Jefferies Ponders Whether Gilead Sciences Should Experiment With An HCV Spinoff

With the uncertain and declining HCV revenue stream pressuring Gilead Sciences, Inc. GILD's stock valuation, Jefferies’ Brian Abrahams believes spinning off the HCV assets could unlock value for the company.

Abrahams maintains a Hold rating on the company, with a price target of $93.

Exploring A Spinoff

The analyst mentioned that analysis implied spinning off the HCV asset deserves some consideration, given that “HIV rev lumpiness could still weigh on the multiple, but it could better enable LT growth and substantially improve the positive impact of an acquisition or pipeline success.”

Abraham acknowledged that spinning HCV off could initially appear counterintuitive, since hepatitis C has become a key part of Gilead Sciences’ development and commercial franchise, and accounts for about 50 percent of the company’s overall revenues.

Related Link: Barclays Shares Its Thoughts On Gilead Sciences Post-Earnings

“However, the declining, less predictable HCV assets have clearly weighed on GILD’s overall valuation relative to peers, particularly post-2Q earnings,” the analyst stated.

Unlock Value

In fact, Abrahams believes a split could be completed quite easily, given the distinct commercial infrastructures for HCV and HIV, as well as the limited R&D investment beyond the late-stage studies.

The analyst also believes the spin could sharpen the company’s focus on its core chronic HIV segment, pipeline and BD, which in turn could potentially unlock value.

“We find that spinning off HCV would help GILD’s long-term growth profile – which could improve sentiment – though there would still be earnings lumpiness in the underlying HIV business, which could weigh on the multiple,” Abrahams added.

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