Student Investment Management
Analyst: Luxi Nie
nie.85@buckeyemail.osu.edu
(614)271-0553
March 27, 2015
Gilead Sciences Inc.
Equity Research
Hold
Company Description
Recommendation:
Gilead Sciences, Inc., founded in 1987 in Foster
City,
California,
is
a
research-based
biopharmaceutical company that discovers,
develops, and commercializes therapeutics to
advance the care of patients suffering from
life-threatening diseases. The Company's primary
areas of focus include HIV/AIDS, liver disease and
serious cardiovascular and respiratory conditions.
Gilead is engaged in addressing unmet medical
needs for patients living with life-threatening
diseases around the world.
Ticker: NASDAQ: GILD
Price Target: $108.39
Current Price: $101.51
Investment Thesis
I recommend a “HOLD” rating for Gilead Science
with a target price $108.39. With the successful
sales of Sovaldi and Harvoni as treatment for liver
diseases, Gilead more than doubled their revenue
and expects continuing and further sales in foreign
areas. Nearly one fourth of their active clinical
studies are in Phase 3, which may be launched to
the market in the near future. On the other hand,
Gilead is stuck in several litigations which may lead
to invalid of patents and facing with increasing
pressure of pricing.
Opportunities



Further growth of existing products
Strong research and clinical study emphasis
Well-organized distribution channel
Risks




Revenue depends on sales of certain products
Pricing pressure from governments
Threats from introduction of alternative drugs
Patent expiration and lawsuit
Potential Upside/Downside: 6.78%
Market Data
Market Capitalization: 145.95B
Diluted Shares Outstanding: 1.65B
Dividend Yield: Beta: 1.02
52 Week Price Range: $63.5- $116.83
Financial Data
Revenue: 24.89B
Revenue Growth: 122.2%
Gross Margin: 84.78%
Operating Margin: 61.33%
Earnings Per Share: 7.35
Trailing P/E: 13.33
GILD trailing 12 month Performance
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Table of Contents
Company Overview……………………………………………………………………………………………3
Business Analysis……………………………………………………………………………………………….3
Products ……………………………………………………………………………………………………………….3
Company Strategy……………………………………………………………………………………………….…5
Recent Events……………………………………………………………………………………………………..…7
Comparative Advantages…………………………………………………………………………………….…7
Investment Thesis…………………………………………………………………………………..…………9
Fundamental Drivers………………………………………………………………………………………….…9
Economic Analysis…………………………………………………………………………………………………9
Financial Analysis…………………………………………………………………………………………………10
Valuations……………………………………………………………………………………………………...….…12
Relative Valuation………………………………………………………………………………………...…12
Multiple Valuation………………………………………………………………………………………..…12
DCF Valuation…………………………………………………………………………………………...……13
Sensitivity Analysis…………………………………………………………………………………………13
Risks & Considerations…………………………………………………………………………..………14
Summary and Recommendation…………………………………………………………………15
Appendices…………………………………………………………………………………………………...……16
Appendix I: Income Statement Forecast………………………………………………………………16
Appendix II: Discounted Cash Flow Valuation………………………………………………………17
Appendix III: Sources……………………………………………………………………………………….…18
March 27, 2015
2
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Gilead Science Company Overview
Gilead Sciences, Inc. (Gilead) is a research-based biopharmaceutical company that discovers,
develops, and commercializes therapeutics to advance the care of patients suffering from
life-threatening diseases. The Company's primary areas of focus include HIV/AIDS, liver disease
and serious cardiovascular and respiratory conditions. Gilead Sciences, Inc., incorporated in
Delaware in 1987, is research-based biopharmaceutical companies that discovers, develops and
commercializes innovative medicines in areas of unmet medical need with headquarter in Foster
City, California.
Business Analysis
Products
Gilead primary areas of focus include HIV/AIDS, liver disease and serious cardiovascular and
respiratory conditions.
Exhibit 1: Gilead current marketed products
Gilead Current Marketed Products
HIV/AIDS Liver
Hematology/ Cardiovascular Inflammation/ Other
Diseases Oncology
Respiratory
Atripla
Harvoni
Zydelig
Letairis
Cayston
AmBisome
Complera Hepsera
Lexiscan
Tamiflu
Macugen
Emtriva
Sovaldi
Ranexa
Stribild
Viread
Truvada
Tybost
Viread
Vitekta
Gilead’s antiviral products including products in HIV and liver diseases areas accounts for 91%
of total revenues in 2014. In addition, during the year 2014, sales of Sovaldi and Harvoni for the
treatment of HCV, accounted for approximately 50% of total product sales.
The following table Exhibit 2 shows the percentage of total revenue and market shares of main
products of Gilead. In Liver disease area, the Sovaldi almost dominates in certain area. And the
total HIV products occupy nearly 40% of market share, which makes Gilead able to impact the
March 27, 2015
3
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
whole market.
Exhibit 2: Percentage of total revenue and market shares of main products of Gilead
Product Candidates
Gilead has 225 active clinical studies by the end of year 2014, of which more than 54 were Phase
3 clinical trials. These product candidates are highly likely to be commercialized, which may
become marketed products. In addition, one product for treatment for HIV disease is under
marketing application pending phase, which is expect to introduced to the market in the near
future.
R&D accounts for a significant component in the development of Gilead biotechnology company.
Gilead R&D strategy is to develop best-in-class drugs that improve safety or efficacy for unmet
medical needs. The company has research scientists in Foster City, Fremont, San Dimas and
Oceanside, California; Connecticut; Washington and Canada. From the following Exhibit 3, R&D
expense over the last five years shows increasing the percentages of sales. Even the R&D
expense accounts for 11.47% of sales in 2014, which should be considered with that the sales of
2014 more than doubled that of 2013.
But the high level of R&D also leads Gilead to higher risk exposure. The clinical studies can be
ceased if the study result is not favorable. The suspension of clinical trials can also be caused by
unaffordable cost, government policies or introduction of products from competitor firms. In this
case, some of the product of clinical trials probably cannot generate revenue for Gilead.
March 27, 2015
4
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Exhibit 3: Gilead R&D expenditure as percentage of net sales
In 2015, Gilead is going to increase its R&D expenses over 2014 to support the expansion of our
clinical studies in various therapeutic areas including liver disease, HIV and oncology.
Company Strategy
Strategy Overview
Gilead basic operating strategies focus on the clinical studies on current product candidates and
improve the application and sales of marketed products. The company will continue to invest in
R&D progress for the clinical trials and identify most likely commercialized study results. For the
current marketed products such as Sovaldi, which generated the most revenue compared to
others, Gilead is going to improve the accessibility to more regions. The company emphases
increasing the access of patients who need the treatment rather than whether the products are
affordable for them.
Patient Access
In the U.S., Gilead has patient assistance programs that help certain individuals and provide
necessary financial resources. And also, the company has collaborated with AIDS Drug
Assistance Programs (ADAPs) for a long time and provide HIV drugs with lower price. In
countries outside of U.S, especially in developing countries, Gilead works with World Health
Organization and regional business partners to provide medicines in the prices that reasonable
for certain countries. Those assistance programs help improve the reputation of Gilead
worldwide.
Global Business
By the end of 2014, Gilead has operations in more than 30 countries worldwide and Sovaldi is
now available in over 40 countries. During 2014, the company signed agreement with
March 27, 2015
5
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
India-based generic drug companies to manufacture Sovaldi and Harvoni for distribution in 91
developing countries. Beside this, Gilead also signed agreement with Medicines Patent Pool (the
MPP) for distribution for certain drugs in 112 countries. Those will increase the number of
patients for certain drugs and extend the revenue base.
On the other hand, global business also makes Gilead subject to uncertainty of income taxes in
different foreign countries. With the change of macroeconomic policies, the tax policies,
especially the tax rates can be changed over time, of which some could be beneficial or hurtful.
Acquisition
Gilead has a strong acquisition activity in the last few years, which consists with Gilead’s product
strategy that “continuing add to our existing portfolio of products through our internal discovery
and clinical development programs and through a product acquisition and in-licensing strategy”.
Just as the Exhibit 3 shows, most of acquisitions aimed for certain products from target
companies. Some of the acquisitions are for manufacturing purposes, which the acquired
companies will instead manufacture the drug product to provide additional amount of products
or to replace old manufacturing places.
Exhibit 3: Gilead’s acquisitions from 2006
Year
Target
companies
Price
Notes
2006 Corus Pharma,
Inc.
$365 million
with drug aztreonam lysine in the respiratory
arena
2006 Myogen, Inc.
$2.5 billion
With two drugs in development (ambrisentan and
darusentan), and one marketed product (Flolan)
for pulmonary diseases
2006 Raylo
Chemicals, Inc.
$148 million
The site is used for both clinical studies and
commercial products.
2007 Nycomed fr.
Altana - Cork
$47 million
The site is used for commercial manufacturing
site by Gilead.
2009 CV
Therapeutics,
Inc.
$1.4 billion
With Ranexa and Lexiscan as commercial
products for cardiovascular area with Gilead’s
cardiovascular franchise.
2010 CGI
$120 million
Pharmaceuticals
Help to broaden Gilead's research in kinase
biology and chemistry area.
2010 Arresto
$225 million
Biosciences, Inc.
With developmental-stage research in fibrotic
diseases area.
March 27, 2015
6
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
2011 Calistoga
$375 million
Pharmaceuticals
For oncology and inflammation area.
2011 Pharmasset, Inc
$10.4 billion
This acquisition helps Gilead take the lead in HCV
with 7977 (Sofosbuvir).
2013 YM Biosciences,
Inc
$510 million
This acquisition brings drug candidates for
myeloproliferative diseases, inflammatory
disorders and certain cancers.
2015 Phenex
$470 million Help with the research for the treatment of liver
Pharmaceuticals
diseases.
Recent Events
Acquisition of Phenex Pharmaceuticals
In the January, 2015, Gilead acquired Phenex’s FXR program. Phenex Pharmaceuticals is a
privately-owned and Germany based biotechnology company. Gilead acquired Phenex's
farnesoid X receptor (FXR) program comprising small molecule FXR agonists for the treatment
of liver diseases including nonalcoholic steatohepatitis (NASH), which is estimated to infect 10%
to 20% of the people in the developed world.
First Dividend Announcement
In the February, 2015, Gilead announced its first dividend that the company intended to pay
quarterly dividends of $0.43 per share, beginning in the second quarter of 2015, subject to
quarterly declarations by the Board of Directors. In addition, Gilead announced a $15 billion
common stock buyback program.
Comparative Advantages
The Exhibit 4 shows the ROE and revenue growth rate for Gilead Sciences and its main
competitors. In terms of stock return, the company enjoys the highest ROE among its main
competitor, especially in 2014, which mainly due to the acquisitions and growing revenue. So in
both fundamental driving force and stock performance, Gilead is at the top area.
March 27, 2015
7
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Exhibit 4: ROE and revenue growth rate for Gilead Sciences and its main competitors
Further growth of existing products
With the success of the new drags Harvoni and Sovaldi, the total sales growth in 2014 is more
than 100%. The revenue of the new products is mostly from the US market. With more
marketing approval of Sovaldi in Japan and Europe, etc., foreign markets are expected to bring
more revenue for Gilead.
Strong research and clinical study emphasis
Gilead is active in acquisitions in the last few years, which bring in the products candidates and
clinical studies achievement for further research. As a biotechnology company, Gilead keeps its
R&D expenditure at a relatively high and reasonable level compared with peers. The current
sales achievement is mainly driven by the research and studies. With the emphasis on the clinical
studies, we expect more revenue are generate from that.
Well-organized distribution channel
In the US, Gilead’s products are distributed exclusively through the wholesale channel. In other
foreign countries, its products are marketed through its own commercial teams and/or in
conjunction with third-party distributors and corporate partners. The distribution channel is
well- organized and managed. Gilead can refer to its distribution experience in foreign markets if
it plans to enter a new market.
March 27, 2015
8
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Investment Thesis
Fundamental Drivers
R&D
One of the most important fundamental drivers for biotech companies is the result from R&D.
The future of Gilead heavily relies on whether the results of clinical trials are successful and
commercialized. The company in the last few years keeps increasing its R&D expenses 20% and
35% in 2013 and 2014 respectively. In addition, the strategic acquisitions will add more value
for the existing clinical studies and products diversification.
Patent Protection
Patent is the protection of the study results for biotech companies. Gilead has a number of
patents in the US and other foreign countries related to their compounds, products and
technology. For product sales, the patents guarantee the presumption for any production and
distribution for the product drugs. However, the company cannot ensure that they will not lose
important patents in the future or the competitors cannot obtain patents that make Gilead not
exclusive.
Economic Analysis
United States Healthcare Reform
In March 2010, healthcare reform legislation was adopted in the US, which requires
pharmaceutical companies to further rebate or discount products reimbursed or paid for by
various public payers. Gilead, under this regulation, is expected to increase its expenses and fees.
The company is required to provide 50% discount products for certain patients and pay a new
industry fee (the BPD fee), etc. The BPD fee for companies Including Gilead is estimated about
$3.0 billion in 2014 through 2016, increase to $4.0 billion in 2017, increase to a peak of $4.1
billion in 2018, and then decrease to $2.8 billion in 2019 and thereafter.
Compulsory Licenses
Gilead now has business and product distribution in some developing countries. The company is
required to sign compulsory licenses under the policy in these countries to allow third parties to
sell Gilead’s products in their own version, which reduce Gilead’s revenue.
Reimbursement
Since a significant portion of Gilead’s products are for life-threatening diseases, the prices of the
drugs are relatively high. So the sales of the products heavily depend on the government
reimbursement and payment by the third party. Given the fact that the growth in National Health
Expenditures decreased from 4.1% and 3.6% in 2012 and 2013 respectively, the company is
March 27, 2015
9
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
subject to a reduction of reimbursement from government, which may influence the sales of
certain drugs.
Medicare spending, which represented 20 percent of national health spending in 2013, grew 3.4
percent to $585.7 billion, a slowdown from growth of 4.0 percent in 2012. This slowdown was
attributed largely to slower enrollment growth and impacts of the Affordable Care Act (ACA) and
sequestration. Per-enrollee spending in 2013 grew at about the same rate as 2012.
Financial Analysis
Income Statement Forecast
In 2014, Gilead more than doubled its revenue from $10.8 million to $24.5 million, mostly due to
the sales of its Sovaldi and Harvoni for the treatment of HCV. In December, 2013, FDA approved
Sovaldi to treat chronic hepatitis C virus (HCV) infection, which means Gilead can introduce this
drug to the market. The following table shows the income statement projects for Gilead for the
next three years. It is hard for Gilead to remain such a high sales growth in during 2014. But
considering that Gilead got approvals to market Sovaldi in Europe, Japan and several other
countries recently, the projected sales growth rate for the next three years are 17%, 10% and
8.5% respectively, which is similar to the consensus projections .
The estimated Earnings per Share are 8.77, 9.40, and 10.20 for the next three years, which are a
little lower than the consensus.
Profitability Analysis
The Exhibit 4 shows Gilead’s Profitability indexes from 2010 to 2014. After decline for four years,
return on equity of Gilead rebounded up to 90.31%, which is a really good performance and at
the top of ROE in peer firms. The EBITDA margin increased from 43.47% to 65.55%, which is
even much better than four years ago. The average of EBITDA margin of peer firms is 39.46%,
which is 25% lower than Gilead’s. Therefore, Gilead’s profitability is rebounded and expected to
keep in this level and generally higher than peers.
Exhibit 5: Gilead’s Profitability indexes from 2010 to 2014
12 Months Ending
ROE
ROA
Gross Margin
EBITDA Margin
Operating Margin
Net Income Margin
March 27, 2015
FY 2010
47.44
27.25
76.48
53.18
49.84
36.50
FY 2011
44.49
19.40
74.67
48.80
45.20
33.43
FY 2012
32.31
13.44
74.53
44.20
41.33
26.71
FY 2013
29.74
14.03
74.48
43.47
40.39
27.45
FY 2014
90.31
42.27
84.78
65.55
61.33
48.62
10
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Efficiency Analysis
Gilead accounts receivable and inventory turnover increased significantly during FY 2014 and
slightly exceed the peers average. All the increased turnover ratios are associated with the
growing sales mainly due to the new drags.
Exhibit 6: Gilead’s Efficiency index from 2010 to 2014
12 Months Ending
Accounts Receivable Turnover
Inventory Turnover
Accounts Payable Turnover
FY 2010
5.28
1.66
2.51
FY 2011
4.69
1.64
2.30
FY 2012
5.24
1.58
2.23
FY 2013
5.70
1.66
2.26
FY 2014
7.30
2.46
3.29
Liquidity Analysis
Exhibit 7 shows Gilead’s Liquidity index from 2010 to 2014. The current ratio increased to 3.07,
which is above the average 2.84. In the past four years, acquisitions taken by the company
reduced the cash, which lowered the current ratio. In year 2014, the outstanding sales rapidly
increase the cash in the balance sheet, which makes the almost tripled current ratio.
Exhibit 7: Gilead’s Liquidity index from 2010 to 2014
12 Months Ending
Current Ratio
Quick Ratio
FY 2010
2.32
1.51
FY 2011
5.53
4.71
FY 2012
1.45
0.85
FY 2013
1.09
0.67
FY 2014
3.07
2.56
Leverage Analysis
Exhibit 8 shows Gilead’s Leverage index from 2010 to 2014. During 2014, the difference
between long-term debt/equity and total debt/equity decreased from 0.23 down to 0.03, which
shows that Gilead has repaid a large amount of short term debt. In 2014, Gilead issued senior
unsecured notes for a total aggregate principal amount of $8.0 billion, which may be used to
support the upcoming share repurchase program in 2015.
Exhibit 8: Gilead’s Leverage index from 2010 to 2014
12 Months Ending
Long-Term Debt/Equity
Total Debt/Equity
Total Debt/Capital
March 27, 2015
FY 2010
46.37
46.37
31.68
FY 2011
110.75
110.75
52.55
FY 2012
73.99
86.25
46.31
FY 2013
33.54
56.50
36.10
FY 2014
75.36
78.41
43.95
11
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Valuations
Relative Valuation
The Exhibit 9 shows the price and EV multiples about Gilead and its main competitors in
biotechnology and pharmaceuticals sectors. Gilead has three below average price multiples P/E,
P/B and P/CF. Considering that the total sale of Gilead in 2014 is more than doubled, the P/S
may have not adjusted completely. Those price multiples show that Gilead is likely to be slightly
undervalued. In addition, the company has low EV/EBITDA multiple compared to the average
and all peers except Pfizer.
Exhibit 9: Selected Multiples for Gilead and main competitors
Multiples
Average
Gilead
AbbVie
Pfizer
Amgen
Biogen Idec
P/E
P/S
P/B
P/CF
EV/ EBITDA
22.98
6.49
12.07
18.13
14.99
18.61
7.77
11.72
15.35
12.36
20.65
5.11
21.50
18.55
16.55
17.49
4.15
14.25
12.10
10.47
23.57
6.38
4.78
15.19
15.85
34.59
9.06
8.10
29.46
19.71
Multiples Valuation
The relative valuation generally indicates that Gilead’s price multiples are lower than average
and peers. As Exhibit 10 shows, I estimated the target multiple that the company potentially
could reach with the consideration of industry average performance and Gilead specific company
strategy. The Target price range is $106.60-$118.84, which is above the current price $101.51.
From the multiple valuation, it is can be inferred that Gilead stock has the potential to go
upward.
Exhibit 10: Multiple Valuation for Gilead’s stock price
Absolute
Valuation
P/E
P/B
P/S
P/EBITDA
March 27, 2015
Current
Multiple
18.68
11.76
7.80
12.40
Target
Multiple
21.25
12.00
8.00
13.20
Target/
Current
1.14
1.02
1.03
1.06
Expected
EPS
$4.49
Target Price
$118.84
$106.60
$107.15
$111.21
12
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Discount Cash Flow Model Valuation
Appendix II shows Discount Cash Flow Model (DCF) based on my forecast over the next ten
years. Considering that Gilead sales are largely driven by its clinical research and successfully
commercialized products for life-threatening diseases, I use the terminal growth rate at 4.5%.
This growth rate doubles the US GDP growth rate 2.2% and is also higher than the industry
growth rate. The increasing R&D expenditure indicates that Gilead expects its research and
studies can further promote sales.
As a biotechnology company, Gilead is cyclical, different feature “defensive” of the whole
healthcare sector. Therefore, the discount rate that I use in the model is 11%, which means the
stock is “riskier” than other stocks. The implied price for Gilead is $108.39 and has a potential up
with an upside of 6.78%.
Sensitivity Analysis
The Exhibit 11 shows the sensitivity table about the discount rate and terminal growth rate.
With the bearish scenario which Gilead will not be able to maintain its current market share and
sales base and commercialize fewer its new clinical results to introduce to the market in the
future. The company may have 4.0% growth rate or even less, which indicates its implied price
may drop down to $100 or lower. On the other hand, if Gilead can further promote its clinical
studies and commercialized more product candidates and receive the government approval for
marketing certain product candidates, its implied stock price has potential to reach $120 or so.
Terminal Growth Rate
Exhibit 11: Sensitivity table for DCF model
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
9.5%
119.48
125.34
132.27
140.59
150.76
163.47
179.81
10.0%
110.80
115.63
121.25
127.91
135.89
145.65
157.85
Discount Rate
10.5%
11.0%
103.28
96.71
107.30
100.08
111.93
103.94
117.34
108.39
123.72
113.58
131.39
119.71
140.76
127.07
11.5%
90.92
93.77
97.01
100.72
104.99
109.97
115.86
12.0%
85.77
88.21
90.95
94.07
97.62
101.72
106.51
From all the valuations above, the relative valuation indicates a price range $106.60-$118.84 and
DCF model shows an implied price $108.39 as well as the multiple valuation suggests a slightly
undervalued situation. The three methods are generally consistent with the suggestion that
Gilead stock has potential to go up with an upside of 5.0% to 17.1%
March 27, 2015
13
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Risks and Concerns
Pricing Pressure
Gilead is currently under pricing pressure from US government and foreign developing countries.
Within the US, a letter from FDA raised concerns about Gilead’s approach to pricing Sovaldi,
which accounts for about half of sales in 2014, its affordability and its impact on federal
government spending and public health. In addition, many countries in the European Union have
increased discounting level on Gilead products to manage healthcare expenditures.
Potentially unattained approval
Gilead’s product candidates face the risk that cannot obtain the marketing approval from FDA or
foreign department such as European Commission. As of the end of 2014, its marketing
application for one product candidate is under pending status and may never be commercialized
without the approval. In this case, the incurred cost will not generate sales revenue for Gilead.
Acquisition
Gilead has active acquisition activities in the past few years, aiming to obtain the products or
products candidate or clinical studies achievement from acquired firms. In the future, Gilead is
likely to have more acquisitions for the same purpose to improve its pipeline. These acquisitions
may dilute existing shareholders’ shares.
Litigation
Currently, Gilead sticks into several litigations with competitors, distributors or business
partners. Most of the litigations are related to the patent that Gilead owns. For example, in
February 2012, Gilead received notice from the U.S. Patent and Trademark Office (USPTO) that
there is interference between one patent of the Idenix Pharmaceuticals, Inc. and one of Gilead.
Idenix’s interference aimed to determine that who is the first to invent the compounds, which is
related to Sovaldi. If the results of such litigations is unfavorable for Gilead, then Gilead may lose
the right to produce or sell certain products, which may heavily influence its future revenue.
March 27, 2015
14
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Investment Summary
I recommend a “Hold” with an implied price $108.39 with an upside of 6.78%. The share price
currently traded at $101.51, which is slightly undervalued. Although Gilead is not likely to
maintain the sales growth rate for 2014 which is more than 100% due to the success
of hepatitis C treatment Sovaldi and Harvoni. But it is expected to at least maintain the current
market share and pricing power and commercialize more clinical results for more new drags.
Meanwhile, as a biotechnology company, Gilead bears more uncertainty related to patent
protection and expiration, lawsuit and government policies.
Recommendation: HOLD
Projected Price Range: $106.60-$118.84
DCF Implied Price: $108.39
March 27, 2015
15
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Appendix I: Income Statement Forecast
Gilead Income Statement Forecast
Year Ended December 31,
USD in thousands
FY 2017E
FY 2016E
FY 2015E
FY 2014A
FY 2013A
24,474,000
10,803,695
416,000
383,849
Revenues:
Product sales
Royalty revenues
Contract and other revenues
Total revenues
34,756,272
Consensus Revenue
32,033,430
29,121,300
30,034,000
28,511,000
-
14,144
24,890,000
11,201,688
Costs and expenses:
Cost of goods sold
5,908,566
5,525,767
4,991,391
3,788,000
2,858,502
Research and development expenses
Selling, general and administrative
expenses
Total costs and expenses
5,213,441
4,805,015
4,435,174
2,854,000
2,119,756
4,518,315
4,164,346
3,512,029
2,983,000
1,699,431
15,640,322
14,495,127
12,938,594
9,625,000
6,677,689
Operating Income
19,115,949
17,538,303
16,182,706
Interest expense
Other income (expense), net
Income before provision for income
taxes
Provision for income taxes
Net income
Net loss attributable to noncontrolling
interest
Net income attributable to Gilead
Net income per share attributable to Gilead
common stockholders basic
Shares used in per share calculation basic
Net income per share attributable to Gilead
common stockholders diluted
Consensus EPS
Shares used in per share calculation diluted
interest
March 27, 2015
15,265,000
4,523,999
(764,638)
(704,735)
(495,062)
(412,000)
(306,894)
278,050
256,267
232,970
3,000
(8,886)
14,856,000
4,208,219
18,629,362
17,089,835
15,920,615
3,725,872
3,417,967
3,184,123
14,903,489
13,671,868
12,736,492
12,059,000
3,057,286
695,125
784,819
777,539
42,000
17,522
15,598,615
14,456,687
13,514,030
10.20
9.46
8.84
1,374,742
1,374,742
1,374,742
10.12
9.38
8.77
10.55
9.66
8.78
1,540,869
1,540,869
1,540,901
2,797,000
12,101,000
7.92
1,150,933
3,074,808
2.01
1,528,620
1,528,620
7.35
1.81
1,647,000
1,694,747
16
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Appendix II: Discounted Cash Flow Valuation
Gilead Discount Cash Flow Valuation
Year Ended December 31
USD in thousands
FY 2014A
Terminal Discount Rate
FY 2015E
FY 2016E
FY 2017E
11.0%
FY 2018E
FY 2019E
Terminal Growth Rate
FY 2020E
FY 2021E
4.5%
FY 2022E
FY 2023E
FY 2024E
% growth
24,890,000
122.2%
29,121,300
17.0%
32,033,430
10.0%
34,756,272
8.5%
36,841,648
6.0%
38,499,522
4.5%
40,232,000
4.5%
42,042,441
4.5%
43,934,350
4.5%
45,911,396
4.5%
47,977,409
4.5%
Operating Income
Operating Margin
15,265,000
61.3%
16,182,706
55.6%
17,538,303
54.8%
19,115,949
55.0%
18,973,449
51.5%
19,827,254
51.5%
20,719,480
51.5%
21,651,857
51.5%
22,626,190
51.5%
23,644,369
51.5%
24,708,366
51.5%
Interest and Other
Interest % of Sales
(409,000)
-1.6432%
(262,092)
-0.9%
(448,468)
-1.4%
(486,588)
-1.4%
(515,783)
-1.4%
(538,993)
-1.4%
(563,248)
-1.4%
(588,594)
-1.4%
(615,081)
-1.4%
(642,760)
-1.4%
(671,684)
-1.4%
Taxes
2,797,000
18.8%
3,184,123
20.0%
3,417,967
20.0%
3,725,872
20.0%
4,614,416
25.0%
4,822,065
25.0%
5,039,058
25.0%
5,265,816
25.0%
5,502,777
25.0%
5,750,402
25.0%
6,009,170
25.0%
12,101,000
13,514,030
11.7%
14,456,687
7.0%
14,903,489
3.1%
13,843,249
-7.1%
14,466,195
4.5%
15,117,174
4.5%
15,797,447
4.5%
16,508,332
4.5%
17,251,207
4.5%
18,027,511
4.5%
Add Depreciation&Amortization
% of Sales
1,050,000
4.2%
1,106,609
3.8%
928,969
2.9%
868,907
2.5%
921,041
2.5%
962,488
2.5%
1,005,800
2.5%
1,051,061
2.5%
1,098,359
2.5%
1,147,785
2.5%
1,199,435
2.5%
Plus/(minus) Changes of WC
% of Sales
(2,840,111)
-11.4%
2,471,102
8.5%
983,653
3.1%
158,129
0.5%
368,416
1.0%
384,995
1.0%
402,320
1.0%
420,424
1.0%
439,344
1.0%
459,114
1.0%
479,774
1.0%
557,000
2.2%
728,033
2.5%
800,836
2.5%
868,907
2.5%
921,041
2.5%
962,488
2.5%
1,005,800
2.5%
1,051,061
2.5%
1,098,359
2.5%
1,147,785
2.5%
1,199,435
2.5%
15,434,111
11,421,505
-26.0%
13,601,168
19.1%
14,745,361
8.4%
13,474,833
-8.6%
14,081,200
4.5%
14,714,854
4.5%
15,377,023
4.5%
16,068,989
4.5%
16,792,093
4.5%
17,547,737
4.5%
Revenue
Tax Rate
Net Income
% Growth
Subtract Cap Ex
% of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
March 27, 2015
Termial Value
84,334,015
99,356,039
183,690,054
9.0%
14.22
15.18
10.64
11.35
282,113,623
Free Cash Yield
12.73
13.59
10.04
10.71
11.90
12.71
9.40
10.03
6.2%
Terminal P/E
15.65
Terminal EV/EBITDA
10.95
1,694,747
101.51
108.39
6.78%
13,210,000
11,730,000
6.92
17
Gilead Sciences (GILD) Equity Research Report
Luxi Nie
Appendix III: Reference Sources
GileadSciences_10K_20150225. (2015, February 25). Retrieved March 21, 2015, from
http://investors.gilead.com/phoenix.zhtml?c=69964&p=irol-sec
Bloimberg website
Gilead Sciences Announces 43 Cents Quarterly Dividend Program and $15 Billion Share Buyback
Program. (n.d.). Retrieved March 26, 2015, from
http://www.marketwatch.com/story/gilead-sciences-announces-43-cents-quarterly-dividend-p
rogram-and-15-billion-share-buyback-program-2015-02-03
Gilead to Purchase Liver Disease Program from Phenex - Analyst Blog. (n.d.). Retrieved March 27,
2015, from
http://www.nasdaq.com/article/gilead-to-purchase-liver-disease-program-from-phenex-analys
t-blog-cm430543#ixzz3Vu8vNTOP
Gilead Sciences. (n.d.). Retrieved March 24, 2015, from
http://en.wikipedia.org/wiki/Gilead_Sciences
Press Releases. (n.d.). Retrieved March 25, 2015, from
http://www.gilead.com/news/press-releases/2015/1/gilead-sciences-announces-acquisition-o
f-phenex-pharmaceuticals-development-program-for-nonalcoholic-steatohepatitis-nash-and-oth
er-liver-diseases#sthash.xm9AwXs4.dpu
March 27, 2015
18