I had pegged Gilead Sciences (NASDAQ:GILD) back in 2015. Harvoni and Sovaldi were absolute gold mines in the Hep C. market, but the company had a limited customer base, high pricing, and pending competition. I’ve been proven right through the past year and half as Gilead has been a one hit wonder. It’s Hepatitis C drugs have been a medical gold mine, but the company hasn’t really come up with a second act garnishing anywhere near the same amount of monetary value.

Since Hep C. is now curable, Gilead has faced a finite number of customers. The expense of the drugs, combined with competitive substitutes, are all diminishing the companies incomes from Hep C. As a result, 2016 broke the trend on revenue growth. The stock has become a solid dividend producer at 3%, but investors have lost 30% of their stock value in the past year. Thus the dividend hasn’t worked out too well.

A lot of traders are big on Gilead due to the very affordable valuation. With a P/E just under 7, I understand the sentiment; but in order for the play to pay off, Gilead needs a big change in direction. History is showing us a company quickly losing its luster.

It’s as if all the good news took a hit last year. On an annual basis:

-Gilead’s revenues declined 5.3% in 2016, while the cost of those goods sold actually increased.

-That 5.3% decrease in sales lead to a net income decline of 25%.

-Diluted earnings per share fell 16.5%.

-At the same time, long term debt grew 20% to over $26 billion.

The company also went through 36% of its cash position. These are all sobering stats for those who think Gilead Sciences is a sure bet. To be the next Pfizer (NYSE:PFE), it needs a new product, and quick. Many, including myself, had been hoping to see a smart acquisition. With the reduced cash, that could be a bit riskier to pull off while avoiding debt.

Q1’17 probably won’t be exciting

There haven’t been any big acquisitions. Competition for Hep C is still there, if not increasing. The currently paused (though still coming) debate on healthcare could be very damaging to Gilead’s lineup if Medicaid and Medicare get cut. When you consider the price of its treatments, insurance is huge. This continues to fuel my feelings that Gilead Sciences will have nothing but bad/mediocre news until they find a new move.

Outside of HCV, their other antiviral sales for things such as HIV have shown some promising growth. Sales were up 17% last year. The problem is HCV drug sales fell 22% canceling out the gains. Unfortunately even these drugs are in danger. Alterations to Medicaid, Medicare, or health insurance in general could affect the access that patients have to these drugs. The first quarter is a question of whether HIV sales can boost the losses in HCV. After that, it needs new products, or an acquisition to get new products. It’s so important for the long term that GILD venture past its current lineup.

Because we haven’t seen anything on this front yet, I have a feeling that the coming earnings results will not be anything to write home about. It would be foolish to buy into Gilead when absolutely nothing has changed. It’s a biopharmaceutical company that hit a home run, but hasn’t had a good inning since. Those teams typically don’t win games. It makes little sense to invest more into this stock until it showcases an ability to take revenues into the mid $30 billion’. Until then, its valuation is pretty spot on.

A wise investor would allow the first quarter to be a gauge of where Gilead stands right now. Beating estimates isn’t enough. 2017 guidance has been lowered so much that it wouldn’t be all that shocking. What would be shocking is a strong return to revenue growth. If it doesn’t have anything new to report in that regard, there are better plays out there. Heck, banks are having a great time. Bank of America (NYSE:BAC) just had some earnings results worth getting involved in. In a murky year for healthcare, a pharm co. with no new products isn’t what you need in your portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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