Source: Gilead Sciences

What's the outlook for Gilead Sciences' (NASDAQ:GILD) stock?

Over the short run, that question is next to impossible to answer. Over the long run, though, investors can project how well Gilead stock (or any other stock, for that matter) should perform with at least a reasonable level of confidence. The key is to remember that a stock isn't just an abstract financial instrument. It's part ownership in a real company, with products, employees, and competitors.

For decades, experts have analyzed the prospects for companies using a simple tool called SWOT analysis. The acronym stands for strengths, weaknesses, opportunities, and threats. Gilead Sciences stock's long-term outlook depends heavily on how the company fares in each of these categories. Here's a quick SWOT analysis of the big biotech. 

It's not hard to find Gilead Sciences' strengths. Right at the top of the list are the company's hepatitis C drugs, Harvoni and Sovaldi. Last year, the two drugs combined for sales topping $12.4 billion. That's a huge amount -- and even more impressive if you consider that Sovaldi first became available in December 2013, and Harvoni just hit the market in October 2014. 

While these hepatitis C drugs have propelled Gilead's stock to all-time highs, the biotech's success over most of its lifetime stemmed from a continually improving line of HIV drugs. Atripla and Truvada stand out as the current stars, with combined 2014 sales of $6.8 billion. However, Gilead counts three other strong HIV drugs in its arsenal: the fast-growing Stribild, Complera/Epivlera, and Viread. All are blockbusters.

Gilead's strength in the hepatitis C and HIV markets might also be considered its greatest weakness. The success of the biotech's franchises in these indications make it heavily dependent on those drugs. In particular, the tremendous earnings growth powered by first Sovaldi and now Harvoni won't be sustainable forever.

This market dominance in hep C and HIV also underscores the fact that Gilead hasn't been as spectacularly successful in other indications. Cardiovascular drugs Letairis and Ranexa are modest hits, but not in the same league as the biotech's other drugs. 

Gilead's jump into the oncology arena has been even less impressive. Zydelig, which is approved to treat three indications, including chronic lymphocytic lymphoma, hasn't performed nearly as well as rival Pharmacyclics' (UNKNOWN:PCYC.DL) Imbruvica. 

It's appropriate to include continued sales growth for Gilead's current strong lineup, especially Harvoni and Stribild, as significant opportunities for the stock's performance. Over the longer term, though, there are a couple of other key elements in the biotech's favor.

First is Gilead's pipeline. The company has nearly 40 clinical studies currently under way, with two drugs in regulatory review and eight studies in phase 3. Gilead looks to have a good shot at maintaining its dominance in HIV with its emtricitabine/tenofovir alafenamide combo, as well as in hepatitis C with a couple of new and improved regimens.

Gilead also appears to have a strong candidate in simtuzumab. The drug is in two phase 2 studies targeting the treatment of two liver diseases: nonalcoholic steatohepatitis, or NASH, and primary sclerosing cholangitis. If successful, simtuzumab would be a great complement to Gilead's hep C drugs.

The second big opportunity for Gilead relates to its nice cash stockpile. As of March 31, 2015, the biotech had cash, cash equivalents, and marketable securities totaling more than $11.2 billion. How Gilead uses this money could sustain the stock's winning ways. After all, Sovaldi was obtained through a buyout. Gilead has announced two acquisitions so far this year: Phenix Pharmaceuticals' NASH program and tiny Danish company EpiTherapeutics ApS. 

Gilead's biggest threats are pretty much the same ones that all drugmakers face: competition, patent protection, and development risks. As for competition, AbbVie stands out as Gilead's biggest rival in hep C for now. Merck probably will join the fray relatively soon with its grazoprevir/elbasvir combo. In HIV, the biggest rival that Gilead faces is Viiv Healthcare, a joint venture formed by GlaxoSmithKline and Pfizer.

The biggest risk from these rivals has to do with eroding prices. Although Gilead appears to have largely won the battle with AbbVie over exclusivity payer formularies, doing so required lowering prices for Harvoni and Sovaldi.

There is good news on the patent protection front. Most of Gilead's biggest revenue-generating drugs don't face patent expiration for several years. Viread stands out as the notable exception, with its U.S. patent expiring in 2018. Gilead does, however, face patent-related litigation that could hurt the company if things go badly. 

And while Gilead's pipeline appears to be strong, there are always risks in developing drugs. Safety problems could arise. Regulatory agencies could deny approval. This is an ongoing threat for Gilead (and other biotechs).

SWOT so what?
So what's the verdict on Gilead Sciences' outlook? The biotech's strengths and opportunities appear to me to outweigh its weaknesses and threats at this point. As a result, I'd say that the prospects for Gilead's stock are good.