I did sell my AAPL before the earnings announcement. Looks like the timing of that decision turned out to be not the best given AAPL’s result.
Today, I bought a 3% position in GILD. I have been following the company for about 6 months and I traded in and out 1 time for a 15% gain.
GILD is a large cap biotech that has approved drugs to treat HIV and HCV. Their HCV drug was approved by the FDA in Q4 2013 and the results in Q1 were incredible. The drug has >90% CURE rate for a disease that was essentially incurable previously. The treatment costs $84K. There are an estimated 100-150 million people worldwide with HCV. The HCV drug sales BEAT (yes, that is a BEAT, not sales) analysts expectations by $1B (and that’s only for the first full quarter after launch). It is possible that the drug will become the top selling drug ever (measured by annual sales). Adj. EPS for Q1 came in at $1.48 yet the stock is only trading at about $75. I normally don’t invest in companies with such a large market cap because I believe it limits upside growth. I’m making an exception this time because the 2014 P/E is so attractive.
Would this be an opportunity for you to use options within this investment thesis? It seems that from your perspective the stock is highly undervalued. Recent price activity has been volatile.
I did sell my AAPL before the earnings announcement. Looks like the timing of that decision turned out to be not the best given AAPL’s result.
Today, I bought a 3% position in GILD.
No reason to look back with regret. GILD is an excellent company. I owned it for a while in 2010/11, but got frustrated that the market did not properly appreciate its potential and moved out of it. At that time, they had just demonstrated some great things concerning their HIV drug’s ability to prevent vertical transmission of the virus (mother to infant). But, to the market and the news media, HIV is the problem of people who live elsewhere and lack comprehensive medical coverage.
Now, HCV! That’s a different story! Underdiagnosed in a largely affluent segment of the U.S. population, HCV will be brought increasingly into focus as baby boomers are confronted with failing livers and a hidden chronic infection. Typically associated with i.v. drug use and unsanitary tattoo parlors, many will be surprised that their infections may have come from sharing a rolled-up Benjamin.
Actually, I think that your idea is so good that I may follow suit by selling half of my AAPL position and picking up some GILD.
Chris,
I saw an article on GILD today that said their dose pricing was based on country. A one-day treatment in the US costs $1000, wherein a one-day treatment in Africa is priced at $10. Their pricing is subjective and gouges. These types of price gouging die quickly when other options present themselves and there are other drug companies with anti-HCV drug treatments in the pipeline. Also, a few years ago, a generic drug maker for injectable progesterone to prevent miscarriage started gouging with pricing and the FDA revoked its approval.
This is unfortunate for the future longterm success of Gilead. I have been thinking about starting a position in Gilead, and after reading this article about their pricing, I am having second thoughts.
I said: Actually, I think that your idea is so good that I may follow suit by selling half of my AAPL position and picking up some GILD.
Correction - I think that I will be selling my Express-Scripts stock.
Gilead shares had slumped recently because of fears the company may have overpriced Sovaldi. Insurers, lawmakers and patients have criticized the drug’s price of $84,000, or $1,000 per daily pill for 12 weeks. Arguing the cost will break the health care system, Express-Scripts Holding Co., a pharmacy benefit manager, has asked clients to boycott Sovaldi once rival drugs hit the market. Congress has demanded that Gilead executives justify the price.
Trial data released this month showed that Sovaldi cured the majority of hepatitis C patients with advanced liver diseases. And within six months, the Food and Drug Administration could approve a single-pill version of Sovaldi that would eliminate the most common strain of the disease in just eight or 12 weeks. The therapy is so simple and effective that rivals will have difficulty catching up, analysts say.
Just so you understand that I wasn’t spouting platitudes about your move into GILD, I wanted to let you know that I just got some skin in the game.
There are 2 caveats, however:
I will slough off some AAPL over time this year to reset the aggregate more favorably and
I went with a synthetic long Jan2016 LEAPS (slightly out-of-the-money calls/puts) for a net credit.
Even if there is some erosion in Sovaldi revenue this year, their financials should look great.
Anyone familiar with the treatment of life-eroding chronic illnesses understands that the cost associated with this high-efficacy treatment is not out of line.
doublexup:
I used options here, not because of volatility, but because I did not want to make the large capital outlay at this time.
Regarding the question about using option, I only looked at them briefly and decided to just buy shares. I did notice that there are weeklies on GILD which I sometimes uses for generating income on a weekly basis. I’m also low on cash so I may decide to add to my position by selling deep in the money puts. If I do I’ll probably look at the Jan15 $100 puts first.
Regarding drug pricing being high, I’m not concerned about it. One should really also look at the other side of the equation: what economic benefits are gained by curing a person of HepC! For starters, there are direct reductions in future healthcare costs for that person, possibly avoiding a liver transplant. I’m sure GILD did a thorough examination of the pharmacoeconomics of Solvaldi befor pricing it.
GILD garnered a buy recommendation for the MF Pro portfolio today. That probably accounts for some of today’s upward movement. While there seems to have been more to today’s ascent, the 2:45pm recommendation seems to have contributed significantly to the final topping off.
Well, good timing for us and now good company, too.
I’ve been thinking about taking a position in GILD, so I did some reading about the company. When they came out with great earnings, the stock didn’t move and everyone was surprised. It looks like the reason is that GILD has turned into a value stock from a growth stock. And the PE is dropping… permanently.
It already has a capitalization over $110 billion.
2014 is expected to be the biggest year for their new blockbuster drug, with a gradual (or not so gradual) tail off after 2015. Although other new drugs may take up some of the slack, revenue won’t be growing.
Their may be push-back against the high price. If everyone with Hep C got treated in 2014 the cost would be about as much as the entire drug spend of the US currently. That’s a bunch.
Competitors are coming.
It reminds me of AAPL, which I was invested in at the time they became a value stock. I loved Apple and couldn’t understand why the price wasn’t going up and the PE was coming down. Now I understand it, and it gives me some insight into GILD.
That doesn’t mean it won’t go up from here, but the glory days may be over.
Thanks for your thoughts Saul. I agree with much of what you wrote. Except that the P/E is already low. Since it is a large cap I plan to get out within a year. But I believe the price pushback will blow over. I also think Solvaldi will sell much better than expected. Last quarter the analysts were off by $1 billion! The drug is only approved in the US; the company will soon have a more convenient treatment, rich Chinese with HepC can travel to the US for treatment (HepC is big in China). I think the downside is very limited and I believe that a 30% return in a year is likely. One more point, I tend to think the reason the stock hasn’t risen has to do with the general biotech sell off.
I guess I’m kind of ambivalent about it Chris. I think it looks really, really, good for 2014, but by December, or at best a few months after, the market is going to be looking ahead at declining revenue and earnings, and they never like that. And it depends on when they start looking ahead. This year looks like the blow-out peak. Just saying……be careful.
More than 45 million is the number of people in China with chronic HepC. I believe the rich ones may choose travel to the US and pay to get cured. Population is 1.4 billion so chronic HepC prevalence is 3.2%. Millionaire households is about 2 million so on average there would be 128,000 people (assuming 2 people per household) in millionaire households with chronic HepC. If 10% of these choose to travel to the US to cure their fatal disease it will add $1 billion to GILD sales.
I think the downside is very limited and I believe that a 30% return in a year is likely. One more point, I tend to think the reason the stock hasn’t risen has to do with the general biotech sell off.
Hey Chris,
This sure seems to be a good candidate for an option play. Tricky but I would bet lucrative.
Mykie…still learning on options but enamored with them.