Citigroup’s Yaron Werber and team upped their price target on Gilead Sciences (GILD) to $139 from $111. They explain why:
Associated Press From our discussions with mgt, Gilead looks very optimistic about
FY15 and anticipates that hepC treatment volumes could be up substantially over FY14 rates globally. This will be driven by the availability of [Sofosbuvir/Ledipasvir, or] SOF/LDV that is easier to take, will be prescribed by more physicians with potentially 3x-4x more capacity, will reverse the ongoing warehousing that reached 50%-66% of patients in some clinics, and will be further supported by a global rollout (EU, Egypt, Japan). While investors are anxious that the hepC market will flatten out in FY15, we are much more optimistic and are raising ests substantially.
From the health insurance perspective, the average unit cost of treating Hepatitis C is likely to fall 35% after Oct 10th — However, even with the lower unit cost, overall Hepatitis C costs are likely to rise meaningfully, as utilization should increase substantially, creating a source of earnings pressure for the insurers, particularly in Q4. Sovaldi shouldn't be as much of an EPS issue in 2015, as plans have presumably done a better job factoring the incremental costs into pricing…
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We expect the recent stock/warrants buybacks to boost Q4 EPS substantially and future stock buybacks will drive appreciation…
Shares of Gilead Sciences are little changed at $105.90 at 12:48 p.m. That leaves 31% of upside to Werber’s target price of $139. The iShares Nasdaq Biotechnology ETF (IBB) has dropped 0.6% to $273.60 today.
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