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
Showing posts with label Tamiflu. Show all posts
Showing posts with label Tamiflu. Show all posts
Wednesday, January 26, 2011
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!
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