5 Reasons To Sell Gilead Sciences, Inc. (GILD) Stock
There was a time when Gilead Sciences, Inc. (NASDAQ:GILD) shares represented a clear-cut growth opportunity. But we are now looking at more of a value-trap stock. From a share price of about $22 in 2012 shares rose in the next few years to reach highs of almost $120 in 2015. However, the time where such profits could be realized is- we believe- long gone. In fact, you only need to look at the share price to see how shares have been on a fairly consistent downwards trajectory since 2015 to their current price of $72.14.
It will be interesting to see what Gilead’s Q4 results reveal (announced on Feb 7) but I say that, almost regardless of the results, the convincing bear case for Gilead means that ultimately shares prices will end up falling lower anyway- here’s five reasons why:
- Demand for HCV – demand for Gilead’s key HCV franchise is dropping, and so are the accompanying revenues. What’s particularly worrying is the pace of the decline: net sales of HCV dropped 18.5% across the whole of 2016, but in Q3 2016 sales declined by a sharp 31% due to lower demand for the hep-C drug Harvoni. And the plateau has yet to be reached. The patients who desperately needed the drug have already been treated and the company needs more patients to treat. At the same time competition from rivals (AbbVie), MERCK and Johnson & Johnson in the HCV space is intensifying.
- Litigation – Gilead’s litigation with Merck should worry investors as it concerns Gilead’s prized hepatitis C franchise responsible for over half of the drug-maker’s revenue. Back in December Merck won a record $2.54 billion patent battle with Gilead. Gilead was found guilty of willful infringement of Merck’s patented compound for hep-C treatment with its drugs Sovaldi and Harvoni and ordered to pay 10% of the relevant royalties to Merck. Gilead plans to appeal the ruling- whether the proposed appeal will provide investors with much comfort depends on their appetite for risk but it certainly leaves a major question mark hanging.
- President Trump – while on the campaign trial President Trump was seen as the ‘soft’ option for drug companies in comparison to Hillary Clinton but time has proved this assumption incorrect. In fact Trump has been very vocal on lowering drug prices. On Jan 31, according to a Bloomberg report, Trump told drugmakers at the White House that drug prices are ‘astronomical’, adding that while these companies have done a ‘good job’ prices have to be reduced. Considering that Gilead is already under pricing pressure from its competitors this further governmental push for lower prices is not good news.
- Acquisition Failure – Gilead is sitting on a large pile of cash- $32 billion to be exact. This money should already have been spent on acquisition targets to boost the company’s flailing product pipeline. It hasn’t been. There are still options in the market such as Incyte and Tesaro in the oncology sector. But perhaps the best time to purchase Incyte has already passed as Incyte’s value has risen to $20.2 billion and Gilead may be reluctant to spend that kind of money. Indeed, Incyte has just announced a partnership with Calithera Biosciences for arginase inhibitor CB-1158 that could make Incyte even more attractive.
- Institutional Investors – it is worth paying attention to movements by institutional investors who tend to be much quicker at reacting to signs of risk than smaller/ individual investors as they don’t have the same kind of flexibility to get out quickly. In this case, we note that institutional investors in Gilead are down from 90% at the start of 2016 to 77% at the end of the year- that’s a difference of about 250 million shares.
Disclaimer: The author has no positions in the stock mentioned. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.