Gilead: Dirt Cheap?

Focus: HEALTHCARE

Bob Ciura Image Bob Ciura Contributing Editor, Wyatt Investment Research

The past two years have been a nightmare for Gilead Sciences (GILD) and its shareholders; after reaching a high of $123 in June 2015, the stock has gradually declined ever since, observes Bob Ciura, contributing editor to Wyatt Research's Daily Profit.

Gilead shares recently dipped below $70 per share. The steady fall has been due to investor fears over the company’s core Hepatitis drugs facing increasing competition and regulatory pressure.

While Gilead’s sales and earnings have deteriorated, the company is still highly profitable. And, it has a huge amount of cash on the balance sheet that it can use to replenish its product pipeline. With a dirt-cheap valuation and a 3% dividend yield, Gilead stock may have finally hit bottom.

At the heart of Gilead’s woes is its flagship HCV portfolio, which includes its flagship Hepatitis C treatments Harvoni and Sovaldi. Led by these two medications, Gilead’s HCV products represent nearly half the company’s total revenue.

This is a big problem for Gilead. As a biotech company, it is vulnerable to competition. Its fate rests in the success of new drugs. Moreover, in an era of increasing political and public furor over drug prices, Gilead has been severely pressured.

Fortunately, Gilead is taking action. It has aggressively invested in research and development — including $5 billion of R&D last year—to develop new products in HCV, as well as emerging therapies like HIV and oncology.

The company also has a growing portfolio of therapies for HIV.