GILD - Gilead Sciences - Company Profile

Gilead Sciences, Inc., a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in areas of unmet medical needs in North America, South America, Europe, and the Asia-Pacific. The company's products include Genvoya, Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread, and Hepsera products for the treatment of liver diseases. The company also has dozens of other drugs and drugs in development.

They are most known for their Hep-C drugs that sell for $90,000 for a 12-week cure. Shares declined in May on a patent ruling over their Hep-C drugs. Merck (MRK) won that round but the fight is not over and the damages even if they lose in future appeals are not that bad. They would have to pay Merck a 4% royalty on future sales plus some upfront cash.

Gilead just announced another improvement in their Hep-C portfolio and it will continue to rake in billions of dollars and protect them from generic copies for years longer.

One of their new drugs for Hep-C is Epclusa and that is expected to be very strong as distributors stocked up in Q2. That is a niche drug in the Hep-C space. Unlike the drugs from AbbVie and Merck, Epclusa only requires combination with Ribavirin in a small variety of patients while the competing drugs require Ribavirin in most applications. That is a dangerous drug, is poorly tolerated and has a long list of dangerous side effects. Epclusa is the ONLY drug approved to treat all six major forms of Hep-C. It sells for $74,650 per course of treatment.

The second quarter is normally a strong quarter for biopharmaceutical companies. Leerink's Geoffrey Porges said this could be "one of the strongest quarters for Gilead's core franchise in some time." Q2 earnings normally surprise and that leads to analyst upgrades in the coming weeks. The analyst raised revenue estimates from $7.9 billion to $8.2 billion on the Hep-C products and their strong portfolio of HIV products. He increased the earnings estimate from $3.15 to $3.32 for the same reasons. Consensus is $3.03.

Earnings are July 25th.

Any stock we add over the next couple weeks will have an earnings report that we have to confront. I would rather add a stock where the estimates are rising than one with a lot of unknowns.

GILD shares are approaching resistance at $89 and a breakout there could target $100.

Because it is a biotech company where surprises do happen I am going to recommend we add a long put for August to try and protect us against a negative event.

Buy January $90 call, currently $5.05, no initial stop loss.
Buy August $82.50 put, currently $1.66, no initial stop loss.

If GILD rallies after earnings, we will close the put and accept any loss of premium as an insurance cost.