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BUY$101.77 $120.96
15.86%
2015 2016
• Emerging Leader in Hepatitis C Market
• Market Leader in the HIV Market
• Robust drugs pipeline
2
Gilead Sciences
Business DescriptionGilead Sciences, Inc. (GILD) is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need.
HIV/AIDS
Oncology
HBV/HCV
Cardiovascular
Respiratory
Other
Market ProfileClosing Price ($) $101.77
52 week Range ($)
$99.92 - $116.83
Daily Volume
Shares Outstanding
1.49 Billion
Market Cap ($)
Forward P/E
P/B
EV/EBITDA
0
20
40
60
80
100
120
0
500
1000
1500
2000
2500
Stock Price Movement
GILD S&P
3
Company Strategies
Research and Development
Collaborative Relationships
Patent Protection
• Medical Research Institutions • Assist in Development & Commercialization
• Bottoms up approach• Best-in-class drugs
• Preserve trade secrets• Defend against infringement
4
Revenue Breakdown
Product Portfolio
Ranexa®
Letairis® Complera®
Truvada®
Atripla®
Harvoni®Stribild®
Sovaldi®
51%42%
7%Product Revenue
HCV
HIV/Aids
Other Products
Figure 3 Product Revenue Breakdown (Company Data)
5
Revenue BreakdownUnited States and Europe Region =
89% of product Revenue
USAHarvoni ($2 billion)
Solvaldi ($8.5 billion)
Atripla ($2.4 billion)
Truvada ($1.8 billion)
Europe Harvoni ($0.1 billion)
Solvaldi ($1.5 billion)
Atripla ($0.8 billion)
Truvada ($1.3 billion)
US69% = $16,859 billion 20% = $4,841 billionEU
Macroeconomic Data
GDP (USD/Ca
pita)
GDP Expected
growth rate (%)
Net National Income
(USD/Capital)
Household disposable
income Annual Growth Rate
(%)
Health Spending (USD/Ca
pita)
Health Spending
(%) of GDP
Life expectancy
at birth (Years)
Overweight or obese
population
Pharmaceutical spending
(USD/Capita)
United States
$46,930 3% 44461 2.1% 7662 16.9% 78.7 63.5% 885
Italy $33,893 1% 28525 -4.4% 2477 9.2% 82.3 46% 397
Turkey $14,495 4% N/A N/A 728 5.4% 74.6 52% N/A
Spain $32,804 1.9% 27133 -5.2% 2424 9.3% 82.5 52.7% 399
7
Population Size
Hepatitis C VirusWorldwide 130 million chronically infected
HIV/AIDSWorldwide 35 million
living with HIV
United StatesInfected: 3.2 million
Infection Rate: 16,500/year
European RegionInfected: 8.6 million
Infection Rate: 30,607/year
United StatesInfected: 1.2 millionInfection Rate: 50,000/year
European RegionInfected: 1.72 millionInfection Rate: 136,235/year
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of SuppliersThreat of Substitutes
Rivalry
0
5
8
Competitive Positioning
Strong earnings potential
Aggregate market share of 11%
Compounded growth rate of 27% over previous
8 years
Robust pipeline
9
Competitive Positioning –
Hepatitis C
5.63%
2.25%
1499 million
8 yrs
28.80%
61.20%
10.00%
U.S. Market Share
Sovaldi Harvoni Other
10
Competitive Positioning – HIV
5.63%
2.25%
1499 million
8 yrs
11
Competitive Positioning – Insurance
Providers
Exclusivity Contracts
Must Cultivate Relationships
12
Competitive Positioning – Expansion into
Europe
HCV market penetration Europe
Product pricing Strategies
Estimated market
share1 Million
Mergers &
Acquisitions
NeXstar Pharmaceuticals $550M
2006
1999
2003
2007
2009
2010
2011
2013
2015
Triangle Pharmaceuticals $464M
Corus Pharma Inc. $365M
Myogen, Inc. $2.5B
Raylo Chemicals, Inc. $148M
Nycomed fr. Atlanta – Cork $47M
CV Therapeutics, Inc. $1.4B
CGI Pharmaceuticals $120M
Arresto Biosciences, Inc. $225M
Calistoga Pharmaceuticals $375M
Pharmasset, Inc. $10.4B
YM Biosciences, Inc. $510M Phenex
Pharaceuticals $470M
Timeline & Price
14
ValuationMethod: Discounted FCFF Valuation Model
Strong growth in short term but since
the treatment is curable, no impact on the long term
revenues and growth rate.
Stable source of revenue fro Gilead. Historically a
market leader in the segment and trend is expected to continue.
A steady growth of revenues fro Gilead. A small percentage but a
stable one
Largely determined by HIV drugs market and other
products in the portfolio. Impact of Hepatitis C market is very little.
Hepatitis C HIV Other drugs Terminal Value
The assumptions of the revenues for these sources are based on the team estimates and
computations.
15
Key AssumptionsBased on team estimates and market data
WACCDescriptions. The WACC is computed by estimating the cost of debt based on the most recently issued 10 year bond by Gilead. The cost of equity is computed using the CAPM model and the beta is estimated using the regression method.
Long term growth rate
Descriptions. The long term real growth rate for US is estimated to be 2% and that of EU as 2.5%. The growth rate for Gilead is the average of these two rates since these are the biggest markets for them.
Weighted Avg Shares
Descriptions. This data is sourced from Yahoo Finance as of 02/22/2015.
Short term growth rate period
Descriptions. The short term growth rate period of 8 years is based on the time it is estimated to saturate the Hepatitis C market. This is computed based on the number of patients expected to be treated with Gilead’s drugs.
5.63%
2.25%
1,499 million
8 yrs
16
Revenue Estimations ( Data)Revenue estimates ( YOY predictions for first stage FCFF model)
Growth Rate Explanation
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230
2000
4000
6000
8000
10000
12000
14000
16000
0
5000
10000
15000
20000
25000
1088812076 12596
13899 13884
1097412210
1364012239
6892
1176 1216 1257 1300 1344 1390 1437 1486 1536 1588
12410 12629 1344514930
1713718293
2001222107 21444 20800
HIV Remaining Products HCV
17
FCFF CalculationsProjecting the target stock price
Growth Rate Explanation
Firm Value 198261.4
MV Debt 16102
Equity Value 182159.4
Shares Outstanding 1499
Target Price 121.5206
Increased Free Cash Flow Paid Down Debt
Share Repurchase Program
Declared Dividends
Free Cash Flow
Financial Analysis
DuPont ROE
Industry Average: 22.6%
Asset Turnover Ratio
Profit MarginIndustry Average: 41.7% Levera
ge (Assets
/Equity)
2014 2015 2016 2017 2018 2019 2020 2021 2022 202345%
47%
49%
51%
53%
55%
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.00
0.50
1.00
1.50
2.00
2.50
3.00
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Financial Analysis
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Gross margins Operating margin Net Profit
Profitability
Liquidity
Solvency
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Quick Ratio Current Ratio Cash Ratio
2014 2015 2016 2017 2018 2019 2020 2021 2022 20230
0.10.20.30.40.50.60.70.80.9
Debt/Equity Debt/Assets
Investment RisksRisk Matrix
Market RiskPricing Caps in International Markets
Restricted Growth in International Markets
Foreign Exchange Volatility
Exclusivity Contracts
Operational RiskProduct Pipeline Failure
M&A Execution
Dividend Payout Risk
Legal RiskLitigation Risk
Patent Infringement Risk
Regulatory RIskHealthcare Reform Risk
Dividend Payout Risk
Litigation Risk
Restricted Growth in
International Markets
Pricing Caps in International
Markets
Foreign Exchange Volatility
Healthcare Reform Risk
Exclusivity Contracts
M&A Execution
Product Pipeline Failure
Patent Infringement
Risk
Risk Severity
Risk
Pro
babi
lity
Final Recommendation
Recommendation
BUY$101.77 $120.96
15.86%
2015 2016
• Market Leader in the HIV & HCV Market
• Strong Earnings Potential
• Robust drugs pipeline
APPENDIX
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FCFF AssumptionsRevenue estimates
Growth Rate ExplanationFCFF Inputs Adjustments
EBIT The revenue from HCV segment is slashed by 85%. Remaining revenues are expected to grow at the long term growth rate
Tax Rate Tax Rate is assumed to be constant throughout the valuation based on the most recent 10K
D&A % of revenues
WC ( DELTA) Balance sheet estimates
CapEx % of the revenue
FCFF FCFF is computed at WACC of 5.63%
PV of FCFF Total Firm Value
25
Revenue Estimates ( First Stage FCFF)Short Term Growth Rate Assumptions & Computations
Growth Rate Explanation
Product Growth Rate Explanation
Harvoni & Sovaldi -
Revenue estimates are based on the number of patients treated per year. The numbers are based on the 2014 data and our estimates
Atripla 8 Historical CAGR for last 5 years
Truvuda 6 Historical CAGR for last 5 years
Viread 10 Historical CAGR for last 5 years
Complera 15 High growth rates since it’s a key product in the segment.
Stribild 20 High growth rates since it’s a key product in the segment.
Letaris 26 Historical CAGR for last 5 years
Other Products 3 Based on historical growth rates ( CAGR for last 5 years)
Note: The growth rates are applicable till the patent expiration year. Once the patent expires, the revenues are slashed by 85% next year and expected to remain constant thereafter.
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HCV Population in European Region
CountryTotal Population
SizeAnti-HCV positive
individuals (number)
Italy 60,053,442 3,122,779
Turkey 71,517,100 1,072,757
Spain 45,858,172 916,563
France 64,351,000 836,563
Romania 21,498,616 752,452
Poland 38,135,876 724,582
United Kingdom
61,634,599 431,442
Germany 82,050,000 328,200
Greece 11,257,285 112,573
Bulgaria 7,606,551 98,885
Netherlands 16,486,587 65,946
Belgium 10,754,528 64,527
Sweden 9,256,347 37,025
Total
8,564,294
60% of HCV population in Europe is in
Italy, Turkey, and Spain
2.7x HCV patients in Europe than the
US