General Body Meeting 03.31.11. Mutual Investment Club of Cornell Agenda Announcements News Updates...
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Transcript of General Body Meeting 03.31.11. Mutual Investment Club of Cornell Agenda Announcements News Updates...
General Body Meeting 03.31.11
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Agenda
Announcements News Updates Healthcare Sector Pitch
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Announcements
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News Updates
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U.S. Economy
Friday is jobs day Home prices remain weak
Case-Shiller: -3.06% Bernanke to hold quarterly press
conferences after FOMC policy meetings
Consumer confidence down slightly on high oil & food prices as well as general fear from Japan news
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Syria
Differs from other Arab states with recent unrest
Geopolitically more important Close alliance with Iran Active supporter of terrorist organizations
(Hamas, Hezbollah) Major influence in Lebanon
Not a major oil exporter by Middle-East standards
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Update on Japan
Death toll > 11,000 and more than 16,200 missing
Nuclear contamination is dropping Commitment to utilize help in nuclear
crisis Reconstruction efforts in action Nikkei trading at highest since March
11th (9,723) Regaining from initial low of 8,354 on the
March 15th
Japanese Yen finally falling
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Libya
President Obama defended the American-led military assault in Libya
American warplanes appeared to have opened a new line of attack on pro-Qaddafi forces
Rebel army working under cover of Allied forces
Libyan rebels retaking key oil facilities which could allow for the limited resumption of exportation
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Home Prices Fall for 7th Straight Month
Just 1.1% above the low of April 2009 Index data lags recent rise in mortgage rates –
more room to drop?
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AT&T/T-Mobile MergerMa Bell is Back
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Deal Terms
AT&T plans to acquire T-Mobile USA from DT for $39 billion $25 billion in cash $14 billion in stock $3 billion breakup fee
Deal is double the EBITDA premium of comparable transactions
1 year bank loan of $20 billion to finance deal Greenhill, Evercore, JPM advised AT&T MS, DB, CS advised DT Combined customer base: 130 million – largest in
USA
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Anti-trust Hurdle
Deal still faces intense scrutiny from FCC for anti-trust possibilities before approving merger
Verizon and AT&T would become the two main players in the market, dominating over 80% of market Potentially bad for consumers
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Synergy?
$40 billion in cost cutting Thousands of job losses
Difference in company culture T-Mobile historically more innovative AT&T historically more controlling/monopolistic
Allows upgrading of network to improve coverage and speed – currently a struggle for AT&T Eased by both companies using the same GSM technology Analysts are not so sure that even with combined
infrastructure, service would improve with the combined customer base
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Grandfathering
T-Mobile data subscribers have a noticeable lower cost for data than AT&T
1. Grandfathering in old data plans would decrease AT&T’s ARPU
2. Not grandfathering in old data plans may result in mass migration
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Impact on Other Players
Verizon – not really impacted by deal so long as they stick to their core strengths Possibility of picking up some disgruntled T-Mobile
subscribers Sprint – likely to be a loser with allocated
spectrum space, customer base, and regulatory issues
Vendors (infrastructure & handset makers) – with one main customer for GSM technology, AT&T would have significant pricing power and leverage
Google – as T-Mobile was a great partner for Android, there is uncertainty as to how AT&T will handle the Android platform going forward
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Gilead Sciences (GILD)
Healthcare Sector Team
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Gilead Sciences Inc.
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Company Overview
Engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide
Primary areas of focus HIV/ AIDS Liver disease Serious cardiovascular/metabolic and
respiratory conditions.
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Thesis and Key Debates
Growing multinational corporation Large patient pool Strong growth potential
Competitive pipeline No patent cliff until 2014 Undervalued
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Worldwide Presence
Multinational Corporation with 4000 employees Expanding global access to their
medications Gilead Access Program
Substantially reduce prices in many low- and middle-income countries.
Local Manufacturing in Africa Non-exclusive partnership with South Africa-
based Aspen Pharmacare Manufactures and distributes Gilead therapies
throughout Africa.
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Worldwide Presence Cont.
Partnerships with Generic Manufacturers Signed non-exclusive licenses with
multiple generic manufacturers in India and South Africa. Their partners will produce high-quality, low-
cost generic versions of Viread and Viread-containing regimens in 95 resource-limited countries
Home to 75 percent of the world's HIV-infected people
Helping ensure competitive pricing, thus promoting broad access to HIV treatment for patients in developing countries.
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Sales Worldwide
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Affordability in the US
Patient Access in the United States Gilead supports a number of programs for
eligible patients in the United States Do not have insurance, are underinsured or
who otherwise need financial assistance Includes programs assisting with HIV/AIDS
and chronic hepatitis B
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Patent Advantage
Under Patient Protection and Affordable Care Act FDA grant biologic manufacturers 12
years of exclusive use No development within those years FDA must approve generic drugs Lots of red tape High costs for less margin in generics
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Patent Expiration
Products US patent Expiration European Patent Expiration
Vistide 2010 2012
Hespera 2014 2011
Letairis 2015 2015
AmBisome 2016 2008
Tamiflu 2016 2016
Macugen 2017 2017
Viread 2017 2018
Ranexa 2019 2019
Lexiscan 2019 2020
Emtriva 2021 2016
Truvada 2021 2018
Atripla 2021 2018
Cayston 2021 2021
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HIV/ AIDS
What is HIV/AIDS? Human immunodeficiency virus (HIV) is
the virus that causes the acquired immunodeficiency syndrome (AIDS)
Most people progress from HIV to AIDS in 6 to 12 years
In AIDS the immune system cannot function properly Without treatment this stage of the disease is
fatal No known cure
Can only prevent or reverse damage to the immune system
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HIV/ AIDS Statistics
Worldwide 31- 36 million people living with this
disease worldwide 2- 3 million adults newly infected each
year In the United States
1- 1.2 million people living with HIV/ AIDS About 60,000 people newly infected each
year More than 18,000 people die each year
from the disease
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HIV Worldwide
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Liver Disease- Hepatitis B
What is Hepatitis B? Irritation and swelling of the liver caused
by the hepatitis B virus Very contagious Most common serious liver infection
worldwide Acute Phase
Lasts 1-4 months and easily destroyed by body’s immune system; most people fight this off
Chronic Phase 5- 10% of people develop this serious form of
the disease
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Hepatitis B Statistics
Worldwide 2 billion people have either acute or
chronic phase About 350 million people are infected with
the chronic phase of the disease 620,000 people die each year
In the US 800,000 to 1.4 million people have the
chronic form Since 1991 82% decrease in the US
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Hepatitis B Worldwide
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Cardiovascular Diseases
What are they? A variety of disease that negatively affect
the heart or blood vessels Claim 17.1 million lives a year (29% global
deaths) Strong correlation to obesity, tobacco use
and an unhealthy lifestyle Heart attack and stroke are common
results of a poor cardiovascular system Gilead fighting against pulmonary
arterial hypertension and chronic angina pain
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Respiratory Problems
Cystic Fibrosis Causes thick, sticky mucus to build up in
the lungs and digestive tract One of the most common chronic lung
diseases in children and young adults 70,000 people worldwide with Cystic
Fibrosis (30,000 people in the US) Influenza
Very contagious 5% to 20% of Americans get the flu every
year (Tamiflu)
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Current Products
HIV/AIDS Atripla
Once-daily regimen for HIV treatment in adults Emtriva
Once-daily oral nucleoside reverse transcriptase inhibitor
Used in conjunction with other agents; suitable for children
Viread Once-daily oral nucleotide reverse transcriptase
inhibitor Treatment for adults and adolescents Approved in 2008 as a treatment for chronic
hepatitis B in adults.
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Current Products
HIV/AIDS Truvada
Fixed-dose once-daily combination pill Contains Viread and Emtriva Combination makes up 85% market share in
HIV/AIDS
Liver Disease (Hepatitis B) Hepsera
Once-daily, oral NRTI for the treatment of chronic hepatitis B
For use in patients 12 years of age and older.
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Current Products
Cardiovascular Diseases Letairis
Once-daily treatment for pulmonary arterial hypertension
Improves exercise performance and delays clinical treatment
Lexiscan First A2A adenosine receptor agonist approved by
the FDA Used as a pharmacologic stress agent in
radionuclide studies Targets the A2A adenosine receptor responsible for
coronary vasodilation. Ranexa
An extended-release tablet for the treatment of chronic angina
Prescriptions have grown 79% in the past several years
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Current Products
Respiratory Diseases Cayston
Improves respiratory symptoms in cystic fibrosis (CF) patients with Pseudomonas aeruginosa
Tamiflu First tablet for the treatment and prevention of
influenza A and B Stockpiled by governments after swine/avian flu
scares
Other Products AmBisome
Treats life-threatening, systemic fungal infections in adults
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Product Trends
FDA approves 20 drugs per year Gilead: 9 drugs approved in last 11 years
Great positive trends as of late for little cost Antiviral product sales up 13% in the US,
9% in Europe Royalty revenues increased 10% to $546
million R&D expense increased only 12% last
year This was primarily due to changes in writing
off Goodwill
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Products and Margin
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Pipeline and Clinical Trial Results
HIV/AIDS Truvada Single-Tablet Regimen (III)
More patients taking Truvada had an undetectable viral load than those taking Efavirenz; Well tolerated
Elvitegravir (III) Once-daily Elvitegravir achieved a higher viral
suppression rate than Raltegravir after 48 weeks Integrase Single-Tablet Regimen "Quad” (III)
Well tolerated; Maintained a higher rate of virologic suppression than Atripla after 48 weeks
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Pipeline and Clinical Trial Results
HIV/AIDS Cobicistat (III)
Well tolerated; Achieved a viral suppression rate similar to Ritonavir
Liver Disease (Hepatitis C) GS 9451 (II)
Well tolerated; Highly potent anti-HCV activity and once-daily dosing potential
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Pipeline and Clinical Trial Results
Liver Disease (Hepatitis C) GS 9256 (II)
Well tolerated; Substantial suppression of the hepatitis C virus (HCV) within 28 days of treatment
GS 9190 (II) Well tolerated; Substantial suppression of the
hepatitis C virus (HCV) within 28 days of treatment
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Pipeline and Clinical Trial Results
Respiratory Aztreonam for Inhalation Solution (Cystic
Fibrosis) (III) FDA-approved for cystic fibrosis (CF) patients
with Pseudomonas aeruginosa; likely to be approved for CF patients with Burkholderia cepacia
Aztreonam for Inhalation Solution (Bronchiectasis) (II) Resulted in significant reduction of pathogen
density and a clinically significant improvement in respiratory symptoms
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Pipeline and Clinical Trial Results
Cardiovascular/Metabolic Cicletanine (Pulmonary Arterial
Hypertension) (II) Already approved in certain European
countries as a once-daily monotherapy treatment for hypertension; Granted orphan drug status for treatment of PAH by FDA
Ranolazine (Coronary Artery Disease/Diabetes) (II) Increased exercise time in patients with
Coronary Artery Disease and chest pain
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Technical Analysis
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Technical Analysis
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Gilead v. S&P500
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Fundamental Analysis
ValuationComparable Valuation Metrics
*All figures in millions except per share numbers
Company EPS P/E EV/EBITDA
Ticker Name Price 2008A 2009E 2010E 2008A 2009E 2010E 2008A 2009E 2010 P/Book EV/Sales PEG
BMY Britstol-Myers 26.68 1.56 1.63 2.03 17.1x 16.4x 13.1x 11.5x 11.7x 10.7x 3.672x 2.9x 1.9x
GSK GlaxoSmithKline 38.54 1.08 1.32 1.05 35.7x 29.2x 36.7x 17.4x 26.3x 21.6x 66.7x 8.4x 1.3x
GILD Gilead 42.05 2.08 2.87 3.51 20.2x 14.7x 12.0x 14.6x 11.5x 10.3x 7.6x 4.9x 0.7x
17.1x 16.4x 13.1x 11.5x 11.7x 10.7x 3.7x 2.9x 1.3x
26.4x 22.8x 24.9x 14.4x 19.0x 16.1x 35.2x 5.7x 1.6x
26.4x 22.8x 24.9x 14.4x 19.0x 16.1x 35.2x 5.7x 1.6x
35.7x 29.2x 36.7x 17.4x 26.3x 21.6x 66.7x 8.4x 1.9x
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Fundamental Analysis
ProfitabilityEBITDA EBIT Net Current Quick Debt/ Interest
Ticker Company Name RONA ROE Margin% Margin% Margin% Ratio Ratio Equity Coverage
BMY Britstol-Myers 40.0% 25.1% 35.0% 31.2% 15.9% 2.0x 1.1x 0.4x 4.4x
GSK GlaxoSmithKline 14.8% 303.5% 27.8% 27.8% 19.5% 1.4x 0.6x 8.1x 3.6x
GILD Gilead 34.7% 65.4% 53.9% 50.6% 36.5% 2.3x 0.9x 0.6x 4.2x
Min 0.1x 0.3x 0.3x 0.3x 0.2x 1.4x 0.6x 0.4x 3.6x
Mean 0.3x 1.6x 0.3x 0.3x 0.2x 1.7x 0.8x 4.3x 4.0x
Median 27.4% 164.3% 31.4% 29.5% 17.7% 1.71 0.83 4.27 3.96
Max 0.4x 3.0x 0.3x 0.3x 0.2x 2.0x 1.1x 8.1x 4.4x
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Income StatementPeriod Ending Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Total Revenue 7,949,420 7,011,383 5,335,750
Cost of Revenue 1,869,876 1,595,558 1,127,246
Gross Profit 6,079,544 5,415,825 4,208,504
Operating Expenses
Research Development 1,072,930 939,918 721,768 Selling General and Administrative 1,044,392 946,686 797,344
Operating Income or Loss 3,962,222 3,529,221 2,678,541
Income from Continuing OperationsTotal Other Income/Expenses Net 60,287 42,397 59,401
Earnings Before Interest And Taxes 4,022,509 3,571,618 2,746,506
Interest Expense 108,961 69,662 12,101
Income Before Tax 3,913,548 3,501,956 2,734,405
Income Tax Expense 1,023,799 876,364 723,251
Minority Interest 11,508 10,163 8,564 Net Income From Continuing Ops 2,901,257 2,635,755 2,011,154
Net Income After Taxes 2,901,257 2,635,755 2,011,154
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Balance SheetDec 31, 2010 Dec 31, 2009 Dec 31, 2008
AssetsCurrent Assets
Cash And Cash Equivalents 907,879 1,272,958 1,459,302
Short Term Investments 1,190,789 384,017 330,760 Net Receivables 1,901,305 1,684,614 1,186,152 Inventory 1,203,809 1,051,771 927,868 Other Current Assets 504,300 419,198 396,199
Total Current Assets 5,708,082 4,812,558 4,300,281 Long Term Investments 3,219,403 2,247,871 1,449,577 Property Plant and Equipment 701,235 699,970 528,799 Intangible Assets 1,425,592 1,524,777 - Other Assets 384,939 311,885 456,703 Deferred Long Term Asset Charges 153,379 101,498 283,214 Total Assets 11,592,630 9,698,559 7,018,574 LiabilitiesCurrent Liabilities
Accounts Payable 1,715,430 1,743,323 1,172,398 Short/Current Long Term Debt 646,345 5,587 5,631
Other Current Liabilities 103,175 122,721 42,963 Total Current Liabilities 2,464,950 1,871,631 1,220,992 Long Term Debt 2,838,573 1,155,443 1,321,316 Other Liabilities 134,426 123,301 56,588 Deferred Long Term Liability Charges 32,844 43,026 74,181
Minority Interest 258,108 138,093 193,010 Total Liabilities 5,728,901 3,331,494 2,866,087
Total Stockholder Equity 5,863,729 6,367,065 4,152,487
Net Tangible Assets 4,438,137 4,842,288 4,152,487
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Other Positive Indicators
Mean recommendation is BUY (2.0/ 5.0) Thomson Reuters gave it a score of 9 out
of 10 (top 15% of all stocks) Low Target is $38 Mean Target is $44.40 (7% increase)
Low PEG of 0.7 meaning high growth expected
Positive earnings 9 out of last 12 quarters
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DCF Analysis
DCF Analysis Very conservative WACC of 9% Net Sales Growth of 5% Profit margin of 75% EBIDTA Multiple Method: $42.51- 48.61
EBITDA multiples of 7X and 8X Perpetuity Growth Method: $55.56- 65.48
Perpetuity growth rates of 2% and 3%
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Review
Worldwide Presence Affordable
Third degree price discrimination Huge patient pool Strong growth potential
Low PEG Competitive pipeline
No patent cliff until 2014 Generics cannot be produced for 12 years
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Proposal
Invest $1500: about 35 shares In-line with our other investments
Hold for 3 to 4 years Patents begin to expire See how market responds to products in
the pipeline Continue to watch for more growth
catalysts
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Questions?
Invest $1500: about 35 shares In-line with our other investments
Hold for 3 to 4 years Patents begin to expire See how market responds to products in
the pipeline Continue to watch for more growth
catalysts
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Thanks for coming by!
You are faced with two doors. One door leads you to a job offer and the other leads to nothing.
In front of each door is a guard. One always tell the truth, and the other tells only lies. You can ask one question to determine which door to go through.
What will you ask?