Gilead Sciences Analysis Project The Company Analysis project is designed to give you a chance to practically apply the material covered during the course in a “real-world” scenario as well as to...

Industry Overview
The pharmaceutical company discovers, produces, manufacturers, and markets medicines or pharmaceutical drugs for use as narcotics to be prescribed to patients in order to treat, immunise, or relieve symptoms. Pharmaceutical corporations can offer both generic and brand-name medications as well as medical equipment. The United States dominates the prescription industry and developments, both in terms of production and drug growth. Pricing for prescription drugs is a constant point of contention in the region. According to STAT, the country's prescribed drug expenditure is expected to reach US$600 billion by 2023, up from a record US$500 billion in 2019. Four of the top ten drug firms on Pharmaceutical Tech's list are situated in the United States: Johnson & Johnson (NYSE:JNJ) is ranked first, Pfizer (NYSE:PFE) is ranked second, Merck (NYSE:MRK) is ranked fifth, and AbbVie (NYSE:ABBV) is ranked eighth. In consideration of new medicinal drugs, the US Food and Drug Regime's (FDA) Centre for Drug Assessment and Testing authorized 59 novel pharmaceutical items in 2018. The majority of the medications were for rare illnesses, such as the first smallpox vaccine and the first treatment for hypophosphatemia. The regulatory authority has licenced the first cannabidiol-based drug. The FDA licenced 48 novel drugs in 2019, the second highest number in the last decade. A significant 42 percent of the permissions were for first-in-class medications, such as those for postpartum depression and bladder cancer. Fourty-four percent of the novel drug permits were for unusual conditions, such as tenosynovial giant cell tumour, a rare disorder characterised by non-cancerous tumours near joints. As of late 2020, 42 novel medicines had been authorised, namely one for the diagnosis of COVID-19, remdesivir. The United States is the global pioneer in pharmaceutical industry innovation and advancement (R&D), and R&D activities in the nation have risen dramatically since 1980, growing from US$2 billion in 1980 to US$64.3 billion in 2019. Likewise, there are approximately 106,000 licenced trials and 19,000 promoting clinical research in the world. More than 810,000 Americans are explicitly employed by US biopharmaceutical firms, and another 3.5 million Americans are partially employed. In 2014, the economic production of this sector was projected to be around US$1.2 trillion, rendering pharmaceutical manufacturing one of the most significant industries of the US market. The healthcare industry as a whole is predicted to account for 19.7 percent of the US gdp by 2026. A robust intellectual product mechanism that promotes creativity and the advancement of existing drugs means that the prescription industry is inclusive of public firms. According to an International Trade Administration survey, the United States generates the bulk of foreign venture fund assets in start-up biopharmaceutical companies (ITA, 2021) (INN, 2020)
About Company
Gilead Sciences, Inc. is a biopharmaceutical company based in Foster City, California that specialises on discovering and producing antiviral medicines for the diagnosis of HIV, hepatitis B, hepatitis C, and influenza, such as Harvoni and Sovaldi. Gilead is devoted to the production of experimental medications for life-threatening diseases. As the organisation completes this goal, work for positive social and environmental change within the enterprise and the supply chain. An organization's Corporate Social Responsibility (CSR) programme is intended to focus on patients, society, the environment, and our business practises. Gilead's management strategy is meant to build a long-term future that represents the company's reputation and dedication to excellence. Internal and external partners collaborate year after year to assess the feasibility of the managerial strategy. They recognise strengths and prospects that serve as guideposts as the organisation strives for new advancements and considers what comes next (Gilead sciences, 2021)
Gilead is obsessed with accomplishing the impossible. For over 30 years, Company has pursued the impossible, chasing it down, tackling it for answers, and encircling it in search of a way in. The organization has invested tirelessly to get treatments for life-threatening diseases to market. Company is developing opportunities by bold and innovative science that have the capacity to create the next wave of life-changing medicines. The mission reflects the company's determination. That the unthinkable is not unachievable. That is what comes next. The vision is to make the planet a healthier place for everyone. The goal of the organisation is to find, create, and produce new therapeutics for people suffering from life-threatening diseases. Integrity is one of the company's core standards which includes doing the right thing, Inclusion: Promoting Diversity, Teamwork: Collaborating, Excellence: Being the Best, Accountability: Take Personal Responsibility.
Gilead serves in a number of cultures around the globe The organization believes the effect would be optimistic, empowering, and long-lasting. The company's mission is to support programmes that reduce the effects of climate shift and reduce the use of natural resources. The company intends to expand its use of clean energies and recycling activities, reduce its exposure to greenhouse gas (GHG) emissions, and strengthen its chemistry practises. Sustainability is integral to how the organisation works to make it happen for people, investors, and communities all around the planet. To achieve its pledge to sustainability, Gilead has partnered forces with the world's top businesses to reduce GHG emissions Climate shift poses a significant danger to public health and the environment around the world. Gilead is dedicated to minimizing the consequences by improving sustainable policies such as recycling and waste control. This involves meeting the target goal of reducing global Scope 1 and 2 GHG emissions by 25% by 2025 as opposed to our 2016 emissions (GILD, 2021) Gilead and Novo Nordisk recently expanded their Nash therapeutic partnership (GILD, 2021) Gilead Sciences and Merck have announced a deal to collaborate on the development and commercialization of long-acting, investigational treatment combinations of lenacapavir and islatravir in HIV (GILD, 2021)
Price Performance
Financial Statement and Ratio Analysis
Financial statements are structured accounts of a corporations. Key accounting details is provided in a formal and easy-to-understand way. Gilead science financial statement states about the company’s current health condition. Financial reports are formal documents that reflect a company's corporate practises and financial reports. According to Gilead Science's financial report 2020, Balance sheet states that the firm has net assets of $68 billion, total liabilities of $50 billion, and total equity of 18 billion. Approx. 5 billion of Fixed assets, company has long term asset of 52 billion which depicted the strength of the company as company has the high value of the assets. Business has a long-term debt of 33 billion, which is lower than assets, and is actually a statement of resilience since company has more assets than debt, if anything negative happens, the company will pay down the debt from its assets. The company's retained profits are still very high in 2020, suggesting that the company has spent more money in the busines for expansion. Company income statement states that company net income declined to 1.23 billion in 2020, due to pandemic. Cash flow statement of the company depicted declined in the net cash.
According to Ratio research, the company's current ratio in 2020 was 1.40 and its quick ratio was 1.26, all of which has been about 50% lower than the previous year. The company's asset turnover ratio averaged 0.36, which was very poor. In comparison, the company's fixed turnover ratio averaged at 7, which was quite healthy. Debt to asset ratio was 60 percent states that company has more assets than debt. The times interest earned (TIE) ratio assesses a company's ability to satisfy its debt commitments dependent on existing earnings. Times’s interest earned was 4 times which states that company can pay of its interest four time. Operating margin of the company has declined in contrast with previous year, but margin has increased at an average of 37 percent. Profit margin has declined by 97 percent in contrast with previous year. Company has basic earning power of approx. 6 percent which was decreased by 1 percent in comparison with previous year. In contrast to the previous year, the firm had a low return on equity and a poor return on revenue. However, the firm has a return on investment of approximately 10% (average of 5 years) and a return on equity of 28.42 percent (average of 5 years), demonstrating the company’s efficiency. The share's book value was $18.59. The Market to Book ratio is a financial accounting statistic that measures a corporation's current market value to its book value. The market to book share ratio was 3.5 which seems good.
Comparison with Competitors
Main rivalry of the Gilead sciences are Novo Nordisk and Novartis.
Net income trend
The chart above depicts the net income pattern of the competitors; Novo Nordisk has had very consistent returns over its history. Novartis net income has declined. Gilead's net profits have fallen significantly in 2020, reflecting the company's poor performance.
Revenue Trend
As we can see, Novartis' sales pattern was much superior to that of the other participant. Novartis has generated consistent sales while sales of Novo Nordisk have stable number. AS per the Revenue trend, Gilead sciences sales were consistently declining from 2016 to 2018 whereas now it is following upward trend.
Current Ratio
    Current Ratio: Current Asset: Current Liabilities
    Year
    2020
    2019
    2018
    2017
    2016
    Gilead Sciences
    1.40
    3.10
    3.38
    2.74
    2.12
    Novo Nordisk
    0.94
    1.06
    1.09
    1.28
    1.26
    Novartis
    0.90
    1.04
    1.20
    1.21
    1.12
From the above table, we can conclude that Gilead Sciences has good current ratio among the rivalry which suggest companies has ability to meet its short-term obligations. Whereas, Novartis and Novo Nordisk has stable current ratio which was equal to approx. 1.
Debt to Asset Ratio
    Current Ratio: Current Asset: Current Liabilities
    Year
    2020
    2019
    2018
    2017
    2016
    Gilead Sciences
    0.66
    0.53
    0.56
    0.61
    0.63
    Novo Nordisk
    0.02
    0.024
    00
    00
    00
    Novartis
    0.20
    0.17
    0.15
    0.17
    0.14
From the above table, we can conclude that Gilead debt ratio was considerably high among the rivalry. Whereas, Novartis and Novo Nordisk has minimal debt to asset ratio.
Conclusion
Above report presents a comparative analysis on the financial performance of three companies – Gilead Sciences, Novo Nordisk and Novartis for a period of five years. Both the company have been incorporated in the same year in USA and has been direct competition to each other in Bio pharmaceutical sector. In the above analysis, it was observed that Novartis has a higher stock price and better market capitalisation than other competitors. However, in terms of comparative analysis, Novartis outperformed as net income and revenue trend of the company has delivered good performance over the last five years.
Cost of Debt
The company's creditworthiness tends to be strong, as it has less leverage and more cash, suggesting company resilience. The cost of lending is the interest rate that a business spends for its debt, which includes shares and loans. The cost of debt is one component of a company's financial framework; the other component is the cost of equity. The total interest charged on all of a corporation's loans is used to calculate the cost of debt. Gilead sciences has weight percent of approx. 32 percent, which includes long and short-term debt of the company. Tax rate of the company was 95 percent which we have computed from the annual report (divide interest expense by interest before tax) Cost of debt of the company was 3.44% (Interest expense divide by long and short-term borrowing)
Cost of Common equity
The cost of equity is the yield expected by a business to assess if an investment satisfies capital return criteria. The cost of equity of a company reflects the market's appetite for compensation in return for purchasing the asset and carrying the burden of possession. The Capital Asset Pricing Model (CAPM) explains the connection among systematic risk and expected yield on investment, primarily stocks. CAPM is commonly utilized in finance to price speculative securities and generate potential returns on investments considering their probability and cost of capital. For CAPM model, we have taken 10-year bond which was 1.73 percent, Market risk premium was 6%, beta of the stock we have calculated was 3.97% which suggest less volatility, Cost of equity was 1.97%. Beta of competitors, Nova Nordisk beta was 0.29 while Novartis beta was 0.48 which suggest low volatility of the rivalry. Similar to beta of Gilead Sciences which was 0.397.
Gilead sciences provides dividend in quarterly.Yearly, the company's dividend payout ratio was whopping 2720 percent, while Nova Nordisk's dividend payout ratio was 21 percent and Novartis's Payout ratio was 86 percent. Gilead Sciences' dividend payout has increased dramatically over the last five years, as an improvement in dividend payment represents more benefit received by the firm over the year. However, in some cases, a business may pay a lower dividend because they have invested capital for expansion and development into the business.
Cost of Preferred stocks: Company has no preferred stocks.
Capital Structure
Gilead Sciences capital structure has changed over 5 years as percentage of debt and equity used to finance operation and growth. Profitability and expenditure decisions, we believe, are the most common considerations influencing capital structure. We discovered that during the recession, firms lowered profitability, spending, and debt levels. Company has modified capital structure for the expansion and growth perspective.
WACC Weighted Average Cost of Capital
The weighted average...