Gilead Sciences stock forecast: Despite This Year’s Triumphs, Watch Out For Weaknesses – An Algorithmic Perspective

Consult the Internet concerning Gilead Sciences (GILD), and you will presently find nothing but bulls. Barron’s advises us not to worry about a pricing war, The Fool gives us three reasons Gilead stock could rise, Ticker Report tells us that the company has received a consensus recommendation of “Buy” from analysts, and countless others, like Tech News and Zacks, cite just how quickly Gilead is growing. The sentiment is understandable, particularly in view of Gilead’s published press releases for the first andsecond quarters of 2014. And yet, there exist risks which entirely positive analyses are overlooking.

iphone

Company Profile

Gilead Sciences is a company specializing in drug discovery, development, and commercialization. Specifically, in recent years, it has focused primarily on antiviral drugs for HIV, hepatitis B, and influenza; this year, too, it has released Sovaldi, a drug geared at combatting hepatitis C. Headquartered in Foster City, California, Gilead has, by now, established operations in North America, Europe, and Australia, and had 4000 full-time employees as of 2009. In the same year, it was also labelled one of the fastest growing companies in America by Fortune, and one of America’s top companies to work for by Forbes. In 2011, GILD’s acquisition of Pharmasset took the company to even greater heights – Forbes called the move “one of the best pharma acquisitions ever”; nearly single-handedly, buying Pharmasset propelled Gilead forward, making it the number four ranked drug company inForbes‘s list by 2013. Additional acquisitions, like CGI Pharmaceuticals, Arresto Biosciences, Calistoga Pharmaceuticals, and YM Biosciences, helped GILD expand its offerings to include more diverse therapies (e.g., those geared at treating myeloproliferative disorders, a diversity of cancers, and inflammatory disorders). Most recently, as was previously mentioned, GILD generated even further success by introducing Sovaldi, a hepatitis C therapy, to the market; this drug alone, sold for the very first time in the first quarter of 2014, has been cited by analysts as the key to GILD’s positive outcomes this year.

The Advantages

It would be incorrect to say that the wealth of positive sentiment surrounding GILD is entirely misplaced. In fact, if one takes just a quick look at Gilead’s published press releases for the first and second quarters of 2014, progress appears picture-perfect. Specifically, in the first quarter of 2014, Gilead completely annihilated analysts’ estimates of its earnings, posting non-GAAP earnings of $1.48 per share. Total revenues increased to $5.0 billion from $2.53 billion in the first quarter of 2013; product sales also increased to $4.87 billion from $2.39 billion, and non-GAAP net income went up, too, going from $801.9 million in the same quarter of 2013 to $2.49 billion this year. Largely due to sales of Sovaldi, which launched in 2013,antiviral product sales shot upwards, increasing to $4.51 billion in the first quarter from $2.06 billion in the first quarter of 2013. Cardiovascular productsales increased, and the only expenses that went up were, according to GILD, increasing due to the progress of GILD’s clinical studies in oncology and HIV.

In the second quarter of this year, GILD continued to make significant progress; again, Sovaldi was primarily responsible. By this time, as GILD points out on its website, the drug has been prescribed to more than 80 000 patients in Europe and the States; the medical community, in other words, has been content with it. Specifically, in the second quarter of 2014, GILD’s U.S. product sales increased to $4.8 billion from $1.64 billion in Q2 of 2013, and Europe product sales increased to $1.31 billion from $818.2 million. GILD’s antiviral product sales, due to Sovaldi, went up as well, with unrelated cardiovascular product sales also increasing. Operating expenses did go up as well, but again, GILD accounts for this, noting that non-GAAP research and development expenses increased “primarily due to increases in headcount and other costs to support expansion of our R&D activities”.

This growing revenue has not gone unnoticed by analysts. Look anywhere. NASDAQ, Yahoo! FinanceMarket Watch – almost every major analyst firm’s or association’s current recommendation is “Buy”:

Figure 1. NASDAQ and Yahoo! Finance analysts rank GILD a 1.7, where 1.0 is a strong buy, and 5.0 is a strong sell.

Figure 2. Market Watch also places GILD as a buy.

The Disadvantages

Despite GILD’s strong results and analysts’ standing ovations, the company poses certain potential problems to investors that should not be overlooked.

Firstly, there is the fact that most of the company’s strength these past two quarters has come from Sovaldi, its star hepatitis C drug. Certainly, Sovaldi sales went to $2.3 billion in its very first full quarter on the market; that’s impressive. Concurrently, sales of Gilead’s HIV treatment Stribild went up as well; that, too, is helpful to the company. However, relying on strong sales of solely a few products can be a dangerous strategy for any business: if competition rises or the market changes in some other sense, and one or both of Stribild and Sovaldi begin to see significantly less positive reception, then Gilead and involved investors could suffer considerably.

READ THE FULL SEEKING ALPHA Article