The Bay Area Biotech That Generates Billions in Cash Flow Every Year (So Far)

The Bay Area Biotech That Generates Billions in Cash Flow Every Year (So Far) May 9, 2017
By Mark Terry, BioSpace.com Breaking News Staff

Although Gilead Sciences ’s hepatitis C (HCV) franchise is taking a battering, the Bay Area biotech company has something that many biotechs would be envious of—strong cash flow. Sean Williams, writing for The Motley Fool, examines why Gilead’s cash flow can make up for some shortfalls.

Although it has been noted repeatedly that Gilead’s HCV franchise is faltering, another reality is that it’s still the dominant player in hepatitis C. The company’s drugs for HCV are so effective they’re essentially curing the disease. And although there is increasing competition from generics and other products, Gilead isn’t done innovating there, with a probable launch of a SOF/VEL/VOX combo, now awaiting regulatory approval.

In 2015, Gilead generated $20 billion in HCV sales. In 2017, it’s projecting $7.5 billion to $9 billion. Williams notes that the margin here is still very good and the company’s Harvoni is still considered the best drug on the market.

“Also,” he writes, “it’s important to realize that even though Gilead has hit the low-hanging fruit in terms of treating the sickest HCV patients in the U.S., there’s a very large patient pool still left to be treated. The World Health Organization estimated there are 180 million people infected with HCV worldwide, and a couple of million have been treated thus far. While the margins may not be as robust outside the U.S., Gilead still has a long treatment runway for its HCV medicines.”

In addition, Gilead’s HIV portfolio is not only dominant, but continuing to grow.

So, in terms of cash, Gilead had $15.9 billion in free cash flow in 2016, with a total cash flow of almost $48 billion in the last three years. Despite slowing HCV revenue, Gilead is still likely to bring in $10 billion-plus in annual free cash flow.

Investors and analysts, of course, want Gilead to use that cash to acquire something—sooner than later. Williams writes, “Gilead has thus far been patient, but it’s made no qualms about looking to supplement its infectious disease portfolio with inorganic growth. The last time Gilead made a large acquisition, it acquired Pharmasset for $11 billion in 2011 and set the foundation for its dominant HCV product portfolio. Not to mention, this cash flow is responsible for Gilead’s superior 2.8 percent dividend yield.”

One area the company might acquire in is oncology. This premise was bolstered when it brought on Alessandro Riva, formerly head of global oncology for Novartis . Riva came aboard as senior vice president, Hematology and Oncology Therapeutic Area Head. Many investors and analysts viewed this as an indication Gilead was going to accelerate its merger-and-acquisition activity. Of course, just about everything Gilead does makes investors discuss potential M&A for the company.

During the recent quarterly conference call, company chief executive officer John Milligan said, “We focused our efforts. I’ll return to what you asked last, which is we really focus our efforts in broadening our team, adding some depth, both scientifically and with business development experience so that we, in fact, have much, much greater capacity to assess things and, in fact, fully engage with our teams assessing a number of different opportunities, which we think could play out over the coming year as we start to make progress in getting partnerships and potential acquisitions together.”

That’s a roundabout way of saying, be patient, we’ll buy something when we’re ready, but it does hint that the company feels at least some urgency to use some of that cash to buy something.

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