Stock Pitch

Nikolai Doytchinov, Jonathan Im, Cheng Ma, Yang Wu, Tej Dhond, Gaurish Gwalani

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Table of Contents

I. Investment Thesis

II. Industry Overview

III. Company Analysis

IV. Valuation

I. Investment Thesis

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Gilead Sciences (NASDAQ:GILD)

Recommendation: Buy Current Price: $101.90 Price Target: $115.27 (13% upside)

Gilead’s market leadership in Hepatitis C and HIV treatment, strong cash flow generation, and promising pipeline

combine to create a compelling investment that has been undervalued by the market.

Dominant market position of Hepatitis C treatments Sovaldi and Harvoni

Clinical trials on newer, better drugs including GS5816 and TAF

Recently announced $0.43/share dividend reflects strong cash position and management confidence in continued success

CATALYSTS

RISKS

Uncertainty regarding Sovaldi pricing and Harvoni patent status in light of competition and litigation with AbbVie

Pipeline drugs may not be approved

Expiring patents require development and approval of new drugs to sustain revenue

II. Industry Outlook

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Industry Outlook

Source: IBISworld Industrial Report

INDUSTRY TRENDS

3 Sub-industries: Medical, Agricultural, and Industrial

Relatively high barriers to entry

Large initial investment

Additional risk of time

Demand curve Vertical

Change in business model

Recession Lack of VC funding

Pharmaceutical partners

Internal sources

Vertical integration Higher profit margins

Higher government regulation

Higher cost for companies

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Industry Outlook

Source: IBISworld Industrial Report

FUTURE GROWTH

Baby boomers

Domestic market expansion

Consolidation

Broaden product lines

Emerging Markets

Rise of patent expirations

What is a patent?

Typical lifespan: 15 years

Potential acquisition target: biotech firms

Higher profit margins

Profit = $20 - $35

billion

Total tax cost = $75-$90

billion

Biologics Price Competition & Innovation

Act Mandate = $110 billion

Affordable Care Act

Source: Energy & Capital

Source: IBISworld Industrial Report

Bill

ion

s

Bill

ion

s

III. Company Overview

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Company Overview

Source: Yahoo Finance

Gilead Sciences (GILD)

Biopharmaceutical company

Life-threatening diseases

Founded in June of 1987 by Michael Riordan

Company focus is on anti-viral medicines due to founder

Vast pipeline

BUSINESS OVERVIEW

PERFORMANCE CEO

MBA at Golden Gate University

PhD at University of Chicago (Organic Chemistry)

Year Company Price Importance

2006 Corus Pharma $365 million Respiratory Arena; Cystic Fibrosis

2006 Myogen $2.5 billion Pulmonary diseases

2009 CV Therapeutics $1.4 billion Cardiovascular Franchise

2010 Arresto Biosciences

$225 million Fibrotic diseases; cancer

2011 Pharmasset $10.4 billion Hepatitis C

2015 Phenex Pharmaceuticals

$470 million Liver diseases

John C. Martin

Advancing HCV leadership What is HCV?

Hepatitis C – an often debilitating viral infection impacting the liver

Often asymptomatic and can have long latency periods. Chronic infection can possibly lead to liver failure, potentially liver transplantation.

Sovaldi®/Harvoni® The standard of care for the treatment of HCV

$12bn revenue in 2014; 75% long-term market share

Sovaldi®

A life-altering treatment for HCV; The only approved drug for HCV genotypes 2,3, and 4

Approved in 2013; $85,000 for a 12 week course

High cure rate – 90% vs. 65%

Harvoni®

Superior efficacy (94-99% cure rates) and safety profile for HCV genotype 1 (68% of HCV population)

Approved in 2014; $94,000 for a 12 week course

The backbone of its success: HIV treatment

Dominating HIV therapy

The planet’s top-selling HIV medicines, with ~60% of the 11.7 million patient market

35 million people living with HIV

Multiple therapies targeting on different age groups and drug resistance

$9.24 bn revenue in 2014

Bright future: TAF, less toxic

Antiretroviral therapy (ART)

Stops HIV from reproducing itself and spreading

Keeps the amount of virus in bloodstream so low that not enough to cause symptoms

Rank Naive All Patients

1 Stribild® Atripla®

2 Complera® Complera®

3 Atripla® Stribild®

4 Truvada® + other

3rd Agent Truvada® + other

3rd Agent

5 Other NRTI +

other 3rd Agent Truvada® + other

3rd Agent

Rank Naive All Patients

1 Eviplera® Atripla®

2 Atripla® Eviplera®

3 Truvada® + other

3rd Agent Truvada® + other

3rd Agent

4 Stribild® Truvada® + other

3rd Agent

5 Truvada® + other

3rd Agent Truvada® + other

3rd Agent

Gilead Tops Global Rankings Among HIV Therapies

U.S.

Europe

Sustiva Viread Emtriva Edurant Reyataz

Atripla® ✓ ✓ ✓

Truvada® ✓ ✓ Complera®/

Eviplera® ✓ ✓ ✓

Stribild® ✓ ✓ ✓ ✓ Source: Gilead Sciences Source: Gilead Sciences

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Other Drugs

Sources: Gilead Sciences, drugs.com, Food and Drug Administration, JP Morgan Equity Research

Treats chronic Hepatitis B (HBV)

Used in combination therapy for HIV-1

On World Health Organization’s List of Essential Medicines

Generated $1.06 bn in revenue in 2014

Patent expires in 2018, leaving just over $3 bn in expected remaining revenues

Viread

Ranexa

Zydelig

Treats chronic angina (chest pain)

More moderately priced that many other Gilead products

Over $500 million in annual sales

Patent protected until 2019

Letairis

Treats Pulmonary Arterial Hypertension (PAH)

Over $500 million in annual sales

Patent protection until 2018

Some residual revenues forecast after expiry

Approved by FDA in July 2014

Patent protected until 2033

Marketing exclusivity granted until 2019

Treats blood cancers

Relapsed chronic lymphocytic leukemia (CLL)

Relapsed follicular B-cell non-Hodgkin lymphoma (FL)

Relapsed small lymphocytic lymphoma (SLL)

Promising expansion into oncology market

Potential for combination therapies

J.P. Morgan Equity Research forecasts expansion to over $1 bn in revenue by 2018

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Drugs in the pipeline

Source: SEC Filings and S&P Capital IQ

20 new drugs in the pipeline: 1 in NDA, 5 in phase 3, 8 in phase 2, and 6 in phase 1

Shifting focus to oncology products, market with more than $1B in sales last year

Notable products:

TAF (NDA stage)

GS5816 (phase 3)

Simtuzumab (phase 2)

OVERVIEW

TAF

Simtuzumab

General Applications

Oncology and non-oncology applications: NASH, IPF, liver fibrosis

NASH (nonalcoholic steatohepatitis)

Large and expanding market: 2-5% of U.S. population (6M to 16M) are affected, 30% of population in developed countries have less severe form which could deteriorate to NASH.

No optimal treatment is available currently

In Phase 2 clinical trials; data expected in 4Q15

HIV drug in NDA stage

NDA and MAA expects approval in 4Q15.

Positive phase 3 results announced in Sept. 2014.

Improvement on side effects compared to current HIV product

GS5816

Hepatitis C drug in phase 3

12-wk single tablet regimen expected to be effective against all genotype and cirrhotic patients Further secure Gilead’s leading position in the franchise

Phase 3 results expected to come out mid 2015

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Risks & Mitigation

Drug from main competition AbbeVie is inferior in many fields based on clinical data

Given the company’s past successes, new drugs are likely to be successful as well. Even if a some of the 20 fails, the ones that succeed can drive revenue growth

Will most likely obtain regulatory approval

Will most likely obtain patent

Commercial: competition in the HIV and HCV franchise

Developmental: drugs may fail to prove efficacy in clinical trials

Regulatory: Gilead may fail to secure regulatory approval on new products

Legal: Pending litigation with AbbVie over Harvoni patent; uncertainty regarding intellectual property rights to combination therapies

Risks Mitigation

IV. Valuation

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Comparable Companies Analysis

Source: SEC Filings and Bloomberg

Company Share Price

(US$) Market Value

(US$mm) Enterprise Value

(US$mm) Rev.

Growth % Current P/E NTM P/E EV/EBITDA EV/EBIT PEG Ratio

AMGEN 153.48 116,747.60 120,436.60 7.4% 16.5 16.2 12.0 13.3 1.57

CELGENE 115.88 92,553.80 92,530.40 18.1% 24.0 23.2 18.1 18.3 0.90

ALEXION 182.29 36,849.70 35,052.70 92.2% 30.8 29.9 25.8 26.3 1.20

REGENERON 402.40 41,293.10 40,390.10 34.0% 37.7 37.0 30.1 35.1 2.07

BIOGEN 391.66 91,889.10 89,163.00 87.9% 23.0 22.6 15.8 16.4 1.29

Mean 249.14 75,866.66 75,514.56 47.92% 26.4 25.78 20.36 21.88 1.41

Median 182.29 91,889.10 89,163.00 34.00% 24.0 23.2 18.1 18.3 1.29

High 402.40 116,747.60 120,436.60 92.20% 37.7 37.0 30.1 35.1 2.07

Low 115.88 36,849.70 35,052.70 7.40% 16.5 16.2 12.0 13.3 0.90

GILEAD 101.90 153,732.90 155,748.70 122.20% 10.7 10.6 8.8 8.7 0.46

Among large-cap biotech peers, Gilead trades at the lowest multiples despite exceptional growth in 2014 and strong projected growth in coming years

Forward P/E of 10.6 and EV/EBITDA of 8.8 suggest undervaluation relative to market even assuming slow future growth

The uniqueness of products and diversity of financial positions of biopharmaceutical companies limits comparability for purposes of valuation

Discounted Cash Flow Analysis (Base Case)

Sources: Bloomberg, JP Morgan Equity Research, Needham Equity Research, SEC filings 17

Discounted Cash Flow (Base Case), cont.

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Valuation Summary In Millions, except per share

Present Value of Enterprise $169,912.7

Less: Total Debt 9,410.1

Less: Minority Interest 0.0

Less: Preferred Equity 297.4

Plus: Cash 7,691.7

Equity Value $187,311.9

Shares Outstanding 1,625.0

Equity Value Per Share $115.27

Sensitivity Analysis

Exit Discount Rate

Multiple 8.00% 9.00% 10.00% 11.00% 12.00%

8.0x 107.88 104.12 100.54 97.15 93.92

9.0x 115.95 111.82 107.91 104.19 100.65

10.0x 124.02 119.53 115.27 111.22 107.38

11.0x 132.09 127.24 122.63 118.26 114.11

12.0x 140.16 134.95 129.99 125.30 120.84

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Price Target

Base Case: $115.27 (13% upside)

Revenue estimates based on Bloomberg consensus; 5% revenue CAGR through 2019

85% gross margin; in line with historical

10x exit multiple, implying 2.0% perpetual growth

Bull Case: $130.36 (28% upside)

Revenue estimates based on Bloomberg consensus; 5% revenue CAGR through 2019

88% gross margin; slight improvement from historical, consistent with analyst consensus

11x exit multiple, implying 2.7% perpetual growth

Bear Case: $92.20 (10% downside)

Revenue flat in 2015, followed by 3% CAGR through 2019

85% gross margin; in line with historical

9x exit multiple, implying 1.8% perpetual growth