In 1987, Michael Riordan, at age 29, started a small biotech
firm and then raised $20 million in venture capital and private
equity financing, paving the way for an IPO in 1992. After spending
more than $90 million on drug R&D over eight years, his
)-introduced its first product, which targeted an AIDS-related eye
disease called CMV retinitis.
Gilead then introduced a number of new drugs that rapidly gained
market share. Tamiflu, which would gain some notoriety in 2005 when
the bird flu pandemic struck, was an influenza treatment. And
Viread was introduced in 2001 to treat HIV/AIDS. Both antiviral
drugs were smashing successes.
The company's HIV/AIDS, hepatitis B (and more recently hepatitis C)
treatments would catapult the company forward, generating rapid
revenue growth and profitable operations throughout the next
Just over a decade ago, it wasn't possible to treat HIV/AIDS with
pills. Today, Gilead has six different pills to treat the diseases
and its pipeline includes a number of high-potential tablets.
Its focus on developing single-pill treatments, such as Atripla,
which is the first single pill HIV treatment approved by the FDA,
has helped this line of business considerably.
This franchise is a cash cow and generates high margins and steady
growth as a result of its dominant position in the market. In fact,
Gilead's HIV franchise generates 75% of the company's revenues.
Today, Gilead is an $86 billion company with highly successful drug
treatments for these life-threatening diseases. With sales still
growing-and with three more drugs well along in the HIV franchise
pipeline-Gilead looks to be able to dominate in this space for
years to come.
Gilead is on the threshold of major growth in the treatment for
chronic hepatitis B and C, largely as a result of its controversial
$11 billion acquisition of Pharmasset in 2011. At the time, the
acquisition price was more than one-third of Gilead's market cap.
However, since the acquisition, Gilead's stock has risen by 225%.
The acquisition of Pharmasset helped Gilead build up its pipeline
of liver disease treatments including hepatitis B and C, especially
in the area of all-oral regimens.
While liver treatments currently make up less than 25% of the
company's revenues, the company is building a global power house in
The engine behind this machine is the hepatitis C drug candidate
Sofosbuvir, which is currently under FDA review, with a ruling due
out in December of this year. Based on the success in trials to
date, we should expect Sofosbuvir to gain approval and go into
production in 2014.
In fact, many analysts expect the drug to become the leading
therapy in hepatitis C, with revenue potential approaching $8
billion by 2020, a number equal to more than 80% of company-wide
sales in 2012.
Gilead has proven itself to be one of the leading biotechnology
firms in the world; its management has steered the company in the
right direction time and time again.
And even though shares have been a standout performer, Gilead has
been buying shares back, indicating that despite the climb,
management believes shares are still undervalued.
It's entirely reasonable to expect the company's sales to
accelerate over the next five years as new drugs come on the
market. I'm looking for at least 20% average annual revenue growth
and 25% average annual net income growth over the next five years.
My near-term price target on shares is $70.00, and I expect to
raise this target as Gilead makes progress with both its HIV/AIDS
and liver lines of business.
Editor's Note: This article was written by Tyler Laundon of
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