GILEADGILD63,16 $
Gilead Sciences (GILD: NASDAQ) is an American biopharmaceutical company headquartered in Foster City, California. The company is engaged in the research and development of antiviral drugs, which are used to treat HIV, hepatitis B, hepatitis C and influenza. Gilead is included in the NASDAQ and S biotechnology index&P 500.
About company
The company identifies the following areas of its business:
- anti-HIV drugs (HIV): Atripla, Biktarvy, Complera or Eviplera, Descovy, Genvoya, Odefsey, Stribild, Truvada. Share by results 9 months of 2021 amounted to 59%;
- drugs against hepatitis C (HCV): Ledipasvir or Sofosbuvir, Sofosbuvir or Velpatasvir. Share by results 9 months of 2021 amounted to 7%;
- drugs against hepatitis B (HBV) and hepatitis D (HDV): Vemlidy, Viread. Share of direction by results 9 months of 2021 amounted to 4%;
- anti-COVID-19 drug Veklury. Sales by results 9 months of 2021 were 21% of total revenue;
- drugs for cell therapy (cell therapy product): Tecartus, Yescarta. Share by results 9 months of 2021 amounted to 3%;
- breast cancer drug Trodelvy. Share by results 9 months of 2021 amounted to 1%;
- other sales: AmBisome, Letairis, Ranexa, Zydelig. Share by results 9 months of 2021 amounted to 4%.
Based on the results of 9 months of 2021 69% revenue came from the U.S. market, 17% — to the EU, to other regions — 12%.
Revenue structure for 9 Months, million dollars
| 2020 | 2021 | The change | |
|---|---|---|---|
| HIV | 12 681 | 11 777 | −7,13% |
| HCV | 1641 | 1488 | −9,32% |
| HBV or HDV | 0,616 | 0,704 | 14,29% |
| Veklury | 0,873 | 4208 | 382,02% |
| Cell Therapy | 0,444 | 0,632 | 42,34% |
| Trodelvy | 0 | 0,262 | > 100% |
| Other | 0,772 | 0,777 | 0,65% |
| Royalty, contract and other proceeds | 0,241 | 0,213 | −11,62% |
| Total | 17 268 | 20 061 | 16,17% |
Revenue by region for 9 months of 2021
| Revenue | Share in total revenue | |
|---|---|---|
| USA | 14 002 | 69,8% |
| ES | 3559 | 17,74% |
| Other | 2500 | 12,46% |
| Total | 20 061 | 100% |
Financial indicators
The company's revenue increased by 16,5% year-on-year — up to 20.1 billion dollars. In the reporting period, the company recorded a drop in sales in two key segments - drugs for the treatment of hepatitis C and drugs for the treatment of HIV, — which compensated for the increase in revenue from the drug Veklury for the treatment of COVID-19.
Operating costs decreased by 30% — to 11.1 billion — due to a decrease in depreciation of intangible assets. Research and development costs have been reduced by 4% – to 3.3 billion – due to lower costs for clinical programs. Sales and administrative expenses increased by 5% – up to 3.6 billion – against the background of one-time expenses for charity and advertising.
The company's operating profit amounted to 8.8 billion - against a loss a year earlier. The loss at the end of 2020 is associated with the acquisition of Forty Seven and Immunomedics.
Net profit amounted to 5.8 billion against a loss of 1.4 billion a year earlier. Free cash flow at the end of the reporting period amounted to 3.1 billion dollars.
According to management forecasts, based on the results of 4 quarter revenue will be from 26 to 26.3 billion, and earnings per share from 5,5 to 5,7 $.
Financial indicators, million dollars
| 2016 | 2017 | 2018 | 2019 | 2020 | 9м2021 | |
|---|---|---|---|---|---|---|
| Revenue | 26 120 | 21 730 | 17 270 | 17 774 | 20 110 | 20 061 |
| Operating profit | 17 633 | 14 124 | 8200 | 4287 | 9920 | 8978 |
| Operating margin | 67,51% | 65% | 47,48% | 24,12% | 49,33% | 44,75% |
| Net profit | 13 501 | 4628 | 5455 | 5386 | 123 | 5843 |
| Cash Flow | 16 299 | 11 308 | 7476 | 8319 | 7518 | 3114 |
Balance sheet indicators
Assets from the beginning of 2021 decreased by 1,9% from 15.9 to 13.9 billion. Capital increased from $18.2 billion to $21.4 billion due to retained earnings growth. Total debt decreased by 13,94%. For nine months, ended 30 September 2021, the company repaid 3.75 billion of debt and did not attract new loans. Based on the results of 9 months of 2021 net debt decreased by 10,48% — to 20.8 billion — due to a decrease in total debt.
Despite the decline in the current reporting period, the level of the company's debt burden looks high. Money Ratio / debt" is 0,21 - it's worse, than the average for companies in the industry, and worse than the historical values of this indicator of the company. Besides, a surge in U.S. inflation could force FED raise the rate this year, which will put pressure on companies with a lot of debt.
Balance sheet indicators of the company, million dollars
| 2016 | 2017 | 2018 | 2019 | 2020 | 9м2021 | |
|---|---|---|---|---|---|---|
| Assets | 56 977 | 70 283 | 63 675 | 61 627 | 68 407 | 67 098 |
| Capital | 18 887 | 20 442 | 21 387 | 22 525 | 18 202 | 21 471 |
| Total debt | 26 346 | 30 795 | 24 574 | 22 720 | 29 253 | 25 175 |
| net debt | 18 116 | 23 205 | 6634 | 11 090 | 23 253 | 20 815 |
Market
Global HIV drug market size reaches nearly $30.52 billion in 2020. According to forecasts, the market will grow to 36.46 billion by 2025 with an average annual growth rate 3,6%. The growth of the HIV drug market is mainly due to the spread of the disease and government initiatives, That, As expected, will stimulate the demand for medicines.
At Gilead Sciences, this direction shows a decline.. Largely due to the fact that, that patents for Atripla and Truvada have expired, which allowed the company to dictate its prices for these drugs.
The second direction in terms of revenue over the past year is sales of Veklury against COVID-19. More 60% hospitalized patients in the U.S. receive treatment with this drug.
The world is still in the process of obtaining herd immunity, and new strains of the virus will maintain the rate of re-vaccination. Respectively, demand for COVID-19 drugs will be relevant.
Gilead Sciences has also begun to create a major promising direction in the field of cancer treatment.. Over the past few years, the company has made many large acquisitions worth tens of billions of dollars..
Among them: Forty Seven, Arcus, Pionyr Immunotherapeutic, Tizona Therapeutics, MYR. This allowed Gilead to create a portfolio of medicines., which will soon enter the market.
Gilead Sciences has 45 clinical stage programs, 17 programs on 2 And 3 Phase, as well as 15 potential assets for the clinical stage. Respectively, one might say, that the company has significant catalysts for future revenue growth. But it's worth remembering, that the direction in the field of cancer treatment is very competitive and the company has had cases of disapproval of drugs from regulatory authorities - FDA.
A significant risk for all pharmaceutical companies is the regulation of drug prices in the United States. For many years, the media have been discussing information about the, that the U.S. has the highest drug prices and we need to force manufacturers to lower prices.
The government drew attention to this topic and allowed the leadership of the Medicare and Medicaid programs to negotiate drug prices with pharmaceutical companies and regulate the restriction of drug price increases to the level of inflation.. And if there are claims to Gilead Sciences, then this will significantly affect the key indicators of the company.
Comparison with analogues
For comparison from analogues, we have chosen: GlaxoSmithKline, AbbVie, Bristol-Myers Squibb and Pfizer.
The revenue growth rate shows, how successful the company is in its market and whether its services are in demand. ROE and ROA ratios show the financial return on the use of a company's capital and assets, allow you to evaluate the quality of work of financial managers.
Gilead Sciences leads the way in terms of profitability, but revenue growth lags behind comparison leaders and is below the industry average. In general, the company is effective and is not inferior to the main competitors..
Revenue growth rate and ROE
| 2016 | 2017 | 2018 | 2019 | 2020 | Average ROE | |
|---|---|---|---|---|---|---|
| Gilead Sciences | 80,78 | 20,62 | 25,1 | 24,42 | 0,65 | 30,314 |
| GlaxoSmithKline | 16,93 | 33,75 | 102,56 | 44 | 28,37 | 45,122 |
| AbbVie | 111,33 | 93,18 | −203,31 | −96,15 | 51,72 | −8,646 |
| Bristol-Myers Squibb | 28,87 | 7,18 | 36,99 | 13,63 | −19,26 | 13,482 |
| Pfizer | 11,55 | 34,06 | 16,16 | 26,25 | 14,86 | 20,576 |
Dividends and buyback program
During the reporting period, the company paid dividends in the amount of $ 2.7 billion and returned $ 497 million in the form of share repurchases, distributing about half of net profit to shareholders.
The dividend yield of Gilead Sciences was 3,9%, and the total profitability — 4,2%. As of 30 September 2021, the remaining amount of authorized buybacks was $6.3 billion, which supports the share price in the medium term.
Average dividend payout ratio for the last 5 years is 122% due to payments in debt in 2020, without taking into account this year, the payout ratio does not exceed 60%. Dividend growth rate over the past 5 years was 8,13%.
Profitability indicators
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|---|
| Dividends per share in dollars | 1,84 | 2,08 | 2,28 | 2,52 | 2,72 | 2,84 |
| Payout ratio | 19% | 59% | 55% | 60% | 2720% | 46% |
| Dividend yield | 2,57% | 2,9% | 3,65% | 3,88% | 4,67% | 3,91% |
| Buyback Yield | 13,6% | 1,75% | 2,19% | 2,89% | 1,93% | 0,36% |
| Total return | 16,2% | 4,65% | 5,84% | 6,77% | 6,6% | 4,27% |
Company multipliers
Most Gilead Sciences multipliers point to undervalued stocks compared to their peers, which allows you to consider the company for purchases at current levels.
Comparison of Gilead Sciences animators with competitors
| P / E | P / BV | P / S | EV / EBITDA | |
|---|---|---|---|---|
| Gilead Sciences | 12,6 | 4,3 | 3,4 | 9,3 |
| GlaxoSmithKline | 19,4 | 5,4 | 2,5 | 9,4 |
| AbbVie | 32,7 | 17,7 | 4,4 | 16,8 |
| Bristol-Myers Squibb | — | 3,7 | 3,1 | 21,2 |
| Pfizer | 16,7 | 4,3 | 4,7 | 12,0 |
| Mean | 20,4 | 7,1 | 3,6 | 13,7 |
| Potential to rise or fall | 62% | 64% | 6% | 48% |
Risk assessment
One of the most common risk control techniques is VAR. (value at risk). VAR calculation allows you to assess the risk scenario, based on the current volatility of the asset value by calculating the minimum price of the asset taking into account the probability.
With probability 99% monthly loss will not exceed 19%, quarterly losses — 32%, losses for the year — 63%. As a comparison, the calculations of the minimum prices of the NASDAQ index are given. According to the calculations, you can see, that investing in a broad index is safer.
Minimum prices based on the VAR method
| Month | 3 months | Year | |
|---|---|---|---|
| VAR Gilead Sciences | 59,44 | 49,80 | 27,00 |
| The fall, percent of the price on 31 December 2021 | 18,14% | 31,41% | 62,82% |
| Month | 3 months | Year | |
|---|---|---|---|
| VAR NASDAQ | 13 689,06 | 12 175,24 | 8591,51 |
| The fall, percent of the price on 31 December2021 | 13,13% | 22,74% | 45,48% |
What's the bottom line?
According to the results of the reporting period, the company managed to return to net profit and reduce the debt burden. The company is quite effective, which is confirmed by a high return on equity. At the same time, Gilead Sciences is a company with uncertainty..
Gilead Science works in a complex business, in which the main locomotives of profit – HIV drugs – will be under price pressure, and new cancer drugs in the approval process.
Besides, there is a risk of disapproval of new drugs, price regulation, high debt load. Although this is compensated by low multipliers and interesting dividend yields., which allows you to consider shares for purchase.
