Ta Target t Price ce: US $1 $131 31.04 04 Ra Rating: : Buy - PowerPoint PPT Presentation

Share e Price: ce: US $10 101. 1.73 73 ($107. 107.99) 99) Ta Target t Price ce: US $1 $131 31.04 04 Ra Rating: : Buy (29 29% upside ide) ) – (21% % upsi side) e)

Virtual al monopoly oly in HCV market 1. 1. 90% market share! AbbVie has ~ 10% ◦ Strong ng produc uct t pipeline nes s 2. 2. Phase 2: 18 drugs ◦ Phase 3: 7 drugs ◦ Pending FDA Approval: 3 drugs (HIV) ◦ Strong ng balance e sheet fo for acquis isiti ition on 3. 3. 2014: Cash $2.1B  $10B ◦ 2015: Estimated $25B Cash ◦ $10B Debt Raise ◦

Sources of Revenue Royalty, Product Sales Contracts and Other Revenue HIV 1. 1. Live ver r diseas seases: es: HCV and d HBV 2. 2. Oncolo logy gy and d inflam ammati mation on 3. 3. Cardio diovascul vascular ar and d resp spirat iratory ory condi diti tions ons 4. 4.

 Existing ting Drugs ugs: ◦ Sovaldi ◦ Harvoni 90% Marke ket Share re ◦ Viread 2014: 14: Sovaldi + + Harvoni ni = $ $12.4B 4B ◦ Hepsera 2015E: 15E: Sovaldi + + Harvoni oni = $19. 9.2B 2B  Majo jor r Competit etitor or ◦ Viekira Pak (AbbVie) Up by 55 y 55%

 Existing ting Drugs ugs: 3 STR (Single Tablet Regimen) ◦ Atripla ◦ Complera (US)/Eviplera (EU) 56% Marke ket Share re ◦ Stribild  Majo jor r Competit etitor or ◦ Trimeq (GSK) 3 3 out t of 4 4 STR TR

In light of the recent Turing's 5,000% price surge for daraprim, Clinton criticised that “Price gouging like this in the specialty drug market is outrageous,” -19.93%

Global: 185 million Yearly ly New Diagnosis nosis • U.S.: 2.7 million • “Big 5” Europe : 2.6 million • Japan: 1.2 million Japan U.S. • > 350K 350K 150K 150K

Mo Most t prevalen valent t HC HCV V Geno noty type: pe: Type pe 1

 Higher than estimated global health care spending rate CAGR of 5.2 % during that same period

 Signed nonexclusive licensing agreements with 11 Indian generic manufacturers for HCV drugs  91 devel veloping oping countri ntries es  New agreement with Medicines Patent Pool (MPP) allowing the organisation to sublicense the new TAF-based HIV drugs to generic manufacturers  11 112 d 2 dev eveloping eloping countri ntries es

 Increased focus on HCV in the Emerging Markets  Increased global pharmaceutical spending  Increase global access for its drugs More Re Revenue nue for Gilead ad mov oving ng forward ward $$ $$$

Gilead ad has s the best st HC HCV treatment atment 1. 1. 22 Oct: FDA is warning that HCV Viekira Pak and ◦ Technivie can cause serious liver injury  Lesser Competition 56% market ket share are in HI HIV market ket 2. 2. 3 out of 4 STR drugs: Atripla, Complera and ◦ Stribild 3 TAF drugs to be approved by 2Q16 ◦

 HCV ◦ Sofosbuvir + GS-5816 + GS-9857 to replace Harvoni, which can treat all genotype – Phase 2 & 3  HIV ◦ TAF (single-tablet HIV regimen) to replace TDF. Safer for bones and kidneys – pending FDA approval  HBV ◦ TAF – Phase 3 ◦ GS-4774 – Phase 2 ◦ GS-9620 – Phase 2 ◦ Simtuzumab for (NASH) – Phase 2  Oncology ◦ Momelotinib (Pancreatic cancer) – Phase 3 ◦ GS-5745 (Gastric cancer) – Phase 2

 Past Acquisitions ◦ 19 1991 91:Triangle Pharma  Viread  Truvada  Atripla ◦ 2011 11: Pharmasset  Sovaldi  Harvoni ◦ 2014 14: Phenex Pharmaceuticals’ Farnesoid X Receptor (FXR) program  Px-104 (treatment of liver diseases including NASH)

 War chest ◦ Large cash reserves $25B in 2015E ◦ Raised $10B Debt  Possible actions? ◦ Shares buyback (Recent $15B buyback)  Could increase ◦ Acquisitions  Oncology  HBV  NASH

Market Gross Operating Net Debt ROE P/E EV/ EBITDA Cap Margin Margin /Equity Company Name USD b 2014 2014 2014 2014 2014 2015E 2016E 2014 2015E 2016E Gilead Sciences 150,444 85% 61% 15% 88% 13.5 9.2 8.7 9.0 6.6 6.3 Bristol-Meyers Squibb Company 103,052 75% 16% -27% 13% 38.5 35.1 28.9 30.6 26.9 22.5 Merck & Co 142,494 60% 13% 12% 24% 29.1 14.7 13.6 13.5 10.6 10.0 Abbvie 93,639 78% 17% 381% 57% 15.7 13.3 11.2 24.2 11.6 9.8 Biogen 68,907 88% 41% -25% 30% 18.6 17.3 15.5 11.4 11.2 10.1 Amgen 108,817 78% 31% 14% 22% 18.5 15.6 14.2 12.9 10.8 10.0 Celgene 90,027 95% 33% -10% 33% 42.7 24.5 19.8 30.6 20.0 15.3 Average 101,156 79% 25% 57% 30% 27.2 20.1 17.2 20.5 15.2 12.9 Highest hest Op Operating ting Margin gin Highest hest RO ROE Lowest west P/E Lowest west EV EV/EBI EBITD TDA

All t time high h P/E: 45x All t time low P/E: 10.7x 7x 10 10-ye years rs Historical cal Averag age P/E: 19.6x 6x Current rent P/E: 11.22 22

Declining ining HC HCV market ket share are in US 1. 1. ◦ New market share in Japan, EU and emerging countries Declining ining HI HIV market rket share are in US 2. 2. ◦ TAF (safer for bones and kidneys) replace TDF drugs (Trimeq is a TDF drug) Government vernment Legi gislat slatio ion/P n/Pric rice e Control trol 3. 3. ◦ Clinton’s plan will not materialise, according to experts

 Scenarios ios: ◦ Gilead Capture more market share in HCV ◦ Gilead makes a good acquisition that boost its profits ◦ FDA approvals of its pipeline  EPS estimates will increase by $1 to my base case EPS and Gilead will trade at higher multiple of 15x  15x of our 2015 EPS estimates of $11.06  12-months TP of $178.80 – 76% upside.

 Scenarios narios: ◦ Price Control legislation has been passed ◦ Unable to re-capture declining HCV and HIV market share in U.S.  Growth rates of all drugs will be negative for the next 5 years except for Sovaldi and Harvoni sales in 2015  8x of our 2015 EPS estimates of $10.41  12-months TP of $83.28 – 18% downside.

Scenarios Bull Base Bear EPS 11.92 10.92 10.46 P/E 15 12 8 Valuation 178.8 131.04 83.28 Upside/Downside 76% 29% -18%

 12x of our 2015 EPS estimates of $10.92  12-months TP of $131.04 – 29% upside.  We recommend a BU BUY

 12x of our 2015 EPS estimates of $10.92  12-months TP of $131.04 – 29% upside.  We recommend a BU BUY

 TDF (Tenofovir Disoproxil Fumarate ) ◦ Used to treat HIV and HBV ◦ Side effects: Severe liver problems  TAF (Tenofovir Alafenamide Fumarate) ◦ Used to treat HIV and HBV ◦ Safer for Bones and Kidneys  Sofosbuvir ◦ Used to treat HCV

Brand Name Generic Name Manufacturer Name Genotype Weeks Cure Rates Remarks Pills Harvoni Ledipasvir, Sofosbuvir Gilead 1 12 97-99% No Ribavirin 1 Viekira Pak ombitasvir, paritaprevir, ritonavir and dasabuvir Abbvie 1 12 91-100% Take with Ribavirin 3 Olysio simeprevir Janssen 1 12,24 90-100% Take with sofosbuvir (Sovaldi) 2 Daklinza/Sunvepra BMS 1 24 91% Daklinza daclatasvir BMS 3 12 97% Take with sofosbuvir (Sovaldi) 2 Technivie ombitasvir, paritaprevir, ritonavir Abbvie 4 12 Take with Ribavirin 2 Sovaldi sofosbuvir Gilead 1,2,3,4 80% 22 Oct: FDA is warning that HCV Viekira Pak and Technivie can cause serious liver injury Studies have shown that Viekira Pak has more side effects than • Harvoni/Sovaldi, which makes Harvoni oni/Sol olva valdi a sa safer r choice ce. Viekira Pak is only approved for patients with mild hepatic • impairment and not recommended for those with severe hepatic impairment; Harvoni/Solvadi is approved for that both mild and severe • hepatic impairment. Clearly , Gilead’s Harvoni /Sovaldi are more superior to Abbvie’s • drugs.

 Bristol’s Daklinza/Sunvepra is a 24 weeks treatment for HCV Genotype 1 with cure rate of up to 91%. No doubt they entered Japan before Gilead did, but the drugs from Gilead are more superior to those from Bristol. Solvadi and Harvoni have cure rate of up to 99% with just 12 weeks of treatment.  Recent studies show that Daklinza/Sovaldi combos has cure rate of up to 100% and it has outperformed the Daklinza/Sunvepra combos. Harvoni is the first once- daily pill that doesn’t require interferon or ribavirin that is approved for the treatment of HCV Genotype.

Products Patent Expiration U.S. E.U. Hepsera 2014 2016 AmBisome 2016 2008 Macugen 2017 2017 Tamiflu 2017 2016 Letairis 2018 2020 Viread 2018* 2018 Ranexa 2019** 2023 Atripla 2021 2018 Cayston 2021 2021 Emtriva 2021 2016 Truvada 2021 2018 Lexiscan 2022 2025 Complera/Eviplera 2023 2022 Vitekta 2023 2023 Zydelig 2025 2025 Sovaldi 2029 2028 Stribild 2029 2027 Tybost 2029 2027 Harvoni 2030 2030***

Source: OpenSecret.org

Source: OpenSecret.org