Wednesday, January 27, 2010

Gilead Sciences better than Gold

Gilead Sciences reported Q4 results yesterday, and at last some investors took notice today of just how profitable this company is and will be. Meanwhile the gold bugs may be beginning to see the end of their bubble, as I predicted in The Gold Bubble on November 18, 2009.

Give me a company that has a plan to grow fast any day. In 2010 most of Gilead's revenue and earnings growth will come from the growth of the antiviral market and gaining market share for particular indications like HIV and Hepatitis B within the market. But Gilead has a deep pipeline of therapies that may come online this decade. As always, the number of therapies that are ultimately approved by the FDA are a small percentage of those that come out of preclinical trials. But Gilead has drugs at all phases of development, and they have shown an ability to pick a good percentage of winners in the past.

Revenues were $2.03 billion, up 13% sequentially from $1.80 billion and up 42% from $1.43 billion in the year-earlier quarter.

Net income (GAAP) was $802.2 million, up 19% sequentially from $673.0 million and up 43% from $560.0 million year-earlier.

Earnings per share (EPS) were $0.87, up 21% sequentially from $0.72 and up 47% from $0.59 year-earlier.

A bit of care should be taken in making projections because Gilead receives royalties on Tamiflu. Royalties have been way above their normal levels (reaching$228 million in the quarter) because of the recent flu scare. On the other hand, avoiding Gilead because its Tamiflu royalties fluctuate from quarter to quarter is overlooking the strength of the rest of the company. Product sales (excluding royalties) were up 30% y/y. That is phenomenal growth, and it comes with high profit margins.

While there are always risks and uncertainties, it is very likely Gilead's products will continue to gain market share in 2010. Even if Tamiflu revenues fell to zero, I would consider Gilead undervalued at today's closing price.

For more details, see my Gilead (GILD) Q4 2009 analyst conference summary.

I'll follow up, when I can, with a longer report on Gilead's product pipeline.

I own Gilead stock.

Keep Diversified!

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