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This topic contains 4 replies, has 2 voices, and was last updated by  Erik Kobayashi-Solomon 1 year, 8 months ago.

  • #7043

    James Meyer
    Participant

    Any thoughts on whether or not the biotech Gilead is a good value at its current price?

    #7044

    Hi James!

    Thanks for the question!

    I did a lot of work on Gilead not to long ago and have some good (I say immodestly…) resources on the site about the company. I'll post those links below.

    In short, the last time I did a full valuation of Gilead it had one valuation scenario at around $55 / share, three valuation scenarios between $80 and $100 a share, and three more at much higher prices. I had no way of being able to tell which is more or less likely, and I think that anyone who has a strong opinion about this is probably fooling themselves. I say this because Gilead's future is almost entirely dependent on things that are unknowable to anyone right now. Specifically, the higher valuation scenarios are associated with the likelihood of the company being able to produce not one but two blockbusters in the next 10 years. Historically, it's been able to produce a blockbuster once every fifteen years…

    In addition, when the company last reported quarterly earnings (or rather the last quarterly earnings I looked at closely), the company's hepatitis C franchise revenues were *much* weaker than my original forecast. Gilead's HIV franchise was at the high end of my forecasts, but the hep-c franchise is so important to Gilead, that I thought it would be necessary to redo that valuation and that the valuation range would probably shift downward.

    I like to say that valuations should be flexible, but not that flexible. In other words, I'm cautious about revaluing things on a quarterly basis (there can be shifts in timing or something that makes one quarter look particularly good or bad), so thought that I would look at Gilead again after some more time had passed and I had the chance to look at another year's worth of data.

    The take-away is that I see a company that does have some upside potential, but also some potentially significant valuation risk. Valuation risk is the most serious variety, because if you accept it, you run the risk of permanently impairing capital. This is directly opposed to Buffett's first law of investing: Don't Lose Money!

    I don't have interest in investing in Gilead, but there may be some upside in which one could attempt a small, speculative investment. Why don't you stop by an Office Hour session and we could talk through in more detail?

    Here are some links related to Gilead:
    https://frameworkinvesting.com/ioi-chartbook-gilead-sciences-gild/
    https://frameworkinvesting.com/gilead-gild-case-study-dangers-relying-investing-anecdotes/
    https://frameworkinvesting.com/course/guided-tear-sheet-gilead-sciences-gild-2016-09/

    Thanks again for the question!

    #7177

    James Meyer
    Participant

    Thank you Erik.

    #7178

    My pleasure!

    By the way, I haven't read through it yet, but saw something today about an HIV vaccine being tested by JNJ. HIV is one of Gilead's big franchises, so it might be worth taking a look at as well.

    All the best,
    Erik

    #7179

    Here's a link from FiercePharma – an Internet source that usually has very good information:
    http://www.fiercepharma.com/vaccines/mosaic-hiv-vaccine-from-j-j-and-partners-passes-early-test

    It looks like this was a very early trial, so it's hard to put much weight behind it, of course. Note that Gilead's TAP drugs look to be effective for prophylactic use, but that the pills must be taken regularly. It looks like JNJ's solution is a series of 5 booster shots. There are difficulties in patent populations adhering to an ongoing drug regime, of course, and fewer dosages the better, I'm told.

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