Quick counterattack on rival

GILEAD SCIENCES - BUY Quick counterattack on rival This company was selected on the basis of Jyske Quant. Jyske Quant is a model that rates companies based on a string of factors. In that way, the model comes up with a total score that indicates whether the share is currently a good investment or not. This is an investment research report. This week Gilead signed an exclusive agreement with CVS Caremark about its hepatitis C treatment therapies, Sovaldi and Harvoni. Gilead has regained the majority of its price decline. Quick counterattack on rival: This week Gilead signed an exclusive agreement with CVS Caremark about its hepatitis C treatment therapies, Sovaldi and Harvoni. The agreement follows a similar agreement that AbbVie made for its recently approved hepatitis C-product. AbbVie's agreement with Express Script was, perhaps a bit too fast, seen as an attack on Gilead's 'monopoly' based on price dumping. There are now signs of a more varied picture of the events, and Gilead has regained most of its price decline, while AbbVie never increased after announcing its agreements. Hepatitis C treatment is not all about price: There are other and more important factors to consider than the price in relation to the right treatment of hepatitis C type 1 patients when choosing between Gilead's and AbbVie's products: 1. Gilead's Sovaldi hepatitis C therapy is trailblazing with a treatment Quant info Share information Quant score 5,9 Number of stocks (mill.) 159 Valuation 6,7 High/Low last 12 months 114/65 Valuation relative 5,1 Price movements 3/12 months -3%/38% Financial strength rate of between 94% and 99%. When it was launched at the end of 213, rival products only had a treatment rate of 5-8% and treatment processes were even very exhausting. Sovaldi triggered an accumulated treatment need due to its high success rate. Hence, Sovaldi will attain blockbuster status in its first full year and is expected to generate sales of around USD 11-12bn in 214. The price of Sovaldi is around USD 84, for a 12-week treatment. 5,4 - relative to index Quality 8,4 Market cap (mill. USD) 15434 Momentum 4,3 Free float 99% Performance 7,3 Avr. daily volume (mill.) 1584 Sector Fundamental valuation Risk News flow Health care Cheap High Positive 12-month target price 13, Current price 12,3 Reuters Bloomberg GILD.O GILD US Equity JB sec. code 9976399 Pr ice tr end 13 12 11 1 9 8 7 6 5 4 Gilead S&P 5 j f m a m j j a s o n d Source: Jyske Bank & Datastream --------------------------------- Jyske Markets,Vestergade 8-16 DK-86 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen +45 89 89 7 44 - jrj@jyskebank.dk Senior Analyst, Equity Research, Rune Dinesen +45 89 89 7 46 rune.dinesen@jyskebank.dk --------------------------------- This is an investment research. Important investor information: Please see the last pages of the report. 1

2. Gilead's new Harvoni therapy is based on the Sovaldi success with a much simpler therapy consisting of only one tablet a day in a 12-week treatment process with a list price of USD 94,5. However, Gilead has also announced that around half of the patients in the US may settle for an 8-week therapy, resulting in a further improved treatment process for the patient and a price that will fall to approx. USD 63,. 3. The price of AbbVie's product Viekira Pak is basically USD 83, before discount for a 12-week treatment with a treatment rate of around 96%. However, the Viekira Pak therapy requires that the patient takes between three and six pills per day, which is troublesome and may have an adverse effect on the treatment rate, as many patients are weak or old. In addition, Viekra Pak is prescribed as a 24-week therapy for some groups of patients. However, AbbView has promised Express Scripts not to demand payment for the extra need of drugs. AbbVie's new product does not seem to form the basis for such drastic changes in market share within hepatitis C as originally proclaimed. Obviously, this contributed to Gilead's price increases already before the CVS Caremark agreement this week. Comments from Express Scripts' management point to a reduction of the price towards the price level for patients in the EU countries, indicating a more rational price competition. In Germany, which is one of the largest EU markets for Sovaldi, the price of a treatment is around USD 7, against USD 84, in the US. CVS Caremark and Express Scripts are two of the leading US purchase/distribution companies (PBMs) which are acting on behalf of private individuals and public health care insurances. CVS and Express Scripts cover around 2% of the US owners of health care insurances. The intention is that CVS and Express Scripts must generate economies of scale for its customers, and they are, therefore, of course negotiating aggressively with the suppliers on the behalf of the customers. Other major PBMs include Prime Therapeutics and United Health. However, it should be considered whether exclusive agreements serve the patients best! Hepatitis C treatment will see competition over time; AbbVie was the first rival and around 217 Merck is expected to launch a therapy similar to Harvoni. In this connection we attach much importance to Gilead's market leadership based on having the first effective product (Sovaldi), the trackrecord in terms of treatment that is now established, and now also a simpler 'one pill per day' therapy (Harvoni). The AbbVie treatment is more cumbersome for the patient and will typically include a longer treatment process of between 12 and 24 weeks compared to 8 to 12 weeks for Gilead's Harvoni. 2

Please note that there are 11 different genotypes of hepatitis C. Type 1 is the most common one in the US and the EU. Sovaldi is approved as treatment of type 1, 2, 3, and 4. Harvoni is approved for type 1 and an application for approval of type 4 has been submitted. Viekira Pak is approved for type 1. Gilead focus on liver diseases: Liver diseases is one of the two major focus areas for Gilead, and the company has several NASH programmes under development. After Christmas Gilead purchased yet another NASH programme from a German company. NASH, or fat on the liver, may be the most widespread liver disease in the US and the UK and result in high health care costs. Gilead is expected to turn in its Q4 and 214 results on 4 February. Drugs that work: Gilead Sciences is a global market leader within HIV/AIDS and hepatitis C with new, better, and simpler 'one pill per day' therapies in large growing markets. Jyske Bank has a BUY recommendation for Gilead which has a high Jyske Quant score (5.9). Gilead has an attractive valuation with a large discount to peers and a price target of USD 13. For a biopharmaceutical company Gilead has a high risk profile. Gilead is trading at a significant discount to its rivals Peer Group Company P/E (214) P/E (215) P/B (214) P/B (215) EV/EBITDA (214) EV/EBITDA (215) Gilead Sciences Inc 13,1 1,5 7,4 4,8 9,8 8,6 Amgen Inc 18,3 17, 4,6 4,1 13,8 12,5 Celgene Corp 31,2 23,8 13,4 1,7 22, 18,4 Biogen Idec Inc 25,9 21,4 7,3 6, 17,1 15, Regeneron Pharmaceuticals Inc 4,5 34, 14,1 1,2 41,5 27,4 Merck & Co Inc 18, 17,9 3,5 3,6 12,1 11,6 Novartis AG 18,2 16,6 3, 2,9 15,9 15,4 Johnson & Johnson 17,9 17,3 3,9 3,5 11, 11, Pfizer Inc 14,5 14,7 2,8 2,8 9,2 9,5 Roche Holding AG 19,1 17,7 1, 8,6 12,8 12, Sanofi 15, 14,6 N/A N/A 1,9 1,5 Bristol-Myers Squibb Co 33,8 34,4 7,5 7,5 24,7 24,9 Weightet average 19,3 17,9 5,3 4,6 13,9 13, Mean 22,1 2, 7, 5,9 16,7 14,7 Premium compared with weighted avg. -32% -41% 39% 4% -3% -33% Source: Bloomberg 3

USD mio. USD Overview Gilead Company profile Gilead is a biopharmaceutical company with focus on research, development and commercialisation of drugs primarily within HIV/AIDS, hepatitis, oncology, respiratory, inflammation and cardiovascular diseases. Gilead is the market leader within HIV reporting annual sales of almost USD 1bn. In 211 Pharmasset was acquired, which made Gilead one of the market leaders within Hepatitis C (HCV) driven primarily by Sovaldi that was approved at the end of 213 and already in 214 is expected to deliver sales of USD 11.7bn. Oncology is the most recent focus area for Gilead, driven by Zydelig that is targeting chronic lymphocytic leukaemia. Gilead's pipeline is centred on making Gilead even stronger within HIV, hepatitis B and C, cancer and cardiovascular and respiratory diseases. Currently, Gilead has seven studies in phase III. In 215 Gilead's 6,1 employees are expected to generate sales of USD 29bn and an EBITDA result of USD 18.2bn. The company is headquartered in Sales growth and profitability 12 1 8 6 4 2.5 2 1.5 1 Sales broken down by geographical area 4.77% 26.14% 15.48% Sales broken down by segment 4.64% 53.61% United States Europe Other international Worldwide - Other revenues 4.% 3.14% 4.83% Antiviral Products Letairis Ranexa AmBisome Royalte Revenue & Other Product 2.5 Fundamental valuation 27 28 29 21 211 212 213 Revenue EPS (RS) Investment case The Jyske Quant score for Gilead is at the upper end of the Our BUY recommendation for Gilead is based on its leadership largest companies in the peer group. Particularly Gilead's within the treatment of HIV/AIDS and hepatitis C and a high Quality, Valuation and Price development scores are high. In Jyske Quant score. In addition to the market leadership within terms of key figures, Gilead is trading at a decent discount hepatitis C based on a high treatment success rate, the to its peer group with respect to P/E. Consensus also expects approval of Harvoni has also had the result that Gilead has the balance sheet to improve over the coming years based on now launched a treatment based on only one daily pill. Within significant sales growth. HIV/AIDS Gilead's product TAF is in the approval process and should be launched in the market before Gilead faces patent expirations within HIV/AIDS. TAF is also a treatment regime with only one pill which increases the treatment effect. 83.38% Price triggers Risk factors Gilead obtains FDA and EMA approval of crucial drugs. Disappointing data from studies of crucial products. Gilead apply for new indications for existing products in the Gilead abandons the development of a crucial pipeline product. pipeline. Gilead does not obtain approval of new products. Sales potential of new drugs exceeds the consensus estimates. Gilead's efforts to obtain new indications fail. New health-care reforms have a positive impact on sales. New health-care reforms that have an adverse effect on sales Strong results and optimistic outlook. prices. New attractive acquisitions such as Pharmasset (was acquired Gilead is losing market share to its rivals. for USD 11bn) with an attractive/promising portfolio/pipeline. Unexpected negative side-effects of Gilead's drugs. Over the coming years a significant improvement of the balance Disappointing results and/or outlook comments. sheet is expected. This leaves scope for share buybacks and FX fluctuations (the company generates 4% of its sales dividend increases. outside the US). However, Gilead does not use hedging. 4

Important Investor Information (Disclaimer & Disclosure) Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The research report is for the personal use of Jyske Bank's clients and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank. Jyske Bank's analysts may not hold positions in the instruments for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business activities, etc., this analyst cannot trade in the relevant instrument on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the instruments/companies for which such reports are prepared. Analysts receive no payment from persons interested in individual research reports. Company research reports have not been presented to the company prior to their release. Read more about Jyske Bank s policy on conflicts of interest at http://jyskebank.com/m/en/products/investment Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) 14 2 12 1 15 8 6 1 4 2 5 Strong Buy Buy Reduce Sell Strong Buy Buy Reduce Sell Source: Jyske Bank Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared with a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. 5

Risk Investment in this share is associated with risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Ris k-adjus ted Recom m endation r etur n Strong b uy >2% Buy 1-2% R ed uce -1% Sell <% Source: Jyske Bank Recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the next twelve months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the expected dividend). The equity market has historically yielded a return of around 1% (the US equity market, for instance, yielded a return of 1% during the period 192-211). When we determine the recommendation for a share, we use the 1% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. For clarification of the recommendation structure we refer to: www.jyskebank.dk/equityrecommendationstructure The future and historical returns estimated in the research report are stated as returns before costs and tax-related circumstances since returns after costs and tax-related circumstances depend on a number of factors relating to individual client relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the instrument will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Risk categorisation Green: An investment product type is in green category if the risk of losing all the invested amount is regarded as insignificant, and if the product type is simple to grasp. Amber: An investment product type is in amber category if there is a risk of losing the invested amount partially or fully, and if the product type is simple to grasp. Red: An investment product type is in red category if there is a risk of losing more than the invested amount, or if the product type is difficult to grasp. 6