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Why Gilead Sciences, Inc. Stock Broke Down in October

By George Budwell – Nov 5, 2018 at 9:27AM

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Investors aren't pleased with Gilead's apparent lack of direction.

What happened

Shares of biotech giant Gilead Sciences (GILD 0.60%) lost a staggering 12.5% of their value in October, according to data from S&P Global Market Intelligence. What sparked this double-digit move lower?

Gilead's shares cratered last month for a whole host of reasons, including the never-ending drop in its hepatitis C drug sales, concerns about the long-term durability of its core HIV franchise, and Yescarta's slower-than-expected commercialization. And on top of all of these problems, Gilead has been slow to name a successor to outgoing CEO John Milligan, who is set to step down by year's end. 

The word value spelled out with wooden blocks.

Image source: Getty Images.

So what

Until a new CEO has been appointed, Gilead will continue to come across as a company with little to no vision for its future. Currently, the biotech is taking a shotgun approach toward driving future growth by investing broadly in new anti-inflammatory, immuno-oncology, and nonviral liver disease products. However, Gilead arguably lacks a competitive edge in all of these key areas -- an issue that sorely needs to be addressed by the next CEO. 

Now what

It's not all gloom and doom for Gilead, though. Far from it. Gilead does have a whopping $30.8 billion of cash and investments in the bank that should allow the incoming CEO to right the ship in a hurry. The current biotech landscape, after all, is brimming with promising takeover targets. Moreover, Gilead's stock isn't exactly expensive based on its forward-looking price-to-earnings ratio of 10.2 right now. So, with the right person at the helm, there's good reason to think that this biotech titan could turn out to be a bargain at these levels. 

 

George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short November 2018 $78 calls on Gilead Sciences. The Motley Fool has a disclosure policy.

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