RBC On Gilead: 'A Compelling Opportunity To Build A Long-Term Position'

Notwithstanding Gilead Sciences, Inc. GILD's recent NASH setbacks and an aging AIDS franchise, one analyst at RBC Capital Markets is upbeat about the prospects for the company.

The Analyst

Brian Abrahams upgraded Gilead from Outperform to Top Pick with a $91 price target.

The Thesis

The optimism surrounding Gilead is based on conviction in the company's new leadership and the removal of many overhangs, paving way for the shares to "better reflect the value of future cash flows from their marketed products and pipeline," Abrahams said in a Monday upgrade note.

The analyst also expressed increasingly high confidence in the ability of Gilead's HIV franchise to fetch steady annual revenues of about $16 billion per year over the medium-term.

The uptake for Biktarvy —a three-drug, single pill, once-a-day treatment option for HIV approved by the FDA in February 2018 —continues to be strong, Abrahams said. This will help Biktarvy sales to exceed expectations in the second quarter, he said. 

The competitive threat from the dual combo Dovato from ViiV Healthcare seems overdone, the analyst said. 

The recent elimination of HIV from planned Medicare protected class formulary management changes is likely to lower the risk of price erosion and favors Gilead, Abrahams said. 

Data from the company's Phase 1 asset GS-6207, a capsid inhibitor for treating HIV, and the company's initiatives to develop it into a long-acting injectable combo promises a transformational paradigm in the long-term and further protects Gilead's franchise post-2025, he said. 

Gilead's HIV franchise is likely to drive $60 billion in cash flows over the next 10 years, even after allowing for loss of revenue after Truvada becomes available as a generic drug, the analyst said. 

The stock continues to trade at a discount to peers despite the stabilization of its earnings visibility, according to RBC. 

"We see limited downside risk and a compelling opportunity to build a long-term position," Abrahams said. 

The Price Action

Gilead shares are up about 9% year to date. The stock was trading higher by 1% at $67.59 at the time of publication Monday. 

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