Gilead Sciences is quite interesting company – generating tons of cash, but when patents expire then business will shrink significantly. As for me it is a mixture of debt and equity, where debt = payments till patents expire, equity = value thereafter.

Share price is going down and down, because investors hate companies with decreasing EPS, but I see some value. Let’s look at Q3 results:

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Results were mostly in line with my expectations. Well, with big bet, whether company will introduce some important game changing drug it doesn’t really make so much difference for me if company reports $0.05 more or less… And there are Significant Pipeline Milestones Anticipated in 2016 – 2017:

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I am not an expert so I can’t really say, what’s the sales potential and probability of success. What I know is that this is not the first time that important product of GILD has patent to expire and in long term company delivered growth. I hope it will continue.

Also have in mind cashflow generated by company. In Q1 – Q3 it was more than $12b, so company can always make some M&A. Moreover (in what I really believe) – if you are a biotech with such strong cash flows then you can freely invest in the most profitable projects (no funding constraint). On the other hand there is a risk that you will burn too much cash, but then see above – long term I trust in quality of GILD.

If you have some spare cash you can always return it to shareholders. This is what I really love in Gilead:

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Assuming another $3b in Q4 it gives more than 15% return yield annually (cap is around $95b). Let’s give company 3 years like this and half of my investment will be returned (or reinvested as it is more accurate statement in case of buybacks). And then with market cap of around $50b – $60b (current cap minus 3 times $12b – $15b) ratios will be totally different…

 

Summing up, GILD is an unusual company with (terminally?) declining results. Unless some major achievement will come. Long term quality is good, valuation is low, return rate (dividend + buyback) to shareholders is quite high. The only problem is that trend is your friend…

 

Disclaimer: GILD – long