- 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.
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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 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 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 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.
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.
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This article was written by
The Value Portfolio specializes in building retirement portfolios and utilizes a fact-based research strategy to identify investments. This includes extensive readings of 10Ks, analyst commentary, market reports, and investor presentations. He invests real money in the stocks he recommends.He is the leader of the investing group The Retirement Forum with features including: model portfolios, macro overviews, in-depth company analysis and retirement planning information. Learn more.
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.
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