Maxim Explains Why Gilead Sciences Is A Now A Buy

Gilead Sciences, Inc. GILD stands to benefit on multiple fronts, which prompted an analyst to upgrade the shares of the company Thursday.

The Analyst

Maxim Group analyst Jason McCarthy upgraded his rating on the shares of Gilead Sciences from Hold to Buy and  set a $94 price target. 

The Thesis

The Kite Pharma Inc KITE buy comes with the stock "for free"; the comparisons are easing for Gilead Sciences' HCV franchise; and Gilead had $2.7 billion in free cash flow in the recently reported quarter, McCarthy said in a note. (See McCarthy's track record here.) 

Following a meeting with senior executives in Beijing, where manufacturing plans for the launch of Yescarta were presented, Maxim said it is now confident the company can overcome manufacturing challenges to commercialize in the U.S. and globally.

Yescarta — a cell-based gene therapy to treat adult patients with certain types of large B-cell lymphoma who have not responded to or who have relapsed after at least two other kinds of treatment — was approved by the FDA in October. Maxim views this as the start, with approvals likely coming in Europe, China and Japan.

"With a global presence in late stage B cell cancer, Gilead is positioned to generate over $5 billion in outyears," McCarthy said. 

Maxim's model now incorporates Yescarta revenues from China and Japan, in addition to revenues from both the U.S. and EU. The Kite acquisition makes Gilead Sciences an industry leader in cell therapy, McCarthy said.

"This is the start of a new oncology paradigm." 

The Price Action

Gilead Sciences' shares are up 2.88 percentyear-to-date, underperforming the 17.3-percent gain for the iShares NASDAQ Biotechnology Index (ETF) IBB.

At the time of writing, shares of Gilead Sciences were rising 1.33 percent to $74.65.

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