Gilead's 3 Biggest Goofs of 2016
December 7, 2016
By Mark Terry, BioSpace.com Breaking News Staff
It’s that time of year, to look back on the good and bad, and to make Top 10 lists, or to otherwise autopsy the last 11 months or so. Keith Speights, writing for The Motley Fool, provides a short list of three things Gilead Sciences did wrong in 2016.
And to his credit, Speights notes that although Gilead had some failed clinical trials, those are just the nature of the business.
1. Didn’t increase the dividend enough.
Early in the year, Gilead’s board of directors approved a 10 percent increase to its quarterly dividend. That wasn’t the problem. The problem, Speights argues, is that it wasn’t enough. Gilead had $26.2 billion in cash, cash equivalents, and marketable securities. The 10 percent increase gave a current dividend yield of 2.6 percent, which could be worse, but wasn’t getting anybody excited.
“Imagine what might have happened if Gilead’s board had jacked up the dividend enough that the yield was 4 percent or more,” Speights writes. “It could have easily afforded to do so. It’s quite possible (if not probable) that dividend-seeking investors would have flocked to the biotech’s stock for the rest of the year. Instead, Gilead’s share price has fallen 30 percent in 2016, with shareholders experiencing malaise with a stock that was once exciting.”
2. Too slow to launch educational programs.
Gilead has an interesting and fairly unusual problem. It’s Harvoni and Sovaldi to treat hepatitis C (HCV) is so effective, that it’s essentially a cure. So its success is diminishing its market. It’s been noted, however, that most of the people on the drugs are the sickest patients. So in late 2015, the company noted that it really should make plans to identify patients with HCV who hadn’t been diagnosed yet. And the company knew that Merck was going to be launching a competitive drug, Zepatier, in early 2016.
But Gilead didn’t get going on this until the third quarter, with educational campaigns in the US. and Japan, and TV ads that encouraged people to get tested for HCV. Why wait?
3. Failed to make acquisitions.
Speights notes that #1 and #2 are small potatoes compared to #3. “At least the biotech did something, even if it was perhaps too little or too late to make a big difference this year. However, the biggest knock against Gilead isn’t nit-picking: The biotech still hasn’t made a significant acquisition to give investors confidence about the future.”
That’s been something of an issue across the industry, with a few exceptions. Biotech companies are relatively cheap this year, but it’s possible that companies have been hesitant to make acquisitions because of the fallout from the U.S. Treasury Department’s rules changes that scuttled the Pfizer -Allergan deal, or uncertainty driven by this year’s contentious presidential election.
Gilead acquired Nimbus Therapeutics earlier in the year, but, as Speights writes, “the deal wasn’t big enough to move the needle much. What Gilead really, really needs to do is buy a biotech that can rejuvenate its pipeline and sales growth.”
Speights, like many, thinks Gilead should buy Incyte. “I wouldn’t be surprised if Gilead CEO John Milligan hears his wife, mother-in-law, barber, accountant, and plumber tell him regularly that the company should buy Incyte Corporation ,” Speights writes. “And Incyte would definitely be a good fit. Jakafi and the smaller biotech’s pipeline would tie in nicely with Milligan’s stated preference to expand Gilead’s oncology portfolio.”
Despite these, Speights is generally optimistic about Gilead over the long term. He expects the company’s dividend to continue to improve, and that its educational programs for HCV testing will show results. And Speights is clearly not the only one urging Gilead to buy something, the sooner the better. Or, perhaps, someone might buy Gilead. Pfizer has been floated as a potential buyer. And so has Merck (MRK). Maybe 2017 will show some movement.