0

1

Demand Analysis

Country Population HBV HCV HIV GDP Per Capita

United States 320,334,000 1,601,670 5,766,012 1,922,004 53,041.98

Canada 35,675,834 178,379 35,676 107,028 51,958.38

Japan 127,020,000 2,540,400 2,921,460 127,020 36,654.00

European Union 507,416,607 7,103,832 2,537,083 2,943,016 35,438.49

South Korea 50,423,955 6,050,875 857,207 50,424 33,791.00

Russia 146,270,033 7,313,502 2,925,401 1,462,700 14,611.70

Brazil 203,836,000 4,076,720 5,299,736 6,115,080 11,208.08

Mexico 121,005,815 1,210,058 847,041 242,012 10,307.28

China 1,368,040,000 164,164,800 41,041,200 1,368,040 6,807.43

India 1,266,430,000 37,992,900 22,795,740 3,799,290 1,498.87

Africa (Developed)** 359,865,000 7,197,300 7,197,300 2,159,190 1,722.92

TOTALS / AVGs 4,506,317,244 239,430,436 92,223,855 20,295,804

World Bank, IMF, CIA** This includes Libya, Mauritus, Seychelles, Tunisia, Algeria, Botsw ana,

Egypt, Gabon, South Africa, Cape Verde, Namibia, Morocco, Ghana,

Democratic Republic of Congo, Zambia, Sao Tome and Principe, Equatorial

Guinea

Infected Population

30

40

50

60

70

80

90

100

110

120

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

GILD Historical Prices 2010-2015

Closing Price

CurrentPrice

11.86%

$114.78

$102.61

Investment Summary

We issue a BUY recommendation on Gilead Sciences (GILD) with a price target of $114.78.

The above target price is estimated based on the Discounted Free Cash Flow Model to the

Firm with a per product sales projections, that we have tested using Monte Carlo 100,000

simulation. With a closing price of $102.61 on 2/20/2014, our projections suggest 11.86%

upside in GILD’s stock. As a market leader in HIV and Hepatitis drugs, Gilead is capitalizing

on their supreme quality products, while working on diversifying their portfolio of drugs

based on medical needs and differentiating from others. Gilead continues to position itself as a

biopharmaceutical research company with best in class assets, strong pipeline of drugs,

successful acquisition strategy and mission to address unmet medical needs.

Main price growth drivers:

We anticipate strong financial performance from Harvoni, HCV drug that has been

recently approved and has generated $2.1B in sales its first quarter with a growing

demand both domestically and internationally, as well as Zydelig, recently approved

oncology drug with superior to its class characteristics and competitive price.

Consistently strong and healthy financial statements, with large cash reserves can provide

additional flexibility to the company in terms of portfolio expansion. Gilead’s EBITDA

margin was at 65% and 85% gross margin in 2014, while industry averages were 33.5%

and 73% respectively.

Consistently low R&D costs relative to its competitors and strength of the pipeline

products are going to ensure smooth transition through patent expiration in 2018-2019.

Main investment risks:

Negative outcomes in current litigations around HCV patents and pricing both

domestically and internationally can hurt Gilead’s ability to maintain its profitability and

level of sales.

Growth of competition and “discount war” among Hepatitis products from Gilead and

AbbVie could negatively impact sales and profit margins.

With the above industry margins, numerous large biopharmaceutical companies are

developing new drugs to enter the market that would result in intensification of current

competition and pose a threat to sales and margins.

California State University East Bay Student Research

This report is published for educational purposes only by

students competing in the CFA Institute Research Challenge.

[Healthcare: Biotechnology]

Gilead Sciences, Inc.

Date: 2/23/2013 Ticker: GILD

Current Price: 102.61 USD

Recommendation: BUY

Target Price: 114.78 USD

Market Profile

52-week

price range 63.5-116.83

Average

daily volume 17,196,000

Beta 0.91

Stock price

growth in

2014 25.5%

Market

Capitalization 183B

Shares

Outstanding 1.5B

EPS 7.35

P/E 13.91

ROE 87%

EBITDA 16.17B

Profit Margin 65%

Institutional

Holdings 94%

Source: Team estimates, Yahoo Finance

2

Business Description

Gilead Sciences is an American biopharmaceutical company specialized on discovery,

development and commercialization of innovative medicine. Since the inception in 1987

company’s primary focus has been antiviral products that treat incurable diseases. Currently

Gilead Sciences has one of the most successful portfolios of HIV and Hepatitis drugs, as well

as several products that treat cardiovascular and pulmonary conditions. In addition, the

company is working on diversifying its sources of revenue by venturing into oncology (cancer

treatment) drugs.

HIV Portfolio of medications:

Atripla - A single regimen cocktail pill that combines drugs of Gilead and Bristol-Myers

Squibb (BMY), and has an 82% success rate in reducing viral load to undetectable. Atripla’s

main competitor is Triumeq from ViiV Healthcare, which is priced at 26,488/yr. Atripla

comprises 15.45% of sales or $3,470M.

Truvada - works to prevent HIV cells from altering the genetic material of healthy cells in the

body, which keeps the virus from replicating, as well as decreasing the levels of the virus

already in the body. Truvada’s main competitor is ViiV’s Tivicay that is priced at $14,000 as

well. Truvada makes up 15% of sales or $3,340M.

Complera/Eviplera - Complera (Eviplera in Europe) is a cocktail drug made up of Viread,

Emtriva (GILD) and Johnson & Johnson’s (JNJ) Edurant. It is used to treat HIV patients who

are at the beginning stages of their HIV treatment, or patients with low viral load. Complera

has achieved an 86% success rate in reducing viral load to undetectable levels after a 48 week

regimen. Complera currently does not have a competing drug in production. It comprises

5.67% of sales or $1,228M.

Striblid - is a single regimen HIV pill made up of combined products from Gilead, which

attacks the disease by preventing affected cells from multiplying. In addition to that, Striblid

reduces the breakdown of antivirals in the liver. Striblid’s main competitor is ViiV’s Tivicay

which is also a single regimen drug that is priced at $14,000. Striblid comprises 5.63% of

sales or $1,197M.

Viread - is a single regimen drug that is used to treat HIV and Hepatitis B patients. Viread has

a unique feature: the ingredients of the drug are chemically preactivated, which requires less

processing by the body before they become active. A generic alternative is expected to reach

the market in 2018, as its U.S. patents expire in 2017. There are no competitors currently on

the market. Viread makes up 4.73% of sales or $1,058M.

Tybost - is a standalone pharmacokinetic enhancer that works to make other medications,

primarily HIV, more effective by boosting them in the blood. Tybost has been recently

approved (9/25/2014) resulting in limited information available.

Vitekta - is an integrase inhibitor that helps block HIV DNA from entering the healthy DNA

of a cell. Vitekta can be used in combination with other HIV medications. Pricing and sales

data is not available for Vitekta as it was approved in Q3 of 2014.

Hepatitis Medication

Sovaldi - is a single regimen daily drug that treats hepatitis C, as well as those who are co-

infected with HIV. The drug treats patients in genotypes 1-6, with a 91% cure rate in

genotypes 1, 4, 5 and 6. Viekira Pak from AbbVie is Sovaldi’s direct competitor. Sovaldi

makes up 48% of sales or $10,283M.

Figure 1: Gilead Product Statistics (Q3)

Product Price YOY

Growth % of Sales

Atripla $24,960/yr -5% 14.17%

Truvada $14,000/yr 7% 13.65%

Complera $13,500/yr 52% 5.01%

Striblid $16,650/yr 122% 4.89%

Viread $8,000/yr 10% 4.30%

Sovaldi $84,000/12wk 729% 42.02%

Harvoni $94,000/12wk N/A 8.69%

Letairis $57,600/yr 2% 2.43%

Ranexa $200/60 units 2% 2.08%

Zydelig $86,400/yr N/A 0.09%

Other - - 2.27%

Source: Company Financials

Figure 2: Gilead Product Sales Forecast

Product 2014

(millions) 2015E

(millions) Patent

Exp.

Atripla $3,470.00 $3,300.69 2019

Truvada $3,340.00 $3,540.40 2019

Complera $1,228.00 $1,426.46 2020

Striblid $1,197.00 $1,375.35 2018

Viread $1,058.00 $1,121.48 2018

Sovaldi $10,283.00 $6,996.24 2028

Harvoni $2,127.00 $11,626.60 2029

Letairis $595.00 $535.50 2015

Ranexa $510.00 $561.00 2019

Zydelig $23.00 $541.39 2023

Tybost - $10.06 2029

Vitekta - $8.23 2024

TAF - $300.00 2029

Figure 3: Approvals of Biopharmaceutical

Drugs by FDA 2000-2011

Year

New Drugs

Approved

Annually

Cumulative

Approvals Since

2000

2000 29 29

2001 29 58

2002 24 82

2003 27 109

2004 36 145

2005 20 165

2006 22 187

2007 18 205

2008 24 229

2009 25 254

2010 21 275

2011 30 305

3

Harvoni - is a single regimen drug, which has an astounding 94-99% cure rate, and does not

need to be taken with interferon and ribivarin (both of which cause flu like side effects).

Viekira Pak from AbbVie and in-house Sovaldi are Harvoni’s direct competitor. Being only

for 1 quarter on the market, Harvoni comprised 8.69% of sales in Q4 of 2014, or $2,127M.

Cardiovascular Medication

Letairis - A cardiovascular medication that combats the thickening of blood vessels in the lung

and heart caused by pulmonary arterial hypertension (PAH), and lowers the blood pressure in

the lungs to allow the heart to pump blood more efficiently and effectively. Letairis’s patents

are set to expire in 2015; the drug makes up 2.43% of Gilead’s total sales or $595M.

Ranexa - is used to treat chronic angina (pain of the chest), works to assist the heart in

pumping blood more efficiently and improves blood flow. Ranexa’s generic competitor is

Isosorbide sells at $38 for 60 units, though generic drug is a lot weaker. Ranexa comprised

2.04% of total sales or $510M.

Oncology Medication

Zydelig - is an oncology drug for treating lymphocytic leukemia with 81% response rate.

Zydelig is able to hold off growth of cancer for 10.7 month. Currently there is only one

competitor on the market from Roche, Rituxan with 13% response and $20,000 per round (4-

12 rounds per year). Even though it has been recently approved and generated only $23 or

0.09% of total sales in Q4 of 2014, its direct competitor Rituxan made $1,100M in 2014.

Pipeline Highlights

Gilead’s acquisition of Phenex Pharmaceutical’s Farnesoid X Receptor (FXR) program

comprising small molecule FXR agonists for the treatment of liver diseases including

nonalcoholic steatohepatitis (NASH) that could be used against obesity has a strong economic

potential, since economic effect of obesity just in US is estimated at $100B. The drug is

currently in phase II of clinical trials.

Upon approval, TAF will replace the tenofovir molecule in Gilead’s HIV drugs and help

prevent side-effects for bones and kidneys. Based on historical approval of breakthrough

drugs by FDA, TAF should be approved in Q3 2015. This would help to beat the adverse

situation created for HIV drugs with expiring patents.

Idealisib, is a potential treatment for Frontline Chronic Lymphocytic Leukemia (CLL) and

Indolent non-Hodgkin’s Lymphoma- both kinds of blood cancers. Idealisib is in phase III of

clinical trials and has been granted breakthrough therapy designation for CLL by FDA. This

indicates that it could be a significant improvement over the current treatments for leukemia.

Simtuzumab is a compound in phase II and is a monoclonal antibody that is highly selective

for LOXL2, an enzyme that modifies the extracellular matrix by promoting the cross-linking

of collagen fibers. LOXL2 plays an important role in tumor progression and metastasis. It also

has a potential to treat the development of fibrotic diseases of liver (for example NASH) and

lungs.

Industry Overview and Competitive Positioning

The Biotechnology Industry

Biotechnology uses biological processes at the cellular level to create better products to

improve lives. Modern biotechnology has helped produce breakthrough products that have

varied applications like treating life-threatening diseases; using sustainable forms of energy;

making industrial processes more efficient; etc. Biopharmaceuticals are products of biological

origin that are made by pharmaceutical companies to treat, diagnose or immunize living

beings against diseases.

Figure 4: Potential First-in-Class Biopharmaceutical Medicines in Development as of 2013

Phase

I

Phase

II

Phase

III Approved

Number

of

Potential

First-in-

Class

Medicines

2,356 2,602 498 48

Number

of Total

Medicines

3,025 3,764 1,099 94

Source: PhRMA.org

Vedroprevir

GS-4774

GS-9620

Tenofovir…

Simtuzumab

Entospletinib

Momelotinib

Idelalisib

GS-4059

GS-4997

GS-6615

Simtuzumab

GS-5806

Gilead Pipeline ProductsPhase III Phase II

4

Biopharmaceutical Research in the United States

The United States surpasses the world in biopharmaceutical research and also has the largest

pharmaceutical market. The outstanding biopharmaceutical R&D has helped develop a varied

pipeline of drugs which have the potential to (1) treat diseases having no previously approved

therapies; (2) be first-in-class; (3) treat orphan and neglected diseases; (4) be genetically

engineered to tailor the treatment according to each individual; (5) act as supporting

technology to support future therapies. Pharmaceutical companies in the United States own

the intellectual property rights (IPR) of most of the new drugs coming into the lucrative

market.

The industry though does face challenges in getting the drugs approved because of the long,

risky and rigorous process that each drug goes through to prove its safety and efficacy. The

whole process (consisting of R&D, preclinical non-human trials, clinical human trials from

phase I to III, FDA approval and any more phase IV trials required by FDA) can take about

10-15 years and may cost over $1billion. Out of tens of thousands of drugs screened, only one

is approved. For example in the year 2013, the biopharmaceutical research companies

received approvals for only 34 new medicines. The biopharmaceutical industry is very R&D

intensive and invests more than 10 times the amount of R&D per employee compared to all

manufacturing industries combined. (Source: PhRMA.org)

Contribution of Biotechnology to Pharmaceuticals

Today, large pharmaceutical companies buy innovation from small biotechnology companies

rather than investing in in-house research and development (R&D). From 1998-2007, 34% of

new drug approvals by FDA came from biotechnology companies or from technologies that

these companies bought from research universities. About 48% of scientifically novel drug

approvals and 58% of drugs for orphan diseases come from the biotechnology sector. (Source:

Biotechnology- Bringing Innovation to Neglected Disease R&D- A Joint Report by BVGH and

BIO)

Biopharmaceutical Products and the Market

The drugs produced by the biopharmaceutical industry are biologics derived from proteins

(for example, antibodies) and nucleic acids (DNA, RNA, antisense oligonucleotides). These

products may be used as therapies or in diagnostic procedures.

Today, diversifying into biologics is sought after and big pharmaceutical companies acquire

biotech companies or get licensed to use their methods in order to achieve that. The

companies not only have to prove safety and efficacy of the drugs, but also have to achieve

certain levels of quality and reasonable pricing in the market. In spite of rigorous trials that

new drug goes through, the US FDA provides special attention and ensures faster approvals of

breakthrough drugs, making United States a very favorable environment to invest in

breakthrough pharmaceutical R&D.

Competitive Positioning of Gilead Sciences, Inc.

Ease of entry for new participants in the market

Currently Gilead’s HIV drugs have exclusivity because they are the only single regimen HIV

tablets available in the market. While GlaxoSmithKline’s HIV drug Tivicay is not a single

tablet regimen, with expiration of Truvada patents in 2018, the company will be able to

introduce a Truvada/Tivicay single tablet. Thus, Gilead might lose exclusivity on the single

regimen drugs in the near future. Beyond 2021, Atripla, another HIV drug from Gilead, may

have it generic versions produced by new entrants due to patent expiration. On a positive note

though, patents of the HIV drugs Complera and Stribild go into the 2020s and may manage to

sustain Gilead’s leading position in the HIV competition. Also, Complera and Stribild are

expected to bring in greater revenues in the future if Gilead’s pipeline drug, TAF, gets FDA

approval. TAF will replace tenofovir (a nucleotide analog) used as a component in Gilead’s

HIV single tablet regimens. TAF is expected to overcome the bone and renal side-effects

Figure 5: R&D Costs of Gilead Sciences and

Competitors from 2012-2014

Figure 6: Ratios of R&D Cost: Revenue of Gilead

and Competitors from 2012-2014

0 2 4 6 8 10

Gilead Sciences, Inc

Merck & Co. Inc

AbbVie Inc

Roche Holding AG

Johnson & Johnson

GlaxoSmithKline

Pfizer Inc

Bristol-Myers SquibbCompany

Amgen Inc

R&D Cost in Billions of Dollars

2012

2013

2014

0 0.1 0.2

Gilead Sciences, Inc

Merck & Co. Inc

AbbVie Inc

Roche Holding AG

Johnson & Johnson

GlaxoSmithKline

Pfizer Inc

Bristol-Myers SquibbCompany

Amgen Inc

Ratio of R&D Cost : Revenue

2012

2013

2014

5

tenofovir. The recent FDA approval of the combination drug Prezcobix (Janssen’s Prezista

and Gilead’s booster cobicistat- also found in Tybost) strengthens Gilead’s position in the

HIV market. As a result, Gilead has more than one single-tablet HIV regimens out in the

market, which results in product differentiation and backup HIV drugs for patients who may

develop drug resistance. In spite of some threats from patent expirations in the near future,

Gilead has the potential to maintain its position as the leader in the HIV market.

In the Hepatitis C (HCV) market, Gilead is the only company that has produced oral

treatments. There is potential threat from Merck’s aquisition of Idenix, which is expected to

produce an oral hepatitis treatment with shorter treatment durations. But the drug is only its

second phase of development and will not be out in the market by 2017 at least. AbbVie and

Bristol-Myers Sqibb could be potential threats too in the HCV space. Gilead has managed to

have a strong hold on this market with skyrocketing sales during 2013 and 2014 mainly

contributed by its blockbuster drug Sovaldi.

Number and activity of Gilead’s rivals

Gilead has many rivals that are big, established companies. The established nature of rivals

with good R&D and marketing potential is a competition threat for Gilead. In the HIV Market,

Gilead faces competition from companies like ViiV and Bristol Myers Squibb. In the HCV

market Gilead faces most competition from AbbVie and Merck. In the cancer treatment

market Johnson and Johnson’s Imbruvica poses a threat to Gilead’s newly approved Zydelig

because of dangerous side effects to the liver. Gilead’s Tamiflu faces competition from

GlaxoSmithKline’s Relenza. Other rivals are Pfizer, Merck, Roche Pharmaceuticals,

AstraZeneca, etc. In spite of having big competitors, Gilead’s strong mission of addressing

unmet medical needs for life-threatening diseases and a strong R&D focused on introducing

breakthrough, first-in-class drugs to the market are huge strengths to sustain in the highly

competitive environment.

New drugs coming to the market and eroding profits from Gilead’s established drugs

AbbVie’s Viekira Pak has been a strong competitor for Gilead’s Sovaldi and Harvoni and has

been eating into Gilead’s potential profits in the HCV market. Although Harvoni is much

superior in terms of (1) having to take only one pill daily versus many pills to manage in the

case of Viekira Pak; (2) complete elimination of the side-effects contributor, ribavirin which is

still present in Viekira Pak’s regimen; and (3) cure rates of 97-99% as compared to 95% cures

rates of Viekira Pak; Harvoni and Sovaldi still continue to face competitive threats from

Viekira Pak mainly because of pricing issues.

Bargaining power of the consumers

Gilead tends to price its superior products exorbitantly, especially in the HIV and HCV

markets. The reason for higher pricing is pretty obvious that the products are superior and first

in their class. Not everyone can afford these drugs and thus health service companies in the

United States act like the voice of the consumers and lure the pharmaceutical companies into

making exclusivity deals. In these deals, the pharmaceutical companies get exclusivity for

selling only their products to the customers of the particular health service companies. This

comes at a cost though because the health service companies expect the pharmaceutical

companies to price their drugs at a discount. Consumers therefore have a great bargaining

power in the drugs market and that hurts the revenues and profits of the pharmaceutical

companies. Gilead has been pulled into this pricing war in the HCV market recently.

In the Indian market, Gilead has faced rejection of its Sovaldi patent on grounds that the drug

is not effective enough and does not have any improved properties over the Hepatitis C drugs

they are already aware of. Also the pricing is much higher than what it would be if India

manufactures generic forms of Sovaldi called sofosbuvir. If Gilead loses the battle of having

Sovaldi enter the Indian market, their agreements with the seven Indian drug makers helping

them to make and commercialize Sovaldi in about 91 developing countries will no longer

make sense. Also, Indian drug makers are capable of producing generic versions of Sovaldi

for as low as $1 per pill. This is nowhere close to the $1000 per 12 week regimen price that

Gilead has offered for selling Sovaldi if the agreement with India goes through. Gilead is

6

facing threats from gaining entry into a huge emerging market like India for its largest drug

franchise. This is a negative competitive factor.

In Europe, global health charity Medecins du Monde (MdM) has challenged Gilead’s

European patent for Sovaldi on grounds that it is effective but not sufficiently innovative.

Also, the high price makes it inaccessible to most people, even in rich countries like France.

Good management decisions for acquisitions

Gilead has shown good decision making with regards to acquiring the right companies or

drugs and that gives a great competitive edge to Gilead Sciences. For example, acquiring

Pharmasett in 2011 lead to blockbusters like Sovaldi and Harvoni leading to Gilead’s

performance surpassing the industry average.

Availability of R&D resources

R&D across the biotechnology industry is getting more efficient and maintaining standards

and strategy for R&D is a competitive factor. Gilead uses a bottoms-up approach to assign its

R&D budget across projects. The budgeting is based on the uniqueness and success of

projects. The R&D focuses on addressing unmet medical needs and life threatening diseases.

In 2011 Gilead invested more than $670M in R&D of HIV treatment and devoted one third of

its R&D budget to R&D of Hepatitis C.

Corporate Governance

Executive compensation for the CEO of Gilead Sciences, John Martin, totaled almost $180

million in 2013. His salary accounted for only $15.4 million but he cashed in on stock options

that netted him an additional $158.9 million while another $4.8 million came from shares that

vested last year. Furthermore, Martin’s overall compensation has been increasing considerably

over the last few years. Gilead’s CEO received about $53.2 million in 2010, $54.5 million in

2011, and $95.8 million in 2012. According to Bloomberg Billionaires Index, John Martin has

a net worth of $1.2 billion. In addition to being CEO, John Martin is also the Chairman of the

Board. He has been with Gilead since 1990 and has a great deal of influence at the company.

John Martin seems to be strongly entrenched at Gilead considering his position at the

company and the incredible growth experienced by Gilead the last few years.

With regards to political influence, the pharmaceutical and healthcare industry is very

persuasive. The size and profitability of the industry ensure that their requests will be listened

to and, in many cases, taken care of. As one of the industry’s biggest names, Gilead Sciences

are no exception. Last year, Gilead spent $2.89 million on lobbying costs while the industry as

a whole spent $227.81 million. While the industry’s lobbying expenses have been steadily

decreasing since 2009, Gilead’s lobbying expenses have more than doubled in the same time

span. We believe that this big increase in lobbying is to help relieve some of the pressure the

company has been facing in response to its exorbitant prices. Gilead is facing a hard time with

patent challenges in other countries, but they are determined to maintain its pricing strategy in

the U.S. where three-quarters of their revenues come from.

Social Responsibility

In the past, Gilead Sciences has participated in the CDP (formerly the Carbon Disclosure

Project). The CDP is a non-profit organization that aims to bring about company transparency

and to help companies develop strategic goals that will help reduce greenhouse gas emissions

and better protect the environment. In 2012 Gilead ranked second in the healthcare sector by

receiving a carbon disclosure score of 96. However, Gilead has not participated in the CDP

the last two years. This comes as a surprise considering that Gilead has performed splendidly

in the CDP. Furthermore, industry peers such as Amgen, Celgene and Biogen Idec have

released sustainability reports that describe their environmental, social and governance

business practices.

With regards to corporate social responsibility, Gilead Sciences has performed mediocre

according to CSRHub, which is the world’s largest CSR and sustainability ratings and

Figure 7: Annual Health Lobbying on

Pharma/Healthcare Products

Figure 8: Annual Lobbying by Gilead

Sciences

$0

$50

$100

$150

$200

$250

$300

98 00 02 04 06 08 10 12 14

Tota

l (in

mill

ion

s)

Year

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

01 03 05 07 09 11 13

Tota

l (i

n m

illio

ns)

Year

7

information database. CSRHub gave Gilead a score of 52 on governance with an overall score

of 50.

Investment Risks

Risk in HCV portfolio: In our opinion, the biggest investment risk that Gilead is facing is in

the Hepatitis segment of its business, which generated more than half of its total revenue last

year. According to the most recent report, discounts are going to increase to an average of

46% from 22% last year and, therefore, we should expect a subsequent drop in margins from

the current 85% to about 80%. Gilead should take particular steps as a result of the “price

war” that emerged with the approval of Viekira Pak by AbbVie. While having slightly worse

characteristics, AbbVie sells its new drug at a $10,000 discount to Harvoni and at a price

similar to Sovaldi. Both companies are now involved in a discounting competition in their

race for market share both domestically and internationally. In the US, Gilead was able to sign

exclusive deals with Aetna, UnitedHealth and CVS Health versus only Express Scripts for

AbbVie. Internationally, the situation looks a bit more complicated. While Gilead has

managed to sign several large exclusive deals in the EU (Germany, France, Spain and Italy)

and in Egypt, we think that Gilead will receive a patent refusal from India. A deal that would

provide a HCV regimen to 91 developing countries at a price of $1000 is being stalled by

Indian officials on grounds that the patent cannot be granted for a drug unless changes make it

significantly more effective and innovative. India’s Patent Office has recently rejected

Gilead’s application for Sovaldi and the company is currently challenging the decision. India

has a long history of patents and intellectual property rights issues and we think that Gilead is

going to lose in their attempt to monopolize developing countries. A similar situation

happened to Pfizer’s cancer drug, Sutent, in 2012, forcing the company to leave the deal with

the Indian companies. As a result, remaining European, Middle Eastern and some big South

American countries will receive an increase in the bargaining power achieving lower prices

from Gilead’s blockbuster drug.

Talking about Sovaldi with Gilead’s Vice President of Investment Relations, Patrick O’Brien,

we understand that the HCV positions are expected to be challenged with Merck’s own HCV

drug MK-5172A (grazoprevir) that was developed by Idenix, a company that Merck has

acquired in Q3 2014. Merck’s drug is currently in Phase 2 and has shown higher cure rates in

as little as 4 weeks, which is less than Sovaldi (12 weeks) and Harvoni (8 weeks). Taking into

consideration special treatment from the FDA for breakthrough drugs in terms of timing, as

well as historical time spent on R&D per stage for Hepatitis drugs, we think that Merck’s drug

should come out in Q1-Q2 2017.

Patents expirations: With the threat of fast approaching patent expirations for five of their

core drugs: Atripla, Truvada, Striblid, Viread and Ranexa in 2018-2019, Gilead finds itself in

the position of needing new products in the market place. However, Gilead does have a

significant number of products in the pipeline and it boasts above average success rates in

R&D for the industry. In addition, the firm has proven itself as successful in integration of its

acquisitions. Because of these factors, we think Gilead is poised to overcome the concern of

expiring patents with minimal turbulence. Furthermore, recent approval of Tybost and Vitekta

will help strengthen and provide a smooth transition in their HIV portfolio after its 2018-2019

patents expire. We also believe that the FDA will approve TAF by Q3 2015. TAF is a

component that can reduce bone and renal side effects, which will further strengthen Gilead’s

HIV position. Furthermore, Gilead’s spokesperson said they are looking at TAF as a substitute

for Viread.

Risks associated with R&D: As for the high R&D costs, they serve as an additional barrier to

entry for competitors that want to join a high gross margin pool. Although Gilead enjoys some

of the lowest R&D costs among its peers, it should be noted that subpar employee morale

could trigger an exodus of pertinent staff and result in an increase of its R&D costs.

Risk with foreign currency exchange rates: As a company that operates on a global scale,

Gilead is exposed to foreign currency exchange rates. While some currencies do not fluctuate

that much, others like the Egyptian pound, Indian rupee and Japanese Yen have had some

significant changes in their prices compared to the USD. Patrick O’Brien, Vice President of

Gilead’s Investment Relations, said that they have a team that hedges currency risks with 18-

Figure 9: Gilead Sales by Market

Source: Team estimates, GILD earnings release

HIV46%

Hep C48%

Cardiovascul

ar5%

Other1%

8

month projections, however, if a partnering developing country experiences a spike in its

currency’s volatility then that could result in a value drop of long-term contracts.

Litigations: Concerning risks, it is important to highlight current and potential litigation

issues. With the high density of patents in the biopharmaceutical industry, lawsuits based on

patent infringements are rather common. We think that a potential threat is carried from

Idenix, which has been recently acquired by Merck. This litigation is about HCV patents’

infringements in both the US and the EU that could negatively impact Sovaldi. In addition,

Philadelphia’s Transportation Authority has a filled a lawsuit against Gilead for high prices on

Sovaldi on the grounds of “unjust enrichment” that violates antitrust laws, which also brings a

negative image for a company whose goal is to cure people from life-threatening disease, as

well as possible price cuts on Sovaldi that is priced at $84,000 and contributed 42% of total

sales last year. Similar lawsuits have been filed in Europe as well. Doctors of the World, a

charity organization from France, states in its filings that Gilead is behaving like a monopoly

and abusing its position as a patent-holder to demand intolerably high prices.

Intellectual Property risks: Intellectual property rights and its protection is a core segment of

the biotech industry. While we do not anticipate any intellectual property violations, Gilead

has had a negative experience with Viread in Brazil. Local government officials rejected

Gilead’s patent so they could allow a Brazilian company to manufacture a generic drug based

on the core ingredient, tenofovir. Brazilian officials stated that Viread is not significantly more

effective or innovative. So there is always a potential threat associated with intellectual

property violations in the biopharmaceutical business.

In our opinion, Gilead has low short-term investment risk that is well priced in the models. By

analyzing the company’s pipeline of drugs, we can see that they are working to diversify their

streams of revenue by introducing new oncology drugs. Currently, Sovaldi and Harvoni

comprise almost half of Gilead’s revenues. Since all of Gilead’s products are in the “life

threatening disease” category, pricing and, as a result, profitability could be adversely affected

by potential health care reforms. Based on high gross margins, Gilead currently has 85%

margins but project 87-90% margins in Q1 2015. Concerning profitability, there is a potential

threat from high-tech companies like Google and its Calico project entering the

biopharmaceutical segment. However, in our opinion, it is more of a hypothetical than an

empirical risk. High infrastructure costs that include levels of expertise, time and capital make

biopharmaceutical choices rather costly. Based on success rates of R&D stages, time and

opportunity costs decisions in this industry are very expensive and potential entrants will need

to have strong technological base, patents and large capital in order to challenge positions of

companies like Gilead.

Overall, we think our model accurately accounts for company specific risks while taking a

conservative approach on individual drug sales forecasts.

Financial Analysis

Beta Calculation

The beta was calculated using the covariance of the excess returns of both US Gilead Sciences

Inc. (GILD), listed on the NASDAQ, and the S&P 500 Index (^GSPC) Index. This was

divided by the variance of the index excess returns. The model is based on monthly time-

series of 22 years. The first beta model gave us a beta of 0.907, and a single regression of the

stock and market excess returns gave us a beta of 0.906. Both of the betas were comparable to

the estimates on the streets.

The risk-free rate was calculated with the 3-month treasury rates averaged over the 22-year

time period (3.07%). We then subtracted the risk-free rate from the risk premium of 13.57%.

After applying the CAPM model, we got a cost of equity of 15.44%. Next, we added the size

premium (1.53%) from the Fama-French model, which gave us a cost of equity of 17.0%.

Discounted Cash Flows to the Firm Model Assumptions

9

Core items on the financial statements were based on sales forecast of individual product

lines discounted by the WACC of 11.1%.

We obtained the tax rate (18.3%) by reviewing the company’s 2014 SEC 8-K report. This

is referred by Gilead in the SEC report. This could change depending on the firm’s

earnings growth.

Financial statements where forecasted using growth rates, revenue base ratios and

averages over three to five year periods. The property, plant and equipment and capital

expenditure items were used to calculate the free cash flows to the firm.

Depreciation and amortization was calculated using the last five years D&A/Sales. From

2010 to 2014 D&A was between 2.9% to 3.6%. We decided to take the geometric mean

of the five percentages giving us 3.3%.

We calculated the terminal value using the forecasted EBITDA (2024E). The exit

multiple we used, was calculated using the averaged exit multiples of the biotech

industry.

We then forecasted the diluted shares outstanding by reviewing the change over time.

This gave us diluted outstanding shares of 1,647,000,000.

We calculated the WACC using a debt-to-value ratio of 41.0% and equity-to-value ratio

of 59.0%. We also used a market risk premium of 13.57%, size premium of 1.53% and

cost of equity of 17.0%. This gave us a WACC of 11.1%.

Estimating growth of sales, we calculated the projected sales per product using historical

performance, 5 year CAGR, current news, availability of competitors and their

competitive positions, patent expirations and risk assumptions discussed above. We used

conservative approach assuming terminal value of zero for the products in their expiration

year. Projections on the pipeline product were based on historical performance of the

substitute.

Our confidence in the assumptions is provided by the calculated implied perpetuity growth

rate of 2.8%, which is between 2% inflation rate and 3% GDP growth rate. We also calculated

an implied EV/EBITDA using the last twelve months of the EBITDA and the enterprise value

giving us a multiple of 9.1x. We calculated an implied exit multiple of 12.6x. These factors

provided us with confidence in using 12.0x exit multiple, which is an average exit multiple of

the biotech industry.

Monte Carlo Method

We used Monte Carlo approach with a 100,000 sample, testing various uncertainties and

possible bias associated with growth of sales, projections of EBITDA, EBIT, EBIAT, free

cash flows, terminal value and price per share to support our investment objective.

We assumed no change in weighted average cost of capital and number of outstanding

diluted shares.

Using stochastic system, on a 100,000 sample we tested NPV of free cash flows and came

up with a mean value $69,620M which almost perfectly aligns with the projected

$69,634M and standard deviation of approximately $17M (please refer to appendix 7 for

full statistical data)

We then tested Terminal value by using random sample of 100,000 EBITDA in 2024,

with historical standard deviation and predicted mean value, and we also included

sensitivity test on exit multiple between 11.00 and 13.00.

Using above calculations and our initial assumption, we did sensitivity analysis on share

price. While the mean value of price per share was $109.52 and standard deviation of

$34.73 in Monte Carlo simulation, our projected value of $114.78 is very close to the

simulation and lies within 1 standard deviation.

Since mean values of stochastic Monte Carlo 100,000 simulations lay perfectly close to our

projected values, we are confident in our Discount Cash Flow model to the Firm with per

product sales projections.

10

Appendix 1: Income Statement

11

Appendix 2: Cash Flow Statement

12

Appendix 3: Working Capital Projection

13

Growth Rates: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

1 One-Year Growth Rate (Sales) 6.6% 9.6% 16.0% 15.0% 126.5% 18.1% 34.8%

2 CAGR (5-years) 27.0% 18.9% 15.9% 12.8% 33.3% 18.9% 21.6%

Profitability Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

3 Gross Margin 76.5% 74.7% 74.5% 74.5% 84.8% 76.9% 77.0%

4 EBIT Margin 49.8% 46.8% 41.3% 40.4% 61.3% 47.4% 47.9%

5 Net Margin 36.4% 33.3% 27.3% 27.5% 48.4% 33.8% 34.6%

6 Return on Assets (ROA) 20.6% 15.3% 13.7% 11.7% 35.2% 17.8% 19.3%

7 Return on Equity (ROE) 47.2% 40.6% 27.8% 26.2% 87.0% 41.4% 45.8%

8 Return on Invested Capital (ROIC) 32.3% 19.8% 17.5% 21.0% 54.8% 26.4% 29.1%

9 Pre-Tax Return on Invested Capital 43.6% 25.7% 23.6% 28.1% 67.1% 34.6% 37.6%

Efficiency Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

10 Asset Turnover 1.3 0.6 0.5 0.5 0.8 0.7 0.7

11 Net Working Capital Turnover 11.1 1.1 1.3 -168.5 4.4 2.5 -30.1

12 Fixed Assets Turnover 10.5 10.5 8.5 9.3 14.6 10.5 10.7

13 Days in Inventory (Days) 117.6 222.8 231.5 242.7 165.8 189.5 196.1

14 Inventory Turnover 2.9 1.6 1.6 1.5 2.2 1.9 2.0

15 Collection Period (Days) 31.0 57.3 51.2 46.3 35.8 43.2 44.3

16 Receivables Turnover 8.4 4.5 5.1 5.6 7.3 6.0 6.2

17 Days' Sales in Cash (Days) 44.8 445.3 70.0 71.4 171.9 111.4 160.7

18 Payable Period (Days) 156.8 207.2 196.0 160.4 114.0 163.4 166.9

Liquidity Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

19 Current Ratio 2.3 5.5 1.5 1.1 3.2 2.3 2.7

20 Quick Ratio 0.9 4.5 0.8 0.7 2.1 1.4 1.8

21 Cash Ratio 0.4 3.9 0.4 0.3 1.9 0.8 1.4

22 Defensive Interval Measure 231.6 940.0 228.0 230.3 612.9 370.7 448.5

Leverage Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

23 Debt Ratio 31.7% 52.6% 42.5% 25.1% 36.4% 36.5% 37.7%

24 Debt to Equity Ratio 46.4% 110.8% 73.9% 33.5% 57.2% 59.2% 64.4%

25 Equity to Assets Ratio 52.8% 39.7% 44.9% 52.2% 39.1% 45.4% 45.7%

26 Times-Interest Earned 36.4 18.4 11.1 14.7 37.1 21.0 23.5

27 Times-Interest Earned (Cash Flow) 38.8 19.9 11.9 15.9 39.2 22.5 25.1

28 Times-Burden Covered 5.2 18.3 2.6 1.5 8.1 5.0 7.2

Risk Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

29 Fixed to Variable Costs 1.1 1.2 1.3 1.3 1.5 1.3 1.3

30 Sales to Fixed Costs 3.1 3.3 2.9 2.8 4.2 3.2 3.3

31 Contribution Margin 0.7 0.7 0.7 0.7 0.8 0.7 0.7

Valuation Ratios: 2010 2011 2012 2013 2014 Geo Mean Arth. Mean

32 Earnings Per Share (EPS) 1.80 1.55 1.46 1.65 6.54 2.13 2.60

33 Dividend Per Share 0.00 0.00 0.00 0.00 0.00 0.00 0.00

34 Price/Earnings (P/E) Ratio 10.1 13.2 25.2 45.5 14.4 18.6 21.7

35 Price/Book Value (P/B) Ratio 5.0 4.6 6.0 10.1 10.4 6.8 7.2

36 Dividend Payout Ratio 0.0 0.0 0.0 0.0 0.0 0.0 0.0

37 Stock Price (Year-end) 18.12 20.47 36.72 75.10 94.26 39.52 48.93

38 Stock Price Growth -16.3% 13.0% 79.4% 104.5% 25.5% 40.7% 41.2%

39 Average # of Shares Outstanding 1,603,996 1,506,212 1,519,163 1,534,414 1,499,000 1,532,102 1,532,557

40 Book Value 5,863,729 6,738,856 9,309,739 11,369,067 13,564,709 8,928,255 9,369,220

41 Book Value Per Share 3.66 4.47 6.13 7.41 9.05 5.83 6.14

Appendix 4: Financial Ratios

14

Appendix 5: WACC, Enterprise Value, Growth Rate

15

Appendix 6: Beta Regression

Beta Regression

Regression Statistics

Multiple R 0.248196158

R Square 0.061601333

Adjusted R Square 0.058188974

Standard Error 0.171680142

Observations 277

ANOVA

df SS MS F Significance F

Regression 1 0.532078302 0.532078302 18.05241965 2.94496E-05

Residual 275 8.105369571 0.029474071

Total 276 8.637447873

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept 0.008561174 0.01282459 0.667559271 0.504974769 -0.016685671 0.033808019 -0.016685671 0.033808019

Market Risk Premium 0.906782784 0.213420216 4.248813911 2.94496E-05 0.486637798 1.326927769 0.486637798 1.326927769

16

Descriptive Statistics on Per Share Price

Mean 109.52

Standard Error 0.109831

Median 109.27

Standard Deviation 35

Sample Variance 1,206

Kurtosis 0.010631

Skewness 0.026013

Range 304

Minimum 0.0

Maximum 304

Sum 10,952,205

Count 100,000

Confidence Level(95.0%) 0.215268

Descriptive Statistics on NPV of FCF

Mean 69,620,499

Standard Error 17,357

Median 69,614,780

Standard Deviation 5,488,735

Sample Variance 30,126,214,064,202

Kurtosis 0

Skewness 0

Range 44,117,867

Minimum 48,137,195

Maximum 92,255,062

Sum 6,962,049,878,357

Count 100,000

Confidence Level(95.0%) 34,019

Gilead, Monte Carlo Test 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

E Sales 29,392,818 30,862,459 31,171,084 30,859,373 28,359,764 22,120,616 20,129,760 19,727,165 19,135,350 17,030,462

Std dev 6,334,571

Sales (Sensitivity) 23,306,801 12,133,628 36,791,271 15,488,114 18,623,008 18,810,899 20,902,930 29,103,176 28,350,930 16,687,891

E EBITDA 19,092,434 15,373,059 15,590,625 15,821,194 15,027,933 11,254,058 10,262,166 10,103,672 9,847,173 8,770,537

std dev 4,726,817

EBITDA (sensitivity) 22,463,155 21,768,087 10,056,724 8,160,804 19,817,954 10,493,105 12,358,072 5,478,966 16,846,830 11,888,731

E EBIT 6,121,332 14,556,284 14,701,847 14,554,828 13,375,887 10,433,192 9,494,205 9,304,321 9,025,191 8,032,420

std dev 4,484,067

EBIT (sensitivity) 6,829,646 13,949,866 17,553,882 22,123,494 17,259,276 9,034,430 6,256,482 -235,132 14,331,595 9,981,037

E EBIAT 12,792,550 13,432,178 13,566,500 13,430,835 12,342,937 9,627,491 8,761,017 8,585,796 8,328,223 7,412,118

std dev 3,769,740

EBIT (sensitivity) 12,676,553 10,690,645 8,356,141 13,358,242 7,060,792 11,478,368 11,749,884 8,309,975 5,536,334 436,987

E Free Cash Flow 12,617,025 13,402,394 15,662,410 14,492,846 12,941,776 9,366,565 9,168,245 9,043,025 8,933,274 6,416,576

std dev 2,842,697

Free Cash Flow (sensitivity) 12,539,585 13,297,306 8,840,637 10,698,099 15,191,157 7,293,952 8,241,820 11,381,195 13,594,537 8,562,829

WACC 11.1%

NPV of FCF 69,620,499

Appendix 7: Monte Carlo Simulation

17

Demand Projections

2014 2015 2016 2017 2018

United States

HBV 1,601,670 1,616,405 1,631,276 1,646,284 1,661,430

HCV 5,766,012 5,819,059 5,872,595 5,926,623 5,981,147

HIV 1,922,004 1,616,405 1,631,276 1,646,284 1,661,430

Canada

HBV 35,675,834 179,985 181,604 183,239 184,888

HCV 35,676 35,997 36,321 36,648 36,978

HIV 107,028 107,991 108,963 109,943 110,933

Japan

HBV 2,540,400 2,489,592 2,439,800 2,391,004 2,343,184

HCV 2,921,460 2,863,031 2,805,770 2,749,655 2,694,662

HIV 127,020 124,480 121,990 119,550 117,159

European Union

HBV 7,103,832 7,119,461 7,135,124 7,150,821 7,166,553

HCV 2,537,083 2,542,665 2,548,258 2,553,865 2,559,483

HIV 2,943,016 2,949,491 2,955,980 2,962,483 2,969,000

South Korea

HBV 6,050,875 6,070,842 6,090,876 6,110,976 6,131,142

HCV 857,207 860,036 862,874 865,722 868,579

HIV 50,424 50,590 50,757 50,925 51,093

Russia

HBV 7,313,502 7,276,203 7,239,094 7,202,175 7,165,444

HCV 2,925,401 2,910,481 2,895,638 2,880,870 2,866,177

HIV 1,462,700 1,455,241 1,447,819 1,440,435 1,433,089

Brazil

HBV 4,076,720 4,128,087 4,180,101 4,232,770 4,286,103

HCV 5,299,736 5,366,513 5,434,131 5,502,601 5,571,934

HIV 6,115,080 6,192,130 6,270,151 6,349,155 6,429,154

Mexico

HBV 1,210,058 1,223,611 1,237,315 1,251,173 1,265,186

HCV 847,041 856,528 866,121 875,821 885,630

HIV 242,012 244,722 247,463 250,235 253,037

China

HBV 164,164,800 164,887,125 165,612,628 166,341,324 167,073,226

HCV 41,041,200 41,221,781 41,403,157 41,585,331 41,768,306

HIV 1,368,040 1,374,059 1,380,105 1,386,178 1,392,277

India

HBV 37,992,900 38,547,596 39,110,391 39,681,403 40,260,751

HCV 22,795,740 23,128,558 23,466,235 23,808,842 24,156,451

HIV 3,799,290 3,854,760 3,911,039 3,968,140 4,026,075

Africa (Developed)**

HBV 7,197,300 7,377,233 7,561,663 7,750,705 7,944,473

HCV 7,197,300 7,377,233 7,561,663 7,750,705 7,944,473

HIV 2,159,190 2,213,170 2,268,499 2,325,211 2,383,342

TOTALS HBV 274,927,891 240,916,140 242,419,874 243,941,874 245,482,380

HCV 92,223,855 92,981,881 93,752,763 94,536,681 95,333,820

HIV 20,295,804 20,183,039 20,394,042 20,608,539 20,826,589

PERCENT OF TOTAL HBV 6.10% 5.30% 5.29% 5.28% 5.26%

HCV 2.05% 2.05% 2.05% 2.04% 2.04%

HIV 0.45% 0.44% 0.44% 0.45% 0.45%

Infected Population

Appendix 8: Demand Analysis

18

HCV Infection Population and Percent ( Region x Genotype )

Region Regional HCV

N ( '000 ) Percent % N ( '000 ) Percent % N ( '000 ) Percent % N ( '000 ) Percent % N ( '000 ) Percent % N ( '000 ) Percent % N ( '000 )

North America and Caribbean

Caribbean 450.0 92.6 15.0 3.2 17.0 3.5 4.0 0.8 0.0 0.0 0.0 0.0 486.0

High-income North American 3,595.0 75.8 567.0 12.0 492.0 10.4 55.0 1.2 6.0 0.1 26.0 0.6 4,742.0

Europe

Central Europe 1,548.0 89.2 1.0 0.1 164.0 9.4 22.0 1.3 0.0 0.0 0.0 0.0 1,736.0

Eastern Europe 4,023.0 65.1 270.0 4.4 1,881.0 30.4 6.0 0.1 0.0 0.0 0.0 0.0 6,181.0

Western Europe 3,169.0 59.0 583.0 10.8 1,332.0 24.8 262.0 4.9 26.0 0.5 2.0 0.0 5,374.0

Africa

Central Sub-Saharan Africa 37.0 1.7 17.0 0.8 0.0 0.0 2,145.0 97.6 0.0 0.0 0.0 0.0 2,198.0

Eastern Sub-Saharan Africa 1,187.0 37.3 294.0 9.2 288.0 9.1 978.0 30.7 436.0 13.7 0.0 0.0 3,183.0

North Africa and Middle East 3,808.0 27.3 115.0 0.8 884.0 6.3 9,118.0 65.3 47.0 0.3 0.0 0.0 13,971.0

Southern Sub-Saharan Africa 399.0 26.5 18.0 1.2 107.0 7.1 98.0 6.5 887.0 58.8 0.0 0.0 1,508.0

Western Sub-Saharan Africa 4,427.0 65.7 1,550.0 23.0 0.0 0.0 761.0 11.3 5.0 0.1 0.0 0.0 6,743.0

Asia

Central Asia 2,100.0 66.6 148.0 4.7 906.0 28.7 0.0 0.0 0.0 0.0 0.0 0.0 3,155.0

East Asia 32,082.0 58.0 8,444.0 15.3 5,762.0 10.4 40.0 0.1 0.0 0.0 8,982.0 16.2 55,311.0

High-income Asia Pacif ic 1,926.0 74.9 629.0 24.5 15.0 0.6 0.0 0.0 0.0 0.0 0.0 0.0 2,571.0

South Asia 12,889.0 23.2 1,333.0 2.4 39,706.0 71.6 1,413.0 2.5 80.0 0.1 55.0 0.1 55,475.0

Southeast Asia 4,910.0 57.0 1,572.0 18.2 1,331.0 15.4 77.0 0.9 0.0 0.0 729.0 8.5 8,619.0

Oceania

Australasia 388.0 54.2 34.0 4.7 280.0 39.2 9.0 1.3 0.0 0.0 3.0 0.5 715.0

Latin America

Andean Latin America 1,003.0 90.9 17.0 1.5 83.0 7.6 0.0 0.0 0.0 0.0 0.0 0.0 1,103.0

Central Latin America 2,796.0 71.7 754.0 19.3 330.0 8.5 16.0 0.4 2.0 0.0 0.0 0.0 3,899.0

Southern Latin America 876.0 87.0 58.0 5.7 65.0 6.5 5.0 0.5 4.0 0.4 0.0 0.0 1,008.0

Tropical Latin America 1,802.0 69.3 89.0 3.4 699.0 26.9 7.0 0.3 3.0 0.1 0.0 0.0 2,600.0

TOTALS 83,415.0 1,193.0 16,508.0 165.2 54,342.0 316.4 15,016.0 225.7 1,496.0 74.1 9,797.0 25.9 180,578.0

Totals (Excludes Oceania) 83,413.4 46.2 16,509.0 9.1 54,345.0 30.1 15,014.5 8.3 1,496.3 0.8 9,798.6 5.4 180,576.8

Genotype 6Genotype 1 Genotype 2 Genotype 3 Genotype 4 Genotype 5

Appendix 9: HCV Population and Percent

19

Worldwide Prevalence of Hepatitis C Virus 2013-14

Region

Africa Prevalence of HCV

Sub-Saharan Africa 2.2% (0.1%–13.8%)

Central Africa 6.0%

West Africa 2.4%

Southern and East

Africa 1.6%

Americas

North America

Canada 0.7%

United States 1.3%

Latin America

Argentina, Brazil,

Mexico, Puerto Rico,

Peru and Venezuela

1.4–2.5%

Asia and Oceania

South Asia

India 3.4%

Southeast Asia

Vietnam 2–2.9%

East Asia

Taiw an 4.4%

China 1–1.9%

Australasia (Australia

and New Zealand) 2.7%

Melanesia,Micronesia,

and Polynesia Regions

2.6%

Eastern Mediterranean

Egypt 15.0%

Pakistan 4.9%

Europe

Central Europe

Czech Republic,

Poland, Romania, and

Hungary

≤0.5%

Romania ≥3%

Western Europe

France, Germany,

Greece, Italy, Norw ay,

Portugal, Spain,

Sw eden, Sw itzerland,

and UK

≤ 0.5%

Rural Areas in Greece and Italy ≥ 3.0%

Eastern Europe

Russia ≤0.5%

Parts of Russia ≥3%

Appendix 10: HCV Prevalence rates

20

Disclosures:

Ownership and material conflicts of interest:

The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this

company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of

interest that might bias the content or publication of this report.

Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue.

Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or

advisory board member of the subject company.

Market making: The author(s) does not act as a market maker in the subject company’s securities.

Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public

and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or

implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment

decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of

an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated

with CFA Society San Francisco, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge