Stocks have been on a tear for the last two years, but few have seen the outstanding gains post by Gilead Sciences (GILD). Two years ago, you could have picked GILD stock up for $33.60 on a cost adjusted basis; at the beginning of the month, it was worth more than $109. What drove that growth? For the most part, it was the success of the company's Hepatitis C treatment, Sovaldi. It should come as no surprise, therefore, that it caused a bit of a hiccup in the share price when the future of Sovaldi sales was recently called into question.
In a somewhat unusual sequence of events, the bad news for Gilead was delivered by researchers within CVS Health (CVS) who found that in the real-world, Sovaldi had an 8.1% discontinuation rate. That was four times higher than the 2% rate Gilead found in its trials. The CVS researchers also found that those newly prescribed with Sovaldi had a higher discontinuation rate than others, and, perhaps worst of all, that there had been a slight decline in Sovaldi use between August and May.
On the same day (Wednesday), Gilead announced that investigation of a possible drug combination to treat pancreatic cancer had failed to show better results than placebo.
In early Wednesday trading, GILD shares had fallen as far as $102, though that now appears to have been an overreaction. As recently as Tuesday, FBR analyst Andrew Berens said that Sovaldi prescriptions in the third quarter were actually tracking above estimates. Now consider that current earnings estimates give GILD an incredibly low forward P/E ratio of 11.2. That P/E is particularly low – almost ludicrous, in fact – in comparison to the company's rate of earnings growth. Comparing the two yields a PEG Ratio of 0.52, where anything under 1 is considered a value.
In other words, don't be put off by where GILD stock has been; stay focused on where it is going, and you will see this dip as the buying opportunity that it is.
Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC.