Unscrambling Monday's Egg

Unscrambling Gilead Sciences, Inc.

Running Gilead Sciences through the Chicks' Dozen.
by Chick Kristin

"Inspired by the Challenge... Dedicated to the Solution" is the slogan that dons Gilead Sciences, Inc.'s (Nasdaq: GILD) website. Doesn't that make you want to stand up, and fight the fight with them? OK, maybe not, but if you're looking for an investment opportunity in the biotech field, perhaps you can stretch your feathers, glide on over to the World Wide Web and see what's on the horizon for this recent biotech rising star -- Gilead.

1. Buy What You Know Have you ever had the flu? Know someone who suffers from AIDS? Or cancer? Not really upbeat topics you want to read about, but hey, it's what Gilead Sciences, Inc. does best -- accepts the challenge and finds a solution. Gilead primarily focuses its extensive research and development efforts on two key development areas - infectious diseases and oncology.

2. Keep it Simple Sister From 1996 through the present, Gilead has been developing and marketing products for the treatment of a wide range of viral diseases, including HIV, hepatitis B, and influenza. Simple enough, sistah? Gilead's number one product name, Ambisome, might not be familiar to you but if you have AIDS, it's very recognizable. Since our Chicks standard for "Keeping it Simple" is that even a fifth grader could understand it, I'm guessing most fifth graders have heard of AIDS. If not, they definitely have heard of the flu (if they haven't had it at least once a year). Tamiflu is Gilead's solution to the nasty bug as the product hit the market in 1999. They also are in Phase II Clinical Testing of an anti-cancer agent

3. Industry Biotechnology industry, Drugs sector. Unlike traditional drug companies who develop chemically-derived products, biotechnology companies use naturally occurring processes to find answers to today's healthcare challenges. And with the human genome mapping -- the twisted double strand of DNA that carries the instructions for making every cell in the human body -- the drug-making process will thrive and turn development upside down. Now scientists can design drugs, mapping molecules that can hone in on infectious diseases like pigeons on new cars.

As to whether or not this industry will grow faster than others, time will only tell. In the wild market ride of late, they have held their own, but have slowed significantly, as has the whole market. Many of bio-tech's biggest cheerleaders believe it is "the industry" of the new millennium.

4. Leader in its Field This is a tough call. Each competitor makes drugs, if you will, but they are used for different maladies. If you were to base "the leader" on market cap alone, Amgen (AMGN) is the leader. Matter of fact, looking at the competition, Gilead has the smallest market cap of the bio-tech companies. But, you also have to look at what each company specializes in, what their "cause" is, and then you make the call. Is GILD the leader in solutions for the AIDS virus? Are they the leader in the answer to the flu? They lead in their small niche.

5. Repeat Profitability I really hate writing about this stuff, but unfortunately nearly 67,000 new cases of HIV are reported each year in the US, and worldwide more than 350 million people carry the Hepatitis B infection. Cancer is the second leading cause of death in the US. As long as we continue to age, and face disease, there will be a need for companies of the like of Gilead.

NOTE: Figures for the following equations were found at Marketguide.comusing the financials for the quarter ending 12/31/00. All figures are in millions.

6. Gross Margins

Revenue - Cost of Revenue / Revenue

(55.3 - 7.5) / 55.3 = 86.44%

Gross Margins are in line with Chicks' criterion of at least 50%.

7. Net Margins

Net Income / Revenue

(29.3) / 55.3 = -52.98%

See that negative number? OK, the number in parentheses -- well, that's a net loss, my feathered friends. If you look at their Income Statement, it appears Gilead spent beaucoup bucks on research and development and general expenses, and unfortunately more than they earned for the quarter. If you look at the quarters leading up to this past one, they are spending more and more. Hopefully soon some of their researched products will hit the market and this number will head in the positive direction.
  

8. Cash vs. Long Term Debt

Cash* / Long Term Debt

512.9 / 0 = No Debt

*Plus Marketable Securities

No Debt -- bonus for Gilead!

9. Flow Ratio

Current Assets - Cash* / Current Liabilities - Short Term Debt

(593.8 - 512.9) / 58.2 - 0 = 1.39

*Plus Marketable Securities

Hmmm, this is so close to the Chicks' desired 1.25 figure, that I'll let you be the judge. Nothing looks out of place on the Balance Sheet. In fact, Gilead decreased short and long-term investment planning and focused on increasing cash. It looks as if Gilead is still recovering from its 1999 merger with NeXstar.

10. Increasing Growth

(Sales Quarter 4) - (Sales Quarter 3) = X

X / (Sales Quarter 3) = Y

Y X 100 = %

55.3 - 45.1 = 10.2

10.2 / 45.1 = .2262

.2262 X 100 = 22.62%

11. Strong Management and Operating History Gilead's CEO, John C. Martin, Ph.D., appears to be a brilliant man, and an excellent interview. I watched him during my lunch workout yesterday -- he's a Prince Charles look alike who has been CEO since 1996. From 1984 to 1990 he was Director of Antiviral Chemistry at Bristol-Myers Squibb. He co-invented Ganciclovir, a pharmaceutical now marketed by Syntex for the treatment of cytomegalovirus (a member of the herpesvirus family) infection. He is currently President of the International Society for Antiviral Research. Not that I work with biotechnical leaders, but he seems to be awfully qualified to lead Gilead's fight!

12. Buy on Sale

52 wk High = $59.06

52 wk Low = $21.63

52 wk Avg. = $59.06 + 21.63 / 2 = $40.345

Current Price = $32.06

I hope you're not surprised -- it's on sale, along with nearly everything else lately. Can you say, long-term investor?!