UBS: Gilead Sciences, Inc. Remains Solid Buy Despite Irish Tax Changes, Price War

Published: Oct 15, 2014

UBS: Gilead Remains Solid Buy Despite Irish Tax Changes, Price War

October 15, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Investors in Gilead Sciences, Inc. are overreacting to new changes in Irish tax law and shouldn’t panic about a possible price war in the hepatitis C market, said an analyst with UBS Wednesday.

Matthew Roden, a biotech analyst with UBS, said he remains bullish on the stock despite new moves by the Irish government to close lucrative tax loopholes. Gilead’s shares gyrated Tuesday and Wednesday on fears that it could see difficulties in its tax structure and may have stiff competition for its newly approved, once-a-day hepatitis C drug, Harvoni.

Indeed, market watchers should use the stock’s current turbulence as a chance to buy.

“In our view, yesterday's investor concerns on Gilead were based on confusion over the potential impact of changes to the Irish tax code, and fears of a HCV price war (again),” wrote Roden in a note to investors. “It is well-understood that GILD is exposed to headline risks that cause investor jitters, but we view these incidents as buying opportunities for a stock we expect to be higher 3 and 6 months from now, based on upward revisions and pipeline optionality.”

The biotech industry has come under fire from U.S. regulators in recent months for their usage of “inversion” tax rules, including the “double Irish” provision outlawed today. More than 1,000 multinationals employ over 166,000 people in Ireland and American biotechs are a good portion of that group.

A “double Irish” tax move lets corporations with operations in Ireland send their royalty payments to a separate Irish-registered subsidiary. Though that subsidiary is incorporated in Ireland, typically has its tax home in a country with no corporate income tax.

Biotechs that have taken advantage, or are currently processing acquisitions to take advantage, of the rule include Gilead Sciences, Inc. , Eli Lilly and Company , Pfizer Inc. , AbbVie , Medtronic, Inc. and Horizon Pharma .

As for news from Johnson & Johnson that it may lower the price of its competing hepatitis C drug, Olysio, in order to take on Harvoni, Roden seemed sanguine.

“The HCV price war debate won't go away until ABBV launches. However, we continue to believe that HCV pricing will be rational (i.e., new entrants won't price at a disruptive step down on pricing). ABBV has long held that pricing wouldn’t be its strategy, most recently in April because HCV is a long-lived market,” he wrote.

“Even payers acknowledge the value of HCV cures and cost-benefit with Sovaldi so in a duopoly we don't see why ABBV gets aggressive especially given how low expectations are for ABBV HCV sales,” concluded Roden.

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