Friday, November 21, 2014

Good Week for Gilead’s Hepatitis-C Treatments, UBS Says

UBS strategist Matthew Roden and team note that it was another good week Gilead Sciences’ (GILD) hepatitis-C treatments:

AP

Scripts for Gilead’s Harvoni during the week ending November 14 were released today with total scripts of 3,606, up +37% w/w. These data are strong in the context of feedback at AASLD that Harvoni Rx are being denied. This implies a total franchise new Rx (i.e. Sovaldi + Harvoni) of 7,424, up 13.4% w/w. For comparison, in its third full week (week ending Jan. 10th), Sovaldi scripts totalled 1,764, and mid-January scripts were 2,500-2,900. Current Bloomberg consensus for 4Q Harvoni sales is $1.8bn…

Scripts for Sovaldi totalled 3,818, down -2% from last week. New Rx were 1,079, down -3% w/w. As expected, the trend continues to reflect a shift to Harvoni for new patient starts following the launch on Oct 13. A total of 28,231 scripts and 9,090 new scripts have been recorded in 4Q. We are tracking to $1.04bn for 4Q Sovaldi sales based on script data (current Bloomberg consensus for 4Q WW sales is $3.2bn, post-earnings FOA consensus for US sales is $1.5bn, and we model $3.1bn HCV sales in the US). We assume 95% complete therapy (97.5% refill in months 2 and 3 each), a 12% gross-to-net pricing (more conservative than Gilead comments imply), a correction factor suggested by scripts vs. reported sales, and 10% of NRx are actually refills.

RBC’s Michael Yee thinks Gilead’s on track to meet Harvoni sales estimates:

Harvoni’s week 5 NRx is tracking in line with our estimates in our Harvoni-APP and towards Q4 consensus of $3B USA. Note, the NRx this week, even though in line with our projection, may have been impacted by the AASLD Liver meeting that ended last Tues as many prescribers (hepatologists, gastroenterologists) were away at the conference.

We believe total Harvoni+Sovaldi franchise TRx needs to maintain current momentum towards Q2:14 totals to reach Q4:14 WW cons of ~$3.7B and 2015E US consensus of $12B.

We are looking for combined TRx to rise towards 8000+ through Thanksgiving and further towards 9000+ TRx in December in order to get to a comfortable run-rate during Q1:15.

Shares of Gilead Sciences have ticked up 0.2% to $100.76 at 1:05 p.m. today.

Thursday, November 6, 2014

Apple To Raise Money Through A Debt-Sale In Europe

Apple Inc. (AAPL) continues to show a strong performance at the stock market. Things seem to be going perfectly for the iPhone maker. The latest tech toy off the giant's lab has been quite a hit. This has bolstered the company's shares at a record high, valuing the company at $155 billion.

To further its riches, the company has decided to go for bond sale with components denominated in euros. On Tuesday, Apple priced its first non-dollar bonds at record levels: An eight-year bond with a 1.082 percent yield and a 12-year with a yield of 1.671 percent. While a euro bond might look like an unusual move, there are several good reasons for Apple to move now. First, the company can't actually use much of its cash without triggering tax obligations. While Apple had $155 billion in cash on its balance sheet at the end of September, $137 billion of that is held by foreign subsidiaries. The company has said that it would probably need to pay repatriation taxes on most of that money if it tries to bring it back to the U.S.

The experts think the company may soon be in need of some serious dough. The company has already spent a whopping $94 billion on dividends and share repurchases out of a $130 billion program. The remaining $36 billion is expected to be recovered through dividend repurchase and share buybacks until the end of next year. The company officials are of the view that euro-denominated bonds may make more financial sense than selling more bonds in U.S. dollars for reasons best known to them. Last year, the company sold its first bonds in almost 20 years with a $17 billion offering—setting a record at the time for a corporate bond deal. It followed up on that with a $12 billion bond offering in April of this year.

The company is expected to pay between a 1.5 percent and 2 percent coupon on a euro deal, depending on its size, estimates Brian Reynolds, chief market strategist at Rosenblatt Securities. Apple isn't the first to notice the attraction of Europe. U.S. investment grade corporate issuers have sold $31 billion in euro-denominated bonds so far this year. By comparison, U.S. investment-grade issuers have sold $341 billion in dollar-denominated bonds so far in 2014.

Apple is also preparing for a debt sale as global corporations take advantage of a drop in borrowing costs to raise the last batch of funds this year. To go ahead with the plan, the company has hired Deutsche Bank and Goldman Sachs to organize the deal and help the company issue bonds in return for debts and securities. The eight-year bond notes will return 1.1 percent to investors and the 12-year notes will return 1.7 percent. Apple has been working on issuing bonds in other currencies, and this is the first time the company is putting that plan into action. Money raised from the new bonds will go towards share buybacks, dividend payments, and general corporate use. The bonds will be a smart financial move for Apple because current interest rates in the area have been sitting just above zero to help boost the economy.

The debt sale would again be targeted at Europe, where interest rates are lower than in the US, to diversify Apple's debt investor base. The combination of Apple's high credit quality and the likelihood of longer-dated tranches being included in the offer would be appealing to pension funds and insurers. Ten-year Treasury note yields, which move inversely to prices, stood at 2.3 percent on Monday, down from a high of 2.66 percent in May.

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Wednesday, November 5, 2014

7 Top Challenges Facing the New Republican Majority

Republicans had one of their most successful midterm elections of the modern era Tuesday night, bull-rushing their way to control of the Senate and coming within reach of their largest House majority since 1928.

See also: The U.S. Economy Is the World's Growth Engine Again

They must now try to bridge the gap between some of the party's staunchly conservative presidential hopefuls, including Sens. Ted Cruz of Texas and Rand Paul of Kentucky, and the man they hope to replace in the White House, President Barack Obama.

If Sen. Mitch McConnell (R-KY) doesn't do enough to appease the GOP's most conservative members of his caucus when he becomes Senate majority leader in January, he runs the risk of losing their support and not being able to get anything done. And if he goes too far, he'll invite Obama to exercise his veto power with little chance of the GOP being able to round up the two-thirds majority of both the Senate and House that's needed to override.

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Here are the seven biggest obstacles the Republican-led Congress will face next year and beyond:

The clock. One year after control shifts to the GOP in January, the presidential primaries for 2016 will be within sight. Little of substance gets done in a midterm election year, when every House seat and a third of Senate seats are on the ballot. In a presidential election year, with control of the White House at stake along with House and Senate seats, odds of getting anything meaningful through Congress fade even more. That won't be any different with Republicans holding the gavel in both chambers. So Republicans have 10 to 12 months to set the tone.

Obamacare. Cruz and other favorites of the tea party promise to push for repeal of the health insurance program that stands as Obama's signature accomplishment three-fourths of the way through his presidency. McConnell and others in the mainstream bloc of the party see the repeal effort as a waste of valuable time, since Obama is sure to veto any attempt to kill it.

If McConnell can resist the political grandstanding that would accompany a repeal vote, there's a good chance that Congress can, instead, make some substantive changes to the legislation. One likely success: Changing the definition of a full-time worker who must be offered health insurance (or open the employer to paying a fine) to a person who works 40 hours per week. The law now says 30 hours defines full-time work. Lawmakers for both parties could also back a new, lower-premium insurance option to attract younger, healthier workers to enroll.

Tax reform. Don't hold your breath waiting for big changes in the tax code, now that Republicans will run both chambers. There will be plenty of talk but little action. Even cutting the corporate rate from 35% will run into trouble, despite having broad bipartisan support. Without a corresponding adjustment for individuals, owners of S corporations, who pay the individual rate and would lose some tax breaks under reform, would pay more than large corporations. The best bet for sweeping tax changes: 2017, when a new president moves into the White House.

Immigration. Republican successes Tuesday night will embolden Obama to issue his long-promised executive order delaying the deportation of most immigrants who are in the U.S. illegally. He'll almost dare Republicans to take the bait and try to reverse the order as part of broader immigration reform. Republicans can't go too far over the next two years, lest they offend Hispanic voters, who are already generally inclined to support Democrats.

Budget decisions. Republicans are likely to use reconciliation rules to attach some of their most cherished ideas -- entitlement reform, tax changes, maybe even repeal of Obamacare—to budget measures that need just 51 votes to pass instead of the usual 60. But once Obama vetoes the package, it will be back to square one. Budgeting will be done through a series of continuing resolutions, just the way it happened with Democrats in power in the Senate.

But both parties will find common ground on one fiscal issue. They'll put up more money for defense.

Foreign policy. Obama still has a big say on this front, but that won't stop GOP lawmakers from trying to press him to be more aggressive. They want to supply U.S. arms to help Ukraine push back against Russia, argue to put troops on the ground in Iraq and Syria and keep more of them in Afghanistan, and push for a harder line against Iran. Odds are they won't get far on these issues, but they will put the topics in play for the 2016 presidential race.

The final big obstacle for Republicans: Numbers. Democrats always get far more voters to the polls in presidential election years than their GOP counterparts, giving them an edge not only in the presidential election but also in Senate races in many states. In addition, just 10 seats now held by Democrats will be on the ballot in 2016, compared with two dozen Republican seats. So there's a solid chance that Republicans will relinquish Senate control in just two years, especially if McConnell and his colleagues can't figure out a way to successfully steer around the many obstacles.

Associate Editor Pam Prah contributed to this article.



Saturday, November 1, 2014

Tesoro: Refining Its Way Higher

Shares of Tesoro (TSO) are surging today after the oil refiner reported solid profits thanks to wider profit margins.

Reuters

Tesoro reported a profit of $3.06 a share, easily topping forecasts for $2.15 a share, on revenue of $11.15 billion, below forecasts for $11.33 billion. Cowen’s Sam Margolin and Jason Gabelman explain how Tesoro beat the Street consensus:

The company’s refining segment outperformed in all regions with throughputs 60kbd higher than estimated and margins $3/bbl over the TSO Index, including $25/bbl in the Mid-con region. The retail segment posted a record quarter, beating our operating income estimates by $100MM on margins 100% higher than anticipated…

We expect the company’s 4Q results to benefit from continued Los Angeles synergy delivery and supportive Mid-Con gasoline margins throughout October in a typically weak demand season. We maintain our Outperform rating and raise our target to $90…

Shares of Tesoro have jumped 4.2% to $70.96 at 1:34 p.m. today, easily outpacing HollyFrontier’s (HFC) 0.4% rise, Valero Energy’s (VLO) 1.3% gain and Marathon Petroleum’s (MPC) 0.5% drop.