Gilead Sciences, Inc.

Written by Ophir Gottlieb, 6-12-2015



GILD has 12 products in Phase II trials and 7 products in the Phase III trials. It is the only mega cap in the world growing revenue by more than 200% year-over-year that is also hitting new all-time highs in earnings, free cash flow, operating margins and revenue per employee.

GILD is the largest of the mega four biotechs (BIIB, CELG, AMGN). The company has grown revenue and earnings faster than any large cap pharma or biotech by huge amounts, earns more revenue per employee than its peers by more than 200%, spends less on R&D per dollar of revenue by as much as 85% as its biotech peers yet at the same time has one of the richest pipelines in all of biotechnology and more cash on hand to buy new promising products than any other peer by two- to ten-fold.

The firm's operating margins are exploding and its growing like a micro cap but at the size of a mega cap.From a fundamentals perspective, the firm is literally perfect.

The question as always for companies growing this quickly is, "can it be sustained?" Or even further, "what comes after perfect?"

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Gilead's revenue and earnings have exploded due to the biggest new drug success in the history of biotechnology (Hepatitis C drug Sovaldi) which hit sales of over $10.2 billion in 2014. The next two largest revenue driving products for GILD last year were HIV treatments Atripla ($3.5 billion) and Truvada ($3.3 billion).

In the pipeline image below, we have plotted the number of Phase III trials on the y-axis and the number of Phase II trials on the x-axis for large cap biotechs. Note that GILD has the second most products in either Phase III or Phase II.


Let's look at a summary of the remarkable fundamentals for GILD.


GILD is up +18.8% over the last three months and up +12.7% over the last six months. The stock price is up +45.5% over the last year. The stock hit an all-time high yesterday.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).


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Revenue (TTM) is trending higher and has in fact broken all-time highs for 22 consecutive quarters. Sovaldi had zero dollars of revenue two-years ago, and now stands at over $10 billion. Wow... a lot.

GILD is not only growing revenue to all-time highs consecutively, but it just realized 101.07% year-over-year growth. While massive revenue growth often times comes at the expense of earnings, free cash flow and operating margins, that is not at all the case for GILD, as all of these measures are exploding higher and are totally unprecedented versus peers.

What do all these numbers mean?
GILD's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.



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This is the first of two comparison images we will illustrate. First, we look at GILD revenue vs Biogen and Amgen. GILD is in orange, we can see the vertical move with Sovaldi.



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Net Income (after tax profit) over the trailing twelve months (TTM) for GILD is rising at a 210% clip. The company has hit all-time highs in earnings (TTM) for six consecutive quarters and most recently reported $14.2 billion in net income, up from $.29 billion two-years ago.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago). "


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This is going to sound like a broken record, but levered free cash flow for GILD is also trending higher, and has made all-time new hgihs for seven consecutive quarters. Two-years ago the firm reported FCF of $2.7B. In the most recent trailing-twelve-months GILD reported $12.5 billion in FCF.

Here's a chart of that trend, below."

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Of all the comparisons we can do (and there are a lot), this is the most absurd. On the x-axis we have equal spaced companies (rank) and on the y-axis we have plotted revenue per employee (in $ millions).

GILD generates over $3.5 million in revenue per employee. The next closest is BIIB at ~ $1.4 million. Wow, again.

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Summary
Gilead has the largest earnings, revenue, free cash flow and operating margins of any biotech on planet Earth. It's also growing faster than any large cap biotech in all of those measures and generates more revenue per employee than any biotech or pharma in the world. As of right now, it is living in the rarefied air of absolute perfection. Here's the thing, though. Where does a firm go from perfection?

The risks lie in the price of Sovaldi and the copie sof it that are now rampant in third world countires (which is legal believe it or not). The great success of Sovaldi is now the great risk. But, rest assured, GILD has a GIGANTIC pipeline of new drugs and all the money in the world to buy the next great and promising drugs in early stages without affecting operations negatively if the purchases are a bust. There simpy is no better positioned company in all of North Ameica in any sector right now, than Gilead.

For the naturally curious, here is one image with 9 side-by-side comparisons of GILD to Amgen, Celgene and Amgen.



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