05/2017 KIPLINGER’S PERSONAL FINANCE 61explosive sales growth in the first few
years following the introduction of
Sovaldi in 2013 and Harvoni a year later.
But what’s good for patients has not
been good for shareholders. There
aren’t enough new hepatitis sufferers
to take the place of those who’ve been
cured. The reason? Hepatitis C is a vi-
rus that was typically spread in hospi-
tals through blood transfusions and
organ transplants and often went unde-
tected for decades. Blood banks started
screening for this silent killer, as well
as for HIV, in the 1990s, dramatically
cutting the chance of contracting the
diseases via medical procedures. Thus,
although more than 3 million people are
believed to have hepatitis C, fewer new
cases are being reported. As a result,
Gilead’s sales, which topped $32 billion
in 2015 ($19 billion from Harvoni and
Sovaldi), sank to $30 billion in 2016 and
could fall to $22 billion this year.
But I’m not giving up. Based on
Gilead’s own forecasts, I reckon that,
at worst, the firm will earn $5.90 a
share in 2017, down from $9.94 in 2016.
At today’s price, the shares trade at just
12 times that figure (compared with a
price-earnings ratio of 18 for the overall
stock market). Earnings easily support
the $2.08 per share annual dividend,
which gives the stock a generous 3.0%
yield. Gilead also has a strong balance
sheet, with $32 billion in cash and securities that officials
say is earmarked for acquisitions. If Gilead fails to come up
with new blockbusters—either by buying them or by creat-
ing them in its own labs—sales and profits could fall further
in 2018. But the stock is so cheap, I’d still be tempted to buy.
As for the second question—what to do with the pro-
ceeds if I sell Gilead—I already have $51,000 sitting in cash
in the Practical Portfolio because I’m having trouble find-
ing well-priced stocks. Until I find something better, I’m
holding on to my battered Gilead shares. ■LISE METZGER
KATHY KRISTOF Practical InvestingCan This Fallen Biotech Be Revived?
W
hen I picked up 150 shares of
GILEAD SCIENCES (SYMBOL GILD) a
little over a year ago, investors
were slamming the stock because of
concerns about increased competition
in the hepatitis-drug market and a de-
cline in the number of patients needing
such medications. I figured that the
stock was cheap, already ref lected all
of the bad news and was due for a recov-
ery. I couldn’t have been more wrong.
I wasn’t alone. Bullish analysts had
drastically underestimated the depth
and speed of the sales slump, and Gil-
ead continued to fall steadily after I in-
vested. It closed at $70 on February 28,
down 22% from my purchase price of
$90.81 and off a whopping 43% from
the record high of $123, set in June 2015.
Because I was getting ready to do my
taxes, I started to think that I should
dump the stock and claim the loss next
year when I file my 2017 return. But
just as I was about to sign in to my bro-
kerage account, my phone rang. Then
the dogs started pleading to be walked.
I began contemplating a new dance
class my gym was offering. When it
comes to my investments, procrastina-
tion may be what I do best.
And that might be a good thing.
A few days later, Gilead’s stock had
bounced off its recent low, and I was
having second thoughts about selling.
My decision hinged on the answers to two questions:
At the current price, would I invest in Gilead today? And
if I did sell, what would I do with the proceeds?The hepatitis problem. To answer the first question, let’s
take a look at Gilead’s business. The biotechnology giant
makes drugs to treat hepatitis, HIV, cancer and other ill-
nesses. Two drugs that treat hepatitis C—Sovaldi and Har-
voni—have accounted for the bulk of Gilead’s revenues in
recent years. But sales of those drugs plunged in 2016, and
Gilead said in February that the decline is likely to acceler-
ate in 2017. Why? The drugs actually cure hepatitis C with
relatively few side effects. That helps explain Gilead’sIf Gilead fails to
come up with new
blockbusters, sales
and profits could
fall even further.
But at today’s share
price, I’d still be
tempted to buy.
KATHY KRISTOF IS A CONTRIBUTING EDITOR TO KIPLINGER’S PERSONAL FINANCE AND
AUTHOR OF THE BOOK INVESTING 101. YOU CAN SEE HER PORTFOLIO AT KIPLINGER.COM/LINKS/
PRACTICALPORTFOLIO.