Cures and patent expirations are hitting this biopharmaceutical company in three different revenue streams; is Gilead Sciences a buy?
In 2016, the cure for Hepatitis C was discovered, and today there are not one, but three active vaccines for the COVID-19 infection. Although not working on cures or vaccines themselves, these discoveries had an impact on Gilead Sciences (NASDAQ: GILD) as it was making serious income from the treatment and management of these afflictions. The company also lost revenue in its HIV portfolio as two of its drugs, Truvada and Atripla, lost their patent protection.
But the outlook isn’t all doom and gloom for the innovative firm as it still has a top-selling HIV drug on the market, is forming partnerships, and making acquisitions to expand its pipeline. Should you invest in Gilead Sciences?
The bull case for Gilead Sciences
The company is an R&D powerhouse, investing over $5 billion of its revenue annually to make discoveries like Biktarvy, the number one HIV drug in the U.S., prescribed to half of all HIV patients. Sales of the drug were up over $2.5 billion last year than in 2019 and the patent on the medication doesn’t expire until 2033. Also, partnering with Merck to develop a new HIV treatment, Gilead Sciences will receive 65% of sales after crossing a $2 billion threshold.
Last year, the company acquired Immunomedics for $21 billion, and plans to expand that company’s drug, Trodelvy, to cover more cancers than it currently does, exposing it to a potential $88 billion annual market. Also last year, Gilead Sciences acquired MYR Pharmaceuticals for $1.75 billion and now has access to its Hepatitis D treatment, offsetting losses from the Hepatitis C cure. This year, the company will acquire biotech company Forty Seven for nearly $5 billion and its first in class preleukemia drug, Magrolimab, which will no doubt contribute further to its revenue.
Gilead Sciences is also highly undervalued, trading at 7 times earnings and 3 times revenue, compared to the industry average of 30 times earnings and 8 times revenue. It is for this reason that the company is aggressively engaged in a $1.5 billion share buyback to grow its EPS.
The bear case for Gilead Sciences
The obsolescence of its COVID-19 treatment, Veklury (or remdesivir), is expected to put nearly $3 billion of the company’s revenue at risk and its Hepatitis C division saw a 30% annual decline in sales. Furthermore, the patent expiration of its HIV drugs is expected to affect over $3.4 billion in revenue from generic competition. HIV treatments are the company’s most dependable sources of growth, accounting for nearly 70% of all product sales, which were only up an unimpressive 3% year-over-year (YoY) in 2020.
In 2017, the company acquired Kite Pharma, an investment that didn’t bear much fruit; in fact, it was written down every year for a total of over $1.6 billion. Another point against the company is the fact that it abandoned its rheumatoid arthritis medication, Filgotinib, after failing to get FDA approval; not a good look for a biopharmaceutical company of this caliber.
So, should I invest in Gilead Sciences?
Yes. The stock is cheaper than competitors and the company has nearly 50 products in its pipeline. With the amount of money that it throws into R & D, I have very little doubt that at least some of its future products will be winners. I would buy and hold this stock forever.
1. Who is the CEO of Gilead Sciences?
Daniel O’Day, since March 1, 2019
2. Does Gilead Sciences offer a dividend?
The company pays a quarterly dividend of $0.71, a yield of 4.12%, up for the seventh consecutive year.
3. How many people are infected with HIV?
Worldwide, over 38 million people have HIV
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.