Good Essay On Finance

Investment Risk: Gilead Sciences Inc.

Threat to revenue figures amid possible increase in competitive forces
The major portion of revenue of the company is sourced from antiviral HIV drugs, namely Truvada and Tamiflu that are on patent protection till 2021. The company, at present, does not face any competition, however, as generic alternatives are produced, the revenue figures from Truvada and Tamiflu will be affected significantly, which will result in a considerable decline in the sales revenue of the company.

High exposure to exchange rate risk:

Company’s drugs are heavily marketed in Asia and Europe with international sales accounting for more than 50% of the total revenue figures of the company. Thus, the company is largely exposed to exchange rate risk and any depreciation in US dollar can significantly affect the profitability of the company.

Increased expenses on clinical trials:

The company relies on third-party contract researchers to conduct clinical trials for its drugs. Thus, this leaves the company unable to control the expenses on the clinical trials. In such situation, the company can negatively affected by delay in new drug development and increasing costs of the clinical trials.

Price risk

The two leading markets of the company, US and Europe have high health costs but suffer from low consumer budget. Thus, the company might face pressure to reduce the price for its drugs in these markets. This will yet again affect the profitability of the company.

PE ratio:

Referring to the past two year financial year trend, the PE ratio of the company has reduced from 41.3 in 2013 to 16.8 in 2014. This indicates that the investor now expects lower growth in the future earnings of the company.

Works Cited

Gilead Sciences. n.d. 21 February 2015 <http://www.wikinvest.com/stock/Gilead_Sciences_%28GILD%29>.
Valuation-Gilead Sciences. n.d. 21 February 2015 <http://financials.morningstar.com/valuation/price-ratio.html?t=GILD®ion=usa&culture=en-US>.