Why Gilead (Nasdaq: GILD) Is Still A Biotech Stock to Buy

Gilead Sciences Inc. (Nasdaq: GILD) is facing criticism again this week for its highly priced Hepatitis C drug Sovaldi. The drug costs $1,000 per pill.

According to The Wall Street Journal, many states have restricted access to the drug, leaving some patients unable to afford the treatment.

But despite the criticism, Gilead (Nasdaq: GILD) stock remains one of the best biotech stocks to buy today.

Nasdaq: GILDThe full course of treatment of Sovaldi can cost up to $84,000 per patient. Numerous insurance companies and several members of Congress have also chided Gilead for Sovaldi's price.

Because of the price, coverage of Sovaldi ranges from state to state. Texas, the state with the nation's third-highest Medicaid population, spent nothing on Sovaldi through the first nine months of 2014. The state decided not to cover the drug.

But even without any money from Texas, Sovaldi is making billions of dollars from Medicaid.

The same report by The Journal indicates state Medicaid programs spent more than $1.33 billion on Hepatitis C treatment through the first nine months of 2014. The majority of that spending, 81% or $1.08 billion, was spent on Sovaldi.

That $1.33 billion total was almost as much as was spent by Medicaid programs on all Hepatitis C treatments in 2013, 2012, and 2011 combined.

Total spending on Sovaldi alone was $10.3 billion in 2014. That was the drug's first full year on the market.

While Sovaldi's pricing has stirred outrage, the drug works. The drug is 90% effective, and has very few side effects compared to competing drugs.

"Sovaldi is almost certainly going down in history as one of the more successful drugs ever launched," Money Morning's Defense and Tech Specialist Michael Robinson said in December.

Sales of Sovaldi helped push GILD stock up 26.6% in 2014. This year, it has already climbed another 10.6%.

But Sovaldi's enormous revenue stream isn't the only reason GILD stock is one of the best biotech stocks to buy. Here are two other reasons...

Why Gilead (Nasdaq: GILD) Stock Is a Buy in 2015

Another reason we're bullish on Gilead (Nasdaq: GILD) stock now is another one of its drugs: Harvoni.

It combines compounds from numerous pills, including Sovaldi, meaning patients only take one drug over 12 weeks of therapy.

In 2014, Harvoni brought in $2.1 billion in sales for Gilead. Total revenue for Gilead was $24.9 billion for the year. That's more than double its 2013 total.Nasdaq: GILD tableHarvoni is even more expensive than Sovaldi. A 12-week course of the drug can cost as much as $94,500 per patient.

But Gilead is working to bring down costs.

In early February, the company announced it will double the discounts it provides patients from an average of 22% to 46% in 2015. Investors didn't like the news. GILD stock fell as much as 10% the next day. But Gilead management said this would make Harvoni affordable to a wider group of patients.

Making Harvoni and Sovaldi available to a wider audience is extremely important for investors. That's because right now the market for Hep C drugs is exploding...

An April 2014 report from Express Scripts found that spending on Hepatitis C drugs is expected to increase by more than 200% in both 2015 and 2016. Newer and more convenient treatments in the coming years will drive sales.

Medicaid spending on Hep C is expected to continue climbing as well. According to The Journal, competition is heating up between Gilead and competitor AbbVie Inc. (NYSE: ABV). That has allowed states to negotiate 40% or higher discounts on Hep C drugs.

"Trading under $104 a share, GILD still offers plenty of upside," Robinson said. "I often use the price/earnings to growth (PEG) ratio to value a company. A stock has a 'fair value' price if it has PEG ratio of 1. Gilead's ratio is 0.82."

The Bottom Line: Gilead (Nasdaq: GILD) is receiving more criticism this week over Sovaldi, which can cost up to $1,000 per pill. And while the drug is expensive, it is extremely effective and generates billions in revenue. In 2015, prices of these Hepatitis C drugs are expected to fall, making them available to a wider audience. The timing is perfect, as spending on Hep C medication should climb by 200% in 2015 and 2016. GILD stock remains a biotech stock to buy.

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