The story of Gilead Sciences GILD is similar to that of any successful biotechnology company unable to sustain its excessively high valuation.
Since the stock reached all-time highs of $120 per share in summer 2015, it has been through a protracted slump that seems to have leveled off over the last few years. Currently trading around $64 per share and seemingly eternally range-bound, the question arises -- can Gilead return to its winning ways?
Cash is king
Recent financial performance has been a mixed bag. During its most recent earnings call (for the fourth quarter of 2018), the company reported revenues of $5.8 billion, representing a year-on-year decrease of 2.5%, but beating analyst expectations by $280 million. The story for earnings per share was less positive, however, as the quarterly result of $1.44 badly missed expectations by 26 cents. The good news for investors is that the stock continues to be a solid dividend play.
On the day those earnings were released, management announced that they were raising the quarterly dividend by 11%, from 57 cents per share to 63 cents per share. Currently, Gilead offers a dividend yield of 3.91%. Comparing the company to the industry heavyweights, we can see that this places the company somewhere in the middle: Johnson & Johnson JNJ pays 2.60%, Pfizer PFE pays 3.34% and GlaxoSmithKline GSK pays 5.84%.
Income investors will be pleased to note that Gilead maintains a healthy cash position: It generated $8.4 billion for the entire year and $2.3 for the quarter, ending the year with $31.5 billion in cash and cash equivalents. This means that the dividend is likely to be safe going forward.
Bull or bear?
So what does Gilead have to look forward to? The company’s success was always driven primarily by its HIV drugs (as well as its Hepatitis C treatments), and it is to this market that management is looking now again. It has seen good adoption of its Descovy-based HIV treatments, something that Executive Vice President of Worldwide Commercial Operations Laura Hamill commented on during the earnings call:
“In the U.S., total HIV revenue was $3.4 billion in the fourth quarter, up 30% year-over-year and 13% quarter-over-quarter. Year-over-year growth was driven by a 13% increase to prescription and also benefited from an inventory purchases and favorable payer mix…We continue to see strong adoption of Descovy-based regimens, which accounted for 77% of Gilead’s total U.S. HIV prescription volume as we ended the fourth quarter.
This is a remarkable achievement considering the first Descovy-based regimen was introduced just three years ago. Through its first 11 months, Biktarvy remains the best HIV launch of all time in the U.S. as measured by total prescriptions on a launch-aligned basis. During the fourth quarter, Biktarvy generated $551 million in revenue in the U.S. and is the number one prescribed regimen for both treatment-naïve and switch patients.”
Yet, there are plenty of thorny problems ahead too. Gilead continues to lose revenue from its Hepatitis C treatments, the other pillar underpinning the company’s historical success. In particular, it faces the prospect of losing its patent for Harvoni, a hugely successful Hepatitis C treatment and, in fact, the drug is so important to Gilead that the company is launching its own generic version of Harvoni.
Summary
There are many question marks around whether this new generation of HIV treatments can drive Gilead back to its old heights. That may not happen. But, the solid dividend yield and healthy cash position give this stock a measure of safety that may appeal to income-oriented investors.
Disclosure: The author owns no stocks mentioned.
