Gilead Q4 Report: Preview of Great Things to Come

By Douglas A. McIntyre Published Feb 12, 4:10AM EST

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by JMHO
BioTechnology Stock Blog

Gilead (GILD) is a large biotech company with a portfolio of marketed products that include royalties from the blockbuster Tamiflu for treatment and prevention of influenza, as well as HIV drugs that are combination pills which makes them more attractive to patients because of easier dosing regimens.

Earlier this year, Gilead reported 4th quarter 2006 financial results that were quite impressive. Here are some highlights:

– Q4 and FY2006 sales of $900 million and $3 Billion respectively ($437 million from royalties from sales of Tamiflu).

-Q4 and FY2006 earnings per share of $0.78 and $2.52 ( both beating consensus estimates partly due to a lowered tax rate).

– Atripla and Truvada (both HIV treatments) showed no signs of canibalization which should continue in 07.

– In 2007, Gilead is planning to launch products acquired through purchase of Corus and Myogen in 2006. In addition to revenue growth, expansion into other therapeutic areas (respiratory/pulmonary) will diversify Gilead’s portfolio, strengthening the company against competition in infectious disease areas.

As of 2/10/2007, GILD stock is trading at $71.16 or 25X this year’s earnings of $2.9/share and 20X next year’s estimated earnings of $3.6/share. This gives Gilead a PEG of around 1 and puts it in a fair valuation category. If the company delivers as expected, I believe the fair value of GILD shares towards the end of 2007 should be around $80 (25X 3.6 and a subjective discount factor).

There are however some risks to consider. Gilead recently terminated a HepC product that was in Phase II clinical trials, hurting the value of it’s pipleline. Also, the success of Gilead in new therapeutic areas is uncertain.

As far as Biotech stocks, GILD is a relateively safe play specially in case a bear market breaks out. The company is expected to generates $1 billion in cash flows in 2007 and given it’s strong growth potential, it should have a floor of $60 even in worst market conditions. Given recent bad news about HepC trials, I would wait and buy this stock below $70.

www.biohealthinvestor.com

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.