Gilead’s Profits Are Evaporating:
Gilead Sciences, Inc. (NASDAQ:GILD) is a research-based biopharmaceutical company. It has several blockbuster drugs within its two largest product lines that treat hepatitis (Harvoni and Sovaldi) and HIV/AIDS (Truvada and Altripa). Impressively, the company has a large profit margin (close to 50%), it offers an attractive 2.6% dividend yield, and its dividend payout ratio is amazingly low at only 16.4%. However, growth is slowing and competition is beginning to creep in. Specifically, Gilead will experience a couple big patent expirations in 2018 and 2021, generic competition is on its way, and revenues are already declining as shown in the following chart.
Making matters worse, Gilead’s pipeline is being nurtured, but it is highly uncertain, and the company may need to look to costly inorganic acquisitions to achieve significant growth. For reference, the 5-year EPS growth estimate for Gilead is negative 0.7% (this is especially unattractive compared to some of Gilead’s peers as we’ll cover later). For reference, the following table shows Gilead’s declining sales and large dependence on hepatitis (HCV) and HIV drugs.