Gilead Sciences Inc.

GILD Details

Key Positives:

Higher Revenue with Strong Quarter for Oncology, FDA Approval for Cell Therapy Manufacturing Facility in Maryland, Strong EBITDA Margin (51.9% in Q1 FY22 vs Negative Industry Margin of 141.7%), Offering a Lucrative Dividend Yield of 4.71%, 10 new, planned trials announced at Oncology Deep Dive event

Key Negatives:

Failure of Clinical Trials, Company is also exposed to the Risk of FDA compliances and other Regulatory Risks, Debt to Equity Ratio of 1.32x in Q1 FY22 vs NIL of Industry Median 

Gilead Sciences Inc. (NASDAQ - GILD) is a biopharmaceutical company that discovers and sells drugs to treat life-threatening infectious illnesses, with a focus on HIV and hepatitis B and C. With the acquisition of Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences, and Calistoga, the company's emphasis has expanded to cover respiratory and cardiovascular disorders, as well as cancer.

 Latest Updates:

• Final Data Release for Trodelvy’s survival extension over Chemotherapy: Final Data from Phase 3 ASCENT study demonstrates Trodelvy extends overall survival over chemotherapy in second-line metastatic TNBC was given by GILD on June 6, 222. Compared to physicians' choice of chemotherapy, Trodelvy reduced the risk of disease progression or death by 59%.
• Reached Number 1 Spot in HIV-Related Programs: According to the Funders Concerned About AIDS Report, Gilead Sciences is the top philanthropic funder of HIV-related programmes on May 19, 2022. Gilead's financing accounts for 38% of all HIV funding and is responsible for most funding increases across all concerns, people, and locations.
• Supporting New Innovations in Cancer Care: On May 17, 2022, the company announced that more than 20 papers would be presented at the 2022 American Society of Clinical Oncology (ASCO) Annual Meeting, according to Gilead and Kite, a Gilead Company. These findings point to potential targets in various tumours and blood malignancies. Gilead has developed a varied oncology pipeline driven by its strategy framework, focusing on depth and breadth to fill the most critical gaps in patient treatment.
• Dividend Announcement: GILD declared a quarterly dividend of USD 0.73 per share for Q2 FY22. The dividend is payable on June 29, 2022, to stockholders of record at the close of business on June 15, 2022

Q1 FY22 Results:

• Increase in Top Line Growth: Revenue grew 3% to USD 6.59 billion in Q1 FY22 from USD 6.42 billion in Q1 FY21, driven by increases in cell therapy, Veklury, Trodelvy, and HIV, offset in part by HCV. For easier examination, a product-by-product revenue summary is provided below.

(Source: Company Filings)

• Profitability and Inventory Management: Due to increased revenue, GILD reported a product gross margin of 87.4% in Q1 FY22 compared to 86.4% in Q1 FY21 and an operating margin of 53.5% in Q1 FY22 compared to 53.3% in Q1 FY21. Furthermore, the average inventory days in Q1 FY22 were 99.1 days, compared to 290.6 days of the industry median, indicating that the company is effectively disposing off its inventory, implying faster turnover and the potential for higher profits.
• Quarterly Balance Sheet Activities: Gilead had USD 6.8 billion in cash, cash equivalents, and marketable debt instruments on March 31, 2022. In Q1 FY22, Gilead made a USD 725 million cooperation opt-in payment to Arcus Biosciences, Inc., serviced USD 500 million in debt, paid USD 945 million in dividends, and repurchased USD 352 million in common stock.

Key Risks:

• Clinical Trial Risk: With its clinical studies, GILD may confront several risks and uncertainties, which might cause delays or impede the development and approval of the medicine. Challenges in a clinical trial are among the risks that might hurt the company.
• Regulatory Risk and FDA Approvals: Compliance with the FDA's complicated requirements and similar international standards is critical to its operations. Failure to receive ample clearances on time may cause the commercialization of the products to be delayed or halted.

FY22 Guidance:

(Source: Company Filings)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

Gilead Science Inc reported decent performance in Q1FY2022 with gross margin expanded by 90 bps. Also at the last closing price, the company was offering a lucrative dividend yield of 4.71% with track record of continuous dividend payment. Further, the company is strong balance sheet with manageable debt outstanding. In the past 9-months GILD shares are down ~12% and hovering near its 52W High of USD 74.10.

Hence, considering the revenue growth, excellent product growth, industry above margins, on-track clinical studies, associated risks, and current valuation. We recommend a "Hold" rating on the stock at the closing market price of USD 62.03 as of June 06, 2022.

1 Year Technical Price Chart (as of June 06, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.