Gilead Sciences (GILD 0.07%) hasn't been much of a growth stock in recent years. Prior to the pandemic, sales in 2019 totaled $22 billion and were down more than $3 billion in a span of two years. While revenue from COVID-19 drug remdesivir, which is sold under the brand name Veklury, did give the company a boost last year, that boost might not last for long as the pandemic shifts.
Apart from Veklury, Gilead's core business revolves around HIV drugs. Unfortunately, those drugs haven't been generating much for the biopharmaceutical company as of late.
Has Gilead been too dependent on the COVID-19 and HIV segments of its business? How do the rest of its operations look in comparison? Let's take a closer look and investigate whether this is a stock to buy or to avoid.
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The bulk of revenue comes from two product types
Despite declining revenue in recent years, during the first three months of this year, Gilead reported total product sales of $6.5 billion, which rose 3% year over year. The bulk of that revenue came from its core HIV business, which contributed $3.7 billion to the top line. Veklury added another $1.5 billion, but the success of at drug may be short-lived in a post-pandemic world.
Data source: Company filings. Chart by author.
Stripping away HIV drugs and Veklury from its product sales leaves Gilead with just under $1.3 billion in sales from its other drugs. The one positive takeaway is that unlike HIV products, which grew by just 1.6% year over year, revenue from other products increased by 4.5%.
Gilead's HIV drugs are struggling due to losses in exclusivity and growing competition. Diversifying the business outside of this area could make Gilead's operations more resilient and less likely to suffer from large revenue declines in the future. An inevitable drop in COVID-19 revenue only exacerbates the company's worries.
Lack of diversification among top-selling products
Although Gilead is growing other areas of its business, the company's five best-selling products are all either HIV drugs or Veklury. Biktarvy, Gilead's top HIV drug, accounts for about one-third of sales all on its own. As noted in the below chart, Veklury comes in second with 23.5% of sales.
Data source: Company filings. Chart by author.
The sixth best-selling product is Hepatitis C treatment sofosbuvir/velpatasvir, which generated $330 million in revenue in the first quarter, a modest 5% of total product sales.That's not nearly enough to make up for Vekliry's anticipated revenue drop. And it also doesn't give investors much confidence in the company's ability to generate strong growth numbers if its HIV business struggles.
Should investors be concerned about the lack of diversification?
Although it may appear problematic that so much of Gilead's revenue comes from either HIV drugs or Veklury, that isn't necessarily a huge concern. In the case of Veklury, many companies have gotten a boost from COVID-19 revenue, and investors simply need to account for the reality that the revenue may not always be there, especially at the levels seen today. Gilead clearly understands this; the company separates its revenue without Veklury to make future comparables easier.
As for HIV drugs, that's a solid core for the company to build around. Although sales of that segment have been struggling to generate much growth, that can soon change. Gilead has a promising treatment in lenacapavir, which HIV patients would only need to take twice a year (as opposed to a daily pill). If approved, that could instantly bolster the company's HIV portfolio.
Gilead has also been making efforts to diversify into other areas. In 2020, it acquired immuno-oncology company Forty Seven for $4.9 billion. A key product it acquired in the deal, magrolimab, is a cancer drug that's still in clinical development and could help boost Gilead's non-HIV revenue.
Investors don't need to be overly concerned about Gilead's portfolio of products. If the company didn't have drugs that were growing or had an empty pipeline, then there would be a justifiable reason to be bearish on the stock. But Gilead doesn't fall into that category, and the business looks sound and could be a great healthcare investment to hang on to for the long haul.
