Earnings Review: Gilead Sciences

  • The biotech giant beat on revenue and earnings.
  • Guidance was horrendous and the stock got taken to the woodshed.
  • The company has to use its cash pile this year to steady the ship.

Gilead Sciences, Inc.(GILD) is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. Its primary areas of focus include primary areas of focus include human immunodeficiency virus, liver diseases such as chronic hepatitis C virus infection and chronic hepatitis B virus infection, oncology and inflammation, and serious cardiovascular and respiratory conditions. Gilead Sciences reported its 2016Q4 earnings and they beat on earnings and revenue. However, guidance was horrendous and investors sold their stock as they threw “the baby with the bath water”. A term usually used when a stock plunges.

This is how I felt after I read this report, I had to express it in a tweet:

The company reported revenues of $7.3 billion which was a 14.2% decrease year over year. The revenues beat estimates by a mile as investors expected $7.15 billion in revenue. For Gilead, I was expecting them to have revenue of $7.15 billion. In terms of earnings, the biotech giant beat estimates by $0.09 with $2.70/share. I estimated that they would have $2.52/share in earnings. I got a ranking of 120 out of 254 on Estimize.

Even though this was a bad year for Gilead Sciences the company generated $30.6 billion in revenue in 2016. This was a significant decrease from $32.6 billion in 2015. In terms of product sales there were significant decreases across the board except for Genvoya. Harvoni, Sovaldi, Atripla and Stribild had decreases of 51%, 65%, 24.1% and 24% respectively. Genvoya, the single tablet regiment for HIV had growth of 999% with $563 million in revenue. Genvoya was Gilead’s only bright spot in product sales. HIV and antiviral products had revenue growth during the fourth quarter as revenue went up from $3 billion in 2015Q4 to $3.4 billion in 2016Q4. In terms of R&D spending, Gilead has been spending a lot as they renew their quest to find a new blockbuster drug. During the fourth quarter the biotech giant spent $1.2 billion on R&D up from $757 million. For the full year, Gilead spent $5.1 billion on R&D in 2016 up from $3.01 billion in 2015.

In terms of cash flow, Gilead generated $16.7 billion in operating cash during 2016. Out of that $11 billion was used to buyback shares and $2.5 billion paid to shareholders in the form of dividends. Gilead increased its quarterly dividend by 10.6% to $0.52/share as part of their capital return program. In terms of the company’s cash board it increased from $26.2 billion in 2015 to $32.4 billion. Given the declining growth in their Hep C franchise, Gilead has to make an acquisition to stabilize the company and return to growth. In terms of 2017 guidance, management gave a bad outlook that investors didn’t quite expect. Management expects the company revenue to be between $22.5 billion and $24.5 billion. This is a decline of 26.5% from current revenues and some investors didn’t expect that kinda decline. The company expects gross margins between 86–88%. This was a horrendous outlook, the industry as a whole is also in Trump’s cross hairs with the lower drug prices rhetoric. Gilead has to make a deal this year and needs tax reform to repatriate cash abroad at a lower rate.

Verdict: In terms of grades, the company had a B quarter and a D 2017 outlook. The company has to do a deal soon because the industry is also in the crosshairs of the Trump administration. Lower drug prices mean even lower revenue for the company. The company will benefit from Trump’s tax reform as they will be able to repatriate a lot of its money at a lower rate. I will be adding to my position to lower my cost basis. The company has a good dividend which I will take while I wait for a new catalyst. I think Gilead should merge with Bristol Myers or acquire a fast growing biotech company.

Disclosure: Cresco Investments has a position in Gilead Sciences.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.