Fermion's Biotech Investing (All Welcome)

[RobLJ]

I sold 3/4 of gains in Fidelity Select Biotech from mid 2014 to 2015, but will start slowly buying back chunks now and in 2017. I suspect the sector is now showing notable comparative value, although it may take a year or two to stabilize.

 

[Fermion]

Had to sell all of my Gilead the past few days for tax reasons, except for 500 shares in a IRA. It is down some $2 a share from where I sold and extremely hard not to buy back

Biotech in general is really taking on the chin for an industry that is supposedly just awash in money and profit. Especially compared to the rest of the stock market profit and earnings.

 

[Fermion]

Of course biotech and Gilead are up huge. Figures. I should have bought IBB at $265 when I sold my Gilead.

 

[aja8888]

Of course biotech and Gilead are up huge. Figures. I should have bought IBB at $265 when I sold my Gilead.

Yes, that timing stuff is tricky, for sure. I'm still holding Gilead shares (300 of them) that I bought near $90. I am in no rush to sell, and maybe with their 10 or so drugs slated for approval within the next year or so, the stock will pop much higher. Since those shares are in my IRA, I have not had the ability to sell any for tax purposes.

 

[catotx]

I have my biotech investments in XBI and BBH. I noticed a relatively new/small ETF -- ALPS Medical Breakthroughs ETF (SBIO). Anyone put their money in it?

 

[RobLJ]

I'm just holding my GILD shares and not paying much attention to the daily price. At some point over the next 2-4 years the PE will come up despite declining HepC revenues.
I'm thinking of slowly putting cash into FBIOX, which I've had for years and sold gains in 2014 and 2015. I also have a slightly larger position in FSPHX, but I generally don't try to take gains from it like I do FBIOX when it takes a rocket trip.

Yes, that timing stuff is tricky, for sure. I'm still holding Gilead shares (300 of them) that I bought near $90. I am in no rush to sell, and maybe with their 10 or so drugs slated for approval within the next year or so, the stock will pop much higher. Since those shares are in my IRA, I have not had the ability to sell any for tax purposes.

 

[NW-Bound]

GILD and biotech ETFs like IBB and XBI have been treading water for the last 6 months. This sector has become a pariah by Wall St, but it looks like they are not going lower.

Short-term trading is tough, so I will just hold them for a while.

 

[check6]

EXAS

Some time ago I mentioned EXAS Exact Sciences, maker of Cologuard, DNA based colon cancer test. It has been moving upward the last few days but today it was up $2.88 or 19.07% on a preliminary 4th quarter result. CEO was on Fox's Business News with Maria B. this morning.

http://video.foxbusiness.com/v/5275444224001/?#sp=show-clips

 

[target2019]

Went for 50 shares of BMY Bristol-Myers Squibb.
It was on sale today, having dropped more than 10% on bad news about OPDIVO lung cancer drug trials.

 

[Running_Man]

Gillead after trading above it's 200 day moving average from the end of 2011 to mid 2015 the stock went from 18 to 105, since it has been below the 200 day moving average for 18 months. Currently the 200 day moving average is at 79.45 and the chart of Gillead looks like the downward slope of a big hill.

While I am not a very strict advocate of charting, the inability to get over the 200 day moving average for over a year indicates either Gillead is building a big base of support as sellers continue to control the story and they all need to get out, or else there simply is no buying interest as people in the know continue to sell their stock when Gillead rallies because there are not insiders giving good stories to their friends. I have no way of knowing but utilizing the 200 day moving average if you like Gillead for the long term is a good way to time your entry, wait for Gillead to break through and if it does it should be in a convincing manner with some good news.

If you are in and out of Gillead for short term moves then this would not apply to you but the steady decline must be kept in context of the nearly 20 billion Gillead has spent in the last two years buying the stock back to reduce shares by 155 million while their sales continue to decline. Now because of new issuance (probably to management for their compensation I am not actually bothering to do a full financial review) the actual cost of declining the shares by 155 million is $129 per share. These huge purchases have not even enabled Gillead to be able to crack over it's 200 day moving average but instead have enabled the stock to maintain a smooth decline as the past 18 months have gone by. Waiting for the stock to break over the 200 day moving average and stay there is a way to let you know that after a long decline the market sees better things for Gillead, in the meantime the smooth downtrend is just continuing

 

[Fermion]

Not really into charts but this year tax wash sale rules sure have saved me a ton of money on Gilead. I had to sell out in the mid $70s before the end of 2016 and cannot buy back until near the end of Jan. Gilead is getting really close to $69. Already I dodged a $8000 paper loss.

 

[wmc1000]

If GILD breaks under 70 I put in an order for 750 shares.

 

[Fermion]

It did go just under $70 briefly. I still have to wait about 5 days before I can buy and avoid wash sale problems from tax year 2016.

If they didn't have that silly Merck lawsuit ruling hanging over their head I would be wringing my hands that I couldn't buy here at $69.90 or whatever. I think there will be some negative reaction if they try to adjust the next earnings to account for the lawsuit money. A 2% to 5% drop from whatever it is before earnings.

 

[wmc1000]

Got my order filled at $69.94

 

[wildcat]

Following Biogen's planned spin off BioVeratiiv (BIVV)
Love spin offs
Had a nice return with Baxalta

 

[Fermion]

Amgen is up a pretty good bit today. Gilead reports next week.

My poor little Endocyte has dropped down to the $2.10 area. They still have about $3.30 in cash with no debt. If I were somehow able to take control I would fire everyone, issue $3 per share dividend and market the pipeline at a firesale for another $0.50 per share and walk away with enough money to buy Branson's Island.

I actually did a stock screen and found over 60 small biotechs that are trading below cash on hand, which does not give a lot of support to the argument that drugs are overpriced. One biotech was trading at a 44 million dollar market cap with $125 million cash on hand and no debt. Wha

 

[Running_Man]

Well Gillead reported earnings and it is a disaster, 2016 sees sales decline 7 percent but the 4th quarter that accelerated to 14.1 percent and they forecast 2017 sales declining by an additional 22 percent. The company spent 11 billion dollars in 2016 in buying back it’s own stock. This is out of earnings (GAAP, please do not believe in “adjusted earnings”) for the year of 13 billion, add in the 2.4 billion for dividends and there was no earnings left over to grow the business. The 6 billion in additional cash “generated” all came from an addition of 6 billion in long term liabilities that now have a declining sales and earnings base to support them.

At a PE of 6.6 as of now based on current GAAP earnings, but with 2017 likely to show a large decrease in earnings, what a proper PE is for a company with double digit decline in sales and earnings should be is hard to calculate and so the company stock is being disposed of by many investors. I would continue to wait for the 200 day moving average to be crossed showing an expectation of improvement for the future before initiating a long term investment in GILD.

The company is touting it’s “massive” investment of 1.2 billion in R&D. See the spending of 11 billion in one year (19 billion in the last two years) to buy stock that drops 50 percent is not an expense and never hits earnings but it totally wastes the balance sheet, while one billion spent on R&D, just 10 percent of earnings is a “massive” investment that hits the expense line. The 8.5 billion in market value that evaporated from the last two years purchases? It is just gone with nothing to show for it. A dollar in the hands of poor managers is not necessarily worth a dollar. What a missed opportunity the management of this company has done over the past year listening to financial engineers, while insiders sell their stock.
Gilead Sciences, Inc. (GILD) Insider Trading Activity (SEC Form 4) - NASDAQ.com

 

[Sunset]

Well Gillead reported earnings and it is a disaster, 2016 sees sales decline 7 percent but the 4th quarter that accelerated to 14.1 percent and they forecast 2017 sales declining by an additional 22 percent. The company spent 11 billion dollars in 2016 in buying back it’s own stock. This is out of earnings (GAAP, please do not believe in “adjusted earnings”) for the year of 13 billion, add in the 2.4 billion for dividends and there was no earnings left over to grow the business. The 6 billion in additional cash “generated” all came from an addition of 6 billion in long term liabilities that now have a declining sales and earnings base to support them.

At a PE of 6.6 as of now based on current GAAP earnings, but with 2017 likely to show a large decrease in earnings, what a proper PE is for a company with double digit decline in sales and earnings should be is hard to calculate and so the company stock is being disposed of by many investors. I would continue to wait for the 200 day moving average to be crossed showing an expectation of improvement for the future before initiating a long term investment in GILD.

The company is touting it’s “massive” investment of 1.2 billion in R&D. See the spending of 11 billion in one year (19 billion in the last two years) to buy stock that drops 50 percent is not an expense and never hits earnings but it totally wastes the balance sheet, while one billion spent on R&D, just 10 percent of earnings is a “massive” investment that hits the expense line. The 8.5 billion in market value that evaporated from the last two years purchases? It is just gone with nothing to show for it. A dollar in the hands of poor managers is not necessarily worth a dollar. What a missed opportunity the management of this company has done over the past year listening to financial engineers, while insiders sell their stock.
Gilead Sciences, Inc. (GILD) Insider Trading Activity (SEC Form 4) - NASDAQ.com

Nice explanation.
Just saved me from buying some, as to me it looks like they bought back the stock to prop up the price while they sold as much as they could without attracting attention and causing a race for the exits.

 

[NW-Bound]

The loss on GILD cancels out the gain I have on the broader biotech ETFs.

Better stick with more diversification next time.

PS. My loss on GILD works out to 0.17% of total portfolio. Too late to sell perhaps, so I will wait it out. Will I regret this?

 

[RobLJ]

Personally, I'm holding onto my shares of GILD (right now, I'm about 20% down) because, even factoring more earnings decline on HCV, its cash flow is still enormous. The sober earnings outlook from the earnings meeting has the market pricing disaster.
However, I won't buy anymore at this point either. I might consider a small position if I didn't already have a full position but probably would wait until the price decline levels off. Just my .2c.
CMI share price collapsed after I bought it about 18 months ago, and I'm now sitting on a 22% gain (knock on wood).

The loss on GILD cancels out the gain I have on the broader biotech ETFs.

Better stick with more diversification next time.

PS. My loss on GILD works out to 0.17% of total portfolio. Too late to sell perhaps, so I will wait it out. Will I regret this?

 

[NW-Bound]

I would not buy more either, but do not rule it out for the future. Patience pays.

 

[Running_Man]

I listened to Gillead’s management presentation of their 4th quarter earnings and walked away totally unimpressed with their business plan. Their Hepatitis drugs have 88% margins with average cost of treatment $84,000- $100,000. Which means the sales drop forecast mad by Gillead of 7-8 billion will mean a profit reduction of 6-7 billion dollars making the earnings I am guessing under GAAP for 2017 of $4.55 per share giving Gillead a forward PE of 14.6 for a company with declining earnings and sales. The declining sales and earnings are understandable because their business model is to make a drug that cures disease and charge the United States patients total treatment costs of nearly 2X the average annual salary of an average American while in India they charge $4 per pill versus the $1,000 in the United States, this business model cannot work over time.

Everywhere in the world Gillead is getting pushback on the price but management insists we cure the disease so it is worth it, the idea a company can charge what it wants or you can just die is not something a population will go along with once that motive is understood and the world has turned on Gillead on this issue.

I think Gillead senses this because they announced they will no longer buy back shares excepting to keep the share count the same as where it ended 2016 (read buy back executive stock awards to avoid dilution).

If there is a bull case to be made for Gillead it needs to be on new drugs and they will be hard pressed to replace the huge profits made by their Hepatitis treatments, and Gillead recognizes this I think as they said they are focusing cash on purchasing R&D (for non-GAAP lovers Gillead excludes purchased R&D from GAAP expense to determine adjusted earnings)

For some of the details on what Gillead excludes from their GAAP net income to arrive at adjusted earnings it is for 2016:

Executive Stock Compensation — $200 Million
Amortization of purchased R&D — $400 million
Impairment of purchased R&D — $432 million this is R&D bought that has limited commercial prospects
Collaboration Expenses — $373 Million Brainstorming is expensive but Gillead’s take is this benefits the future and so isn’t a current expense
Gillead did include in earnings $332 million in reversals for Rebates on HIV products in the 4th quarter, so that was a increase that will not recur.

Also there are no accruals on the books for the Merck case of $2.5 Billion that they lost as Gillead is confident they will win on appeal. I don’t understand that as a ruling made Merck’s patent as valid so this will be for an appeals court to decide, Merck has not had the best of luck there in the past Gillead hoping that trend continues.

To me on a very loose basis since the pricing of their star products is so uncertain you are looking at fair value around 45-55 for their earnings and even that holds a risk of losing too much management if the wheels fall off the Hepatitis gravy train. The main hope for an uptick is productive use of the remaining cash they hold and new products to be discovered, but they need an entire range of products to be successful.

 

[Running_Man]

Personally, I'm holding onto my shares of GILD (right now, I'm about 20% down) because, even factoring more earnings decline on HCV, its cash flow is still enormous. The sober earnings outlook from the earnings meeting has the market pricing disaster.
However, I won't buy anymore at this point either. I might consider a small position if I didn't already have a full position but probably would wait until the price decline levels off. Just my .2c.
CMI share price collapsed after I bought it about 18 months ago, and I'm now sitting on a 22% gain (knock on wood).

If one is trying to buy a company that is dropping rapidly in price waiting for the price to climb back over the 200 day moving average typically will put you in when management is feeling better about things and the companies fortunes have improved, and avoiding those situations where the stock never improves. In CMI that would have meant waiting and missing the bottom of 86 but buying about 10 months ago on April 1st at 110 with a 10 month gain of 32 percent.

I like to make sure I avoid large losses and this one rule protects me from the largest losses that occur on bottom fishing. I also miss the heroic recoveries as well but my goal is to beat inflation by 3 percent per year not to be a heroic stock picker. This does not mean every stock that crosses above it’s 200 day moving average is a buy, I use it to keep me from purchasing a stock I like that is declining.

 

[Fermion]

I bought back in on Gilead today 1000 shares in the $66 area (I think it was $66.04).

It is a coin toss here if it will slide more or rebound a little bit but the HIV portfolio alone supports a $66 price compared to most other biotech. A win on NASH or their cancer research and we are back to the $80s.

Merck thing is pesky. Merck is acting like a patent troll and I don't think they will end up winning in appeal but the lawyers will always win.

 

[Running_Man]

I wonder Fermion how you are getting your valuation on the non-hepatitis side of the business. Sales of 14.8 billion hepatitis products provided 12 billion of the 16.7 billion operating cash flow. In the conference call Gillead stated they expected all other non-hepatitis sales to grow in the low single digits to flat area. So that part of the business is generating around 5 billion of operating cash flow or $3.73 per share, to value that at 66 is 17.5 times cash flow, if you assign $23 per share for the 32 billion in cash that leaves $43 a share with $3.73 in cash flow, 11.5 times and about a dollar a share in earnings for a PE of 66. I think ex-hepatitis you are closer to a $35-40 valuation and that will require some good use of that cash to grow the price.

Management was very much challenged and stuttering on the call as analysts were all asking why Gillead is not looking into breaking the company up into pieces. They seemed shell shocked and only slightly better than Valeant’s management on the infamous December 2015 call with analysts. We will see will be an interesting year for Gillead.