In the interest of transparency, since I am a financial journalist, I note that I made the following trades recently:
Dot Hill (HILL). I sold a small amount of HILL because it exceeded my usual 10% limit on share of portfolio. It sold for $4.57 on November 14, 2014. I had bought these particular shares on December 4, 2009 for $1.78 per share. I note that Dot Hill provided strong guidance for Q4 2014 and hinted that 2015 quarters should be closer to the Q4 run rate than was typical in the past. I am bullish on Dot Hill, but note it has missed guidance for various reasons in the past. See my Dot Hill Q3 Analyst Summary.
Gilead Sciences (GILD). Even though Gilead now takes up about 15% of my portfolio, I bought more this morning for $100.62 per share. I believe 2015 earnings will be in the vicinity of $10 per share. I believe the reason the price of the shares is so low is that institutional investors owned most of the shares, and as the price rose they had to start shedding shares to keep within their own portfolio limit rules. I believe competition for cures for Hepatitis C will be weak, and that public pressure will force insurers and the government to stop rationing Harvoni. Hepatitis C is infectious; it is bad health policy to not cure as many people as possible as early as possible in their disease course. See my Gilead Q3 analyst summary.
My buys and sells should not be construed as financial advise. I am just sharing my opinions with other writers and investors.
Showing posts with label GILD. Show all posts
Showing posts with label GILD. Show all posts
Monday, November 17, 2014
Wednesday, October 8, 2014
Bought more AMD
Just to note that I bought more AMD. I bought the same number of share I sold on 7/16 for $4.72 for $3.23. AMD reports on the 16th and I'll report on that at www.openicon.com/confsums/amd_main.html.
I believe AMD is a risky stock, but that sales of chips for Xbox and PlayStation should keep it going until its new lines of chips for servers becomes available in 2015. On the downside recently AMD is lowering prices on its graphics card chips (during the crucial holiday season) due to a new cycle of competition from Nvidia, which will likely continue until AMD releases its next round of graphics chips.
AMD represents roughly 3% of my tiny portfolio today. My largest holding is Gilead Sciences (GILD), which has broken my portfolio rules and now is about 15% of my portfolio, but I am holding it anyway in anticipation of rapid further appreciation.
I believe AMD is a risky stock, but that sales of chips for Xbox and PlayStation should keep it going until its new lines of chips for servers becomes available in 2015. On the downside recently AMD is lowering prices on its graphics card chips (during the crucial holiday season) due to a new cycle of competition from Nvidia, which will likely continue until AMD releases its next round of graphics chips.
AMD represents roughly 3% of my tiny portfolio today. My largest holding is Gilead Sciences (GILD), which has broken my portfolio rules and now is about 15% of my portfolio, but I am holding it anyway in anticipation of rapid further appreciation.
Tuesday, June 24, 2014
I Buy Regeneron; Comment on Vertex Pharmaceuticals
Regeneron Pharmaceuticals (REGN) has been down a bit lately, on talk of greater substitution of Avastin for Eylea, and today I finally dug into my cash and bought a tiny amount at $277.74 per share. Regeneron has a high P/E ratio, and all the dangers that implies. However, I think long-term prospects are quite good, and I don't think it likely I will be able to buy REGN much cheaper. If it goes down further, I may buy more.
Vertex Pharmaceuticals (VRTX) was the big winner today, up over 40% to end at $93.53. The news was that a new drug for cystic fibrosis had marginally positive results that may be good enough to get an FDA approval. I would not approve the drug based on the results if I sat on an FDA panel, but I don't. I also would not pay for such marginal benefits, especially given the price tags Vertex wants for its therapies. I think it is great they are working to help cystic fibrosis patients, but as an investor I am skeptical.
$118 million was how much revenue Vertex had in Q1. EPS was negative $1.00. Vertex might run up $500 million in sales this year, and probably at least that in losses.
So how do you justify a market capitalization of $22 billion with those numbers? By having the biggest Wall Street companies sing sweet songs about the future value of the pipeline.
Again, nothing against the company, and as long as the big boys can keep selling the stock to new fools, it might keep going up. But don't say I did not warn you about the danger. I believe in the power of therapeutic pipelines, that is why I bought Regeneron today and have owned BIIB, CELG, GILD and others for years. But I have seen big collapses when biotechnology pipelines did not deliver what sell-side brokers and analysts promised to gullible investors.
Another thing, how come Gilead (GILD) has been a sell according to many of the same people who are pushing Vertex? The story is Gilead's Hepatitis C drug is too expensive. But Gilead is selling a cure to a deadly disease for 85 thousand. Vertex, according to the new study, will be selling a drug that averages just 4% increase in lung volume (almost too low to detect) for over $100,000 per year. Why not worry about insurance company resistance to that kind of pricing?
Again, Vertex is a good company, and I would invest in its future at a reasonable price. But not today's price of $93.53 per share, and not even yesterday's price of $66.61. Not on current sales, and not on the trial data.
For my coverage, including summaries of analyst conferences and articles at Seeking Alpha, check out:
Regeneron (REGN)
Vertex (VRTX)
Gilead (GILD)
In any case, be sure to ... Keep Diversified!
Vertex Pharmaceuticals (VRTX) was the big winner today, up over 40% to end at $93.53. The news was that a new drug for cystic fibrosis had marginally positive results that may be good enough to get an FDA approval. I would not approve the drug based on the results if I sat on an FDA panel, but I don't. I also would not pay for such marginal benefits, especially given the price tags Vertex wants for its therapies. I think it is great they are working to help cystic fibrosis patients, but as an investor I am skeptical.
$118 million was how much revenue Vertex had in Q1. EPS was negative $1.00. Vertex might run up $500 million in sales this year, and probably at least that in losses.
So how do you justify a market capitalization of $22 billion with those numbers? By having the biggest Wall Street companies sing sweet songs about the future value of the pipeline.
Again, nothing against the company, and as long as the big boys can keep selling the stock to new fools, it might keep going up. But don't say I did not warn you about the danger. I believe in the power of therapeutic pipelines, that is why I bought Regeneron today and have owned BIIB, CELG, GILD and others for years. But I have seen big collapses when biotechnology pipelines did not deliver what sell-side brokers and analysts promised to gullible investors.
Another thing, how come Gilead (GILD) has been a sell according to many of the same people who are pushing Vertex? The story is Gilead's Hepatitis C drug is too expensive. But Gilead is selling a cure to a deadly disease for 85 thousand. Vertex, according to the new study, will be selling a drug that averages just 4% increase in lung volume (almost too low to detect) for over $100,000 per year. Why not worry about insurance company resistance to that kind of pricing?
Again, Vertex is a good company, and I would invest in its future at a reasonable price. But not today's price of $93.53 per share, and not even yesterday's price of $66.61. Not on current sales, and not on the trial data.
For my coverage, including summaries of analyst conferences and articles at Seeking Alpha, check out:
Regeneron (REGN)
Vertex (VRTX)
Gilead (GILD)
In any case, be sure to ... Keep Diversified!
Tuesday, June 17, 2014
My Gilead (GILD) Whisper: $180 per share.
I would not say it is a sure thing, but when I look at Gilead Sciences (GILD), which lately has been hovering around $80 per share, I think it will go to $180 per share by about a year from now.
I'm not going to write a Seeking Alpha article to that effect (my latest on Gilead was: Gilead Down On Merck-Idenix Deal, But Little To Fear on June 9), but the reasoning is fairly simple.
Gilead's Q1 non-GAAP earnings per share were $1.48, a 169% sequential jump and 210 jump from year-earlier. This was a result of the first full quarter of sales of Sovaldi, the new cure for Hepatitis C.
While q/q fluctuations can be expected, I expect a base EPS of $1.50 per share per quarter going forward, and likely trending above that as we head into 2015.
Which means at the end of 2014 trailing non-GAAP EPS will be in the vicinity of $3.00.
By then investors, including big institutional investors, should realize that the ride is not over, that because of new therapies coming to market, and international expansion of existing therapies, growth will continue at a good (if difficult to predict exactly yet) rate.
Which means that GILD should command a P/E premium over slower-growing stock. To me, rule of thumb, that would be a P/E of 30.
30 x $6 = $180.
Of course, non-GAAP EPS will be a bit lower, and you can get very different numbers by projecting different P/Es.
I am at my portfolio limit in GILD, and if it does go up that much, I will be "forced" to sell by my portfolio rules that limit the % I can hold of any one stock. Which is great, because I have an eye on several much smaller biotech stocks that I would like to invest in now, because they may be great in 3 to 5 years.
But keep diversified, because all stock investments involve risks, including unknown unknowns.
I'm not going to write a Seeking Alpha article to that effect (my latest on Gilead was: Gilead Down On Merck-Idenix Deal, But Little To Fear on June 9), but the reasoning is fairly simple.
Gilead's Q1 non-GAAP earnings per share were $1.48, a 169% sequential jump and 210 jump from year-earlier. This was a result of the first full quarter of sales of Sovaldi, the new cure for Hepatitis C.
While q/q fluctuations can be expected, I expect a base EPS of $1.50 per share per quarter going forward, and likely trending above that as we head into 2015.
Which means at the end of 2014 trailing non-GAAP EPS will be in the vicinity of $3.00.
By then investors, including big institutional investors, should realize that the ride is not over, that because of new therapies coming to market, and international expansion of existing therapies, growth will continue at a good (if difficult to predict exactly yet) rate.
Which means that GILD should command a P/E premium over slower-growing stock. To me, rule of thumb, that would be a P/E of 30.
30 x $6 = $180.
Of course, non-GAAP EPS will be a bit lower, and you can get very different numbers by projecting different P/Es.
I am at my portfolio limit in GILD, and if it does go up that much, I will be "forced" to sell by my portfolio rules that limit the % I can hold of any one stock. Which is great, because I have an eye on several much smaller biotech stocks that I would like to invest in now, because they may be great in 3 to 5 years.
But keep diversified, because all stock investments involve risks, including unknown unknowns.
Tuesday, June 10, 2014
Gilead Sciences (GILD) Buy Op & Other Thoughts
New post at Seeking Alpha:
Gilead Sinks on Merck-Idenix Deal, in which I argue Gilead is not very threatened and remains undervalued. I am overweight in Gilead, and in for the long run, but if you don't own Gilead it is worth a look. My best guess is that the cash keeps rolling in from Hepatitis C cures, and GILD is up another 50% or so over the next year or so, and even that will leave it at a lower P/E.
I am not going to cover it, but I bought an incredibly tiny amount of Opexa Therapeutics (OPXA) on May 29. I already own Biogen Idec (BIIB), so I know a bit about multiple sclerosis. Opexa has a totally different approach, an immunological one, and results are mixed so far, but a Phase II trial is underway. The results are not due until 2016, and then usually even with positive data a Phase III trial would be needed. So it is both a long shot and a long term investment.
I think the market overall is fairly valued on a current basis, which means about 1/2 of stocks are overvalued and 1/2 undervalued. So it is a stock-picker's market. On the other hand, I believe the economy has years of expansion ahead of it, so in 3 to 5 years I expect the market to be up. In that case, even an index fund would do more for your savings than CDs or bonds. We are not in a stock market bubble yet, but if one appears, sell into it (most people buy into bubbles, that is why they are bubbles).
What stocks are overvalued or undervalued is a matter of opinion. I tend to look two to three years out, so I include the value of biotechnology pipelines.
Gilead Sinks on Merck-Idenix Deal, in which I argue Gilead is not very threatened and remains undervalued. I am overweight in Gilead, and in for the long run, but if you don't own Gilead it is worth a look. My best guess is that the cash keeps rolling in from Hepatitis C cures, and GILD is up another 50% or so over the next year or so, and even that will leave it at a lower P/E.
I am not going to cover it, but I bought an incredibly tiny amount of Opexa Therapeutics (OPXA) on May 29. I already own Biogen Idec (BIIB), so I know a bit about multiple sclerosis. Opexa has a totally different approach, an immunological one, and results are mixed so far, but a Phase II trial is underway. The results are not due until 2016, and then usually even with positive data a Phase III trial would be needed. So it is both a long shot and a long term investment.
I think the market overall is fairly valued on a current basis, which means about 1/2 of stocks are overvalued and 1/2 undervalued. So it is a stock-picker's market. On the other hand, I believe the economy has years of expansion ahead of it, so in 3 to 5 years I expect the market to be up. In that case, even an index fund would do more for your savings than CDs or bonds. We are not in a stock market bubble yet, but if one appears, sell into it (most people buy into bubbles, that is why they are bubbles).
What stocks are overvalued or undervalued is a matter of opinion. I tend to look two to three years out, so I include the value of biotechnology pipelines.
Thursday, April 10, 2014
Bought More Gilead; Waiting on Regeneron
Just to follow up yesterday's post, this morning I added to my Gilead (GILD) holdings. Investors today are acting like it is a surprise that Gilead will have competition in the Hepatitis C market. Had they not been paying attention?
I believe Gilead can discount its Hep C therapies substantially if necessary to dominate the market, while still having high profit margins. In fact, I have believed all along that Gilead would have done better to price Sovaldi substantially lower and encourage larger numbers of patients to sign up quickly for the treatment. With hundreds of millions of potential patients in the world, they won't run out of patients any time soon, even though the cure rate is extremely high.
I think when Q1 results come out on April 22 we will see the tip of the iceberg for Sovaldi and the coming combination therapies. Gilead had just $139 million in Sovaldi revenue in Q4, and only $50 million made it to patients, the rest being stocking.
I am still hoping to bag some Regeneron (REGN), but even though it is off today at $294, I think it has to be well below $285 now for me to prioritize it over buying more GILD. Of course those who own Regeneron would argue differently, and they could be right.
At $65.19, the price I paid today, Gilead had a trailing P/E of 36.3. With Solvadi and other new drugs coming online, my best guess is still that Gilead will go well over $100 per share by the end of the year. But as with all stocks, Gilead is limited to less than 10% of my portfolio holdings.
For all my background research and published articles on Gilead see: William Meyers on Gilead.
I believe Gilead can discount its Hep C therapies substantially if necessary to dominate the market, while still having high profit margins. In fact, I have believed all along that Gilead would have done better to price Sovaldi substantially lower and encourage larger numbers of patients to sign up quickly for the treatment. With hundreds of millions of potential patients in the world, they won't run out of patients any time soon, even though the cure rate is extremely high.
I think when Q1 results come out on April 22 we will see the tip of the iceberg for Sovaldi and the coming combination therapies. Gilead had just $139 million in Sovaldi revenue in Q4, and only $50 million made it to patients, the rest being stocking.
I am still hoping to bag some Regeneron (REGN), but even though it is off today at $294, I think it has to be well below $285 now for me to prioritize it over buying more GILD. Of course those who own Regeneron would argue differently, and they could be right.
At $65.19, the price I paid today, Gilead had a trailing P/E of 36.3. With Solvadi and other new drugs coming online, my best guess is still that Gilead will go well over $100 per share by the end of the year. But as with all stocks, Gilead is limited to less than 10% of my portfolio holdings.
For all my background research and published articles on Gilead see: William Meyers on Gilead.
Tuesday, July 30, 2013
New Celgene (CELG) article
I have a new article published today at Seeking Alpha:
Celgene Up Over 100% in a Year. Still a Buy?
I also have an article under editorial review on Gilead (GILD).
Today I hope to write up my thoughts on Biogen Idec as well.
On the whole Celgene, Biogen, and Gilead, plus Onyx Pharmaceutical, have been my best investment segment. Buying them goes back to the time I wrote:
Choosing a Biotechnology Stock
Which, while the specifics have changed, still gives some good tips on what tips to look for if you want to choose individual stocks instead of a biotechnology fund.
Celgene Up Over 100% in a Year. Still a Buy?
I also have an article under editorial review on Gilead (GILD).
Today I hope to write up my thoughts on Biogen Idec as well.
On the whole Celgene, Biogen, and Gilead, plus Onyx Pharmaceutical, have been my best investment segment. Buying them goes back to the time I wrote:
Choosing a Biotechnology Stock
Which, while the specifics have changed, still gives some good tips on what tips to look for if you want to choose individual stocks instead of a biotechnology fund.
Monday, December 3, 2012
Gilead Sciences Pipeline Value
Gilead Sciences (GILD), has had a good year so far. On January 3, 2012 it opened at $41.46. Today it closed at 74.61, fairly near its 52-week high of $76.28. So up 84% this year. I used to write about Gilead more often during the years 2007 to 2011, arguing that it was undervalued. After finally getting a solid run up, is it time to bail out, hold, or buy more?
The forward-looking story is now largely about curing Hepatitis C, but first the latest backward-looking numbers.
In Q3 revenue was $2.43 billion, up 1% sequentially from $2.41 billion and up 14% from $2.12 billion in the year-earlier quarter. GAAP net income was $675.5 million, down 5% sequentially from $711.6 million, and down 9% from $741.1 million year-earlier. GAAP earnings per share (EPS) were $0.85, down 7% sequentially from $0.91 and down 10% from $0.95 year-earlier. Non-GAAP net income was $788.9 million, up 3% sequentially $767.3 million, and down 1% from $795.2 million year-earlier.
Profits did not keep pace with revenue growth because of costs from the Pharmasset acquisition from earlier in the year and a significant increase in R&D expense. Gilead is currently rolling out its newest HIV drugs like Stribild, which is helping revenue, but the R&D is not so much for HIV. The new R&D research is focused on hepatitis and oncology.
Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.
Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now Sofosbuvir), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.
The latest set of results is for Sofosbuvir. The Phase 3 POSITRON study showed a response rate of 78% for hepatitis C (HCV) genotypes 2 and 3 when Sofosbuvir was combined with Ribavirin. It is notable that this is an all-oral regimen which does not include the using old standard, interferon. In tracking HCV note that a drug combination that works well with a particular genotype may not work with others. After 12 weeks of therapy and then an addition twelve weeks to see if the virus returned, HCV was not detected in 78% of patients. For those who are keeping track, Sofosbuvir used to be GS-7977.
Better still were the results from Sofosbuvir combined with GS-5885 and Ribavirin for genotype 1 HCV patients. Following 12 weeks of therapy and then 4 weeks without therapy, the response rate was 100%. Used with just ribavirin, Sofosbuvir had mixed results ranging from 84% for genotype 1 patients with no prior treatment down to only 10% response for genotype 1 patients who had not responded to prior treatments. For genotype 2 and 3 mixes, the range of responses was 60% to 68%.
Note that 100% cure rate is not necessary for FDA approval. As long as a combination can be found that does well with previously-untreated patients or that helps patients who were not helped by current therapies that include interferon, with about a 40% cure rate, the drugs could fulfill an unmet medical need.
At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people world-wide have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed HCV). For a less positive spin on the overall competition in hepatitis, I try Lessons from the Liver Meeting at Seeking Alpha.
Using the standard trailing 12-month ratio, Gilead's current P/E is 23.3. That is up quite a bit from earlier in the year. Conservative investors may want to wait until Gilead has actual FDA approval for a hepatitis C before extrapolating their chickens. As usual, the problem is by that time the stock may be priced even higher.
I don't think the current market has even priced in the true future value of Gilead's current drugs, much less the potential of a Sofosbuvir cocktail. In my particular case I feel comfortable with looking to the continued appreciation of my current holdings. I might still buy if the hep C data keeps getting better without a corresponding rise in the stock price. I have portfolio rules that restrict any stock to a maximum percentage of the entire portfolio, and could be forced to sell some if the stock rises too rapidly in price, though that seems unlikely at present.
Even with a great growth potential Gilead has, there are the usual risks from competition, macroeconomics, failure to receive FDA approval, etc.
Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q3 2012 analyst call summary
www.gilead.com
The forward-looking story is now largely about curing Hepatitis C, but first the latest backward-looking numbers.
In Q3 revenue was $2.43 billion, up 1% sequentially from $2.41 billion and up 14% from $2.12 billion in the year-earlier quarter. GAAP net income was $675.5 million, down 5% sequentially from $711.6 million, and down 9% from $741.1 million year-earlier. GAAP earnings per share (EPS) were $0.85, down 7% sequentially from $0.91 and down 10% from $0.95 year-earlier. Non-GAAP net income was $788.9 million, up 3% sequentially $767.3 million, and down 1% from $795.2 million year-earlier.
Profits did not keep pace with revenue growth because of costs from the Pharmasset acquisition from earlier in the year and a significant increase in R&D expense. Gilead is currently rolling out its newest HIV drugs like Stribild, which is helping revenue, but the R&D is not so much for HIV. The new R&D research is focused on hepatitis and oncology.
Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.
Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now Sofosbuvir), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.
The latest set of results is for Sofosbuvir. The Phase 3 POSITRON study showed a response rate of 78% for hepatitis C (HCV) genotypes 2 and 3 when Sofosbuvir was combined with Ribavirin. It is notable that this is an all-oral regimen which does not include the using old standard, interferon. In tracking HCV note that a drug combination that works well with a particular genotype may not work with others. After 12 weeks of therapy and then an addition twelve weeks to see if the virus returned, HCV was not detected in 78% of patients. For those who are keeping track, Sofosbuvir used to be GS-7977.
Better still were the results from Sofosbuvir combined with GS-5885 and Ribavirin for genotype 1 HCV patients. Following 12 weeks of therapy and then 4 weeks without therapy, the response rate was 100%. Used with just ribavirin, Sofosbuvir had mixed results ranging from 84% for genotype 1 patients with no prior treatment down to only 10% response for genotype 1 patients who had not responded to prior treatments. For genotype 2 and 3 mixes, the range of responses was 60% to 68%.
Note that 100% cure rate is not necessary for FDA approval. As long as a combination can be found that does well with previously-untreated patients or that helps patients who were not helped by current therapies that include interferon, with about a 40% cure rate, the drugs could fulfill an unmet medical need.
At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people world-wide have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed HCV). For a less positive spin on the overall competition in hepatitis, I try Lessons from the Liver Meeting at Seeking Alpha.
Using the standard trailing 12-month ratio, Gilead's current P/E is 23.3. That is up quite a bit from earlier in the year. Conservative investors may want to wait until Gilead has actual FDA approval for a hepatitis C before extrapolating their chickens. As usual, the problem is by that time the stock may be priced even higher.
I don't think the current market has even priced in the true future value of Gilead's current drugs, much less the potential of a Sofosbuvir cocktail. In my particular case I feel comfortable with looking to the continued appreciation of my current holdings. I might still buy if the hep C data keeps getting better without a corresponding rise in the stock price. I have portfolio rules that restrict any stock to a maximum percentage of the entire portfolio, and could be forced to sell some if the stock rises too rapidly in price, though that seems unlikely at present.
Even with a great growth potential Gilead has, there are the usual risks from competition, macroeconomics, failure to receive FDA approval, etc.
Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q3 2012 analyst call summary
www.gilead.com
Monday, August 13, 2012
3 NASDAQ 100 Biotechs: Gilead, Celgene, Biogen Idec
When I wrote about Gilead Sciences (GILD), on July 26, 2011, I said "A convergence of factors is driving Gilead profits higher. This trend should accelerate in 2012 and continue through at least 2015." [See Gilead Sciences Readies Pipeline]. Gilead stock that day closed at $42.16. This morning GILD opened at $56.42. While I am a long-term investor, it is encouraging to see these short-term results.
The forward-looking story is now largely about curing Hepatitis C and refreshing Gilead's market-dominating anti-HIV franchise, but first the backward-looking numbers.
In Q2 revenue was $2.41 billion, up 6% sequentially from $2.28 billion and up 13% from $2.14 billion in the year-earlier quarter. GAAP net income was $711.6 million, up 61% sequentially from $442.0 million, but down 5% from $746.2 million in the year-earlier quarter. GAAP earnings per share (EPS) were $0.91, up 60% sequentially from $0.57, but down 2% from $0.93 year-earlier. Eliminating one-time and non-cash items, Non-GAAP EPS was $0.99, up 9% sequentially from $0.91, but down 1% from $1.00 year-earlier.
The y/y EPS showing may make you wonder why the stock is up so much. Bringing the new HIV drugs to the FDA and the hepatitis drugs through clinical trials is adding to expenses. The price of the stock had been beaten down because of fears of expiring patents. The increased revenue promises a healthy dose of future profits since it now appears the HIV franchise will remain strong and hep c revenues may kick in as early as 2014. Recent Phase II hep c trials have been encouraging. The goal is to have a multi-agent, highly effective once-a-day tablet that will completely cure hepatitis C over a reasonably short period of time.
Gilead's P/E Ratio? Just over 17. It's a bargain.
Celgene (CELG) also is generating healthy profits while getting ready to introduce blockbuster therapies over the next few years.
Celgene Q2 revenue was $1.37 billion, up 8% sequentially from $1.27 million and up 16% from $1.18 billion year-earlier. GAAP net income was $367.4 million, down 8% sequentially from $401.5 million but up 32% from $279.2 million year-earlier. GAAP EPS (earnings per share) were $0.82, down 9% sequentially from $0.90, but up 39% from $0.59 year-earlier.
With a 39% y/y growth in GAAP EPS, you might think Celgene would be flying with a higher P/E ratio. Is is just GAAP accounting? No, non-GAAP EPS in Q2 was $1.22, up 13% sequentially from $1.08 and up 37% from $0.89 year-earlier.
Celgene closed a bit down today at $71.85, but a year ago it was selling for under $55. Its P/E Ratio is near 21.
The two new Celgene drugs that could produce revenue in 2013 are Pomalidomide for relapsed and refractory multiple myeloma and Apremilast for psoriatic arthritis and psoriasis. Safety and efficacy look good for both drugs, but there is always a chance that the FDA will disapprove or cause delays by asking for more clinical data.
Biogen Idec has already proven itself to be one of the big winners of late.
Biogen (BIIB) closed today at $144.54. In 2010 you could have bought it in the fifties most of the year. It has a higher P/E Ratio than Celgene or Gilead at just over 26.
So is BIIB more of a product for profit taking? [Disclaimer: I did already take some profits on this one, but it's gone up since then.]
Q2 revenue was $1.421 billion, up 10% sequentially from $1.292 billion and up 17.5% from $1.209 billion in the year-earlier quarter. GAAP net income was $386.8 million, up 28% sequentially from $302.7 million and up 34% from $288.0 million year-earlier. GAAP EPS (earnings per share) were $1.61, up 29% sequentially from $1.25 and up 36% from $1.18 year-earlier.
That alone would seem to justify the P/E, but like Celgene and Gilead, Biogen has a pipeline that could mint money for investors. The first one coming up for an FDA decision is BG-12 (dimethyl fumarate), an oral therapy for multiple sclerosis. The data looks good and a positive FDA decision would mean a commercial launch this year.
While each of these stocks has its risks, as a group they have a large number of profitable drugs and a large number of therapies in their pipelines. Holding all three minimizes risk. They are all in the NASDAQ 100.
Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences, Celgene, and Biogen Idec. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q2 2012 analyst call summary
Celgene Q2 2012 analyst call summary
Biogen Idec Q2 2012 analyst call summary
The forward-looking story is now largely about curing Hepatitis C and refreshing Gilead's market-dominating anti-HIV franchise, but first the backward-looking numbers.
In Q2 revenue was $2.41 billion, up 6% sequentially from $2.28 billion and up 13% from $2.14 billion in the year-earlier quarter. GAAP net income was $711.6 million, up 61% sequentially from $442.0 million, but down 5% from $746.2 million in the year-earlier quarter. GAAP earnings per share (EPS) were $0.91, up 60% sequentially from $0.57, but down 2% from $0.93 year-earlier. Eliminating one-time and non-cash items, Non-GAAP EPS was $0.99, up 9% sequentially from $0.91, but down 1% from $1.00 year-earlier.
The y/y EPS showing may make you wonder why the stock is up so much. Bringing the new HIV drugs to the FDA and the hepatitis drugs through clinical trials is adding to expenses. The price of the stock had been beaten down because of fears of expiring patents. The increased revenue promises a healthy dose of future profits since it now appears the HIV franchise will remain strong and hep c revenues may kick in as early as 2014. Recent Phase II hep c trials have been encouraging. The goal is to have a multi-agent, highly effective once-a-day tablet that will completely cure hepatitis C over a reasonably short period of time.
Gilead's P/E Ratio? Just over 17. It's a bargain.
Celgene (CELG) also is generating healthy profits while getting ready to introduce blockbuster therapies over the next few years.
Celgene Q2 revenue was $1.37 billion, up 8% sequentially from $1.27 million and up 16% from $1.18 billion year-earlier. GAAP net income was $367.4 million, down 8% sequentially from $401.5 million but up 32% from $279.2 million year-earlier. GAAP EPS (earnings per share) were $0.82, down 9% sequentially from $0.90, but up 39% from $0.59 year-earlier.
With a 39% y/y growth in GAAP EPS, you might think Celgene would be flying with a higher P/E ratio. Is is just GAAP accounting? No, non-GAAP EPS in Q2 was $1.22, up 13% sequentially from $1.08 and up 37% from $0.89 year-earlier.
Celgene closed a bit down today at $71.85, but a year ago it was selling for under $55. Its P/E Ratio is near 21.
The two new Celgene drugs that could produce revenue in 2013 are Pomalidomide for relapsed and refractory multiple myeloma and Apremilast for psoriatic arthritis and psoriasis. Safety and efficacy look good for both drugs, but there is always a chance that the FDA will disapprove or cause delays by asking for more clinical data.
Biogen Idec has already proven itself to be one of the big winners of late.
Biogen (BIIB) closed today at $144.54. In 2010 you could have bought it in the fifties most of the year. It has a higher P/E Ratio than Celgene or Gilead at just over 26.
So is BIIB more of a product for profit taking? [Disclaimer: I did already take some profits on this one, but it's gone up since then.]
Q2 revenue was $1.421 billion, up 10% sequentially from $1.292 billion and up 17.5% from $1.209 billion in the year-earlier quarter. GAAP net income was $386.8 million, up 28% sequentially from $302.7 million and up 34% from $288.0 million year-earlier. GAAP EPS (earnings per share) were $1.61, up 29% sequentially from $1.25 and up 36% from $1.18 year-earlier.
That alone would seem to justify the P/E, but like Celgene and Gilead, Biogen has a pipeline that could mint money for investors. The first one coming up for an FDA decision is BG-12 (dimethyl fumarate), an oral therapy for multiple sclerosis. The data looks good and a positive FDA decision would mean a commercial launch this year.
While each of these stocks has its risks, as a group they have a large number of profitable drugs and a large number of therapies in their pipelines. Holding all three minimizes risk. They are all in the NASDAQ 100.
Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences, Celgene, and Biogen Idec. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q2 2012 analyst call summary
Celgene Q2 2012 analyst call summary
Biogen Idec Q2 2012 analyst call summary
Sunday, April 29, 2012
Gilead Sciences Looks for Hepatitis C Cure
When I last wrote about Gilead Sciences (GILD), on July 26, 2011, I said "A convergence of factors is driving Gilead profits higher. This trend should accelerate in 2012 and continue through at least 2015." [See Gilead Sciences Readies Pipeline]. Gilead stock that day closed at $42.16. Last Friday April 27, GILD closed at $52.16, following the announcement of Q1 results after market close on Thursday.
The forward-looking story is now largely about curing Hepatitis C, but first the backward-looking numbers.
In Q1 revenue was $2.28 billion, up 4% sequentially from $2.20 billion and up 18% from $1.93 billion in the year-earlier quarter. GAAP net income was $442.0 million, down 34% sequentially from $665.1 million and down 32% from $651.1 million year-earlier. GAAP earnings per share (EPS) were $0.57, down 34% sequentially from $0.87 and down 29% from $0.80 year-earlier.
The poor GAAP profit showing relative to revenue was mainly related to the acquisition of Pharmasset, closing on January 17, for $11 billion. Pharmasset held important therapies for hepatitis C that Gilead wanted to add to its own hep C pipeline. Non-GAAP EPS was $0.91, up from $0.87 year-earlier.
Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections, which lead to AIDS if untreated. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.
Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now GS7977), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.
Thursday Gilead executives reviewed recent hep C data and clarified their strategy. The GS-7977 plus ribavirin hepatitis C (HCV) genotype 1 Phase 2 study showed no detectible virus after 12 weeks of treatment, but at end of treatment the majority of patients relapsed. GS-7977 plus BMS-790052 (owned by Bristol Myer) showed high hepatitis C cure rates: >90% for genotype 2/3 and 100% for genotype 1.
Based on those and other results, Gilead is designing Phase III studies that could be fully enrolled by the end of May. Several paths are available to get therapies to market, but they need to talk more to regulators before the final trials are initiated. They would clearly prefer an all-Gilead single tablet regimen that cures most hep C, so working with Bristol Myer would be a fall back position. Given the number of drugs Gilead owns and could combine with 7977, it is a good, but not certain, bet that something will work.
At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed hep c).
It is too early, I think, to put a number on the value of a hep c cure, but note that Gilead paid $11 billion for Pharmasset. They went through most of their cash and borrowed some $5.5 billion to do it. Gilead annual cash flow runs around $2 billion.
The main risk here is that a competitor (or multiple competitors) will also create an all-oral hepatitis c therapy, and might even gain FDA approval first. Even so, it is a big market and I don't think Gilead's present price reflects much of this opportunity.
Even with a great growth and value combo like Gilead, there are the usual risks from competition, macroeconomics, failure to execute, etc. See SEC filings for a complete set of risks.
And Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q1 2012 analyst call summary
www.gilead.com
The forward-looking story is now largely about curing Hepatitis C, but first the backward-looking numbers.
In Q1 revenue was $2.28 billion, up 4% sequentially from $2.20 billion and up 18% from $1.93 billion in the year-earlier quarter. GAAP net income was $442.0 million, down 34% sequentially from $665.1 million and down 32% from $651.1 million year-earlier. GAAP earnings per share (EPS) were $0.57, down 34% sequentially from $0.87 and down 29% from $0.80 year-earlier.
The poor GAAP profit showing relative to revenue was mainly related to the acquisition of Pharmasset, closing on January 17, for $11 billion. Pharmasset held important therapies for hepatitis C that Gilead wanted to add to its own hep C pipeline. Non-GAAP EPS was $0.91, up from $0.87 year-earlier.
Why the emphasis on hep c? While Gilead Sciences has branched out into treatments for cardiovascular diseases, its primary expertise in in anti-viral drugs, particularly for HIV infections, which lead to AIDS if untreated. Because of the effectiveness of its single-tablet, multi-drug combinations, Gilead dominates that market. Gilead also markets Viread for Hepatitis B. The past generation of Hepatitis C therapies have limited effectiveness, have a number of side effects, and cannot be administered orally.
Before the Pharmasset acquisition Gilead had four hepatitis drugs in phase II trials, and three in phase I, and said they would likely be made into a successful combination therapy. Pharmasset added Phase III candidate PSI-7977 (now GS7977), Phase II candidate Mericitabine, and Phase II candidate PSI-938, all for hep C. Pharmasset also brought candidates for HIV and hepatitis B treatment.
Thursday Gilead executives reviewed recent hep C data and clarified their strategy. The GS-7977 plus ribavirin hepatitis C (HCV) genotype 1 Phase 2 study showed no detectible virus after 12 weeks of treatment, but at end of treatment the majority of patients relapsed. GS-7977 plus BMS-790052 (owned by Bristol Myer) showed high hepatitis C cure rates: >90% for genotype 2/3 and 100% for genotype 1.
Based on those and other results, Gilead is designing Phase III studies that could be fully enrolled by the end of May. Several paths are available to get therapies to market, but they need to talk more to regulators before the final trials are initiated. They would clearly prefer an all-Gilead single tablet regimen that cures most hep C, so working with Bristol Myer would be a fall back position. Given the number of drugs Gilead owns and could combine with 7977, it is a good, but not certain, bet that something will work.
At the same time it is a race, since other companies are also trying to break into the all-oral hepatitis market. It is a huge market. An estimated 150 million people have chronic hepatitis C, with the U.S. figure likely somewhere between 3 and 6 million (many people have undiagnosed hep c).
It is too early, I think, to put a number on the value of a hep c cure, but note that Gilead paid $11 billion for Pharmasset. They went through most of their cash and borrowed some $5.5 billion to do it. Gilead annual cash flow runs around $2 billion.
The main risk here is that a competitor (or multiple competitors) will also create an all-oral hepatitis c therapy, and might even gain FDA approval first. Even so, it is a big market and I don't think Gilead's present price reflects much of this opportunity.
Even with a great growth and value combo like Gilead, there are the usual risks from competition, macroeconomics, failure to execute, etc. See SEC filings for a complete set of risks.
And Keep Diversified!
Disclaimer: I am a long-term investor in Gilead Sciences. I will not trade in the stock for a week from today.
See also:
my Gilead Sciences Q1 2012 analyst call summary
www.gilead.com
Sunday, October 9, 2011
Earnings Preview: AMD, AKAM, GILD, BIIB, CELG
Earnings season is upon us again. Of the stocks I watch most closely (in this case because I own some of each of them), Akamai (AKAM) has scheduled its analyst conference for October 26, and Advanced Micro Devices (AMD) is on October 27. Gilead Sciences (GILD), Celgene (CELG), and Biogen Idec (BIIB) should also report before month's end, but have not yet set dates.
While the information in analyst conferences comes from management, and so can be biased, it is still essential listening for serious investors. At the end sell-side analysts are allowed to ask questions (some micro-caps even let investors ask questions), and on occasion an answer to a question can give important insights into the company. I take notes while I listen and even post them on the web; listen to management for a couple of years and you may be able to tell a lot from the way they answer or evade questions. Going back a few years and checking on how management's predictions worked out can also be illuminating.
Akamai typically is a high P/E stock that has to justify that ratio by showing continuous growth. Many companies have tried to compete with Akamai at accelerated delivery of web content, yet over a decade later Akamai still has incredible market share and has branched out into adjacent businesses like cloud security. Pricing has been an issue lately. Look to see if Akamai's volume of business is growing fast enough to compensate for falling prices. Q3 is a slowish quarter for content delivery, with a big bump coming from e-commerce in Q4, so Q4 guidance is also a key indicator of the health of this business.
AMD already pre-announced, sending the stock price into free-fall. This was as I predicted in AMD at Earnings Crossroad, but worse. The good side of the news is demand for AMD's new server and APU chips is strong. What we want to know from management is how strong is the demand, and how quickly can they gear up chip production to meet the demand.
Biogen Idec (BIIB) guided to low to mid single digit revenue growth over 2011, which for Q3 would run to roughtly $1.2 billion. Tysabri sales over $280 million would be a positive indicator, but the key question is data or FDA approvals for late-pipeline drugs like BG-12 or Daclizumab for multiple sclerosis, which are likely to be announced on other occasions.
Gilead (GILD) is a cash cow that has a low P/E due to patents expiring on some of its anti-viral drugs over the next decade. If management would pay a dividend, the value of the franchise would be more obvious. They are doing a lot of research on new anti-viral compounds that could kick growth into high gear again if approved. Expect something over $2 billion in revenue, $940 million in cash flow from operations. The key issue would be timelines for Endurant and and the "Quad" regimen. Don't expect the stock to budge much in this market until they pay a dividend or announce positive Phase III data for a hepatitis C multi-drug therapy (they are only in Phase II, so it will be a while).
Celgene (CELG) is another cash cow, but with a rapid revenue and profit growth rate (and a higher P/E). Look for Revlimid revenues over $800 million, Vidaza over $165 million or Abraxane, their newest drug, revenues breaking though $100 million in the quarter. Celgene has a pipeline of potential drugs that is so extensive it would take several articles just to go over them. See Celgene drug pipeline for a list. Unless they mostly strike out, anyone who does not buy Celgene at today's price will wish they had in five years, but long-term investors are hard to find in this market.
Disclaimer: I am long in all of these stocks.
While the information in analyst conferences comes from management, and so can be biased, it is still essential listening for serious investors. At the end sell-side analysts are allowed to ask questions (some micro-caps even let investors ask questions), and on occasion an answer to a question can give important insights into the company. I take notes while I listen and even post them on the web; listen to management for a couple of years and you may be able to tell a lot from the way they answer or evade questions. Going back a few years and checking on how management's predictions worked out can also be illuminating.
Akamai typically is a high P/E stock that has to justify that ratio by showing continuous growth. Many companies have tried to compete with Akamai at accelerated delivery of web content, yet over a decade later Akamai still has incredible market share and has branched out into adjacent businesses like cloud security. Pricing has been an issue lately. Look to see if Akamai's volume of business is growing fast enough to compensate for falling prices. Q3 is a slowish quarter for content delivery, with a big bump coming from e-commerce in Q4, so Q4 guidance is also a key indicator of the health of this business.
AMD already pre-announced, sending the stock price into free-fall. This was as I predicted in AMD at Earnings Crossroad, but worse. The good side of the news is demand for AMD's new server and APU chips is strong. What we want to know from management is how strong is the demand, and how quickly can they gear up chip production to meet the demand.
Biogen Idec (BIIB) guided to low to mid single digit revenue growth over 2011, which for Q3 would run to roughtly $1.2 billion. Tysabri sales over $280 million would be a positive indicator, but the key question is data or FDA approvals for late-pipeline drugs like BG-12 or Daclizumab for multiple sclerosis, which are likely to be announced on other occasions.
Gilead (GILD) is a cash cow that has a low P/E due to patents expiring on some of its anti-viral drugs over the next decade. If management would pay a dividend, the value of the franchise would be more obvious. They are doing a lot of research on new anti-viral compounds that could kick growth into high gear again if approved. Expect something over $2 billion in revenue, $940 million in cash flow from operations. The key issue would be timelines for Endurant and and the "Quad" regimen. Don't expect the stock to budge much in this market until they pay a dividend or announce positive Phase III data for a hepatitis C multi-drug therapy (they are only in Phase II, so it will be a while).
Celgene (CELG) is another cash cow, but with a rapid revenue and profit growth rate (and a higher P/E). Look for Revlimid revenues over $800 million, Vidaza over $165 million or Abraxane, their newest drug, revenues breaking though $100 million in the quarter. Celgene has a pipeline of potential drugs that is so extensive it would take several articles just to go over them. See Celgene drug pipeline for a list. Unless they mostly strike out, anyone who does not buy Celgene at today's price will wish they had in five years, but long-term investors are hard to find in this market.
Disclaimer: I am long in all of these stocks.
Wednesday, July 27, 2011
Gilead Sciences Readies Pipeline Value
Gilead Sciences (GILD) is an enourmously profitable company with a cheap stock price, as measured by its Price to Earnings (P/E) ratio. Yesterday Gilead released in second quarter (Q2) 2011 results and held its analyst conference.
A convergence of factors is driving Gilead profits higher. This trend should accelerate in 2012 and continue through at least 2015.
Gilead dominates the anti-retroviral, HIV drugs market in the U.S, where its market share has grown to 70.4%. Its global market share is not as high, but continues to ramp. Gilead AIDS drugs (Atripla, Truvada and Viread) brought in $1.76 billion in the quarter, up 11% y/y. Gilead's therapies are popular because they combine several drugs in a single pill, which makes for good patient compliance.
You might think that in a highly competitive field, with over 70% market share, there would be little upside left. A couple of factors show that thinking is wrong. Recent trials have shown the benefit of starting those infected with HIV much earlier than is currently the case, and that therapy reduces the risk of infection for partners by 96%. The percentage of Americans who are infected and who are already taking Gilead anti-retroviral drugs is estimated to be only 42%. Globally, as nations modernize and become wealthier, the demand for the best HIV therapies is also expanding.
In addition, in 2012 Gilead should be bringing to new combination pills to market, pending FDA approval. Endurant for HIV single tablet regimen of Truvada plus Rilpivirine is likely to get FDA approval in August. The Quad regimen data from two Phase III trials will be released in Q3 2011. In the likely case the data is positive, we should see Quad for sale in the second half of 2012. While some patients may shift from one Gilead pill to another, most the likely course is that Quad and Atripla will continue to take share away from older, non-Gilead therapies.
Branching out from anti-virals, Gilead has made progress with Letairis for pulmonary arterial hypertension, which generated $74 million in revenue. Ranexa for chronic angina hit $86 million in the quarter.
The coming pipeline of Gilead non-HIV drugs is so large that I can only give an overview here and refer you to the conference slide show (see link below). There are even more HIV therapies at stages of the pipeline, including two stand parts of the Quad, Elvitegravir and Cobicistat. There are four hepatitis drugs in phase II, and three in phase I, which will likely be made into a combination therapy for hepatitis C. There are six drugs, mostly in Phase II, with cardiovascular, respiratory and oncology targets.
Gilead had an astonishing free cash flow in the quarter of $943 million. I'd like to see a dividend, but I agree that at this point the stock is so undervalued that buy-backs make a lot of sense. Gilead spent $724 million in buy backs in the quarter. Yet it ended with a cash balance of $5.5 billion. Gilead is in a great position to acquire and develop more drug candidates.
Short of a Black Swan type disaster, I see Gilead as being a much, much larger company by 2020. That is why I own Gilead stock and may continue to acquire it (in a balanced fashion).
But even with a great growth and value combo like Gilead Sciences, there are the usual risks from competition, macroeconomics, failure to execute, etc. See SEC filings for a complete set of risks.
And Keep Diversified!
See also:
my Gilead Sciences Q2 2011 analyst call summary
Gilead Q2 2011 slide show
Monday, April 18, 2011
Analyst Calls this week: Intuitive Surgical, Gilead, Biogen, AMD
Earnings season begins in earnest for me this week. As usual I will be listening to analyst conference calls. All serious investors should, but then again that is time consuming. I take notes and post them on the web for my own and others references. Here are this week's calls and links for my summaries. The pages are up, so you can click on the links, bookmark the pages, and come back when the summaries are ready, often a few minutes after the conference ends, but sometimes up to a day later due to my work load.
Intuitive Surgical (ISRG) analyst call, Tuesday, April 19, 2011 at 1:30 PM
Gilead Sciences (GILD) analyst call, Wednesday, April 20, 2011 at 2:30 PM
Biogen Idec (BIIB) analyst call, Thursday, April 21, 2011 at 1:30 PM
AMD (AMD) analyst call, Thursday, April 21, 2011 at 2:00 PM
I currently have positions in Gilead, Biogen and AMD, but not in Intuitive Surgical.
Wednesday, January 26, 2011
Gilead Sciences, Tamiflu, and Antivirals
Gilead Sciences (GILD) is an enourmously profitable company with a cheap stock price, as measured by its Price to Earnings (P/E) ratio. Yesterday Gilead released in fourth quarter (Q4) 2010 results and held its analyst conference.
Gilead is best known for selling anti-HIV drugs and for Tamiflu for flu, which is sold by Roche. Last year there was a major flu scare, resulting in Q4 2009 royalties including Tamiflu of were $228.0 million. This year royalty revenues were $68.4 million. That is actually up from Q4 2008 royalties of $40.4 million.
Analysts mostly saw 2009 royalty revenues as a one-time event in 2009, but making up for a y/y drop of about $160 million is quite a feat. For the therapies Gilead sells directly, Q4 2010 revenues were up 7% y/y to $1.93 billion versus $1.80 billion. Antiviral product sales were up 5% y/y to $1.7 billion.
Overall revenues were down 2% y/y, but on a very difficult comparison.
How were profits on $2.00 billion in revenues? GAAP net income was $626.4 million. Non-GAAP net income (excluding stock-based compensation and one-time expenses) was $779.3 million. Cash flow from operations was $775 million.
Mostly affecting the stock today was Gilead's stock buy-back plans. In Q4 $614 million was used to repurchase stock. The remaining pre-authorized $2 billion should be used during 2011, and another $2 billion was authorized. Buying back stock has helped keep up earnings per share, which rose, on a non-GAAP basis, to $0.95, up from $0.93 year-earlier despite the lower revenues and non-GAAP net income.
Gilead will be rolling out a number of new therapies over the next few years for HIV and Hepatitis C. In addition, new health guidelines are for physicians to start patients on retrovirals sooner after infection with HIV. This makes for a tremendous pool of new patient adds in the next three years, given that Gilead has a 68.5% share of this market.
Like all major drug inovators, Gilead has had some some potential products that have failed to achieve results. Developing drugs is expensive, and most drug candidates fail to gain FDA approval. You just figure that in as a cost of doing business, spread out over the successful drugs. All drug patents expire eventually, meaning price drops as generics become available, but again that is as it should be, as it spurs companies to continue to search for better drugs. Gilead's upcoming "quad" single pill therapy for HIV is an example of working for continuous improvement instead of sitting still.
Given all that, at some point Wall Street is going to realize that Gilead's PE ratio is too low. In my mind even now it should not be lower than 20. If it rose to 20 tomorrow, from today's 11, the price would run up to $71.35 per share from (as I write) $39.26. Nevertheless, there are risks, including the whims of other investors, so keep diversified!
See also:
my Gilead Sciences Q4 2010 analyst call summary
www.gilead.com
Gilead is best known for selling anti-HIV drugs and for Tamiflu for flu, which is sold by Roche. Last year there was a major flu scare, resulting in Q4 2009 royalties including Tamiflu of were $228.0 million. This year royalty revenues were $68.4 million. That is actually up from Q4 2008 royalties of $40.4 million.
Analysts mostly saw 2009 royalty revenues as a one-time event in 2009, but making up for a y/y drop of about $160 million is quite a feat. For the therapies Gilead sells directly, Q4 2010 revenues were up 7% y/y to $1.93 billion versus $1.80 billion. Antiviral product sales were up 5% y/y to $1.7 billion.
Overall revenues were down 2% y/y, but on a very difficult comparison.
How were profits on $2.00 billion in revenues? GAAP net income was $626.4 million. Non-GAAP net income (excluding stock-based compensation and one-time expenses) was $779.3 million. Cash flow from operations was $775 million.
Mostly affecting the stock today was Gilead's stock buy-back plans. In Q4 $614 million was used to repurchase stock. The remaining pre-authorized $2 billion should be used during 2011, and another $2 billion was authorized. Buying back stock has helped keep up earnings per share, which rose, on a non-GAAP basis, to $0.95, up from $0.93 year-earlier despite the lower revenues and non-GAAP net income.
Gilead will be rolling out a number of new therapies over the next few years for HIV and Hepatitis C. In addition, new health guidelines are for physicians to start patients on retrovirals sooner after infection with HIV. This makes for a tremendous pool of new patient adds in the next three years, given that Gilead has a 68.5% share of this market.
Like all major drug inovators, Gilead has had some some potential products that have failed to achieve results. Developing drugs is expensive, and most drug candidates fail to gain FDA approval. You just figure that in as a cost of doing business, spread out over the successful drugs. All drug patents expire eventually, meaning price drops as generics become available, but again that is as it should be, as it spurs companies to continue to search for better drugs. Gilead's upcoming "quad" single pill therapy for HIV is an example of working for continuous improvement instead of sitting still.
Given all that, at some point Wall Street is going to realize that Gilead's PE ratio is too low. In my mind even now it should not be lower than 20. If it rose to 20 tomorrow, from today's 11, the price would run up to $71.35 per share from (as I write) $39.26. Nevertheless, there are risks, including the whims of other investors, so keep diversified!
See also:
my Gilead Sciences Q4 2010 analyst call summary
www.gilead.com
Sunday, October 24, 2010
Gilead Sciences Rebuilds Optimism for Pipeline
Biotechnology leader Gilead Sciences (GILD) had a good bounce after it reported third quarter earnings on Tuesday, October 19th. Earlier in the year the stock price had slumped on concerns about expiring Gilead patents. HIV therapy Viread, Hepatitis B treatment Hepsera, and Tamiflu for flu all have patents expiring this decade. Was the stock boost because of good sales in the quarter, a renewed stock buy back plan, or because analysts' concerns about replacement income sources for expiring patents were allayed?
Hepsera revenues in the latest quarter were $47.5 million, which is a nice chunk of money, but only 2.4% of the $1.94 billion in total revenues for the quarter. Tamiflu revenues (in the form of royalties from ) expand and contract with the flu season and perceptions of flu virulance; in Q3 they were $34.5 million, or 1.8% of total revenue.
Viread, though, is a much bigger deal. Quarter revenues for straight, one-pill Viread prescriptions were $184.3 million, or 9.5% of total revenue. In addition, Viread is one of three ingredients in Atripla, which brought in $605.3 million. It is also one of the two ingredients in Truvada, which brought in $669 million. So keeping in mind that all patents expire eventually, and every pharmaceutical and biotechnology company has these issues, I will focus on Viread.
Viread is the tradename of Tenofovir, a reverse transcriptase inhibitor, one of several classes of HIV drugs. Viread was approved by the FDA on October 26, 2001, so it has only been available to patients for 9 years. Since 2008 it has also been approved for treatment of chronic Hepatitis B. In the U.S. its patent expires in, but overseas patent laws and expiration dates vary on a per-country basis. Here is a table of Gilead's patent expirations from its 10-K filed with the SEC on March 1, 2010:
Note that Viread patent expiration is seven years away, Truvada and Atripla are 11 years away in the U.S.
It should be noted that the most significant rival for anti-viral products, a joint venture of GlaxoSmithKline and Pfizer, had its patent of Epivir (lamivudine) expired in May 2010. Generic competitors not only hurt Glaxo/Pfizer, but could hurt Gilead's sales. Generics, however, have tended to be used in poorer countries and in earlier stages of HIV infection; they just are not as effective as the newer drugs.
While HIV and hepatitis drugs have greatly improved over the past 30 years, they remain far from perfect. HIV is prone to mutation. Cocktails of drugs are more effective than single drugs, but effects vary by the mix of HIV strains in patients.
Gilead's Atripla is the current status symbol of the war on HIV. Revenues for Q3 grew 23% year over year. Nevertheless, Gilead is trying a number of combinations (including newer drugs with components whose patents will expire beyond 2021), with good results in clinical trials so far. The most promising is the Quad regimen of elvitegravir, cobicistat, tenofovir and emtricitabine, which has completed a Phase II trial; it could complete a Phase III trial by the end of 2011.
Gilead spent $230 million for research and development in Q3. It ended with a cash balance of $5 billion. It is in a good position to acquire further drug candidates or even entire companies that it thinks could add to profits down the road.
Expiring patents should be taken into account, but the first important expiration for Gilead is in 2017. The existence of generics seldom means sales of trademarked drugs drop to zero. It can still use Viread as an ingredient in its combination therapies even after that. New therapies will be ramping revenues well before 2017.
Given that Gilead's non-GAAP trailing Price to Earnings ratio ended Friday at 10.7, for returns of 9.3% per year, I think the stock is a big old buy at this price, especially for investors who are beginning to see the down side of being 100% in low-interest bonds.
The ongoing stock buy-back is just a bonus for shareholders. It keeps pushing up the returns per share of the remaining stock.
For a detailed report on Q3 results see my Gilead Sciences Analyst Conference Call Q3 2010 summary.
But as always, keep diversified!
Hepsera revenues in the latest quarter were $47.5 million, which is a nice chunk of money, but only 2.4% of the $1.94 billion in total revenues for the quarter. Tamiflu revenues (in the form of royalties from ) expand and contract with the flu season and perceptions of flu virulance; in Q3 they were $34.5 million, or 1.8% of total revenue.
Viread, though, is a much bigger deal. Quarter revenues for straight, one-pill Viread prescriptions were $184.3 million, or 9.5% of total revenue. In addition, Viread is one of three ingredients in Atripla, which brought in $605.3 million. It is also one of the two ingredients in Truvada, which brought in $669 million. So keeping in mind that all patents expire eventually, and every pharmaceutical and biotechnology company has these issues, I will focus on Viread.
Viread is the tradename of Tenofovir, a reverse transcriptase inhibitor, one of several classes of HIV drugs. Viread was approved by the FDA on October 26, 2001, so it has only been available to patients for 9 years. Since 2008 it has also been approved for treatment of chronic Hepatitis B. In the U.S. its patent expires in, but overseas patent laws and expiration dates vary on a per-country basis. Here is a table of Gilead's patent expirations from its 10-K filed with the SEC on March 1, 2010:
Products | U.S. Patent Expiration | European Patent Expiration | ||
Vistide | 2010 | 2012 | ||
Hepsera | 2014 | 2011 (with SPC to 2016) | ||
Letairis | 2015 | 2015 | ||
AmBisome | 2016 | 2008 | ||
Tamiflu | 2016 | 2016 | ||
Macugen | 2017 | 2017 | ||
Viread | 2017 | 2018 | ||
Ranexa | 2019 | 2019 | ||
Lexiscan | 2019 | 2020 | ||
Emtriva | 2021 | 2016 | ||
Truvada | 2021 | 2018 | ||
Atripla | 2021 | 2018 | ||
Cayston | 2021 | 2021 (applciation pending) |
Note that Viread patent expiration is seven years away, Truvada and Atripla are 11 years away in the U.S.
It should be noted that the most significant rival for anti-viral products, a joint venture of GlaxoSmithKline and Pfizer, had its patent of Epivir (lamivudine) expired in May 2010. Generic competitors not only hurt Glaxo/Pfizer, but could hurt Gilead's sales. Generics, however, have tended to be used in poorer countries and in earlier stages of HIV infection; they just are not as effective as the newer drugs.
While HIV and hepatitis drugs have greatly improved over the past 30 years, they remain far from perfect. HIV is prone to mutation. Cocktails of drugs are more effective than single drugs, but effects vary by the mix of HIV strains in patients.
Gilead's Atripla is the current status symbol of the war on HIV. Revenues for Q3 grew 23% year over year. Nevertheless, Gilead is trying a number of combinations (including newer drugs with components whose patents will expire beyond 2021), with good results in clinical trials so far. The most promising is the Quad regimen of elvitegravir, cobicistat, tenofovir and emtricitabine, which has completed a Phase II trial; it could complete a Phase III trial by the end of 2011.
Gilead spent $230 million for research and development in Q3. It ended with a cash balance of $5 billion. It is in a good position to acquire further drug candidates or even entire companies that it thinks could add to profits down the road.
Expiring patents should be taken into account, but the first important expiration for Gilead is in 2017. The existence of generics seldom means sales of trademarked drugs drop to zero. It can still use Viread as an ingredient in its combination therapies even after that. New therapies will be ramping revenues well before 2017.
Given that Gilead's non-GAAP trailing Price to Earnings ratio ended Friday at 10.7, for returns of 9.3% per year, I think the stock is a big old buy at this price, especially for investors who are beginning to see the down side of being 100% in low-interest bonds.
The ongoing stock buy-back is just a bonus for shareholders. It keeps pushing up the returns per share of the remaining stock.
For a detailed report on Q3 results see my Gilead Sciences Analyst Conference Call Q3 2010 summary.
But as always, keep diversified!
Wednesday, July 21, 2010
Gilead, Biogen Idec Second Quarter 2010 Reports
I covered the Gilead (GILD) and Biogen Idec (BIIB) analysts conferences yesterday, July 20, 2010, on my own account. I own stock in both.
You can read the press releases or listen to the recordings, but you can also read my extensive notes: Gilead Sciences Q2 2010 Analyst Conference Summary and Biogen Idec Q2 2010 Analyst Conference Summary.
That's what management said andr reported; here are my reactions. Overall, the biotechnology sector is very much alive, well, and undervalued. Biogen Idec, which specializes in treating multiple sclerosis, but is branching out, had 11% y/y revenue growth and 105% y/y GAAP net income growth.
In other words, profits more than doubled. And they were pretty impressive last year. More important, as time passes PML, a potentially deadly result of unleashing JC virus when the immune system is suppressed, is becoming much less of a problem. It looks like by 2011 it will be possible to screen patients for the presense of JC. Those with out the virus can be expected to switch to Tysabri at a far more rapid rate than we are seeing now. Those who do have JC will be monitored carefully if they take Tysabri; that pools risk also should trend down.
Biogen has an interesting pipeline that could start bearing fruit in 2012. They are diversifying and have the cash flow to buy and develop new products. There will be winners and losers, of course, there always are in biotechnology, but Biogen is now big enough to be sure to have winners in its pipeline. That's what I like to see. I am willing to gamble, on occasion, on a single therapy like I did with Dendreon (DNDN), but most of my portfolio is in companies that have shown they can generate profits.
Gilead has been plagued by analyst's concerns that its anti-viral drugs will go off patent eventually and be undercut by generics. Q2 results again demonstrated the astonishing present value of Gildead: revenues up 17% from year-earlier, net income up 25% y/y. And GAAP net income at $709 million was 36.8% of revenue of $1.93 billion. How often do you see that kind of picture?
The conference was all about the future. There has always been competition in anti-virals. The worry is that other companies are gunning for Gilead's leader-of-the-pack position. I agree with Gilead management, they have an advantage they are likely to keep for a decade or two, and in the meantime can use their giant pile of cash to diversify. Their anti-viral pills only need to be taken once a day; their rivals' best need to be taken twice a day. These pills need to be taken every day for the rest of a patient's life. Missing or delaying one of two daily doses can have serious consequences. So doctors are going to prescibe the one-a-day regimen unless they have a compelling reason to do otherwise.
Most likely scenario: Gilead is going to play in other pharmaceutical's sandboxes, not the other way around. The process will take years, and again not every therapy will get FDA approval or become a blockbuster. But Gilead is a growth and value stock wrapped in one.
Don't just take my word for it. Do your research. To help get started in biotech investing, try my biotechnology research links page.
You can read the press releases or listen to the recordings, but you can also read my extensive notes: Gilead Sciences Q2 2010 Analyst Conference Summary and Biogen Idec Q2 2010 Analyst Conference Summary.
That's what management said andr reported; here are my reactions. Overall, the biotechnology sector is very much alive, well, and undervalued. Biogen Idec, which specializes in treating multiple sclerosis, but is branching out, had 11% y/y revenue growth and 105% y/y GAAP net income growth.
In other words, profits more than doubled. And they were pretty impressive last year. More important, as time passes PML, a potentially deadly result of unleashing JC virus when the immune system is suppressed, is becoming much less of a problem. It looks like by 2011 it will be possible to screen patients for the presense of JC. Those with out the virus can be expected to switch to Tysabri at a far more rapid rate than we are seeing now. Those who do have JC will be monitored carefully if they take Tysabri; that pools risk also should trend down.
Biogen has an interesting pipeline that could start bearing fruit in 2012. They are diversifying and have the cash flow to buy and develop new products. There will be winners and losers, of course, there always are in biotechnology, but Biogen is now big enough to be sure to have winners in its pipeline. That's what I like to see. I am willing to gamble, on occasion, on a single therapy like I did with Dendreon (DNDN), but most of my portfolio is in companies that have shown they can generate profits.
Gilead has been plagued by analyst's concerns that its anti-viral drugs will go off patent eventually and be undercut by generics. Q2 results again demonstrated the astonishing present value of Gildead: revenues up 17% from year-earlier, net income up 25% y/y. And GAAP net income at $709 million was 36.8% of revenue of $1.93 billion. How often do you see that kind of picture?
The conference was all about the future. There has always been competition in anti-virals. The worry is that other companies are gunning for Gilead's leader-of-the-pack position. I agree with Gilead management, they have an advantage they are likely to keep for a decade or two, and in the meantime can use their giant pile of cash to diversify. Their anti-viral pills only need to be taken once a day; their rivals' best need to be taken twice a day. These pills need to be taken every day for the rest of a patient's life. Missing or delaying one of two daily doses can have serious consequences. So doctors are going to prescibe the one-a-day regimen unless they have a compelling reason to do otherwise.
Most likely scenario: Gilead is going to play in other pharmaceutical's sandboxes, not the other way around. The process will take years, and again not every therapy will get FDA approval or become a blockbuster. But Gilead is a growth and value stock wrapped in one.
Don't just take my word for it. Do your research. To help get started in biotech investing, try my biotechnology research links page.
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!
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!
Wednesday, October 21, 2009
Gilead Sciences Reports Third Quarter 2009
Gilead Sciences (GILD) reported stellar revenues and profits for it third quarter 2009, featuring revenues up 30% from the year-earlier quarter and GAAP EPS up 38% from last year. See my Gilead analyst conference summary for October 20, 2009 for details.
So why did the stock price fall today, and why does it have such a low price to earnings ratio? I own the stock because I think it is one of those rare value plus growth stocks. There are some factors in this quarter's revenues that may be non-recurring. Notably, because of the swine flu scare royalties from Tamiflu (sold by Roche) were $113.5 million. When the flu season is over those revenues are likely to dive back towards normal. This also has a heavy effect on net income and earnings per share because royalties don't entail costs. The drugs that Gilead does sell are expensive to manufacturer.
But I think the main reason investors shy away from Gilead is that its focus is on anti-viral drugs, particularly HIV (AIDS) drugs.
There is every reason to expect that HIV drugs will continue to be a rapidly growing global market, and medical concensus is that Gilead's Atripla is the best drug available.
In addition Gilead makes drugs for Hepatitis and is moving into the cardiovascular field, where its Ranexa for chronic angina already racked up $49 million in revenues for the quarter.
Normally, I would expect a company like Gilead to have a price-to-earnings ratio of at least 25 to 1; in a bull market more like 50 to 1. According to the Nasdaq web site (which uses non-GAAP measures), today Gilead's P/E ratio (trailing) is 17.39 and forward looking P/E is 15.6.
It may not matter, in the long run, that some investors see Gilead as a yucky HIV stock. Gilead is generating cash. Part of it gets used for acquiring companies or rights to therapies. But management announced yesterday that $1 billion will be used for share buy backs.
What I would like to see, instead of or in addition to share buy backs, is dividends. The company is large enough and stable enough to pay dividends, which are the gold standard of investing. You can't argue much with dividends.
As with any company, there are risks in buying Gilead Sciences stock, notably competition to introduce new therapies that may drive down the value of old therapies, and the expiration of patent rights.
So keep diversified!
So why did the stock price fall today, and why does it have such a low price to earnings ratio? I own the stock because I think it is one of those rare value plus growth stocks. There are some factors in this quarter's revenues that may be non-recurring. Notably, because of the swine flu scare royalties from Tamiflu (sold by Roche) were $113.5 million. When the flu season is over those revenues are likely to dive back towards normal. This also has a heavy effect on net income and earnings per share because royalties don't entail costs. The drugs that Gilead does sell are expensive to manufacturer.
But I think the main reason investors shy away from Gilead is that its focus is on anti-viral drugs, particularly HIV (AIDS) drugs.
There is every reason to expect that HIV drugs will continue to be a rapidly growing global market, and medical concensus is that Gilead's Atripla is the best drug available.
In addition Gilead makes drugs for Hepatitis and is moving into the cardiovascular field, where its Ranexa for chronic angina already racked up $49 million in revenues for the quarter.
Normally, I would expect a company like Gilead to have a price-to-earnings ratio of at least 25 to 1; in a bull market more like 50 to 1. According to the Nasdaq web site (which uses non-GAAP measures), today Gilead's P/E ratio (trailing) is 17.39 and forward looking P/E is 15.6.
It may not matter, in the long run, that some investors see Gilead as a yucky HIV stock. Gilead is generating cash. Part of it gets used for acquiring companies or rights to therapies. But management announced yesterday that $1 billion will be used for share buy backs.
What I would like to see, instead of or in addition to share buy backs, is dividends. The company is large enough and stable enough to pay dividends, which are the gold standard of investing. You can't argue much with dividends.
As with any company, there are risks in buying Gilead Sciences stock, notably competition to introduce new therapies that may drive down the value of old therapies, and the expiration of patent rights.
So keep diversified!
Monday, July 6, 2009
Gilead Second Quarter Outlook
Gilead Sciences is a biotechnology pharaceutical company specializing in anti-viral drugs. More specifically, Gilead is the market leader in HIV therapies.
Gilead will be reporting its results for the second quarter on July 21. They will also have their analyst conference. I'll be posting a summary of the Gilead analyst conference as usual. You might want to bookmark that.
I own about as much Gilead stock as my portfolio model will allow.
Gilead's best selling drugs in Q1 were Truvada and Atripla, which together accounted for the bulk of sales. Truvada sales grew 23 % y/y to $590 million. Atripla sales grew 67% from the year-earlier quarter to $510 million. Given these trends, in 2010 Atripla should be Gilead's leading compound.
Atripla seems to be very effective in combatting the HIV virus, the cause of AIDS. It comes in pill form and can be taken once a day, making it easy for patients to comply with compared to older therapies. It contains three components: tenofovir, emtricitabine, and efaverenz. The efavirenz is provided by Bristol-Myers Squibb.
Atripla is effective because it hits the viruses in three different ways. Tenofovir is a nucleotide analogue reverse transcriptase inhibitor. Emtricitabine is a reverse transcriptase inhibitor that is a nucleoside analog of cytidine, while Efavirenz is a non-nucleoside reverse transcriptase inhibitor. Without reverse transcriptase action, the HIV virus cannot reproduce. Because their are numerous strains of the HIV virus, having three inhibitors decreases the chances that a strain might outflank a particular anti-retroviral.
Q2 revenues are likely to be higher than Q1 revenues. Atripla is still in the process of getting approvals in many nations. As doctors find that the older drugs lose effectiveness in individual patients, they are now likely to switch patients to Atripla.
There is concern that Atripla sales will eventually eat into Truvada sales. But Truvada is Tenofovir with Emtricitabine, two of the Atripla ingredients. So any leveling off by brand name would be misleading. The underlying compound's sales will keep growing. While it seldom makes the news any more, the number of new HIV cases diagnosed both in the U.S. and internationally is not slowing down.
The usual risk factors for pharmaceuticals are present. If someone ever created an effective vaccine, there would be a decline in new cases. An actual cure would make Gilead irrelevant. A better therapy would also cut into sales. None of these appear to be on the horizon at present. New side effects could also cause the drugs to be withdrawn from the market, but these drugs have been massively distributed already, so that is unlikely. Patents, of course, will expire as well.
Gilead's research budget, however, is now around $750 million per year. That is bringing along a pipeline of anti-viral and other drugs that should more than compensate for expiring patents in the long run.
So you would think Gilead would be an expensive stock with a high P/E ratio. But it is not. According to NASDAQ, today's market capitalization ended at $41.5 billion and the trailing P/E ratio is 20.7.
For details on Q1 results, see my Gilead (GILD) Q1 2009 analyst conference summary.
And keep diversified!
Gilead will be reporting its results for the second quarter on July 21. They will also have their analyst conference. I'll be posting a summary of the Gilead analyst conference as usual. You might want to bookmark that.
I own about as much Gilead stock as my portfolio model will allow.
Gilead's best selling drugs in Q1 were Truvada and Atripla, which together accounted for the bulk of sales. Truvada sales grew 23 % y/y to $590 million. Atripla sales grew 67% from the year-earlier quarter to $510 million. Given these trends, in 2010 Atripla should be Gilead's leading compound.
Atripla seems to be very effective in combatting the HIV virus, the cause of AIDS. It comes in pill form and can be taken once a day, making it easy for patients to comply with compared to older therapies. It contains three components: tenofovir, emtricitabine, and efaverenz. The efavirenz is provided by Bristol-Myers Squibb.
Atripla is effective because it hits the viruses in three different ways. Tenofovir is a nucleotide analogue reverse transcriptase inhibitor. Emtricitabine is a reverse transcriptase inhibitor that is a nucleoside analog of cytidine, while Efavirenz is a non-nucleoside reverse transcriptase inhibitor. Without reverse transcriptase action, the HIV virus cannot reproduce. Because their are numerous strains of the HIV virus, having three inhibitors decreases the chances that a strain might outflank a particular anti-retroviral.
Q2 revenues are likely to be higher than Q1 revenues. Atripla is still in the process of getting approvals in many nations. As doctors find that the older drugs lose effectiveness in individual patients, they are now likely to switch patients to Atripla.
There is concern that Atripla sales will eventually eat into Truvada sales. But Truvada is Tenofovir with Emtricitabine, two of the Atripla ingredients. So any leveling off by brand name would be misleading. The underlying compound's sales will keep growing. While it seldom makes the news any more, the number of new HIV cases diagnosed both in the U.S. and internationally is not slowing down.
The usual risk factors for pharmaceuticals are present. If someone ever created an effective vaccine, there would be a decline in new cases. An actual cure would make Gilead irrelevant. A better therapy would also cut into sales. None of these appear to be on the horizon at present. New side effects could also cause the drugs to be withdrawn from the market, but these drugs have been massively distributed already, so that is unlikely. Patents, of course, will expire as well.
Gilead's research budget, however, is now around $750 million per year. That is bringing along a pipeline of anti-viral and other drugs that should more than compensate for expiring patents in the long run.
So you would think Gilead would be an expensive stock with a high P/E ratio. But it is not. According to NASDAQ, today's market capitalization ended at $41.5 billion and the trailing P/E ratio is 20.7.
For details on Q1 results, see my Gilead (GILD) Q1 2009 analyst conference summary.
And keep diversified!
Thursday, March 12, 2009
Have We Hit Bottom Yet?
What every investor wants to know: have we hit bottom yet? Business people want to know that too. Should we lay off more people, buy that new ERP software, or cut that dividend?
Smart people will use a cover your bets approach. We have already seen a number of worst-case scenarios starting in 2007.
Typically, in the post-Depression recessions, the stock market averages started recovering before the rest of the economy. Stock markets are believed to be forward looking. But that may not be the case this time.
There are a number of differences between this recession and prior post-New Deal down cycles, and a number of similarities. Sorting them out may not tell them if we are at a bottom yet, but they can help us understand how to get our footing once there is a bottom.
Fortunately, many major corporations were cash rich going into this downturn, and are well-positioned to weather anything thrown at them short of the collapse of civilization. Some are taking advantage of their cash positions to buy assets cheap, which is what I believe investors with cash coming in should be doing right now.
Most people who are losing their jobs are getting unemployment compensation. More than any other New Deal reform, this tends to put the brakes on recessions.
The big obvious problems, of course, are banks and housing. The Federal Reserve System was set up to deal with banking credit cycle issues. Unfortunately the Fed is run by people, and in particular it was run for a long time by a certifiable idiot, Alan Greenspan. Alan drank the Free Markets are God kool-aid. If free markets were not sometimes a problem, we would not have needed the Federal Reserve in the first place. Free markets are not magic. They have their own mechanics, and don't care too much about human beings.
It is a tribute to the resiliancy of capitalism, the safety valves and safety nets of socialism that have been grafted onto it in the United States, and the good sense of most business persons that the crew of the likes of Alan Greenspan, Robert Rubin, Bill Clinton, George W. Bush, et al, actually did so little damage to our economy.
I am glad the American people, as a whole, started saving more money in 2008. Even though it hurt the holiday shopping season, even though it hurt the auction prices of some of my stocks. It was the right thing to do. Shopping on credit that has to be paid at high rates of interest is no way to run a family economic unit, and no way to run an economy. Lowered household debt as we go into 2010 will mean people will be paying less interest, and have more actual money of their own to shop with. I just hope we all remember this lesson.
Housing remains an interesting dilemma. As far as I can tell, there is no longer a surplus of housing in the U.S. as a whole, though some areas remain overbuilt, like the central California valley. If the banking system starts functioning in a healthy manner, surplus of houses for sale right now will shrink throughout 2009. In 2010 new home construction will become necessary in at least some areas. That in itself should get the economy back to normal.
But I don't feel the bottom under my feet yet. One more part of the down cycle has not really kicked in, and it could force us further out into the stormy seas. This is the bankruptcy cascade. Businesses can fall like houses of cards when this cycle starts. A business that seems solvent, with plenty of receivables to use to cover its payables, can be put in jeapardy if its receivables disappear in customer bankruptcies.
On the other hand, this is also a healthy, important part of business consolidation. Week, poorly managed businesses with insufficient profit margins or cash reserves get punished. Well-capitalized companies get a licking, for sure, but they can then pick up any paying customers of the losers and enter a new expansion cycle.
This is a stock pickers market. If you are in index funds, you are a fool. The only stocks worth buying now are those with large cash reserves built from profitable business practices. Those cash reserves stand for conservative management. They represent past profits, and they are the ticket to future profits.
Today Gilead (GILD) [I own Gilead stock] announced it will buy CV Therapeutics (CVTX). Gilead is your prototypical well-managed company. Even after it buys CV, it will have a huge cash balance. That's the way to do it.
Keep diversified!
Smart people will use a cover your bets approach. We have already seen a number of worst-case scenarios starting in 2007.
Typically, in the post-Depression recessions, the stock market averages started recovering before the rest of the economy. Stock markets are believed to be forward looking. But that may not be the case this time.
There are a number of differences between this recession and prior post-New Deal down cycles, and a number of similarities. Sorting them out may not tell them if we are at a bottom yet, but they can help us understand how to get our footing once there is a bottom.
Fortunately, many major corporations were cash rich going into this downturn, and are well-positioned to weather anything thrown at them short of the collapse of civilization. Some are taking advantage of their cash positions to buy assets cheap, which is what I believe investors with cash coming in should be doing right now.
Most people who are losing their jobs are getting unemployment compensation. More than any other New Deal reform, this tends to put the brakes on recessions.
The big obvious problems, of course, are banks and housing. The Federal Reserve System was set up to deal with banking credit cycle issues. Unfortunately the Fed is run by people, and in particular it was run for a long time by a certifiable idiot, Alan Greenspan. Alan drank the Free Markets are God kool-aid. If free markets were not sometimes a problem, we would not have needed the Federal Reserve in the first place. Free markets are not magic. They have their own mechanics, and don't care too much about human beings.
It is a tribute to the resiliancy of capitalism, the safety valves and safety nets of socialism that have been grafted onto it in the United States, and the good sense of most business persons that the crew of the likes of Alan Greenspan, Robert Rubin, Bill Clinton, George W. Bush, et al, actually did so little damage to our economy.
I am glad the American people, as a whole, started saving more money in 2008. Even though it hurt the holiday shopping season, even though it hurt the auction prices of some of my stocks. It was the right thing to do. Shopping on credit that has to be paid at high rates of interest is no way to run a family economic unit, and no way to run an economy. Lowered household debt as we go into 2010 will mean people will be paying less interest, and have more actual money of their own to shop with. I just hope we all remember this lesson.
Housing remains an interesting dilemma. As far as I can tell, there is no longer a surplus of housing in the U.S. as a whole, though some areas remain overbuilt, like the central California valley. If the banking system starts functioning in a healthy manner, surplus of houses for sale right now will shrink throughout 2009. In 2010 new home construction will become necessary in at least some areas. That in itself should get the economy back to normal.
But I don't feel the bottom under my feet yet. One more part of the down cycle has not really kicked in, and it could force us further out into the stormy seas. This is the bankruptcy cascade. Businesses can fall like houses of cards when this cycle starts. A business that seems solvent, with plenty of receivables to use to cover its payables, can be put in jeapardy if its receivables disappear in customer bankruptcies.
On the other hand, this is also a healthy, important part of business consolidation. Week, poorly managed businesses with insufficient profit margins or cash reserves get punished. Well-capitalized companies get a licking, for sure, but they can then pick up any paying customers of the losers and enter a new expansion cycle.
This is a stock pickers market. If you are in index funds, you are a fool. The only stocks worth buying now are those with large cash reserves built from profitable business practices. Those cash reserves stand for conservative management. They represent past profits, and they are the ticket to future profits.
Today Gilead (GILD) [I own Gilead stock] announced it will buy CV Therapeutics (CVTX). Gilead is your prototypical well-managed company. Even after it buys CV, it will have a huge cash balance. That's the way to do it.
Keep diversified!
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