Make a list of firms investing in biotech, subtract the speculative stocks, and Gilead Sciences (GILD) will most likely take the No. 1 spot.
GILD lived up to the hype by beating analyst forecasts in the second quarter with $3.15 per share on revenue of $8.24 billion, propelling GILD stock by roughly 3% by Wednesday afternoon trading.
Second-quarter product sales came in at $8.1 billion versus $6.4 billion the prior-year quarter, with the increase largely attributable to better-than-expected sales of the new Harvoni drug for the treatment of Hepatitis C.
Roughly 54% of GILD stock revenues showed up in the bottom line, with net income coming in at $4.5 billion vs. $3.7 billion from the prior-year quarter.
Beyond the numbers, here are two things Gilead Sciences investors should note.
GILD Stock Will Continue to Lead the HCV Market
Total HCV revenue for the quarter was nearly $5 billion, with $3.4 billion of that figure coming from the U.S., and Harvoni alone wrangled $3.6 billion in global sales, roughly 45% of the total product sales in the quarter.
The adoption of Harvoni has been impressive: About 130,000 HCV patients in the U.S. began treatment on a Gilead HCV medication, with over 60,000 of them added in the second quarter. That means GILD now treats over 90% of U.S. HCV patients. And it’s not just the U.S., Gilead is also performing well in Europe’s Hepatitis market.
AbbVie (ABBV) drug Viekira Pak has been touted to rival GILD’s Havoni for market share. However, this hasn’t been the case. Viekira Pak had global sales of $385 million in the second quarter, which is just two quarters after approval. For reference, Harvoni beat Viekira Pak to market by a quarter. If Viekira Pak were ever a threat to Harvoni, we would’ve seen the signs by now.
You want to note that Viekira Pak has been approved in 47 countries, while Harvoni has been approved in 40 countries. Excluding sales from the The States, which account for the majority of drug sales, Harvoni averaged about $20 million in sales per approved country, while Viekira Pak averaged $3.4 million.
While Harvoni is more expensive, the fact that the drug combines easy administration, better cure rates and lower side effects makes it more likely that Harvoni will be favored over other options going forward.
It will take a drug with a similar or better efficacy profile for GILD stock to witness any significant competition in the HCV space.
Gilead’s Cash Situation Gets Better
GILD paid its first quarterly dividend of 43 cents per share in the second quarter, and it has again declared 43 cents to be paid in the third quarter. GILD stock currently yields roughly 1.5%, in line with the biotech sector average. With Gilead’s hefty $10 billion in cash, the dividend seems sustainable.
In the second quarter, Gilead’s declared dividend totaled just 11.1% of the $5.7 billion operating cash flow it generated in the first quarter, which also amounts to about 6% of the $14.6 billion cash, cash equivalents and marketable securities held by GILD at the end of the first quarter. This shows a significant room for improvement going forward.
GILD stock also has a favorable debt profile. During the second quarter, the company put to bed 46 million warrants from its 2016 convertible debt. With this, GILD stock has only 9 million warrants outstanding. This makes the stock more valuable.
In addition, the end of the first quarter saw GILD boasting a debt-to-equity ratio of about 0.72, bettering ABBV’s 11.09 — a stock that has a higher dividend yield than GILD stock.
Verdict
With the company raising its guidance for the fiscal year 2015 to $30 billion in net product sales (representing a 22.5% increase on last year’s figure), GILD stock still has plenty of upside potential.
Also, bear in mind that Gilead currently has a trailing price-to-earnings ratio of 13.3, which favorably compares to its industry’s average of 70.7. You might also want to note that ABBV has a trailing P/E of 55.5. Its forward P/E is even better, at 10.5.
And Gilead isn’t trading cheaply because of poor growth prospects — GILD earnings are expected to jump 34% this year.
All evidence points to GILD stock as a reliable investment, and more appealing than the gambling the biotech industry is infamous for.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
