Biotech's Awkward Middle Child

Well, folks, I've been trading biotech stocks since before most of today's analysts had their first internships.

After countless dinners with pharma execs and more investor conferences than I care to remember, there's one thing I've learned about this sector – these stocks are a lot like the experimental drugs themselves: sometimes miraculous, sometimes disappointing, and always requiring patience.

That brings us to Gilead Sciences (GILD), which has recently pulled off the financial equivalent of finding a $100 bill in an old jacket: a 90% gain since May 2024.

If you're an income-focused investor eyeing GILD's promising yield like a prospector spotting gold, I'd suggest taking a breath before you stake your claim.

After diving into this company's financial innards with the ruthless precision of a veteran hedge fund manager, I've uncovered some fascinating contradictions.

First off, GILD has undergone a remarkable transformation, shedding its growth-focused biotech skin to become what I call a "mature dividend machine" – offering 9 consecutive years of dividend increases since 2015.

Its current annual dividend of $3.16 per share yields 2.99%, significantly outpacing the biotechnology sector average of 1.92%. Not too bad for a company that cut its teeth on groundbreaking HIV and COVID treatments.

But here's where things get interesting. Despite GILD's revenue looking as seasonal as a summer blockbuster (with predictably lower earnings in the first half of each year), the company's fundamentals show troubling signs beneath the surface.

While Q1 2025 revenue was expected to land around $6.77 billion, the company's economic profitability has fallen off a cliff since 2024. Blame it on negative net income in early 2024 and a Cash Tax Rate that jumped from 25.4% to 30.6% faster than a trader fleeing a market crash.

The historical performance tells an even more sobering tale. From IPO to 2015, GILD delivered average annual returns of 32.25% in 79% of years – performance that would make even the most jaded investor whistle.

But since 2015? The stock managed profits in only 50% of years with an anemic average return of 0.99%, which translates to a 2.17% loss when adjusted for inflation. Ouch.

You might say that the entire sector's going through a rough patch these days, and I would have agreed with you except there are several biotechs still performing well.

Take Vertex Pharmaceuticals (VRTX). Those guys are up 36.7% over the past 52 weeks.

Or consider Amgen (AMGN), whose dividend is growing at a mouth-watering 8.94% annually over five years – nearly triple what GILD is serving up to its shareholders.

Even BioMarin (BMRN), a company most retail investors couldn't pick out of a lineup, has been quietly crushing it with 27.3% revenue growth while GILD's top line moves sideways like a crab with performance anxiety.

And don't get me started on Bristol Myers Squibb (BMY). Despite facing their own patent cliff dramas, they're maintaining a forward P/E of just 7.2 – practically giving away shares – while offering a dividend yield of 4.7%.

So, let me tell you something the glossy investor presentations won't: GILD's forward P/E ratio of 13.35x looks attractively cheap compared to the healthcare sector's 20.13x and the S&P 500's 18.60x.

After having had drinks with several institutional investment managers last week, though, I can assure you that discount exists for a reason.

The smart money has correctly identified that this company is no longer growing profitably, and certain whispers about their pipeline aren't inspiring confidence.

For dividend investors hoping to beat inflation while preserving capital, GILD presents a mixed bag. The dividend growth continues but remains stubbornly below inflation, creating a slow leak in real returns.

And, look, I know the Trump White House isn't exactly making life easy for companies like Gilead. Over whiskey last month with a former FDA bigwig (who shall remain nameless), I heard some concerning murmurs about potential cuts to HIV prevention programs.

Bad news when you're sitting on 40% of the U.S. PrEP market like GILD is.

Bottom line? I'm sticking with "hold" for now. The smart money moves when the smart money knows, and my Rolodex isn't flashing buy signals yet.

I've watched enough biotech darlings flame out to know that patience outperforms panic every time.

When GILD shows signs of recapturing that pre-2014 magic, you'll hear it from me before the CNBC talking heads catch wind of it.