Gilead Pharmaceuticals, a biopharmaceutical company, discovers, develops and commercializes therapeutics in the areas of unmet medical needs in the United States, Europe, and internationally. Gilead pharmaceuticals is an attractive investment for three main reasons.

First, it is incredibly undervalued compared to its competition. Gilead’s EV/EBITDA ratio is 8.18 currently compared to an industry average of 13.05. It’s P/E ratio of 12.01 is also severely discounted compared to the industry average, of 23.9. it is trading at a significant discount to its competitors Johnson and Johnson which has an EV/EBITDA ratio of 14.37 and a P/E ratio of 16.1, Merck which has a EV/EBITDA ratio of 17.11 and a P/E ratio of 15.41, and Pfizer which has a EV/EBITDA ratio of 13.23 and a P/E ratio of 15.41. This shows that within the industry Gilead is being traded at a discount which means that it is prime for capitalization before it begins to trade at higher multiples and regresses to the mean.

Secondly, Gilead’s pipeline is incredibly attractive. One of the most vital variables in the evaluation of a biopharmaceutical company is the pipeline and Gilead has possibly the most attractive one in the industry. Currently, the gem of Gilead’s pipeline is Flitgonib a JAK-1 inhibitor that is currently being tested for several indications including Rheumatoid Arthritis, Chron’s Disease, Ulcerative Colitis, and other inflammatory diseases. The recent Phase III study for Rheumatoid Arthritis was incredibly successful passing efficiency standards and reaching all of the endpoints of the study. It is likely that it will be as successful in the other upcoming phase II and III trials. If it is successful it could be a major blockbuster drug similar to Abbvie’s Humira which is projected to earn an astonishing 21 billion dollars next year in revenue. The company also has two potential (nonalcoholic steatohepatitis) NASH candidates, with two different mechanisms in phases II and III. NASH is currently viewed as an untapped 35 billion dollar market that could be capitalized on by Gilead. Gilead has also received several Immuno-oncology assets since purchasing Kite-Pharma. Immuno-oncology is currently by far the hottest area in drug development, and Gilead has the potential to enter the fastest growing industry with these new candidates. Gilead has already seen retail success with Kite’s Yescarta a Car-T therapy that has quickly risen to become a major source of income for Gilead.

Third and finally, a major shift in the direction of the company. Gilead has had several down quarters since their share price peaked in 2015. Through major M&A activity and a shift in culture, the company has moved away from stagnant development of HCV and HIV products towards the future of the industry which is immunotherapies and Immuno-oncology assets. The company has spent many years making strategic acquisitions in order to perform this major shift and now with many candidates in Phases II-III success is on the horizon and shareholders are positioned to benefit. The culture shift is very real with the CEO John Milligan and the chairman of the board John Martin stepping down at the end of 2018. New management will help oversee this shift towards Immuno-suppressants, NASH, and Immuno-oncology assets, the areas with the most potential.

There is some risk when investing in biopharmaceutical companies that do not exist in other sectors. The success of Gilead is hugely reliant on its pipeline which is hinging on successful clinical trials and FDA approval neither of which are sure things. Gilead also has a beta of 1.42 which shows it is somewhat sensitive to the market. If several of the drugs are successful in reaching FDA approval a price of $100 per share could be achieved. I see these drugs making it to the market by approximately 2019-2020. This could be a long-term 5-10 year investment with massive revenues of all these potential drugs lining the pockets of shareholders for years to come. The student investment fund should purchase 100 shares for approximately $8000.

by Ross Kesselman ’21