Gilead Sciences Inc. (NASDAQ: GILD) has two bits of news out on Wednesday, both of which might make at least some investors scratch their heads. The largest biotech in the world received a somewhat cautious, or unenthusiastic, analyst call. Gilead also is going to raise cash via a huge debt offering. Will this cash be used to fund a large buyout? Will it be used for stock and/or debt buybacks? Or will it just give some operating flexibility to be opportunistic ahead?

On raising capital, Gilead ended its June quarter with some $14.667 billion in liquidity, as follows: $7.4 billion in cash, another $1.2 billion in short-term investments and another $6 billion or so in long-term investments. It also has close to $12 billion in long-term debt (see maturity schedule below).

Jefferies decided to initiate Gilead with a mere Hold rating, but the price target was at least a bit higher at $115.00. That compares to a $104.90 prior close and to a $105.50 price on Wednesday morning. Gilead has a consensus price target from analysts of $125.39 in the Thomson Reuters universe, and a 52-week range of $85.95 to $123.37.

So, how do investors weigh such an unexciting analyst call on the same day as a huge debt offering gets filed? For starters, Gilead’s drop in August was from $117 or so to under $101, for an absolute low closing price — even if shares were listed as having an intraday low of under $90 when that August 24 mini-crash took place that morning.

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One problem that is affecting how analysts and investors view Gilead is that 2015 is and was the huge growth year due to the hepatitis drug boost. That leaves a consensus estimate of flat earnings in 2016 and an expectation of a 1% drop in 2016 revenues to $31.2 billion. The earnings per share estimates from Thomson Reuters are $11.66 for 2015 and $11.67 for 2016, which generate a price-to-earnings (P/E) ratio for current year and next year of only nine times earnings.

Remember that Gilead has a massive share buyback plan underway. The company added $15 billion on top of an existing buyback plan this February. The company can use the proceeds from this debt offering to help with buybacks as well. Gilead’s release at that time said:

The Board of Directors also approved the repurchase of up to an additional $15.0 billion of the company’s common stock. This new program is in addition to the currently authorized three-year $5.0 billion repurchase program (authorized in May 2014). As of December 31, 2014, approximately $3 billion remained in the May 2014 program. The new program will expire 5 years after the completion of the May 2014 program.

The first thing that would come to mind is that Gilead wants to pay down debt, or that it would make an acquisition. It turns out that Gilead already has a lot of long-term debt, but there is only about $1.7 billion in debt due between now and the end of 2020. Also, Gilead did not specify acquisitions in the “use of proceeds,” even if “general corporate purposes” does generally include acquisitions. The “Use of Proceeds” said:

We intend to use the net proceeds from this offering for general corporate purposes, which may include the repayment of debt, working capital, payment of dividends and the repurchase of our outstanding common stock pursuant to our authorized share repurchase program.

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Other long-term obligations, current portion $352 million, plus long-term debt issuances by maturity date as follows:

• 4.50% senior unsecured notes due April 2021 for $995 million
• 3.05% senior unsecured notes due December 2016 for $700 million
• 4.40% senior unsecured notes due December 2021 for $1.248 billion
• 5.65% senior unsecured notes due December 2041 for $998 million
• 2.05% senior unsecured notes due April 2019 for $499 million
• 3.70% senior unsecured notes due April 2024 for 1.748 billion
• 4.80% senior unsecured notes due April 2044 for $1.747 billion
• 2.350% senior unsecured notes due February 2020 for $499 million
• 3.500% senior unsecured notes due February 2025 for $1.748 billion
• 4.500% senior unsecured notes due February 2045 for $1.740 billion

The reason we have highlighted the maturity schedule by year is to show that Gilead does not need the cash at this time for any massive debt maturities. Gilead’s underwriters on the 424B5 debt shelf registrations statement were shown to be Bank of America Merrill Lynch and JPMorgan.

Speaking of Merrill Lynch and analyst reports, that firm as an underwriter has only an Underweight rating and a $107.00 price objective.

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Furthermore, Gilead did not say that this marks the end of debt offerings. Its filing noted:

We may from time to time, without the consent of the holders of such series of notes, create and issue further notes of such series having the same terms and conditions in all respects as the notes of such series being offered hereby, except for the issue date, the public offering price and, in some cases, the date of the first payment of interest thereon. Additional notes issued in this manner will be consolidated with, and will form a single series with, the applicable series of notes being offered hereby.

Additional risks were listed as follows (headers) directly from the SEC filing:

• The notes are obligations exclusively of the Company and not of its subsidiaries, and payment to holders of the notes will be structurally subordinated to the claims of our subsidiaries’ creditors.
• The notes will be effectively junior to secured indebtedness that we may issue in the future. The notes are unsecured.
• Redemption may adversely affect your return on the notes.
• We may not be able to repurchase all of the notes upon a Change of Control Triggering Event.
• An increase in interest rates could result in a decrease in the relative value of the notes.
• There are limited covenants in the indenture governing the notes and the terms of the notes do not prohibit us from taking other action that could negatively impact holders of the notes.
• Our financial performance and other factors could adversely impact our ability to make payments on the notes.
• There are no public markets for the notes.
• Our credit ratings may not reflect all risks of your investment in the notes.
• Increased leverage may harm our financial condition and results of operations.

After about an hour of trading, Gilead shares were up 0.5% at $105.44 on barely 2 million shares. So far this debt offering and the “less than robust” analyst view are being largely ignored.

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