Gilead Sciences: Rapidly Building Up One Of The World's Best-Recognized Brands

Summary

• Gilead Sciences has an impressive portfolio of assets, but its brand is quickly becoming better known as a result of its COVID-19 drug.
• Outside of this, the company has made numerous acquisitions, and is quickly building up its alternative portfolio. Its HIV drugs expire in 2038.
• The company is focused on shareholder rewards through both dividends and share repurchases. Potential shareholder rewards are near the double digits.
• I do much more than just articles at The Energy Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Gilead Sciences (NASDAQ:GILD) is one of the largest publicly traded biotech companies with a market capitalization around $100 billion. The company’s brand has quickly become one of the best-known brands, as the company’s Remdesivir drug has become increasingly popular. However, as we’ll see throughout this article, not only is the company’s COVID-19 business exciting, but the remainder of the company’s business has significant potential to generate shareholder returns.

Gilead Sciences - USA Today

Gilead Sciences COVID-19

Gilead Sciences is focused on rapidly building up a COVID-19 portfolio that’s quickly becoming the centerpiece of its overall valuation.

Gilead Sciences COVID-19 - Gilead Sciences Investor Presentation

Gilead Sciences is quickly building up an impressive COVID-19-related portfolio. The company is focused on supporting both the community and employees and has already committed 1.5 million doses of Remdesivir to the local community. The company is focused on leveraging its infrastructure to have 6 months of inventory and postponing trials while focusing on its most promising opportunities.

Gilead Sciences, most importantly, is focused on advancing Remdesivir to develop a potential treatment for the largest crisis in the world right now, COVID-19.

Gilead Sciences Business - Gilead Sciences Investor Presentation

Gilead Sciences is focused on improving its portfolio, and as one of the companies with the best understanding of COVID-19, it has quantified various potential scenarios. Under the company’s base case, it expects a return to normal to begin in 2Q 2020, with a recovery underway by YE. The company expects the peak of the outbreak will be in March-July meaning we’re already halfway through the peak.

As a major drug producer that makes life-saving drugs, the company expects that lower R&D expenses and delayed approval will happen in the immediate term, with any lost revenue being captured into 2021. Overall, this is one of the few companies that could overall benefit from COVID-19.

Gilead Sciences Remdesivir Dosage - Gilead Sciences Investor Presentation

Gilead Sciences is rapidly ramping up manufacturing, having already donated its existing stockpile of drugs. That stockpile was actually incredibly intelligent. The primary reason is the donation of the stockpile for clinical trials enables the company’s drug to be approved in significantly more places. Already the drug, based on its recently announced SIMPLE severe study, should be able to reach more patients.

There’s plenty of price points the company should be able to reasonably charge, especially in developed countries. Assuming the company charges $5000/dose, that means $5 billion in revenue by year-end. That’s significant for a $100 billion company. Realistically, the company won’t have a significant amount to do with a vaccine, but as a mid-case it should earn even several billion.

However, the potential is actually significantly more than what that number at its face would imply. That’s because Gilead Sciences is also the leader in both HIV and Hepatitis C treatment. Additionally, even if the profits from the drug aren’t high, it can at least get manufacturing to be covered. The company can negotiate for HIV or Hepatitis C dosage or a variety of other things to help the company.

Not only that but one of Gilead Sciences’ major risks was the significant amount of negative press the company had received for its HIV and Hepatitis C drug prices. It’s managed to handle most of that.

Gilead Sciences' Financial Strength

One of Gilead Sciences’ major benefits is that if COVID-19 doesn’t succeed, the remainder of its portfolio still means that the company is undervalued.

Gilead Sciences Earnings - Gilead Sciences Investor Presentation

This is clear if you take a look at the company’s 1Q 2020 earnings, which it released almost in the background of all the recent COVID-19-related news. Specifically, despite investor fears over the company’s declining businesses, the company earned $5.5 billion in 1Q 2020, up from $5.2 billion a year ago. That’s a 5% YoY increase for the company, supported by a 14% YoY growth in the company’s HIV business.

At the same time, the company’s margins remained strong, resulting in Non-GAAP net income of $2.1 billion. The company has continued to be what I call the “Apple” of biotech companies, with its respectable dividend and continued share buybacks. YoY its share count has declined by 1%.

Outside of this, Gilead Sciences has recently made a number of acquisitions, such as Filgotinib, Forty-Seven, and Yescarta. Along with other acquisitions, these things together have the potential to help support the company’s HIV business, even past expiration. Gilead Sciences has built a long-term HIV portfolio, with patents not expiring until 2038, and its current actions should help support long-term shareholder rewards.

Gilead Sciences' Shareholder Rewards

Overall, Gilead Sciences’ portfolio put together means significant shareholder rewards.

Gilead Sciences Shareholder Rewards - Gilead Sciences Investor Presentation

Gilead Sciences is focused on improving the potential for shareholder rewards significantly. The company paid a quarterly dividend of $874 million, itself an almost 4% yield. Past that, the company repurchased $1.3 billion worth of shares at ~$70 / share. Not only is that 15% below current stock prices, which is in of itself impressive, but it pushes the company’s total shareholder yield on an annualized basis to nearly double digits.

In fact, the company is one of the few to succeed under shareholder repurchases, despite the recent crash. Since the company’s Jan. 2016 share repurchase program started, the company has managed to repurchase ~10% of itself for all below current share prices. Since 2021, it’s repurchased 27% of shares outstanding. I expect repurchases to continue going forward.

Investing in Gilead Sciences, in the current low interest environment, means near double-digit rewards going forward.

Gilead Sciences' Risk

Gilead Sciences really only has a single risk to pay attention to in the immediate term, however, that risk is more of an opportunity. That risk is the chance that investors, as COVID-19 leaves, sell off Gilead Sciences' stock anticipating much lower profits. Given that the company spent the early-2020s near $60 a share, it wouldn’t be surprising to see the share price drop back down.

However, in such a scenario, as discussed above, the company’s remaining businesses remain quite strong. As a result, that would actually make that time an investment opportunity worth paying close attention to. I personally have large limit orders outstanding on the stock with a $60 strike. Gilead Sciences is a quality long-term investment.

Conclusion

Gilead Sciences has an impressive portfolio of assets worth paying close attention to. Not only has the company’s Remdesivir assets performed quite well, setting up the company to potentially make billions, improve its PR, or at least subsidize its remaining assets, but the remainder of the company’s portfolio has performed well. That means the company is in a win-win scenario.

In the event that COVID-19 goes away, Gilead Sciences continues performing as it has been. The company’s recent acquisitions grow and the remainder of the company’s businesses continue to generate significant earnings. The company has focused on shareholder returns and it has the potential to generate double-digit rewards for shareholders. Overall, the company is a significant investment.

Analyst’s Disclosure: I am/we are long GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[calstang66]

BY MarketWatch— 2:46 PM ET 05/08/2020
The National Institute of Allergy and Infectious Diseases (NIAID) said Friday it is testing Gilead Sciences Inc.'s (GILD) Remdesivir in combination with Eli Lilly & Co.'s ( LLY ) rheumatoid arthritis drug Olumiant in COVID-19 patients as part of the next phase of the randomized, controlled clinical trial that led to the authorization of remdesivir (http:// www.marketwatch.com/story/how-gileads-remdesivir-became-the-leader-in-the-rush-to-find-a-treatment-for-covid-19-2020-05- 01). This study will enroll 1,000 people at more than 100 sites in the U.S. and abroad, to "examine if adding an anti- inflammatory agent to the remdesivir regimen can provide additional benefit for patients," NIAID director Dr. Anthony Fauci said in a statement.

[calstang66]

BY Reuters— 2:24 PM ET 05/08/2020
May 8 (Reuters) - NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES:
* NIH CLINICAL TRIAL TESTING ANTIVIRAL REMDESIVIR PLUS ANTI-INFLAMMATORY DRUG BARICITINIB FOR COVID-19 BEGINS
* NATIONAL INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES (NIAID) SAYS TRIAL IS NOW ENROLLING HOSPITALIZED ADULTS WITH COVID-19 IN THE UNITED STATES
* NIAID SAYS TRIAL IS EXPECTED TO OPEN AT APPROXIMATELY 100 U.S. AND INTERNATIONAL SITES
* NIAID SAYS INVESTIGATORS CURRENTLY ANTICIPATE ENROLLING MORE THAN 1,000 PARTICIPANTS IN TRIAL TESTING REMDESIVIR PLUS BARICITINIB FOR COVID-19

[calstang66]

2 repeating concerns have been voiced as possible reasons the GILD stock cannot break a $80 per share barrier, in spite of the massive amount of global demand for and attention being given to Remdesivir.
First, coments that the government has not kicked in cash to help with Remdesivir research, as it has to other companies doing anti covid19 research. That is not correct. From the below NPR article: "To date, the National Institutes of Health said it has obligated $23 million toward its COVID-19 remdesivir trial".
Second, that Gilead needs to publish some discussion about price before investors can justify supporting demand for the stock, and thus, resulting in the stock rising. From the same NPR article in a comment below: "Now that the Food and Drug Administration has authorized remdesivir for emergency use in seriously ill COVID-19 patients, the experimental drug is another step closer to full approval. That's when most drugs get price tags." Gilead is presently negotiating contracts for licensing Drug manufacturers in "Asia, Europe and developing countries" to produce Remdesivir as partners (royalties to or shared profits with Gilead). It would seem that Gilead will need to consider their own pricing simultaneously with discussions of pricing with these foreign producers. Hopefully, we will be see news about this licensees and pricing very soon, opening the gates for GILD to rise.

[EliasMouawad]

@calstang66 To what extent will Remdesivir reduce the death rate ?

[CaptainSolo]

Putting A Price On COVID-19 Treatment Remdesivir www.npr.org/...

[Big Froggie]

Great to hear that therapy is working. GILD on the rise. Long.

[calstang66]

On hour ago (and others) Link below.....Hospital in Texas seeing "extreme positive results" with Remdesivir. Patients who were near death, being released from the hospital.
www.youtube.com/...

[calstang66]

youtube videos uploaded every hour telling VERY POSITIVE cases of recovery when Remdevisir had been given. Wake up GILD bull and bears.....
www.youtube.com/...

[MWinMD]

I'm bullish on the drug, but please don't link to youtube videos as if they're objective, well-controlled data. It makes it look like the drug is being pushed by internet cranks. It's better than that.

[argeliom]

Agree with you Dr.

Testimonials are uplifting...potential discoveries are better. The following article by Dr. B. Paterson et. al. is currently under peer review. I would welcome your learned comments.

This article's title is: Disruption of the CCL5/RANTES-CCR5 Pathway Restores Immune Homeostasis and Reduces Plasma Viral Load in Critical COVID-19 
At medrxiv.org/ www.medrxiv.org/...

[suziclueless]

Well, this is one view. After all the early successes under the original management, we have a broken comopany today. Hundreds of $ millions were squandered through massive stock buybacks - all achieved through the period of substantial price declines. The author says this was a return to shareholders. Really? How so? What should have been done was to in invest in new technologies, either in-house or acquired, and grow sales and earnings. They didn't do that and are now a case study at graduate business schools.....

Next we have Gilead's financial reporting, which resorted to "non-GAAP" earnings to try and justify the poor operating results. More financial engineering to add to the failed share repurchase program. A terrible, terrible decision.

And today we have a stagnent stock price and a management team incapable of managing a public company. They will mismanage the Remdesivir product line, just as they booted the HepC opportunity. The wonderful science team will continue to add product line extensions and maintain the HIV line. Net result is a stagnent company.

Gilead, a company with outstanding science, which is offset by inferior top management. I say this as an investor who got in during the early stages at GILD, adjusted price of around $4 per share, and out at around $94 during the HepC decline. I greatly admire old GILD and totally despise what we have today.

[themozter]

I don't care for these analysis that focus on one product. Corona will hopefully be resolved with the next two years through a vaccine. In the mean time other companies are rapidly working on antivirals.

Gileads main business is HIV meds. Truvada is coming off patent soon and this is a big money maker. It prevents hiv which, ironically, will decrease demand for their hiv treatments meds. They do have a replacement for truvada with less side effects, descovy. But will insurance companies cover this when there's a perfectly safe alternative generic? Plus demand will fall as people are sheltering in and extracurricular activies lessen so no need for truvada. Plus people are losing health insurance and this med might be less covered.

Then there's the treatment drugs. There's so much competition fro Merck and the likes that they have to keep prices down. There are other drugs but gild is a one trick pony. I sold mine a couple days ago for about $81, but the rumor, sell the news. I have no position either way just like to out my ideas out there.

[Lay Man]

@themozter From Q1 results last week - Truvada down to $406 million from $606 million in 2019 Q1. Descovy up to $458 million from $342 million. Transition to prolonged patented product has been swift. As you note, Descovy has less side effects, making your next statement about a "perfectly safe alternative generic" pretty questionable. We're talking about putting a combination medication pill into people who have no medical condition - safety is paramount. Prescribers know this. Your other points about demand are to bee seen as this plays out.

[calstang66]

Watchout, here's a fair, factual, real and positive article about Gilead. Now, here come the insects to chew away at Gilead's flesh. One comment yesterday said there was only one study that revealed positive results with Remdesivir. That is nos just spin, that is a blatant lie of deception. Positve results are being cited every day, truly every hour via google and youtube. Hey world, if you thought humans have tendencies to be self-agenda-oriented, greedy and deceptive, spend a couple of hours scanning the comments at the end of SA articles. Japan approved Remdesivir todaya, go GILD, travel upward to where you belong. Your upward motion has been a battle, but you've earned the power and strength you now possess.

[European investor 99]

@calstang66 ignore it bro. Everyone is suddenly an expert virologist/epidemiologist. In physical trials the more critical cases get the treatment to give them a chance to survive hence the % between them and placebo is not huge but doctors who are using it know the clear benefit. Fauci and co. wouldn't rush this to approve it if they wouldn't know the details. Chicago study was also very positive, so doctors onsite know what is going on, everyone else is guessing. Let them...

[Technosemi]

@Stock nomad

Yeah, everyone is suddenly an expert virologist. It's clear that the % between survival rates don't mean squart. And what proves that is the DOCTORS on the front lines see its clear benefit, and there are hospitals are literally BEGGING GILD to get a supply to them to save lives. And, that, in the end, is the ultimate goal.

[CaptainSolo]

Japan set to approve remdesivir for coronavirus treatment TODAY www.bing.com/...

[Finding Your Retirement]

that's nice and all but i highly doubt the company will make any money under this CEO and board. they seem more intent on giving out free stuff than shareholders. During next shareholder meeting I propose we eliminate the entire board and elect bernie sanders. That way we can reduce stock options, salary, and bonuses

[calstang66]

No No No! Do your homework. Gilead will be making profit, significant profit from their own sales of Remdesivir, as made obvious in their "call" last week, when CEO stated 1) we will be establishing price for Remdesivir and 2) "innovators" need to be rewarded for their successful research. But further, as stated in various SA articles and media release, Gilead with be very soon generated income by selling licenses to partnering manufacturers of Remdesivir "in Asia, Europe and developing countries". Some folks have compulsive tendencies to focus on, and be influenced upon any potential or "spun" or misleading negative they can "dig up".

[Finding Your Retirement]

soon? how soon? Japan just approved the drug and now the company can't sell it to them because they haven't even established the price. that's just straight stupid. Drug companies have always determined the pricing of their drug prior to FDA approval and could ship them out on day 1 to maximize profits. the CEO can't even determine if he should give it all away for free or sell it at a profit.

The only people who will benefit is the board with their huge salary, bonuses, and stock option. Shareholders won't get jack. this is a crappy company. Never once in my life have I seen a CEO give away a blockbuster drug and done his damnedest to not make a profit.

Don't know what to charge? Use the ICER model of 5k. Think there's going to be public backlash? Sell the patent to all countries of the world and obtain royalties. There was that so hard?

[Lay Man]

@Finding Your Retirement How is it that they make so much money from stock options if the stock price doesn't move? An option granted at $70 per share is worthless if the share isn't above $70 some time in the future.
Also, a price is never established before approval, even in the USA. In many countries, after approval the company goes through extensive price negotiations with the government, getting a price sometimes many months later.

[Puche]

Three quick points. GILD didn’t make $5.5 billions in the first quarter. That was the revenue numbers you were referencing. You should update that error.

GILD has purchased 27% since 2021. Your year is mistaken.

Finally, the vast majority of GILD’s buybacks since 2014 were at materially HIGHER prices than the stock currently trades. This shows a very poor allocation of capital. I’m just glad they got rid of the past CEO and CFO both were huge destroyers of capital and value over the last 4-5 years of their stay at GILD.

Nothing on GLPG or their pipeline makes this a difficult article to focus on especially given the title.

Full disclosure: I’m long GILD and been dripping the dividends.

My two cents. Slow and steady! Good luck to all!

[suziclueless]

You do know that the CEO and CFO left GILD with tens of $millions in vested stock options......? And now the CFO is actually on the Board of Google?

Yeah, I know. Shocking!

[Puche]

@suziclueless , Yep........The orchestrated awesome deals for THEMSELVES while in senior leadership positions at GILD. No comment regarding the CFO being on Google's board. As a long time holder of GOOG it made me hesitate and think what the......

Slow and steady! Good luck to you!

[CaptainSolo]

suziclueless; You need to brush up on you taxes. You are never going to see a dollar of Google's offshore profits.

Google has about $100 billion in 2 Bermuda companies. It's where they store all the European profits to about the IRS. www.linkedin.com/...

Goggle holding companies (2) in Bermuda can receive it's EU profits without paying further. The US tax code doesn't tax "foreign source income" that is not remitted to USA. So the $20 B annual EU profits go into Bermuda companies, and a IRS Form 8621 is filed with the IRS (Check box making it a qualified electing fund (QEF) in part 2- and it's all 100% legal.) https://lnkd.in/egxdVFS

Google offshore parks $60 billion. https://lnkd.in/ewSX9dG

https://lnkd.in/e_ixGAV

What does WalMart do in all these tax havens? www.linkedin.com/...

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[Cramer7]

Nice article. Though the short eyed hedge funds miss the fact that Covid has a very high mutation rate making the vaccination development extremely difficult (potentially 18-24 months). Remdesivir will remain the single most important agent in the fight against Covid for 2020, and potentially first half of 2021.

[OscarSmith]

they especially missed the fact that close to 100pct of such viruses in history just disappeared after one season and never came back. Coronaviruses included. Spanish flu is quite unique example with second wave and a very different story used to scare people/ fact is people at the time died from staphylococcus infections for which we nowadays have antibiotics/ would have been ordinary flu today. In that case vaccines will become irrelevant. Probability of a second wave based on epidemiology history is close to zero

[BigBagel]

The coronavirus only lasts one season. So our worries are over in a matter of weeks. What wonderful news!

[OscarSmith]

Well nobody can tell for sure, that is the beauty if science.
but it is from far the highest probability, unless this would be pretty much first time in history a respiratory virus comes back (other than 229E, OC43, NL63 and HKU1, common cold basically and flu/ as they mutate 10 times quicker than coronaviruses/ so really not comparable), with R0 between 2 and 3, new cases charts that look exactly the same as former ones, it really looks the same.
WHO and CDC disagree but they've been wrong 100pct of the time on their predictions since the beginning of the year/ they analyse data using statistics models instead of thinking like epidemiologists, accepting that we will not understand everything.

[William George Kubik]

Remdesivir is leading Gilead right now, but I did not read about some vaccine research. Is there some? I would be little bit careful when that virus will potentially start to be resistant on Remdesivir. Moreover we have here JNJ and PFE, who are working really hard to get vaccine. So there is plenty of unknown how will COVID crisis developed. However, I agree with you, when price drop to about $60 I will definitely buy. Thank you for your great article, it give me many thoughts to think about.