Just four years ago, Gilead Sciences (GILD 3.82%) was one of the hottest biotechs around. The company continued to dominate in the HIV market as it had for years. Sales for its hepatitis C virus (HCV) drugs were booming. Then came a multiyear decline resulting from sinking sales for its HCV franchise.
Large numbers of hepatitis C patients had been cured, and there were fewer remaining to start treatment. In addition, new rivals entered the market with drugs of their own that could cure the disease.
The worst appears to be over for Gilead today, though. Its share price has leveled off. Gilead even thinks that it's about to return to growth. But is the big biotech stock a buy?
Check out the latest earnings call transcript for Gilead Sciences.
The good news
Gilead has plenty of good things going for it. The company continues to be a cash cow, generating billions of dollars in cash flow. Gilead's cash stockpile stood at $31.5 billion at the end of 2018.
The biggest contributors to Gilead's great financial position are its HIV drugs. Gilead's HIV franchise includes six blockbuster drugs. Genvoya is the company's top-selling drug for now, but Biktarvy is likely to take the top spot in the not-too-distant future.
Gilead's head of worldwide commercial operations, Laura Hamill, said in the company's Q4 conference call that Biktarvy enjoyed the best HIV launch of all time in its first 11 months on the market. Analysts project the drug will reach peak annual sales of more than $6 billion.
Biktarvy is one of four Descovy-based HIV drugs in Gilead's lineup. Sales for each of these drugs increased by at least 26% last year.
Thanks to its acquisition of Kite Pharma in 2017, Gilead also has what is arguably the best chimeric antigen receptor T cell (CAR-T) therapy on the market with Yescarta. The cancer therapy raked in $264 million last year. Gilead thinks sales will nearly double this year as momentum picks up in Europe.
Gilead's late-stage pipeline includes programs pursuing additional indications for Descovy and Yescarta. The biotech claims a promising immunology drug, filgotinib, that's being evaluated as a treatment for rheumatoid arthritis, Crohn's disease, and ulcerative colitis. And Gilead is awaiting results from a late-stage study of selonsertib in patients with bridging fibrosis due to nonalcoholic steatohepatitis (NASH).
The bad news
Gilead Sciences has plenty of challenges, though, starting with the continuing headwinds for its HCV franchise. The biotech thinks that HCV revenue is finally stabilizing, but still expects that overall HCV sales will decline between $800 million and $1 billion year over year in 2019.
There are some trouble spots in Gilead's HIV franchise, too. While sales are soaring for newer Descovy-based drugs, some of the growth is coming at the expense of the company's older HIV drugs. In addition, Gilead faces generic competition for its TDF-based HIV drugs in some international markets.
Yescarta has a lot of promise. Unfortunately for Gilead, that promise is likely to take a while to be realized. The company can't count on the CAR-T therapy to offset very much of its HCV sales decline.
Gilead's pipeline appears to be a little shaky as well. Filgotinib will probably be a commercial success -- eventually. The problem for Gilead is that it can't file for U.S. approval of the drug until a safety study is completed. The estimated primary completion date for this study is January 2021. And while Gilead hopes for positive results from its second phase 3 study of selonsertib, the drug already failed to meet a primary end point in the biotech's first late-stage NASH study.
Is Gilead a buy?
Even though I own shares of Gilead Sciences, I must admit that I had to think long and hard as to whether or not the stock is a buy right now.
For much of the last year, my view was that Gilead was ripe for a rebound with the prospects of its HCV franchise stabilizing, strong momentum for its new HIV drugs, and promising pipeline candidates with filgotinib and selonsertib. With continued HCV weakness, delays for regulatory filings for filgotinib, and a clinical setback for selonsertib, though, my earlier optimism has waned quite a bit.
So is Gilead a buy? My answer is nuanced.
If you have a long-term perspective, I still think Gilead will be a winner. My take is that incoming CEO Daniel O'Day will lead the company in putting its great financial flexibility to work in making acquisitions. Even with its problems, Gilead will continue to generate strong cash flow and reward investors with an increasing dividend.
On the other hand, Gilead isn't likely to provide much sizzle for a while. The biotech's pipeline probably won't deliver as much growth over the next three to five years as hoped. If you're looking for more immediate returns, it's probably better to buy stocks other than Gilead.