Biotech Values

[Rocky3]

GILD—I think your projected P/E ratios are much too high and that a P/E of 10 is reasonable. There’s a large amount of uncertainty a few years out, particularly in the HIV business.

You may be right as to the p/e, but I would say that it is because the uncertainty about the HCV business a few years out. Given history, there has not been any sustainability in sales in HCV. I am making the bet that this will change, but I understand that it is a jump. The HIV business is an additional question, but will less than 50% of sales and the market will be much more concerned about the size and treatability of the HCV market.

Moreover, if GILD’s insiders seriously thought the share price would be $180 or even $120 in a year or two, they probably wouldn’t be unloading colossal amounts of stock at the current price.

Here, your repeated concern is far over stated and pretty easily countered. The "big dog" Martin has been selling every month for years. He was willing to sell at a split-adjusted 23-24 two years ago and 43-45 last year. If he had based the sales on his view of the future price would be, he would not have sold at 23 or 45. Month in and month out he exercises and sells 1/12 of the options that will expire in January of the following year. He takes whatever the price is. The number of shares sold is based on the option grant and has been going down just because he had been granted fewer options. Granted, the total value sold is outrageous, but that is due to the results of the stock price and original number of options granted. I have not studied the other sales to the same extent, but it is clear than many, many Form 4s were filed in early 2013 and 2012, so my bet is that many other sales occurred at prices of 23-46, so your argument surely fails as to prior sales and should have little support at the current price either.