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.

Monday, July 12, 2010

AMD Earnings At Bat

Another earnings season got underway today when Alcoa reported. Of the companies I follow closely the first to report on its second quarter (Q2) will be the computer chip maker AMD.

Q1 2010 was the best first quarter in AMD's history, with revenue of $1.57 billion and GAAP net income fo $257 million. Guidance for Q2 (given at the AMD Q1 2010 analyst conference) was that it would be down seasonally from Q1. That is a typical seasonal pattern. In Q3 and Q4 each year the computer makers who are AMD's customers start ramping up for back-to-school and Christmas holiday sales.

I suspect that, within that context, Q2 has been a pretty good quarter, largely based on watching advertisements for consumer and enterprise computer equipment. In graphics chips NVIDIA did not come out with its new, competitive chips until well into the quarter, and even then supplies seem minimal, with AMD dominating key price points. I saw a number of adds for AMD graphics in machines that use Intel CPUs, which is a positive surprise.

In the CPU department I think the results may be mixed. Intel seems to continue to dominate in notebooks, while AMD has made some gains in the desktop department. Desktops are going a bit out of style as consumer items, and margins are low, but they are still critical for people who are doing non-mobile work where having computational power and large screens is still a big plus.

Finally, there is the server CPU market. I am seeing mixed signals here. AMD and Intel are more differentiated in servers than they were a few years ago. AMD has gone for more cores per CPU and more processing power per dollar, but Intel leads in pure performance. I doubt AMD made much headway against Intel in server market share this quarter, but it should still be a rising tide situation.

We'll get AMD's numbers on Thursday, July 15th. I'll be taking notes on the analyst conference and post them at AMD Q2 2010 analyst conference. You can also listen to the conference yourself live on the Internet, starting at AMD Q2 live conference. That will be at 2:00 PM Pacific Time (5:00 PM Eastern Time). If you miss it you can also listen to an archived recording later.