Recent Buy: Gilead

Gilead_Sciences_Logo.svg

Gilead reported Q4 2016 yesterday and it finally looks like the disaster everyone was anticipating. Big declines in revenue, sales of the HCV products are dropping like a falling stone (flagship product Harvoni with over 50% Q/Q decline). To make it worse, management was anything but determined or showing any signs of leadership in the conference call. The guidance for sales in 2017 was dropped to $23.5 B (from $30 B in 2016). Adding a pending law suit with a potential one time payment of $2.5 B – $7.5 B plus a 10% license royalty of all HCV sales and I’m finally at a point where I’ve to think about my initial investment.

When assessing the situation, it’s important for me to remember the initial investment thesis. When I started to accumulate GILD, I bought it for the low P/E and the growing cash reserves, which I thought, would be used to buy another revenue producing assets.

So trying to be objective – there is no change in my thesis. Even though I’m still waiting, cash is still pouring in, but the cash source dries up faster than expected and the once promised HIV pipeline doesn’t show the long term quality I was hoping for (there seems to be two important patent cliffs before 2020). So I’m going from an optimistic to a more speculative view. I’m still hoping for an acquisition, which would at least stabilize the revenue. But in the meantime I will collect the increased dividend (by 10.6 %) payment. I really don’t hope to enter another Seadrill / Kinder Morgan type of “catching the falling knife” episode. But I really don’t see the case here – even with increased competition. I still see a future Gilead finding new cures and enhancing their existing products. I don’t see them falling back to the pre-HCV company, but utilizing their new sales experience, grown R&D department and liquidity.

Therefore today I added 50 shares at $64.82 to my existing GILD position. My averaged cost per share gets lowered to $78.17 and I’ve added $104 to my annual dividend income.

8 thoughts on “Recent Buy: Gilead

  • February 9, 2017 at 3:25 am
    Permalink

    Rider –

    Congrats on the purchase, I know quite a few have purchased this over the last few months and a nice whallop of a div increase to boot! Enjoy it, reap the dividends and keep it up.

    -Lanny

    Reply
    • February 9, 2017 at 10:06 am
      Permalink

      Hey Lanny,

      thank you for your comment!
      I think many more will be tempted to catch 3% yield with such a low payout ratio.

      -DivRider

      Reply
  • February 9, 2017 at 3:45 am
    Permalink

    That sell off looks very overdone. Nice picking up some GILD on the cheap and reducing your cost while boosting your annual dividend income. Get paid to wait for the stock to recover. GILD has has its share of problems for about a year now but that’s just the ebbs and flows of this biz.

    Reply
    • February 9, 2017 at 10:21 am
      Permalink

      DivHut,

      thank you for your comment!
      Yes I also think it’s dropping is overdone – always thought the revenue declines are already “priced in”. It seems not and we’ll see how the story develops.
      In the meantime I’ll enjoy the dividends 🙂

      -DivRider

      Reply
  • February 9, 2017 at 4:06 pm
    Permalink

    Nice picking up GILD, I like GILD and think its way over sold, they are not accounting for HCV business which we are basically getting in as a bonus.

    Reply
    • February 16, 2017 at 12:23 am
      Permalink

      Dividends 4 Future,

      thanks for stopping by! I think the market will always punish an unstable/non-growth outlook and I think this is happening here. We’ll see how it goes.

      – DivRider

      Reply
    • February 16, 2017 at 12:34 am
      Permalink

      Hey DividendTime,

      I know you’re a fellow shareholder and I see your points. With this this guiding and practically no visibility concerning the HCV product sales for 2018, it’s not a conservative choice right now. But as I said, it’s not that much of a different situation from when I bought my initial stake two years ago. I’ll wait and collect the increased dividend in the mean time.
      Thanks for commenting!

      Cheers,
      DivRider

      Reply

Leave a Reply

Your email address will not be published.