Saul asked for a GILD bear case. I don’t own it and after several people here indicated their enthusiam for GILD, I decided to have a look. I decided not to buy. Here’s why:
- Prior to last year (before Solvaldi) GILD seemed to not be growing…at least not when you look at revenue and adjusted earnings. During this time the vast majority of GILD’s earnings were from their HIV business.
Adj. EPS Rev ($M) 3/31/2010 0.485 2090 6/30/2010 0.425 1930 9/30/2010 0.45 1940 12/31/2010 0.475 2000 3/31/2011 0.435 1930 6/30/2011 0.5 2140 9/30/2011 0.51 2120 12/31/2011 0.465 2220 3/31/2012 0.45 2282 6/30/2012 0.49 2405 9/30/2012 0.5 2427 12/31/2012 0.5 2588 3/31/2013 0.48 2532 6/30/2013 0.5 2867 9/30/2013 0.52 2783
Solvaldi launched in Q4 2013 and you can seem a big jump in earnings and revenue:
12/31/2013 0.55 3120
3/31/2014 1.48 4999
6/30/2014 2.36 6535
9/30/2014 1.84 6042
12/31/2014 2.43 7314
From the above, I concluded that their HIV business has stagnated. Looking at their pipeline, there are some more HIV drugs in various stages of clinical trials but I viewed this more as improvement products needed to maintain their market share as opposed to growth opportunities. So you have a $2B HIV business that is flat.
Their HCV business is now huge. Solvaldi may be the biggest drug ever. However, now their is competition and GILD has had to cut prices. Therefore, I conclude that while the number of patients will grow for GILD’s HCV drugs, the revenue growth from here will be minimal (price cuts in 2015 may really affect the comps versus 2014). If you look at GILD’s revenue guidance which they just gave on 2/3/2015, total revenue is only forecasted to grow by about 6.5% in 2015. While there may be upside to the guidance, I am concerned about the competition.
GILD is already a $140B market cap company. I tend to shy away from mega caps because smaller companies offer better growth potential.
Yes, there’s a chance that their HCV business will grow faster than GILD forecasts, I prefer to keep my money invested in companies that are demonstrating that they are growing much faster.