general body meeting 03.31.11. mutual investment club of cornell agenda announcements news updates...

General Body Meeting 03.31.11

Mutual Investment Club of Cornell

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Agenda

Announcements News Updates Healthcare Sector Pitch


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Announcements


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News Updates


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U.S. Economy

Friday is jobs day Home prices remain weak

Case-Shiller: -3.06% Bernanke to hold quarterly press

conferences after FOMC policy meetings

Consumer confidence down slightly on high oil & food prices as well as general fear from Japan news


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Syria

Differs from other Arab states with recent unrest

Geopolitically more important Close alliance with Iran Active supporter of terrorist organizations

(Hamas, Hezbollah) Major influence in Lebanon

Not a major oil exporter by Middle-East standards


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Update on Japan

Death toll > 11,000 and more than 16,200 missing

Nuclear contamination is dropping Commitment to utilize help in nuclear

crisis Reconstruction efforts in action Nikkei trading at highest since March

11th (9,723) Regaining from initial low of 8,354 on the

March 15th

Japanese Yen finally falling


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Libya

President Obama defended the American-led military assault in Libya

American warplanes appeared to have opened a new line of attack on pro-Qaddafi forces

Rebel army working under cover of Allied forces

Libyan rebels retaking key oil facilities which could allow for the limited resumption of exportation


Home Prices Fall for 7th Straight Month

Just 1.1% above the low of April 2009 Index data lags recent rise in mortgage rates –

more room to drop?


AT&T/T-Mobile MergerMa Bell is Back


Deal Terms

AT&T plans to acquire T-Mobile USA from DT for $39 billion $25 billion in cash $14 billion in stock $3 billion breakup fee

Deal is double the EBITDA premium of comparable transactions

1 year bank loan of $20 billion to finance deal Greenhill, Evercore, JPM advised AT&T MS, DB, CS advised DT Combined customer base: 130 million – largest in

USA


Anti-trust Hurdle

Deal still faces intense scrutiny from FCC for anti-trust possibilities before approving merger

Verizon and AT&T would become the two main players in the market, dominating over 80% of market Potentially bad for consumers


Synergy?

$40 billion in cost cutting Thousands of job losses

Difference in company culture T-Mobile historically more innovative AT&T historically more controlling/monopolistic

Allows upgrading of network to improve coverage and speed – currently a struggle for AT&T Eased by both companies using the same GSM technology Analysts are not so sure that even with combined

infrastructure, service would improve with the combined customer base


Grandfathering

T-Mobile data subscribers have a noticeable lower cost for data than AT&T

1. Grandfathering in old data plans would decrease AT&T’s ARPU

2. Not grandfathering in old data plans may result in mass migration


Impact on Other Players

Verizon – not really impacted by deal so long as they stick to their core strengths Possibility of picking up some disgruntled T-Mobile

subscribers Sprint – likely to be a loser with allocated

spectrum space, customer base, and regulatory issues

Vendors (infrastructure & handset makers) – with one main customer for GSM technology, AT&T would have significant pricing power and leverage

Google – as T-Mobile was a great partner for Android, there is uncertainty as to how AT&T will handle the Android platform going forward


Gilead Sciences (GILD)

Healthcare Sector Team


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Gilead Sciences Inc.


Company Overview

Engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide

Primary areas of focus HIV/ AIDS Liver disease Serious cardiovascular/metabolic and

respiratory conditions.


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Thesis and Key Debates

Growing multinational corporation Large patient pool Strong growth potential

Competitive pipeline No patent cliff until 2014 Undervalued


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Worldwide Presence

Multinational Corporation with 4000 employees Expanding global access to their

medications Gilead Access Program

Substantially reduce prices in many low- and middle-income countries.

Local Manufacturing in Africa Non-exclusive partnership with South Africa-

based Aspen Pharmacare Manufactures and distributes Gilead therapies

throughout Africa.


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Worldwide Presence Cont.

Partnerships with Generic Manufacturers Signed non-exclusive licenses with

multiple generic manufacturers in India and South Africa. Their partners will produce high-quality, low-

cost generic versions of Viread and Viread-containing regimens in 95 resource-limited countries

Home to 75 percent of the world's HIV-infected people

Helping ensure competitive pricing, thus promoting broad access to HIV treatment for patients in developing countries.


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Sales Worldwide


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Affordability in the US

Patient Access in the United States Gilead supports a number of programs for

eligible patients in the United States Do not have insurance, are underinsured or

who otherwise need financial assistance Includes programs assisting with HIV/AIDS

and chronic hepatitis B


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Patent Advantage

Under Patient Protection and Affordable Care Act FDA grant biologic manufacturers 12

years of exclusive use No development within those years FDA must approve generic drugs Lots of red tape High costs for less margin in generics


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Patent Expiration

Products US patent Expiration European Patent Expiration

Vistide 2010 2012

Hespera 2014 2011

Letairis 2015 2015

AmBisome 2016 2008

Tamiflu 2016 2016

Macugen 2017 2017

Viread 2017 2018

Ranexa 2019 2019

Lexiscan 2019 2020

Emtriva 2021 2016

Truvada 2021 2018

Atripla 2021 2018

Cayston 2021 2021


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HIV/ AIDS

What is HIV/AIDS? Human immunodeficiency virus (HIV) is

the virus that causes the acquired immunodeficiency syndrome (AIDS)

Most people progress from HIV to AIDS in 6 to 12 years

In AIDS the immune system cannot function properly Without treatment this stage of the disease is

fatal No known cure

Can only prevent or reverse damage to the immune system


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HIV/ AIDS Statistics

Worldwide 31- 36 million people living with this

disease worldwide 2- 3 million adults newly infected each

year In the United States

1- 1.2 million people living with HIV/ AIDS About 60,000 people newly infected each

year More than 18,000 people die each year

from the disease


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HIV Worldwide


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Liver Disease- Hepatitis B

What is Hepatitis B? Irritation and swelling of the liver caused

by the hepatitis B virus Very contagious Most common serious liver infection

worldwide Acute Phase

Lasts 1-4 months and easily destroyed by body’s immune system; most people fight this off

Chronic Phase 5- 10% of people develop this serious form of

the disease


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Hepatitis B Statistics

Worldwide 2 billion people have either acute or

chronic phase About 350 million people are infected with

the chronic phase of the disease 620,000 people die each year

In the US 800,000 to 1.4 million people have the

chronic form Since 1991 82% decrease in the US


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Hepatitis B Worldwide


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Cardiovascular Diseases

What are they? A variety of disease that negatively affect

the heart or blood vessels Claim 17.1 million lives a year (29% global

deaths) Strong correlation to obesity, tobacco use

and an unhealthy lifestyle Heart attack and stroke are common

results of a poor cardiovascular system Gilead fighting against pulmonary

arterial hypertension and chronic angina pain


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Respiratory Problems

Cystic Fibrosis Causes thick, sticky mucus to build up in

the lungs and digestive tract One of the most common chronic lung

diseases in children and young adults 70,000 people worldwide with Cystic

Fibrosis (30,000 people in the US) Influenza

Very contagious 5% to 20% of Americans get the flu every

year (Tamiflu)


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Current Products

HIV/AIDS Atripla

Once-daily regimen for HIV treatment in adults Emtriva

Once-daily oral nucleoside reverse transcriptase inhibitor

Used in conjunction with other agents; suitable for children

Viread Once-daily oral nucleotide reverse transcriptase

inhibitor Treatment for adults and adolescents Approved in 2008 as a treatment for chronic

hepatitis B in adults.


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Current Products

HIV/AIDS Truvada

Fixed-dose once-daily combination pill Contains Viread and Emtriva Combination makes up 85% market share in

HIV/AIDS

Liver Disease (Hepatitis B) Hepsera

Once-daily, oral NRTI for the treatment of chronic hepatitis B

For use in patients 12 years of age and older.


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Current Products

Cardiovascular Diseases Letairis

Once-daily treatment for pulmonary arterial hypertension

Improves exercise performance and delays clinical treatment

Lexiscan First A2A adenosine receptor agonist approved by

the FDA Used as a pharmacologic stress agent in

radionuclide studies Targets the A2A adenosine receptor responsible for

coronary vasodilation. Ranexa

An extended-release tablet for the treatment of chronic angina

Prescriptions have grown 79% in the past several years


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Current Products

Respiratory Diseases Cayston

Improves respiratory symptoms in cystic fibrosis (CF) patients with Pseudomonas aeruginosa

Tamiflu First tablet for the treatment and prevention of

influenza A and B Stockpiled by governments after swine/avian flu

scares

Other Products AmBisome

Treats life-threatening, systemic fungal infections in adults


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Product Trends

FDA approves 20 drugs per year Gilead: 9 drugs approved in last 11 years

Great positive trends as of late for little cost Antiviral product sales up 13% in the US,

9% in Europe Royalty revenues increased 10% to $546

million R&D expense increased only 12% last

year This was primarily due to changes in writing

off Goodwill


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Products and Margin


Pipeline and Clinical Trial Results

HIV/AIDS Truvada Single-Tablet Regimen (III)

More patients taking Truvada had an undetectable viral load than those taking Efavirenz; Well tolerated

Elvitegravir (III) Once-daily Elvitegravir achieved a higher viral

suppression rate than Raltegravir after 48 weeks Integrase Single-Tablet Regimen "Quad” (III)

Well tolerated; Maintained a higher rate of virologic suppression than Atripla after 48 weeks

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HIV/AIDS Cobicistat (III)

Well tolerated; Achieved a viral suppression rate similar to Ritonavir

Liver Disease (Hepatitis C) GS 9451 (II)

Well tolerated; Highly potent anti-HCV activity and once-daily dosing potential


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Liver Disease (Hepatitis C) GS 9256 (II)

Well tolerated; Substantial suppression of the hepatitis C virus (HCV) within 28 days of treatment

GS 9190 (II) Well tolerated; Substantial suppression of the

hepatitis C virus (HCV) within 28 days of treatment


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Respiratory Aztreonam for Inhalation Solution (Cystic

Fibrosis) (III) FDA-approved for cystic fibrosis (CF) patients

with Pseudomonas aeruginosa; likely to be approved for CF patients with Burkholderia cepacia

Aztreonam for Inhalation Solution (Bronchiectasis) (II) Resulted in significant reduction of pathogen

density and a clinically significant improvement in respiratory symptoms


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Cardiovascular/Metabolic Cicletanine (Pulmonary Arterial

Hypertension) (II) Already approved in certain European

countries as a once-daily monotherapy treatment for hypertension; Granted orphan drug status for treatment of PAH by FDA

Ranolazine (Coronary Artery Disease/Diabetes) (II) Increased exercise time in patients with

Coronary Artery Disease and chest pain


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Technical Analysis


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Technical Analysis


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Gilead v. S&P500


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Fundamental Analysis

ValuationComparable Valuation Metrics

*All figures in millions except per share numbers

Company EPS P/E EV/EBITDA

Ticker Name Price 2008A 2009E 2010E 2008A 2009E 2010E 2008A 2009E 2010 P/Book EV/Sales PEG

BMY Britstol-Myers 26.68 1.56 1.63 2.03 17.1x 16.4x 13.1x 11.5x 11.7x 10.7x 3.672x 2.9x 1.9x

GSK GlaxoSmithKline 38.54 1.08 1.32 1.05 35.7x 29.2x 36.7x 17.4x 26.3x 21.6x 66.7x 8.4x 1.3x

GILD Gilead 42.05 2.08 2.87 3.51 20.2x 14.7x 12.0x 14.6x 11.5x 10.3x 7.6x 4.9x 0.7x

17.1x 16.4x 13.1x 11.5x 11.7x 10.7x 3.7x 2.9x 1.3x

26.4x 22.8x 24.9x 14.4x 19.0x 16.1x 35.2x 5.7x 1.6x

26.4x 22.8x 24.9x 14.4x 19.0x 16.1x 35.2x 5.7x 1.6x

35.7x 29.2x 36.7x 17.4x 26.3x 21.6x 66.7x 8.4x 1.9x


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Fundamental Analysis

ProfitabilityEBITDA EBIT Net Current Quick Debt/ Interest

Ticker Company Name RONA ROE Margin% Margin% Margin% Ratio Ratio Equity Coverage

BMY Britstol-Myers 40.0% 25.1% 35.0% 31.2% 15.9% 2.0x 1.1x 0.4x 4.4x

GSK GlaxoSmithKline 14.8% 303.5% 27.8% 27.8% 19.5% 1.4x 0.6x 8.1x 3.6x

GILD Gilead 34.7% 65.4% 53.9% 50.6% 36.5% 2.3x 0.9x 0.6x 4.2x

Min 0.1x 0.3x 0.3x 0.3x 0.2x 1.4x 0.6x 0.4x 3.6x

Mean 0.3x 1.6x 0.3x 0.3x 0.2x 1.7x 0.8x 4.3x 4.0x

Median 27.4% 164.3% 31.4% 29.5% 17.7% 1.71 0.83 4.27 3.96

Max 0.4x 3.0x 0.3x 0.3x 0.2x 2.0x 1.1x 8.1x 4.4x


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Income StatementPeriod Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008

Total Revenue 7,949,420 7,011,383 5,335,750

Cost of Revenue 1,869,876 1,595,558 1,127,246

Gross Profit 6,079,544 5,415,825 4,208,504

Operating Expenses

Research Development 1,072,930 939,918 721,768 Selling General and Administrative 1,044,392 946,686 797,344

Operating Income or Loss 3,962,222 3,529,221 2,678,541

Income from Continuing OperationsTotal Other Income/Expenses Net 60,287 42,397 59,401

Earnings Before Interest And Taxes 4,022,509 3,571,618 2,746,506

Interest Expense 108,961 69,662 12,101

Income Before Tax 3,913,548 3,501,956 2,734,405

Income Tax Expense 1,023,799 876,364 723,251

Minority Interest 11,508 10,163 8,564 Net Income From Continuing Ops 2,901,257 2,635,755 2,011,154

Net Income After Taxes 2,901,257 2,635,755 2,011,154


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Balance SheetDec 31, 2010 Dec 31, 2009 Dec 31, 2008

AssetsCurrent Assets

Cash And Cash Equivalents 907,879 1,272,958 1,459,302

Short Term Investments 1,190,789 384,017 330,760 Net Receivables 1,901,305 1,684,614 1,186,152 Inventory 1,203,809 1,051,771 927,868 Other Current Assets 504,300 419,198 396,199

Total Current Assets 5,708,082 4,812,558 4,300,281 Long Term Investments 3,219,403 2,247,871 1,449,577 Property Plant and Equipment 701,235 699,970 528,799 Intangible Assets 1,425,592 1,524,777 - Other Assets 384,939 311,885 456,703 Deferred Long Term Asset Charges 153,379 101,498 283,214 Total Assets 11,592,630 9,698,559 7,018,574 LiabilitiesCurrent Liabilities

Accounts Payable 1,715,430 1,743,323 1,172,398 Short/Current Long Term Debt 646,345 5,587 5,631

Other Current Liabilities 103,175 122,721 42,963 Total Current Liabilities 2,464,950 1,871,631 1,220,992 Long Term Debt 2,838,573 1,155,443 1,321,316 Other Liabilities 134,426 123,301 56,588 Deferred Long Term Liability Charges 32,844 43,026 74,181

Minority Interest 258,108 138,093 193,010 Total Liabilities 5,728,901 3,331,494 2,866,087

Total Stockholder Equity 5,863,729 6,367,065 4,152,487

Net Tangible Assets 4,438,137 4,842,288 4,152,487


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Other Positive Indicators

Mean recommendation is BUY (2.0/ 5.0) Thomson Reuters gave it a score of 9 out

of 10 (top 15% of all stocks) Low Target is $38 Mean Target is $44.40 (7% increase)

Low PEG of 0.7 meaning high growth expected

Positive earnings 9 out of last 12 quarters


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DCF Analysis

DCF Analysis Very conservative WACC of 9% Net Sales Growth of 5% Profit margin of 75% EBIDTA Multiple Method: $42.51- 48.61

EBITDA multiples of 7X and 8X Perpetuity Growth Method: $55.56- 65.48

Perpetuity growth rates of 2% and 3%


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Review

Worldwide Presence Affordable

Third degree price discrimination Huge patient pool Strong growth potential

Low PEG Competitive pipeline

No patent cliff until 2014 Generics cannot be produced for 12 years


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Proposal

Invest $1500: about 35 shares In-line with our other investments

Hold for 3 to 4 years Patents begin to expire See how market responds to products in

the pipeline Continue to watch for more growth

catalysts


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Questions?

Invest $1500: about 35 shares In-line with our other investments

Hold for 3 to 4 years Patents begin to expire See how market responds to products in

the pipeline Continue to watch for more growth

catalysts


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Thanks for coming by!

You are faced with two doors. One door leads you to a job offer and the other leads to nothing.

In front of each door is a guard. One always tell the truth, and the other tells only lies. You can ask one question to determine which door to go through.

What will you ask?

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