For the past year, the share price of Gilead Sciences (NASDAQ:GILD) has been a flat-line. GILD stock is also down about 18% since its high set in July.
But on Thursday, the company will report its first quarter results. So might there be something to perk up Gilead stock?
Well, if anything, the general pessimism may be setting things up for some much-needed gains. GILD stock really does look like an interesting value play.
OK, then, as for Wall Street consensus, it is calling for revenues to rise about 4% to $5.3 billion and earnings to come in at $1.61 per share.
A big problem that’s dogged Gilead stock is the competition for its treatments in the lucrative HIV and hepatitis C categories. Like many other big pharma companies, GILD has been struggling to find ways to bolster its pipeline.
Now the company has been making a strong push in the market for CAR-T treatments, which is where a patient’s own T-cells are used to fight cancer. To this end, Gilead purchased one of the leaders in the industry, Kite Pharma, in 2017. Yet the performance has been disappointing, as revenues have fallen below expectations. In the latest earnings report, Gilead took an $820 million impairment charge for the deal.
Costly and Complex Treatments
This is not to imply that the growth potential is not significant. But it could take time to get to critical mass because of the costs and complexities of the treatments.
In the quarter, Gilead also had some other notable highlights like:
- The company entered a strategic collaboration with insitro, which is a startup that leverages AI (artificial intelligence) and machine learning to research new therapies. The agreement is focused on patients with nonalcoholic steatohepatitis (NASH), which is a progressive liver disease. Keep in mind that Gilead probably needs to look at unconventional approaches. After all, the company’s treatments for NASH have had mixed results, as seen with the recent failure of Selonsertib (in a Phase 3 trial, the placebo actually had better results).
- On a more optimistic note, Gilead got good news with its Phase 3 trials for Filgotinib, which is for rheumatoid arthritis. The company is developing the drug in partnership with Galapagos (NASDAQ:GLPG). While there are other treatments on the market, such as from Eli Lilly (NYSE:LLY) and Pfizer (NYSE:PFE), Filgotinib does appear to have fewer side effects.
- Gilead’s Executive Vice President of Oncology Therapeutics, Dr. Alessandro Riva, announced that he would leave the company. A search is underway for his replacement.
Bottom Line On Gilead Stock
The HIV and hepatitis C franchises are high-margin businesses that produce enormous cash flows. For example, last year Gilead reported operating cash flow of $8.4 billion. In all, there is $31.5 billion in the bank.
What’s more, Gilead is fairly shareholder friendly. In 2018, the company bought back $2.9 billion of its shares. There is also an attractive dividend yield of 3.88%.
Oh, and the valuation in the Gilead stock price today is quite reasonable, with the forward-price to earnings ratio of about 9.4x. All in all, it seems like much of the bad news is already baked in.
So then what about the pipeline? Isn’t this a problem? Again, the Car-T business is far from easy but this is to be expected with any cutting-edge innovation. But of course, there is much more than this for Gilead. Consider that the company has been finding more indications for existing drugs, such as with its HIV treatments.
But looking ahead, and this week’s Gilead earnings date, it seems like a good bet that the company will need to continue to focus on aggressive M&A. And Gilead Sciences certainly has the war chest for this.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.