In this segment from the Motley Fool Money radio show, Chris Hill and Jeff Fischer talk about why Gilead Sciences (NASDAQ:GILD) saw a drop in revenue and profits this quarter, which was particularly disappointing given the high expectations investors had for the company -- after all, it was a highflier not so long ago.
The pair discusses why Gilead is struggling despite the recent success of its hepatitis C drugs (which have proven to be popular with a big customer in the public sector), what the company is sacrificing for market share, and how the stock is valued in the wake of the results announcement.
A transcript follows the video.
This podcast was recorded on April 29, 2016.
Chris Hill: Gilead Sciences increased its quarterly dividend, and that was pretty much the only positive news in its first-quarter report. Their revenue was light. Their profits were down. How much pressure is there on this company right now?
Jeff Fischer: A lot of pressure. Gilead is like the Apple of the biotech industry. It had such a big hit in its hepatitis C drugs just a couple years ago that drove billions of dollars in new revenue. And now that revenue has flattened out. And this quarter, it actually declined a bit, just like the iPhone. So investors are wondering, how do you grow from here? You've done so well. What's next? They had more hepatitis C patients this last quarter, and yet revenue from the drug went down, because there's more competition, and they're giving price concessions, discounts.
They also had a positive note, really good thing, more government buying of the hepatitis C drug, Veteran Affairs treating veterans. So, it's good. Seven hundred thousand people, approximately, have been cured of hepatitis C in this country alone thanks to Gilead's drugs, and they maintain around 90% market share across most markets. But they are cutting prices to maintain that share, and that hit the bottom line. I think the stock's sell-off, which was big on Friday, was overdone. Shares look really cheap, seven to eight times earnings. Especially because management says they stand by their guidance for the full year that they gave last quarter. They didn't lower guidance, despite a soft quarter.
Chris Hill has no position in any stocks mentioned. Jeff Fischer owns shares of Apple and Gilead Sciences. The Motley Fool owns shares of and recommends Apple and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.