Inovio (INO) is a micro-cap biotechnology company that is developing innovative vaccines and delivery systems. It has a market capitalization, today, of $56 million and a stock price of $0.42 (52wk High/Low $0.94/$0.35). Its therapies would need a successful Phase III trial enabling FDA approval before being commercialized, and the most advanced therapy is only in Phase II, which means it may be years before it turns a profit.
So why own Inovio? A lot of money has gone into developing its products. Paid-in capital is $257.8 million. Results from some early, Phase I, trials are encouraging. The thing to do, in this situation, is to look at the technology and make an estimate as to whether or not it can be commercialized. Also consider how much more capital might need to be raised, resulting in dilution of current stock, in order to achieve that crucial first product commercialization.
Inovio's vaccines are aimed at difficult to treat viruses that typically exist in multiple strains. This means a specific traditional vaccine has to be developed to protect people from each strain. That takes times, and a new strain can emerge and infect a global population faster than a traditional vaccine can be developed. Inovio's SynCon vaccines are believed to provide cross-protection against multiple strains.
Inovio has a Hepatitis C vaccine in a Phase II trial, and HIV, Avian Influenza, and Universal Flu vaccines in Phase I. It has 2 pre-clinical viral vaccine candidates. It also has cancer vaccine candidates: cervical dysplasia in Phase II, leukemia in Phase II, prostate in preclinical, and a breast/lung/prostate cancer trial in Phase I.
There is major outside recognition and even funding for Inovio's vaccines. Partners include (it varies by vaccine) Merck, ChronTech, the National Institute of Health, the University of Southampton and the University of Pennsylvania.
What is innovative about Inovio vaccines? They are DNA vaccines. Traditional vaccines consist of weakened or dead viruses or their protein coatings. DNA vaccines need to be inserted into cells (instead of into the bloodstream), but once there can trigger both antibody and T-cell immune responses. To insert the vaccines into cells Inovio uses an electroporation device it developed and has successfully tested. Inovio, in fact, resulted from the merger of a vaccine company and an electroporation developer.
In its latest results, in May, Inovio announced Universal Avian Flu vaccine generated protective antibody responses against six H5N1 avian flu strains in a Phase I trial.
So this is exciting technology. But most therapies drop out after Phase II trials, and many that show good Phase II data fail for some reason in the larger, usually double-blind, Phase III trials. At best it is a low process. Is Inovio equipped to go the whole hog?
On March 31, 2012 Inovio had almost $26 million in cash and short term investments. It generated a GAAP net loss of over $8 million in the quarter, although cash use was less at near $5.5 million. So with the current cash available Inovio could run for about 5 quarters, not enough to get any final Phase III data, much less an FDA approval.This is despite much of the development being paid for by outside grants or third parties.
Financing could come in several forms, but they all amount to dilution. Inovio could partner with a larger firm, possibly Merck. It could sell stock or bonds, but the market has been leery of unproven biotechnology deals these last few years. Or Inovio could simply be bought by a larger pharmaceutical company, which is a likely scenario if its market capitalization stays low even if it gets further proof of concept.
The near future value of Inovio all depends on what Inovio can prove in the next 3 quarters. But on the whole, there is room for dilution, if it is based on more good data. If their DNA vaccine platform does succeed, there is no reason the company would not be worth in the hundreds of millions, or more. Raising money from investors to allow Inovio to prove itself would be good for everyone, including current investors.
Despite the obvious risk of failure common to all new biotechnology, I believe Inovio is more likely than not to be worth far more in a few years than it is now. Still, it is only for investors who can handle a high degree of risk.
Disclaimer: I took an initial, small but long, position in Inovio in May. I won't trade it for the next week, but I expect to accumulate more if future trial results are positive.
Keep diversified! You should also take a good close look at inovio.com and SEC documents before risking your capital.
Showing posts with label HIV. Show all posts
Showing posts with label HIV. Show all posts
Monday, June 18, 2012
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
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, 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!
Tuesday, October 21, 2008
Gilead (GILD) Thrives Despite Downturn
Investors who own good, or even great, companies right now are often feeling bad about their investments because stock prices are low even for these companies. As far as I can tell, while some low stock prices are needed to factor in the troubles of the economy, in the case of great companies this is purely due to liquidity issues. People who know they own valuable stocks that should be kept because of their current value and future potential are being "forced" to sell them to maintain their own liquidity. Also, money flows into the stock market on a comparison basis; it will tend to flow into the (perceived) best bargains of the moment.
Gilead Sciences (GILD) showed it is a great company for shareholders when it reported on its third quarter on October 16, 2008. It is one of the most successful biotechnology companies because it developed and sells great antiviral products that target HIV infections and hepatitis. These drugs are not dispensable; people who need them buy them even in economic downturns. In addition, Gilead's drugs continue to replace competitors' drugs in these spaces.
Q3 revenues tell the story pretty well. They were $1.37 billion, up up 7% sequentially from $1.28 billion in Q2 and up 29% from $1.06 billion year-earlier. Earnings per share (EPS) were $0.52, up 13% sequentially from $0.46 and up 24% from $0.42 year-earlier.
There is no need to worry about liquidity at Gilead. They are sitting on top of $3.26 billion in cash and equivalents. Operating cash flows were $555 million for the quarter.
See my Gilead (GILD) analyst conference summary for Q3 2008 for more details.
Fortunately, I am not overextended and am gradually adding to my portfolio. It almost feels like stealing. After years of watching hedge fund managers tell the world what hot shots they were when all they were doing was leveraging credit into ordinary investments, picking their pockets while they are down feels pretty good. You can almost correlate how much of a stock was owned by hedge funds by viewing its price percentage decline this last year.
I own Gilead as part of a long term strategy. My one suggested change for management would be that they start paying a dividend. I prefer that over stock-buy backs. Dividends allow me to choose to diversify, or to take income, without having to sell stocks and pay capital gains.
Biogen Idec reported some very impressive results today. You can get a good picture of the current state of the company at me Biogen Idec (BIIB) analyst conference summary for Q3 2008.
More data:
http://www.gilead.com/
Gilead Sciences (GILD) showed it is a great company for shareholders when it reported on its third quarter on October 16, 2008. It is one of the most successful biotechnology companies because it developed and sells great antiviral products that target HIV infections and hepatitis. These drugs are not dispensable; people who need them buy them even in economic downturns. In addition, Gilead's drugs continue to replace competitors' drugs in these spaces.
Q3 revenues tell the story pretty well. They were $1.37 billion, up up 7% sequentially from $1.28 billion in Q2 and up 29% from $1.06 billion year-earlier. Earnings per share (EPS) were $0.52, up 13% sequentially from $0.46 and up 24% from $0.42 year-earlier.
There is no need to worry about liquidity at Gilead. They are sitting on top of $3.26 billion in cash and equivalents. Operating cash flows were $555 million for the quarter.
See my Gilead (GILD) analyst conference summary for Q3 2008 for more details.
Fortunately, I am not overextended and am gradually adding to my portfolio. It almost feels like stealing. After years of watching hedge fund managers tell the world what hot shots they were when all they were doing was leveraging credit into ordinary investments, picking their pockets while they are down feels pretty good. You can almost correlate how much of a stock was owned by hedge funds by viewing its price percentage decline this last year.
I own Gilead as part of a long term strategy. My one suggested change for management would be that they start paying a dividend. I prefer that over stock-buy backs. Dividends allow me to choose to diversify, or to take income, without having to sell stocks and pay capital gains.
Biogen Idec reported some very impressive results today. You can get a good picture of the current state of the company at me Biogen Idec (BIIB) analyst conference summary for Q3 2008.
More data:
http://www.gilead.com/
Wednesday, September 10, 2008
Gilead Should Rise on Penetration, Viread
Many company's stocks are undervalued in the current liquidity sqeeze. Gilead (GILD) is a good example of a growth company that is also a value stock right now. It last reported financial results for Q2 2008 [See my Gilead (GILD) Q2 2008 Analyst Conference Summary] with revenues of $1.28 billion, up 22% from Q2 2007. Operating cash flow was $426 million, demonstrating how profitable the business is.
Gilead is a pharmaceutical company selling six drugs with revenues of over $20 million per quarter. It is mainly known for its drugs for HIV: Truvada, Atripla, and Viread, which had revenues of $516 million, $355 million, and $150 million in the quarter respectively. Hepsera for chronic hepatitis B generated $90 million in income.
Since those results the FDA approved Viread for the treatment of chronic hepatitis B [see Gilead Viread press release]. Since Gilead has an established global sales force, the revenue ramp up should be relatively quick. While Viread will be competing with Hepsera, chronic hepatitis B has a very large untreated global patient population, so revenue from both therapies should grow.
There is no sign of a slowdown in the HIV franchise drugs either. The newest drug, Atripla, had a 67% revenue increase from year-earlier.
So why does Gilead have a relatively low PE ratio of 26 (and 20 forward looking) according to the Nasdaq Gilead summary page? There is no good reason except for the lack of liquidity in the financial markets. Other great companies have even lower PE ratios. Fear has driven investors to low-yield paper such as U.S. Treasuries.
Add to this basic picture Gilead's pipeline of potential new drugs, including Elvitegravir for HIV and some candidates for treating Hepatitis C.
I own Gilead stock. All stocks carry a variety of risks for investors.
So keep diversified!
More data:
www.gilead.com
Gilead is a pharmaceutical company selling six drugs with revenues of over $20 million per quarter. It is mainly known for its drugs for HIV: Truvada, Atripla, and Viread, which had revenues of $516 million, $355 million, and $150 million in the quarter respectively. Hepsera for chronic hepatitis B generated $90 million in income.
Since those results the FDA approved Viread for the treatment of chronic hepatitis B [see Gilead Viread press release]. Since Gilead has an established global sales force, the revenue ramp up should be relatively quick. While Viread will be competing with Hepsera, chronic hepatitis B has a very large untreated global patient population, so revenue from both therapies should grow.
There is no sign of a slowdown in the HIV franchise drugs either. The newest drug, Atripla, had a 67% revenue increase from year-earlier.
So why does Gilead have a relatively low PE ratio of 26 (and 20 forward looking) according to the Nasdaq Gilead summary page? There is no good reason except for the lack of liquidity in the financial markets. Other great companies have even lower PE ratios. Fear has driven investors to low-yield paper such as U.S. Treasuries.
Add to this basic picture Gilead's pipeline of potential new drugs, including Elvitegravir for HIV and some candidates for treating Hepatitis C.
I own Gilead stock. All stocks carry a variety of risks for investors.
So keep diversified!
More data:
www.gilead.com
Thursday, January 24, 2008
Gilead Preps for Atripla in Europe
Gilead Sciences (GILD) reported a good, but not outstanding, 4th quarter of 2007 in its analyst conference on January 23, 2008 [See my summary of the Gilead conference].
There were 2 key take-aways. Revenues and net income would have been much better if royalties from Tamiflu sales (from Hoffmann-La Roche) had not dropped by about 1/2 from the previous year and 28% from Q3. Tamiflu revenues are delayed by a quarter, so this was really about Q3 sales. The flu season and the bird-flu situation have both been relatively mild this year. This is one of the risks of those who sell therapies: you don't do well when people are not sick.
Direct sales of Gilead products, mostly for HIV infections, did great. They were up 35% from year-earlier mainly on gains in Atripla, a once-a-day, three-drugs-in-one-pill medication. Almost all this income was from the United States.
In 2008 Gilead will be ramping sales in Europe. There may be Q1 revenues, but countries will come in one at a time, with some not producing income to Q4 or later.
That means, most likely, big gains in Gilead revenues and net income in 2008. Which leaves the company's stock (which I own some of) looking undervalued to me at current prices. According to its Nasdaq summary page, the PE (price to earnings ratio) at this moment is 27.4, which is quite reasonable for a company with rapidly growing profits.
In addition, Gilead has a huge amount of cash ($2.72 billion) and a strong pipeline of possible future medications.
To see more of my writing, including summaries of past analysts conferences, see my Gilead page.
For some help on investing in biotechnology stocks, see my Biotechnology Investor Help page.
There were 2 key take-aways. Revenues and net income would have been much better if royalties from Tamiflu sales (from Hoffmann-La Roche) had not dropped by about 1/2 from the previous year and 28% from Q3. Tamiflu revenues are delayed by a quarter, so this was really about Q3 sales. The flu season and the bird-flu situation have both been relatively mild this year. This is one of the risks of those who sell therapies: you don't do well when people are not sick.
Direct sales of Gilead products, mostly for HIV infections, did great. They were up 35% from year-earlier mainly on gains in Atripla, a once-a-day, three-drugs-in-one-pill medication. Almost all this income was from the United States.
In 2008 Gilead will be ramping sales in Europe. There may be Q1 revenues, but countries will come in one at a time, with some not producing income to Q4 or later.
That means, most likely, big gains in Gilead revenues and net income in 2008. Which leaves the company's stock (which I own some of) looking undervalued to me at current prices. According to its Nasdaq summary page, the PE (price to earnings ratio) at this moment is 27.4, which is quite reasonable for a company with rapidly growing profits.
In addition, Gilead has a huge amount of cash ($2.72 billion) and a strong pipeline of possible future medications.
To see more of my writing, including summaries of past analysts conferences, see my Gilead page.
For some help on investing in biotechnology stocks, see my Biotechnology Investor Help page.
Monday, September 10, 2007
Choosing a Biotech Stock 2: Gilead
Analyzing Gilead Sciences, Inc. (GILD) will act as a template and standard of measure for my project of choosing a biotechnology stock to add to my portfolio. Gilead is on a short list of stocks I know I would like in my portfolio. I have cash to buy one biotech stock. I also want to look beyond the biotech stocks I have been following (See the list of stocks I follow). For more on my guidelines for this process see Choosing a Biotech Stock 1: Overview. For background information on Gilead see my Gilead (GILD) page. So the questions left for Gilead are, what is a good price to buy the stock at, and is there any better biotech stock for the money?
Gilead has several drugs on the market. Here are the ones producing substantial revenues in Q2 2007:
Truvada $385.4 million.
Atripla $212.4 million.
Viread $154.9 million.
Emtriva $9.6 million.
Hepsera $75.2 million.
AmBisome $64.8 million.
The first Atripla, Emtriva, Viread and Truvada are all for treating HIV infections. Hepsera is for treating Hepatitis B. AmBisome, is for fungal infections, which are often a secondary problem with HIV infections. Tamiflu sales are through Roche and were not broken out.
Sales totalled over $1 billion in the quarter. Net income was $408 million. Cash generated was $512 million, but $455 million was spent on stock repurchases. At today's closing price market capitalization of Gilead is almost $35 billion. So the price of the stock is steep: if revenues and earnings flatten out, you would be getting only $4 billion in revenues and $1.6 billion in net income if you bought the whole company. Still, that gives a price-to-earnings ratio of about 22. Pretty safe. But you should always ask about the upside and downside risks.
On the upside Gilead could sell more of the products it currently has on the market. With revenues up 52% from the year-earlier quarter, it would be a good bet that there will be more revenue growth in the short run. In addition, with development costs for these drugs now in the past, net income should continue to ramp faster than revenue.
The other upside for biotech companies is in the pipeline of potential future products. This is harder to judge because the risk of failure to prove both safety and effectiveness to the FDA's satisfaction is hight. Gilead's pipeline has three Phase III candidates, a Phase II candidate, a Phase I candidate, and a number of preclinical candidates. They have the cash to license more candidates if necessary. They have a good track record, so I would expect at least some candidates to make it to market as the years progress.
Downside risks for drug companies have three components: macroeconomic, safety, and competitive. Macroeconomic risks may come from the economy in general or from resistance of private or government insurers. Safety would not seem to be a big issue with antiviral drugs, given the alternatives, but some times issues reveal themselves years after a drug is introduced to market. The main danger for Gilead would be competition. Someone could actually come up with a cure for HIV infections. While the possibility cannot be discounted, I see nothing on the short term horizon that falls in this category.
So as far as I am concerned, Gilead is a buy at this price, but at this price appreciation will more likely be in the long run than in the short run. Two categories of companies could beat that. One would be an underappreciated company that has a likely but unproven drug candidate. That would be a far riskier investment, but could pay off big. The other type would be a biotech company that has a better price-to-earning ratio, is likely to grow earnings faster than Gilead, or that has a more promising pipeline.
Before buying Gilead, even if it wins this competition, I would look a bit more closely at its pipeline. But for now this overview will serve my purposes.
Gilead has several drugs on the market. Here are the ones producing substantial revenues in Q2 2007:
Truvada $385.4 million.
Atripla $212.4 million.
Viread $154.9 million.
Emtriva $9.6 million.
Hepsera $75.2 million.
AmBisome $64.8 million.
The first Atripla, Emtriva, Viread and Truvada are all for treating HIV infections. Hepsera is for treating Hepatitis B. AmBisome, is for fungal infections, which are often a secondary problem with HIV infections. Tamiflu sales are through Roche and were not broken out.
Sales totalled over $1 billion in the quarter. Net income was $408 million. Cash generated was $512 million, but $455 million was spent on stock repurchases. At today's closing price market capitalization of Gilead is almost $35 billion. So the price of the stock is steep: if revenues and earnings flatten out, you would be getting only $4 billion in revenues and $1.6 billion in net income if you bought the whole company. Still, that gives a price-to-earnings ratio of about 22. Pretty safe. But you should always ask about the upside and downside risks.
On the upside Gilead could sell more of the products it currently has on the market. With revenues up 52% from the year-earlier quarter, it would be a good bet that there will be more revenue growth in the short run. In addition, with development costs for these drugs now in the past, net income should continue to ramp faster than revenue.
The other upside for biotech companies is in the pipeline of potential future products. This is harder to judge because the risk of failure to prove both safety and effectiveness to the FDA's satisfaction is hight. Gilead's pipeline has three Phase III candidates, a Phase II candidate, a Phase I candidate, and a number of preclinical candidates. They have the cash to license more candidates if necessary. They have a good track record, so I would expect at least some candidates to make it to market as the years progress.
Downside risks for drug companies have three components: macroeconomic, safety, and competitive. Macroeconomic risks may come from the economy in general or from resistance of private or government insurers. Safety would not seem to be a big issue with antiviral drugs, given the alternatives, but some times issues reveal themselves years after a drug is introduced to market. The main danger for Gilead would be competition. Someone could actually come up with a cure for HIV infections. While the possibility cannot be discounted, I see nothing on the short term horizon that falls in this category.
So as far as I am concerned, Gilead is a buy at this price, but at this price appreciation will more likely be in the long run than in the short run. Two categories of companies could beat that. One would be an underappreciated company that has a likely but unproven drug candidate. That would be a far riskier investment, but could pay off big. The other type would be a biotech company that has a better price-to-earning ratio, is likely to grow earnings faster than Gilead, or that has a more promising pipeline.
Before buying Gilead, even if it wins this competition, I would look a bit more closely at its pipeline. But for now this overview will serve my purposes.
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