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Gilead's Stock Price Is Ready To Soar
July 30, 2018 12:00 pm|Comments (0)

Gilead (GILD) is a biotech company with leading franchises in Hepatitis C, HIV, and emerging platforms in Oncology, Hepatitis B, and NASH. To an extent, Gilead is a victim of its own success. The company’s Hepatitis C (“HCV”) treatments cured the illness and for the last few years the company has seen its revenues fall as patient volumes have decreased. However, the decline of the company’s HCV franchise has masked significant progress the company has made in commercializing its HIV treatments. Furthermore, the company has generated a ton of cash which it has used to acquire companies with strong drug pipelines and engage in a number of clinical trials.

Because of all the investments that Gilead has made in its HIV franchise and in developing its pipeline, the company is strongly positioned for significant growth in new treatments. The HCV business has already declined to such a degree that it will be a much smaller driver of future earnings. This sets the stage for growth in 2019 and beyond. I expect investors to re-rate Gilead with a higher multiple once it returns to growth. Gilead’s current forward EV/EBIT multiple is 8.6x vs. the peer median at over 13x. Gilead could see its stock price rise over 50% in the next 18 months just from a valuation multiple re-rated to be in-line with peers as investors begin to appreciate the company’s new and emerging treatment franchises.

Gilead’s Hepatitis C Struggles

Gilead has had a storied history in the Hepatitis C market. The company entered the market through its $ 11 billion acquisition of Pharmasset which had late-stage clinical trials for its HCV treatments but was still pre-revenue.

Gilead’s Pharmasset acquisition was seen as risky at the time but proved to be very shrewd. By 2014, lead HCV drugs Harvoni and Solvaldi received US FDA approval. By 2015, Gilead’s HCV sales peaked at $ 19.2 billion, outselling all legacy treatments.

Gilead won the HCV market because its treatments were more effective; in fact, Gilead had a cure for the disease. As a result, beginning in 2016, the company saw HCV start to decline because patient volumes were falling due to a lack of repeat business. In addition to declining patient volumes, AbbVie and Merck have released new treatments with effectiveness on-par with Gilead and they have entered the HCV market at lower prices to aggressively take market share.

At its peak, Gilead generated $ 4.9 billion in HCV revenue per quarter. In the most recent Q2 2018 report, Gilead showed HCV revenue of just $ 1.0 billion.

Source: loncarblog.com

Gilead’s HCV business is expected to continue declining, but the silver lining is that HCV represents a much smaller mix of Gilead’s overall business today than it did a few years ago. In 2016, HCV represented roughly 50% of total sales. In 2018E, HCV is expected to be less than 20% of total sales and HCV’s importance will only decline further in later years (source: SEC disclosures, Author’s estimate).

What’s more is that the HCV declines may be more manageable from here. Future drug price declines and share losses will probably be less acute than what we have seen. At some point the sales will stabilize to some base level and will no longer be a headwind at all. Q2 2018 was actually encouraging in the sense that HCV sales did not significantly drop sequentially between Q1 and Q2, compared to prior quarters.

Gilead Has A World-Leading HIV Franchise

All the drama from Gilead’s HCV business has taken everyone’s attention from Gilead’s blockbuster HIV business. Gilead has top-prescribed HIV drugs in both the US and Europe and is successfully transitioning from its earlier TDF treatments to its newer TAF treatments which are more effective and require patients to ingest fewer pills.

Source: Gilead Q2 investor presentation.

Based on the below table, Gilead has a 79% market share in US HIV treatments.

Source: Gilead Q2 2018 presentation.

Unlike Gilead’s HCV franchise, which was dominated by two drugs, the company has a dozen different HIV treatments, with several still in clinical trials, treating a wider range of variations on the condition. This makes the HIV franchise less reliant on single blockbusters and more durable in the face of competition. Gilead’s HIV business has grown from about $ 9 billion in 2013 sales to $ 13.6 billion in the most recent 12 month period (a roughly 10% annual growth rate). Over the next 10 years, Gilead’s HIV business is expected to grow sales at a mid-single digit annual rate (5% to 7% range).

Estimates for Gilead’s HIV Treatment Growth

Source: RBC Capital Markets.

In recent years, the decline of HCV has masked the significant growth in HIV. Over the next few years, investors will better appreciate the growth as the HCV headwind fades in magnitude.

Gilead Is Developing A Premier Oncology Franchise

Last year Gilead acquired Kite Pharma for $ 11 billion. This transaction was very similar to the Pharmasset acquisition Gilead made in 2011 which jump-started its HCV franchise. Kite was a pre-revenue oncology-focused biotech that is considered a leader in the emerging CAR-T treatment. CAR-T is a treatment which involves modifying a patient’s T-cells to make them more effective at fighting tumors.

The Kite acquisition is already starting to pay-off. In October 2017 (just six weeks after the acquisition was announced), Kite received FDA approval for its first drug, Yescarta. Although Kite isn’t the only biotech working on CAR-T treatments, Yescarta was the second ever FDA approval for a CAR-T treatment and the first FDA approval for diffuse large B-cell lymphoma (“DLBCL”).

Yescarta has generated $ 135 million in revenue since it was approved, $ 68 million of that was in the last quarter, clocking in 70% sequential q/q growth. Yescarta is currently undergoing regulatory review in Europe. Based on the early success of the drug and the large target market, Yescarta is expected to be a multi-billion dollar per year revenue generator by 2025 (source: PiperJaffray research report from May 30, 2018).

In addition to Yescarta, Gilead has several oncology drugs acquired from Kite that are in stage 2 or stage 3 clinical trials. This is an encouraging sign that Gilead is developing a large cancer drug treatment franchise on par with or potentially even bigger than the company’s HIV business.

Gilead Has An Incredibly Robust Drug Pipeline

As shown in the table below, Gilead has a couple dozen ongoing clinical trials at various stages. Some of these trials are in areas such as HIV, Hepatitis C, Hepatitis B, and oncology, where Gilead already has a presence and new drug approvals would be incremental to existing businesses or would simply extend a franchise. However, Gilead also has some exciting clinical trials in totally new drug markets such as NASH, solid cancer tumors, Rheumatoid Arthritis, Crohn’s Disease, and more. Specifically, treatments using the JAK1 inhibitor and related to liver diseases (NASH) and other forms of cancer, could each be multi-billion dollar annual revenue opportunities within the next 10 years.

What Could Gilead’s Stock Be Worth?

Today, Gilead trades for 8.6x EV / Forward EBIT. This compares to a peer median multiple of 14x. The obvious explanation for the discount in Gilead’s multiple is the comparison of its revenue declines vs. peers growing revenue at a double-digit rate on average. In other words, Gilead isn’t a sexy biotech story and has seen its stock price go nowhere for several years. Investors have simply given up on the stock after years of disappointment. However, Gilead is set to start growing again in 2019 and beyond. In fact, Gilead has a very exciting pipeline that could re-shape the entire company within the next few years.

If certain pipeline events fall in line, Gilead’s revenue growth could significantly surprise to the upside. This has the potential to cause a re-rating in Gilead’s traded valuation multiple. If Gilead’s stock were to re-rate in-line with its peers, it could rise by over 50%. Furthermore, unlike many pharma pipeline bets, Gilead has real earnings supported by a thriving HIV business and a rapidly growing oncology business. Gilead’s earnings and its un-levered balance sheet provide solid downside in the event that the pipeline disappoints. Overall, I believe Gilead represents a very attractive risk-reward: little downside with significant potential upside.

peer multiples table

Key Investment Risks

Management transition. In the most recent Q2 2018 earnings, the company announced that CEO John Milligan will be stepping down at the end of the year. Additionally, Board Chairman John Martin would also be stepping down. Successors have not yet been named and there is a significant risk that the next crop of leaders will not live up to the former leaders. Both Milligan and Martin are long-tenured executives with the company and their exits were a surprise to investors; however, they are leaving the company in good shape. Also, now that the company is diversifying into other treatment areas, it makes sense to bring in new leaders with broader pharma experience. Investors should keep a close eye on who the company chooses to succeed Milligan and Martin.

Pipeline risk. Gilead’s pipeline presents significant future earnings possibilities, but the pipeline is not guaranteed to produce any major new drugs. To the extent that the ongoing clinical trials disappoint investors, Gilead’s stock price could suffer. However, given the current low valuation multiple placed by investors on the company, I would argue that investors haven’t placed extremely high value on the company’s pipeline. Therefore, to the extent the pipeline does produce exciting new drugs, the stock could significantly rise.

Pharma pricing pressure. Perhaps the biggest unknown in the pharmaceutical space is how the regulatory and industry landscape will evolve. There is significant political pressure from both the Left and the Right to increase regulations over excessively high drug prices. Gilead has a reputation for high-priced drugs and could face reduced pricing power from current and future treatments. Additionally, PBMs and insurance companies are merging and are better positioned to negotiate lower drug prices. We simply do not know how much (or little) the industry’s pricing will change.

Disclosure: I am/we are long GILD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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AT&T CEO says ready to invest, keep culture at Time Warner: CNBC
June 15, 2018 6:05 pm|Comments (0)

(Reuters) – AT&T Inc is committed to spend as much as needed on the media business of newly acquired Time Warner Inc, Chief Executive Randall Stephenson told CNBC on Friday, with a plan to invest $ 21 billion to $ 22 billion in the combined company.

FILE PHOTO: Chief Executive Officer of AT&T Randall Stephenson arrives at a U.S. District Court in Washington, D.C., U.S. April 19, 2018. REUTERS/Carlos Barria/File Photo

“We’re not going to be penny-wise and pound-foolish here,” Stephenson said in an interview on the financial news channel. “We intend to invest.”

The No. 2 U.S. wireless carrier closed its $ 85 billion acquisition of Time Warner on Thursday and now faces the task of integrating a media company into its operations as it seeks to rival Netflix Inc , Amazon.com Inc and other technology companies providing entertainment directly to customers.

That will be the job of John Stankey, who will lead the company’s combined entertainment business. Stephenson said on Friday AT&T intends to preserve Time Warner’s creative culture.

He acknowledged such differences in an email to AT&T and Time Warner employees late on Thursday, a copy of which was seen by Reuters.

“As different as our businesses are, I think you’ll find we have a lot in common,” wrote Stephenson. “We’re big fans of your talent and creativity. And you have my word that you will continue to have the creative freedom and resources to keep doing what you do best.”

Stephenson told CNBC he expects AT&T’s debt levels to come down quickly in about a year, returning to normal levels within four years at about 2.3 times earnings before interest, tax, depreciation and amortization.

Some analysts have raised concerns about the high level of debt the company took on to acquire Time Warner, about $ 180 billion at the close of the merger, Stephenson said.

AT&T’s spending plans include investing more in HBO, the premium TV channel with the hit show “Game of Thrones,” and expanding HBO’s direct-to-consumer platform, Stephenson said.

Reporting by Sheila Dang; Additional reporting by Diane Bartz in Washington; Editing by Bill Rigby


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Getting Ready To Watch On Demand Movies In On Demand Theater
May 29, 2018 6:08 pm|Comments (0)

This article first appeared in Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.

Today brings news that ticks three of our favorite boxes at Data Sheet: Futurism (the future is already here, it’s just not evenly distributed), clicks to bricks (online retailers opening physical stores), and the growth of Chinese tech giants (via a unit of Baidu (bidu) in this case). Aaron in for Adam on this four-day U.S. work week, thinking about the future of movies.

The actual news event is of the starting small variety. Baidu’s iQIYI, a video streaming service sometimes dubbed the Netflix of China, opened a tiny movie theater in the city of Zhongshang in the southern province of Guangdong. Adding a few dozen seats to the theater capacity of the city of about 3 million people sounds like a drop in the bucket.

But the new theater, called Yuke, is actually a series of mini-theaters, each with two to 10 seats, that can be rented by the hour to show any content available from iQIYI’s library. With cushy chairs, Dolby audio, and a screen much larger than a home TV, the on demand Yuke theaters represent a new hybrid way to consume streaming video. iQIYI, which went public in the United States a few months ago, says it plans to bring the Yuke concept to all of China’s major cities.

There have been rumors that Netflix (nflx) was pondering a more traditional theater play, as well. The Los Angeles Times reported last month that Netflix considered buying the Landmark Theatres chain, but ultimately rejected the idea as too costly. With malls facing increasing vacancies, maybe something more like iQIYI’s on-demand mini-theaters would be a smarter move for Netflix.


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Sentiment Speaks: GLD May Not Yet Be Ready To Break Out
February 18, 2018 6:02 pm|Comments (0)

For those that follow me regularly, you will know that I have been tracking a set up for the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX), which I analyze as a proxy for the metals mining market. I believe that the GDX can outperform the general equity market once we confirm a long term break out has begun, and I still think we can see it in occur in 2018. This week, I will provide an update to the GDX, but want to also discuss the GLD, which is an ETF which attempts to mirror the movements of gold. While I have gone on record as to why I do not think the GLD is a wise long-term investment hold, I will still use it to track the market movements.

While the GDX did move through the resistance region I noted last weekend, it did not do so in what I wanted to see as an “impulsive” move. That is a term of art which means a standard 5-wave structure which adheres to our Fibonacci Pinball methodology. Rather, when the market broke out over 22.30, it set up to run strongly towards the 23.20 region, which is the analysis I presented to those that follow my work daily. In fact, just before the market opened on Valentines Day, I sent out an Alert to my members noting how I viewed the smaller degree structure:

“Over 22.30, and we have an initial indication of a bottom in place. 23.20 then becomes the next higher resistance.”

As we saw, the market broke over 22.30, and then moved quite strongly higher, and topped out this week at 23.16. But, as I noted once we reached the 23.20 resistance region, this can still be a 4th wave rally and point us down towards the low 20 region unless we are able to take out the 23.20 resistance strongly. As we now see, the market may be pointing us directly down towards that low 20 region in the GDX, as we have been unable to break over 23.20, and have turned down.

As far as the GLD is concerned, this is still presenting as a very bullish pattern. While I would have loved to have seen this break out already, the current micro structure is not strongly suggestive of an immediate break out. In fact, should we see an impulsive drop below 127 in the coming week, it opens the door to a drop down to at least the 124 region, but more preferably down to the 121.50-122 region, before we can set up again for a break out.

But, as I have noted many times before, for those who are looking for a long-term investment hold for gold, I would not suggest using the GLD as I have presented in this webinar I did some time ago. Rather, I tend to use the GLD as a trading vehicle rather than an investment vehicle.

Lastly, a break out over last week’s high in either GLD or GDX can alter the analysis presented above, as it is contingent on last week’s highs holding as resistance. Remember, we cannot know what will happen in the future with certainty. Rather, we can plan for what may happen based upon probabilities. But, we also have to know rather quickly when and where those probabilities are no longer in our favor. Remaining in a wrong position while “hoping” is what destroys more accounts than anything else.

Housekeeping Matters

It seems that Seeking Alpha has changed the way they tag articles. So, while my articles used to be sent out as an email to those that follow the metals complex, they are now only being sent out to those that have chosen to “follow” me. So, if you would like notification as to when my articles are published, please hit the button at the top to “follow” me. Thank you.


I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I hedged my portfolio on Friday with stops at 23.20 GDX.


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This May Be The World's Single Largest Industry By 2050. Are You Ready For It?
September 6, 2017 9:43 pm|Comments (0)

Few things are getting as much attention as driverless cars. Google’s Waymo spinoff recently announced that its driverless cars have driven over 3 million miles, rumors are floating about Apple patents for autonomous vehicles and potential play in driverless, Uber and Lyft are both planning driverless fleets, and myriad companies such as Nutonomy, Torc Robotics, Mentor, Lvl5, and Skymind are all fueling what will be one of the most disruptive innovations of the last 200 years.

Autonomous vehicles (or AVs) will likely be the single greatest opportunity for the creation of value and wealth during the 21st Century. A study, done for Intel by Strategy Analytics, predicted a $ 7 trillion industry by 2050 making it one of, if not the single largest global industry.

Given the impact AVs will have it’s worth taking the time to understand the facts and to consider how AVs will impact you and your business trust me on this, they will! Yet, much of what we hear and read seems to either border on absurd promises or threats of a dystopian future in which cars are making life and death decisions in a crisis moment about whether to take out a family of four or a little old lady crossing the street in her walker.

So, I’m doing something a bit different with my Inc column this month. During September I’m going to run a series on autonomous vehicles, drawing on interviews I’ve had with CEOs of AV companies and developers of AV technology, lawyers, insurance companies, advocacy groups, first hand accounts with AVs, and excerpts from a new 2018 book I’m wrapping up, Revealing The Invisible: How Our Hidden Behaviors Are Becoming The Most Valuable Commodity Of The 21st Century.

The intent with this series of articles is to provide a realistic view of how AVs will evolve, the obstacles they face, and the dramatic changes they will bring.

So, lets start with the problem that AVs are trying to solve.

The Facts

There is no way that we can support 10 billion people with the same sort of vehicle infrastructure and culture we have today.

The automobile is part of the fabric of the modern world. We build an intense cultural and personal bond with our vehicles. They define a person’s identity. They are also the backbone of commerce. As an industry, vehicle manufacturing is large enough to represent the equivalent of the world’s sixth largest economy, employing over 50 million people and producing nearly 100 million vehicles each year. Yet, there is simply no way that we can support a global population reaching 10 billion people with the same sort of vehicle infrastructure we have today. Our cars remain idle 90% of the time. There’s no other individual asset nearly as expensive to own that gets that little utilization.

Vehicle’s account for 1.3 million deaths each year.

That places them as the 10th leading cause of death globally and the only non-disease related cause in the top 10. If you adjust for the fact that there are only one billion vehicles globally, as opposed to the fact that all seven billion people are subject to the other 9 risk factors, you could make the claim that vehicles are the leading cause of death for those who own or interact with an automobile.

Automobiles have a strained relationship with an aging population.

Few of us have not had to deal with the very hard conversation, or worse yet unilateral decision, of taking the car keys away from a parent. The automobile is perhaps one of the greatest statements of independence in modern society. When it’s taken away it takes with it not just the license to drive but the license to live a full life. According the AAA seniors are outliving their ability to drive by 7-10 years on average. This will be you soon enough.

Autonomous vehicles are going to be a watershed moment in our acceptance of artificial intelligence.

Once we feel safe enough in an AV to transition from driver to passenger, and have experienced its ability to transport us faster, keep us safer, and understand our behaviors better than we can ourselves A.I. will have arrived. There’s no doubt in my mind that the AV will be the proof point and the watershed moment for AI’s acceptance.

The impact of vehicles on global pollution and climate change.

And lastly, let’s not forget the impact of vehicles on global pollution and climate change. According to a study by NASA vehicles are the single largest contributor to climate change. Today transportation contributes more to greenhouse emission than the entire energy sector of the US economy. 26% of greenhouse gases come from vehicles. Even without moving to electric vehicles the reductions that come from the efficiency of AVs in terms of their ability to communicate with each other (V2V – Vehicle to Vehicle)) and infrastructure (V2I – Vehicle to Infrastructure) would eliminate traffic congestion and the need for street lights.

When you consider all of these factors converging it’s impossible not to believe that it’s just a matter of time until AVs are an essential part of our world. Does that mean that there aren’t technical, cultural, social, and even ethical obstacles ahead? Of course not! This is likely to be one of the most profound transformations we will experience in our lifetime. But it’s also likely to be one of the messiest as hundreds of companies race to bring AVs to market, regulators try to set standards, and driver learn how to become passengers.

In my next column we’ll look at some of those challenges through the eyes of experts in the industry who are driving (an unavoidable pun) the evolution of autonomous vehicles. And more specifically at how we define what an autonomous really means.

Stick with me, it’s going to be a fun ride!


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Get Ready for the Next Big Privacy Backlash Against Facebook
June 4, 2017 4:15 pm|Comments (0)

Get Ready for the Next Big Privacy Backlash Against Facebook

Privacy watchdogs think a damning leaked document about Facebook targeting insecure teens could help usher in new era in privacy protections. The post Get Ready for the Next Big Privacy Backlash Against Facebook appeared first on WIRED.

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iPhone 7 Review: Ready or Not, This Is the Future
December 20, 2016 3:00 am|Comments (0)

At a glance, the iPhone 7 and iPhone 7 Plus might be confused for their predecessors, the 6s and 6s Plus. It’s deceptive. The iPhone 7 is perhaps the most drastic revision of the phone since it was first released nearly a decade ago. It’s not just the missing headphone jack. There are several other big ideas, including a new dual camera system (on the 7 Plus), a new touch sensor home button, and mercifully, newly added water resistance. These are substantial changes, and they hint at what we can expect from the future of Apple phones.

Read more…


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Want an iPhone 6S for $1? Get ready to switch to Sprint
December 3, 2015 10:35 pm|Comments (0)



On Friday the iPhone 6S and 6S Plus arrive in stores, and while thousands may line up for a chance to get their hands on a pink (rose gold) iPhone, others will be looking for the best upgrade deals.

In this U.S., Sprint may have just topped them all.

The wireless service provider announced on Thursday a gonzo limited-time trade-in deal to current iPhone 6 customers: $ 1 a month for an iPhone 6S and $ 5 a month for an iPhone 6s Plus.

The payment plan is actually part of Sprint’s “iPhone for Life” plan, which means customers are actually leasing the phone for, in this case, 12 months. After that, they turn in the phone for a new one and continue paying against the monthly lease agreement. While typical Sprint lease plans might charge $ 20 a month for a 16GB iPhone 6s, this one will charge you just a $ 1, meaning that, after 12 months, you end up paying $ 12 for the iPhone 6s. In the case of the larger iPhone 6s Plus, you pay $ 60. Read more…

More about Sprint, Tech, Mobile, Iphone 6s, and Iphone 6s Plus


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Get ready to watch all your favorite TV shows in virtual reality
October 17, 2015 12:20 pm|Comments (0)



Hulu and Netflix are jumping on the virtual reality train. All aboard, early adopters.

Both streaming video services will soon offer virtual reality apps that let users explore content and watch what they want in 3D virtual spaces. Netflix is up first, with an app launching in the Gear VR store on Thursday, just hours after it was announced on stage at Oculus Connect.

While the video itself plays inside the headset on a virtual screen — banish all hopes of stepping into your favorite TV show or movie, at least for now — the app’s browsing interface is an interactive “Netflix Living Room.” This is a valuable feather in Netflix’s cap, marking the “first” subscription video app for VR and yet another platform for the ubiquitous service. Read more…

More about Entertainment, Gaming, Netflix, Hulu, and Television


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Get ready to watch all your favorite TV shows in virtual reality
October 16, 2015 9:50 am|Comments (0)



Hulu and Netflix are jumping on the virtual reality train. All aboard, early adopters.

Both streaming video services will soon offer virtual reality apps that let users explore content and watch what they want in 3D virtual spaces. Netflix is up first, with an app launching in the Gear VR store on Thursday, just hours after it was announced on stage at Oculus Connect.

While the video itself plays inside the headset on a virtual screen — banish all hopes of stepping into your favorite TV show or movie, at least for now — the app’s browsing interface is an interactive “Netflix Living Room.” This is a valuable feather in Netflix’s cap, marking the “first” subscription video app for VR and yet another platform for the ubiquitous service. Read more…

More about Entertainment, Gaming, Netflix, Hulu, and Television



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