
2. A strategic acquisition
Sovaldi is a cash cow for Gilead Sciences. In the second
quarter alone, Gilead generated $4.2 billion in cash flow
from operations. The biotech has used some of the cash to
repurchase shares, but that strategy has limited upside;
decreasing share count increases EPS, but doesn't offer the
growth potential that would come from launching another
Investors should have a lot of confidence in management's
strategy after the acquisition of Pharmasset, which brought
Sovaldi to Gilead. The purchase clearly panned out despite
the high price tag that many investors chided at the time.
Shares are up about 400% since the deal was announced.
A purchase in the oncology sector could really enhance the
prospects for the rest of Gilead's oncology pipeline. The
biotech recently got its first oncology drug, Zydelig,
, but most of the rest of the oncology pipeline is further
behind. An acquisition of a couple more approved drugs -- or
even late stage compounds -- might make it easier to sell
Zydelig from an efficiency standpoint, as well as giving
Gilead street cred among oncologists.
3. Gilead Science starts offering a dividend
I'm not sure offering a dividend is the best use of Gilead's
cash, but starting a dividend would undoubtedly increase the
shareholder base, which should increase the share price. For
instance, fellow big-biotech
announced in 2011 that it was going to offer a
dividend. Shares are up about 140% since then -- not even
including the dividends -- handily beating the S&P500's
rise of around 50%. An increasing dividend has undoubtedly
Of the three potential events that could make the stock
rise, offering a dividend is probably the least likely of the
three to happen in the near future; but if the first two come
to fruition, a dividend may not be too far behind. The
uncertainty of hepatitis C drug sales is one of the main
arguments against a dividend -- the company certainly doesn't
want to start a dividend and then stop it down the road. But
if robust sales continue, and Gilead continues to mature into
what looks more like a pharmaceutical company than a
high-growth biotech, offering a dividend would clearly be the
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3 Reasons Gilead Science, Inc.'s Stock Could
originally appeared on Fool.com.
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