San Jose State University Spring 2012 Business 224C

Company Financial Statement Analysis Project

Preparers

Student Names Team : The Ice Dustin Hoang Pansy Le John Rowney

Title Page X

IS

BS X

SCF

Ratios X

Segments X

Soft Copy Reviewer Names/Initials: DH, PL, JR Hard copy binder printout reviewers Names/Initials: DH, PL, JR

Company Selection - Name : Gilead Sciences, Inc. Company Stock Symbol: GILD Fiscal Year End: 2010 Analyze latest published 10K and prior year. Note any exceptions below: Years analyzed: [2010] and [2009] Year 2 [2010]
$(000) Income Statement Data Horizontal Analysis Vertical Analysis

Year 1 [2009]
$(000)

Difference Difference / Yr 1 Yr 2-Yr1 % change % %

Total Sales/Revenue Total Gross Profit Net Income Balance Sheet Data Goodwill Total Assets Total Liabilities
Total Stockholders' Equity

7,949,420 3,962,222 2,889,749

7,011,383 3,529,221 2,625,592

938,037 433,001 264,157

13.4% 12.3% 10.1%

100.0% 49.8% 73.8%

100.0% 50.3% 74.4%

532,669 11,592,630 5,470,793 6,121,837 11,592,630

462,558

70,111

15.2% 19.5% 71.3% -5.9% 19.5% 100% 47.2% 52.8% 100% 100% 32.9% 67.1% 100%

9,698,559 1,894,071 3,193,401 2,277,392 6,505,158 -383,321 9,698,559 1,894,071

Total Liabilities + Stockholders' Equity

Title of Soft Copy Files: S12 Gilead Financial Statement Analysis.xls

1 Title Page

Gilead Sciences, Inc. Income Statement FYE Dec 31, Income Statement Analysis Format Product: Sales Cost of goods sold Gross Profit Other Revenues and expenses Other Revenues Other Expenses

2010 $(000)

Horizontal Analysis 2009 Difference % $(000) $(000)

Vertical Analysis Footnote % of assets % of assets Reference 2010 2009

7,389,921 6,469,311 1,869,876 1,595,558 5,520,045 4,873,753

920,610 274,318 646,292

14.2% 17.2% 13.3%

100.0% 25.3% 74.7%

100.0% 24.7% 75.3%

1 2 2

559,499 542,072 2,117,322 1,886,604

17,427 230,718

3.2% 12.2%

7.6% 28.7%

8.4% 29.2%

3 4

Total Sales Total Cost and expenses Total Gross Profit Margin

7,949,420 7,011,383 3,987,198 3,482,162 3,962,222 3,529,221

938,037 505,036 433,001 384,327 17,890 -39,339 411,592 147,435 264,157 1,345 0 -48,544

13.4% 14.5% 12.3% 10.9% 42.2% 56.5% 11.8% 16.8% 10.1% 13.2% 16.5% -5.4%

100.0% 50.2% 49.8% 100.0% 1.5% -2.8% 100.0% 26.2% 73.8% 0.3% n/a n/a

100.0% 49.7% 50.3% 100.0% 1.2% -2.0% 99.2% 24.8% 74.4% 0.3% n/a n/a

1,3 2,3,4 2

Income from operations 3,913,548 3,529,221 Interest and other income , net 60,287 42,397 Interest expense -108,961 -69,622 Income before provision for income taxes 3,913,548 3,501,956 provision for income taxes 1,023,799 876,364 Net income 2,889,749 2,625,592 net loss attributable to Gilead 11,508 10,163 Net income per share attributable to Gilead common stockholders- basic $3.39 $2.91 Shares used in per share calculation- basic 856,060 904,604

5 5 5

2 IS Hor (Vert) Analysis Format

Footnote Reference

Income Statement Analysis Comments Double digit sales increase of 14% is a good trend. This is "due primarily to an overall increase in [the] antiviral product sales driven by the strong growth of Atripla sales (6%) and the continued growth of Truvada sales (10%). The growth of [the] cardiovascular products Letairis and Ranexa, also contributed to the overall increase in product sales."(MD&A pg. 63) The cost of goods sold increased at a faster rate then sales, generally not a good trend. But the product gross margin of 75% was consistent with [the] product gross margin for 2009 (MD&A pg. 64). In addition, foreign currency exchange had an unfavorable impact of $93.7 million (MD&A pg. 62). The gross profit increased at a slower rate than sales this is due to a more rapid increase in cost of good sold, this is not a good trend. The other revenues consist primarily of royalty revenues. The "most significant source of royalty revenues was from the sales of Tamiflu by Roche" (MD&A pg. 64)." Other royalty revenues, which include royalties from GSK for Hespera, royalties from Astellas US LLC for Lexiscan and royalties from Japan Tobacco for Truvada contributed to the increase in total royalty revenues" (MD&A pg. 64). There were three main contributors to the other expenses: restructuring expenses, Research and Development expenses and Selling, General and Administrative expense. "During the second quarter of 2010, [it was] approved and communicated for a plan to close [the] research operations in Durham, North Carolina and consolidate [the] liver disease research activities in Foster City, California. Because of this plan expenses were made due to employee severance and facilities-related expenses (MD&A pg. 65). "R&D expenses consisted primarily of personnel costs, including salaries, benefits and stockbased compensation, clinical studies performed by contract research organizations, materials and supplies, licenses and fees, milestone payments under collaboration arrangements and overhead allocations consisting of various support and facilities-related costs (MD&A pg. 65). R&D expenses increased 14% from 2009 "due primarily to impairment charges of $136 million that [were] recorded related to IPR&D assets acquired from CV Therapeutics, $23.5 million of Clinical studies expenses... and $16.1 million of compensation and benefits expense. The majority of the impairment charges are related to [the] GS 9667 program, a product candidate that was in Phase 1 clinical studies for the treatment of diabetes and hypertriglycerdemia, which was terminated in the forth quarter of 2010 due to unfavorable results from the pharmacokinetics and pharmacodynamics tests that demonstrated limited effectiveness of the compound in patients" (MD&A pg. 65). The SG&A expense increased 10% which was "due primarily to increased compensation and benefits expenses of $36.3 million as a result of higher headcount to support [the] expanding commercial activities, increased contract and professional services expenses of $27.3 million driven primarily by [the] expanding sales and marketing activities and $18.1 million related to facilities and equipment expenses" (MD&A pg. 66). The increase in interest and other income, net was "due primarily to decreased costs related to our hedging activities" (MD&A pg. 66). The increase in interest expense was "due primarily to the issuance of [the] convertible senior notes for $2.46 billion, net of issuance costs" (MD&A pg. 66). "The 2010 effective tax rate of 26.2% differed from the U.S. federal statutory rate of 35% due primarily to tax credits and certain operating earnings from non- U.S. subsidiaries that are considered indefinitely invested outside the United States, partially offset by state taxes" (MD&A pg. 66). Net income increased due to a lower increase in expenses, this offsets the higher growth in cost of goods sold relative to the growth in sales.

3 IS Analysis Comments

Gilead Sciences, Inc. Balance Sheet Dec 31, Assets Cash and Cash equivalents Short term marketable securities Accounts receivable inventories Deferred tax assets Prepaid taxes Prepaid expenses other current assets Total Current Assets Property, plant and equipment Noncurrent portion of prepaid royalties Noncurrent deferred tax assets Long-term marketable securities Intangible assets other noncurrent assets Total Assets Liabilities Accounts Payable Accrued government rebates Accrued compensation and employee benefits Income taxes payable other accrued liabilities Deferred revenues Current portion of convertible senior notes, net and other long-term obligations Total Current Liabilities Long-term deferred revenues Convertible senior notes, net Long-term income taxes payable Other long-term obligations Total Liabilities Shareholder's Equity Common Stock Additional paid-in capital Accumulated other comprehensive income (loss) Retained Earnings

2010 $(000) 907,879 1,190,789 1,621,966 1,203,809 279,339 320,424 67,632 116,244 5,708,082 701,235 203,790 153,379 3,219,403 1,425,592 181,149 11,592,630

Horizontal Analysis 2009 Difference % $(000) $(000) 1,272,958 -365,079 384,017 806,772 1,389,534 232,432 1,051,771 152,038 295,080 -15,741 274,196 46,228 78,111 -10,479 66,891 49,353 4,812,558 895,524 699,970 1,265 226,250 -22,460 101,498 51,881 2,247,871 971,532 1,524,777 -99,185 85,635 95,514 9,698,559 1,894,071 -28.7% 210.1% 16.7% 14.5% -5.3% 16.9% -13.4% 73.8% 18.6% 0.2% -9.9% 51.1% 43.2% -6.5% 111.5% 19.5%

Vertical Analysis Footnote % of assets % of assets Reference 2010 2009 8% 10.3% 14.0% 10.4% 2.4% 2.8% 0.6% 1.0% 49.2% 6.0% 1.8% 1.3% 27.8% 12.3% 1.6% 100.0% 13.1% 4.0% 14.3% 10.8% 3.0% 2.8% 0.8% 0.7% 49.6% 7.2% 2.3% 1.0% 23.2% 15.7% 0.9% 100.0% 4 4 4 4

2 5

1, 4

803,025 325,018 147,632 1,862 437,893 103,175

810,544 248,660 132,481 167,623 384,015 122,721

-7,519 76,358 15,151 -165,761 53,878 -19,546

-0.9% 30.7% 11.4% -98.9% 14.0% -15.9%

6.9% 2.8% 1.3% 0.0% 3.8% 0.9% 5.6% 21.3% 0.3% 24.5% 0.9% 0.2% 47.2%

8.4% 2.6% 1.4% 1.7% 4.0% 1.3% 0.1% 19.3% 0.4% 11.9% 0.9% 0.4% 32.9% 3 2, 3 6 3, 6 6 3, 6 1

646,345 5,587 640,758 11468.7% 2,464,950 1,871,631 593,319 31.7% 32,844 43,026 -10,182 -23.7% 2,838,573 1,155,443 1,683,130 145.7% 107,025 87,383 19,642 22.5% 27,401 35,918 -8,517 -23.7% 5,470,793 3,193,401 2,277,392 71.3%

802 900 4,648,286 4,376,651 30,911 -5,758 1,183,730 1,995,272

-98 271,635 36,669 -811,542

-10.9% 6.2% -636.8% -40.7%

0.01% 40.1% 0.3% 10.2%

0.01% 45.1% -0.1% 20.6%

4 BS Hor (Vert) Analysis Format

Footnote Reference 1

Balance Sheet (BS) Analysis Comments The 19% asset increase was funded by a 71% increase in liabilities while equity decreased by 6%, a bad trend that decreases financial position. Investigation required. "Working capital was $3.24 billion at December 31, 2010, an increase of $302.2 million or 10% from working capital as of December 31, 2009. This increase was primarily attributable to an increase of $441.7 million in cash, cash equivalents, and short term marketable securities; an increase of $232.4 million in accounts receivable, net, primarily driven by increased product sales; and an increase of $152.0 million in inventories" (MD&A pg. 67, 68). Working capital increased because current assets increased more than current liabilities (49.2% vs. 21.3%). A trend of increasing working capital is a good trend.

Working capital "was partially offset by an increase $640.8 million in the current portion of convertible senior notes, net and other long-term obligations, due to the reclassification of 3 our convertible senior notes due in 2011 to current liabilities" (MD&A pg. 68) "Cash, cash equivalents and marketable securities increased by $1.41 billion during 2010, primarily by our operation cash flows of $2.83 billion and proceeds of $2.46 billion from the issuance of convertible senior notes, net of issuance costs, partially offset by repurchases of our common stock under our stock repurchase programs" (MD&A pg. 55). Working capital liquidity determines the quality of working capital. Unfortunately the most liquid asset (cash) decreased by 28.7% while the lesser liquid assets such as short term marketable securities, accounts receivable, and inventories rose (210.1%, 16.7%, and 14.5% respectively); An unfavorable trend for the company's financials. The $1.27 million PPE growth represented less than a percent of the asset growth of $1.9 billion. Productivity therefore is not likely to increase and may slow the production of producing enough product to meet the market demand and ultimately slow down sales. Long term debts decreased while convertible senior notes increased significantly (145%), a bad trend signifying a bigger reliance on creditors and can be seen in the debt-to-equity ratio under the ratio analysis Equity growth decreased while retained earnings decreased significantly. Noncontrolling interest increase significantly, weakening this section of the balance sheet and the balance sheet in general.

5 BS Analysis Comments

Gilead Sciences, Inc. Statement of Cash Flows Dec 31, Operating Activities

2010 $(000)

2009 $(000)

Footnote Reference

Adjustment to reconcile net income to net cash provided by operating activities: Depreciation expense 67,240 Amortization expense 198,237 Purchased in-process research and development expense Stock based compensation expenses 200,041 In-process research and development impairment 136,000 Excess tax benefits from stock-based compensation -81,620 Tax benefits from employee stock plans 82,086 Deferred income taxes 12,152 Other non-cash transactions 10,048 Changes in operating assets and liabilities: Accounts receivable, net -348,785 Inventories -161,190 Prepaid expenses and other assets -70,466 Accounts payable -4,453 Income taxes payable -185,733 Accrued liabilities 120,065 Deferred revenues -29,728 Net cash provided by operating activities 2,833,913 Investing activities: Purchases of marketable securities -5,502,687 Proceeds from sales of marketable securities 3,033,893 Proceeds from maturities of marketable securities 683,927 -91,000 Acquisitions, net of cash acquired Capital expenditures and other 61,884 Net cash used in investing activities -1,937,751 Financing activities: Proceeds from issuances of convertible notes, net of issuance costs 2,462,500 Proceeds from sale of warrants 155,425 Purchases of convertible note hedges -362,622 proceeds from credit facility 500,000 Repayments of credit facility -500,000 Proceeds from issuances of common stock 221,223 Repurchases of common stock -4,022,593 Extinguishment of long-term debt Repayments of long-term obligations -5,786 Excess tax benefits from stock-based compensation 81,620 Distributions from (to) noncontrolling interest 131,523 Net cash used in financing activities -1,338,710 Effect of exchange rate changes on cash 77,469 Net change in cash and cash equivalents -365,079 Cash and cash equivalents at beginning period 1,272,958 Cash and cash equivalents at end period 907,879 Supplemental disclosure of cash flow information Interest paid 15,748 Income taxes paid 1,129,577 Supplemental disclosure of cash flow information Interest paid 15,748 Income taxes paid 1,129,577

64,560 148,384 180,864 -80,186 88,368 -42,013 64,456 -356,462 -75,266 -65,667 203,641 166,334 109,026 48,603 3,080,054 -2,614,046 1,440,509 435,510 -1,247,816 -230,057 -2,215,900

400,000 -400,000 222,728 -998,495 -305,455 -5,648 80,186 -44,754 -1,051,438 940 -186,344 1,272,958 1,272,958 8,990 746,224 8,990 746,224

6 SCF Analysis Format

Footnote Reference

Statement of Cash (SCF) Flows Analysis Comments

"Cash provided by operating activates of $2.83 billion .. Related to net income of $2.89 billion, adjusted for non-cash items such as $265.5 million of depreciations and amortization expenses, $200 million of stock-based compensation expenses, $136 million of IPR&D impairment expenses and $82.1 million of tax benefits from employee stock plans, partially offset by $680.4 million of net cash outflow related to changes in operating assets and liabilities and $81.6 million of excess tax benefits from stock option exercises which [were] reclassified to cash used in financing activities" (MD&A pg. 68). Cash used in investing activities was driven by purchases of marketable securities, an acquisition of CGI and other capital expenditures (MD&A pg. 68). Cash used in financing activities was driven by the repurchase of common stock under the stock repurchase programs, the purchase of note hedges related to the convertible senior notes which are due in 2014 and 2016. The cash outflows were partially offset by the issuance of convertible senior notes, net of issuance costs, the sale of warrants related to the convertible senior notes and the issuances of common stock under the employee stock plans (MD&A pg. 69).

7 SCF Analysis Comments

Biotech norm SIC Code

Ratios & Other measures

Company Prior Year [if available]

Gilead 2011

Biotech

Healthcare

Footnote Reference

Liquidity Current Ratio Quick Ratio Long-Term Solvency Debt-to-equity ratio Management Efficiency Accounts receivable turnover Inventory turnover Asset turnover Profitability Gross profit margin Return-on-assets (ROA) (ttm) Return-on-assets (ROA) (5 year Avg.) Return On Investment (ROI) (ttm) Investment Price/Earnings ratio (P/E)
5.53 4.98 4.13 3.35 1.76 1.42

1 2

112.89

33.17

27.89

4.69 1.64 0.58

23.22 8.68 0.5

6.41 3.42 0.45

4 5,6 6

74.67 19.3 26.48 23.71

41.14 2.85 3.62 4.09

56.62 3.47 9.61 4.33

7 8 8 9

13.16

31.93

25.97

10

8 Ratio Analysis Format

Footnote Reference

Ratio Analysis Comments Gilead has a higher ratio of current assets to current liabilities versus the industry and sector averages, which strengthens Gilead's financial position of liquidity in being able to pay back short time debts and preventing such debts from accumulating into long term debts. Gilead has a higher amount of the most liquid assets than the biotechnology industry and healthcare sector averages to cover current liabilities. This is a good trend Creditors have significantly more money in the company versus equity holders and this ratio demands a higher leverage/risk position (e.g. relying on creditors more than shareholders' equity) versus the biotechnology industry and healthcare sector averages which is not a good trend. Gilead has a lower accounts receivable turnover than the healthcare sector and significantly lower than the biotechnology industry average, which indicates that accounts receivable are collected less on average during the period. This is a bad trend that weakens the financial position of the company. This means a longer operating cycle and longer cash cycle to receive actual cash from profits. This ratio is to be compared against the industry average, which is significantly lower than the industry, implying poor sales which results in excess inventory and therefore increases the chances to exposure to obsolescence, a bad trend for the company. Asset turnover is higher than biotechnology industry and healthcare sector averages, indicating better efficiency in utilizing assets in generating sales/revenue. This is a good trend. A higher gross profit margin is seen versus the industry and sector averages which means that Gilead is a more efficient company with possibly better manufacturing and/or management in reducing the cost of goods. A significantly higher return on asset versus the industry average allows Gilead to more effectively covert the money it has to invest into net income. This is a good trend as it means the company earns more money on less investment. The return on investment is significantly higher than the industry and sector equivalents, a good trend indicating a greater gain from investments versus the cost of investment With a lower P/E than the biotechnology industry average and healthcare sector, Gilead shares are priced significantly better in accordance to its earnings, a good indicator that Gilead could be a good investment when taking into consideration the positive company outlook for the long term.

1 2

8 9

10

9 Ratio Analysis Comments

Company Name Business Segments (Rev./Exp./ Margins) For the Years Ended

Gilead

2010 $ [000]

2009 $ [000]

Horizontal Yr 2-Yr1 $920,610 $920,610

Analysis % change 14.2% 14.2%

Vertical Yr 2 % 100% 100%

Analysis Footnote Yr 1 % Reference 100% 100%

1

Revenues: Product sales Total revenue Expenses Product sales Total expenses Operating Margins Product sales Total Operating Margins [Income from Continuing Operations]

$7,389,921 $6,469,311 $7,389,921 $6,469,311

$1,869,876 $1,595,558 $1,869,876 $1,595,558

$274,318 $274,318

17.2% 17.2%

25% 25%

25% 25%

$5,520,045 $4,873,753 $5,520,045 $4,873,753

$646,292 $646,292

13.3% 13.3%

100% 75%

100% 75%

10 FSA Segment Analysis

Footnote Reference

Segment Analysis Comments Product sales is Gilead's only segment because "major products, Atripla, Truvada and Viread, which together accounted for substantially all of [Gilead's] product sales for each of the years ended December 31, 2010, 2009, 2008, have similar economic and other characteristics, including the nature of the products and production processes, type of customers, distribution methods and regulatory environment" (Notes to Financial Statements, pg. 133). The 14% increase in sales was primarily from "antiviral product sales driven by the strong growth of Atripla sales and continues growth of Truvada" (MD&A, pg. 63). As long as there is a need for their patented antiviral drug, there should be continued growth in revenue. The product sales expense is found under the Cost of goods sold (MD&A, pg. 64). Expenses increased at a slightly faster rate than product sales. Gilead needs to have better cost control to increase operating profit. Operating margins made up for 75% of total revenue which is good for the year but it increased slower than sales revenue. Besides cost control, healthcare reform slowed the growth of revenue and operating margins because Gilead was "required to further rebate or discount products reimbursed or paid for by various public payers, including Medicaid and other entities eligible to purchase discounted products through the 340B Drug Pricing Program," (MD&A, pg. 55).

11 Segment Analysis Comments

Patent Expirations - Pipeline Expiration Dates Reference: 10K Drug Atripla Truvada Viread Hepsera Emtriva AmBisome Letairis Ranexa Other Vistide Tamiflu Cayston Macugen Lexiscan Pipeline Drug Truvada/TMC278 Single-Tablet Regimen Elvitegravir Integrase Single-Tablet Regimen "Quad" Cobicistat GS 7340 GS 9190 GS 9256 GS 9451 GS 5885 GS 9620 GS 6620 Cicletanine Ranolazine Aztreonam for Inhalation Solution (Cystic Fibrosis) Aztreonam for Inhalation Solution (Bronchiectasis) GS 6624 (Idiopathic Pulmonary Fibrosis) GS 6624 (Solid Tumors) FY 2011 U.S. Basic Product Patent Expiration Year 2021 2021 2017 2014 2021 2016 2015 2019 2010 2016 2021 2017 2019 Current Year Status Test Phase 2011 Phase III Phase III Phase III Phase III Phase I Phase II Phase II Phase II Phase I Phase I Phase I Phase II Phase II Phase III Phase II Phase I Phase I 4 5 5 5 Current Year Revenue (M) [ $000 ] 2,926,579 2,649,908 732,240 200,592 27,679 305,856 240,279 239,832 66,956 Footnote Reference

1 1

6 7

12 Patent Expirations-Pipeline

12 Patent Expirations-Pipeline

Footnote Reference

Patent / Pipeline Analysis Comments Atripla and Truvada generate the highest sales at over $2.93 and $2.65 billion respectively in 2010; these two drugs account for a large portion of total product sales. At this point, they have the latest patent expiration date which provides Gilead longer sales security in antiviral drugs. Emtriva generates the lowest antiviral drug sales. If sales do not grow, its current long patent life would not be significant. More information is needed to explain the reason for Emtriva to be Gilead's weakest antiviral drug. Ranexa only produced $239.8 million in sales but "increased by 83%"; however, this product "sales began on April 15, 2009" (MD&A, pg. 64). If Ranexa continues to increase, the company can also expect secure sales since this drug's patent is also one of the latest to expire. Gilead is currently "awaiting the FDA's response as to whether it is substantially complete to permit a substantantive review" (MD&A, pg. 53). If approved for marketing, this singletablet regiment of Truvada may further increase the high sales of the current product formulation. This pipeline may be additional strength needed once the patent expires. These pipeline products have entered in Phase III. In September 2010, studies from the single-tablet "Quad" regimen and cobicistat "released positive 48-week results from two of [Gilead's] ongoing Phase 2 clinical studies" (MD&A, pg. 53); therefore, there is a positive outlook for these future products and Gilead will likely continue to be the leading provider in HIV medicine. Cayston is an FDA approved aztreonam for inhalation solution for cystic fibrosis (CF) patients with Pseudomonas aeruginosa . Aztreonam for inhalation solution is also being evaluated in Phase III for CF patients with Burkholderia spp . This pipeline would strengthen the product's value by targeting an additional group. Business, pg. 15. Aztreonam for inhalation solution is also being evaluated for treating bronchiectasis. If the study does not fail its current Phase II trials, then it may be able to join the pipeline for CF patients with Burkohlderia spp in Phase III. If extensive efficacy passes, this multi-target treatment will be very valuable to Gilead's respiratory product line.

13 Patent & Pipeline Coments

Recommendation

Gilead has only one segment which depends on their marketed products. Atirpla and Truvada, the top revenue-generating products, both have patents that do not expire until 2021. Therefore there is a significant long term security in their antiviral drug division which brings in a significant portion of revenue to their business ($2.93 and $2.65 billion for Atripla and Truvada, respectively in 2010). The patent protection of Gilead's highest revenue-generating products will allow the company to continue to be competitive in the HIV drug department and to allow Gilead to generate a significant amount of revenue. With research and development expenses outpacing the rate of SG&A expenses (14% vs. 10%), the company's investment in research and development can be seen crystallized in the number of products currently in phase III of the clinical trials. There are currently 5 products in production in phase III of the clinical trials, making the future outlook of Gilead exceptional especially when considering that Gilead has leading HIV solutions and is working to develop more leading HIV solutions that have the potential to meet the further needs of many HIV patients (and consequently bring the company further revenue). The 5 products (related to HIV solutions) in production in phase III allow Gilead to be a serious candidate for investment. When looking at the company's product pipeline and current products protected by patents that generate billions in revenue, this brings music to the ears of current investors. On the flip side, based on additional information from the income statement, the sales increased by 14.2% while the cost of goods exceeded the sales growth coming in at 17.2%, a bad trend. The bad trend is made up for by a consistent gross margin of 75%, allowing Gilead to have a net profit of 10%. Compared to the industry average, Gilead has a much higher debt-to-equity ratio, due to the 71.3% increase in total liabilities from 2009 to 2010. However, Gilead's financial positioning in relationship to its current liabilities is counterbalanced by it's high current assets. The current assets are double of that of the current liabilities ($5.7 billion vs. $2.46 billion) meaning that Gilead can pay off any short term liabilities in order to continue its operations. Gilead has a higher current ratio versus the industry average, giving Gilead an edge on in the marketplace. Gilead falls short in management efficiency which implies poor sales. However, this is greatly made up for due to the fact that Gilead has excellent an profitability ability due to high gross profit margins and the ability to convert the money it has invested into net income. Gilead can be seen as a bargain due to its low price-toearnings ratio versus the industry standard. Due to Gilead's promising future outlook in the product pipeline and current positive net profitability, Gilead would be a worthwhile investment depending on the time frame you're willing to hold Gilead. Risk tolerance is also a factor that should be taken into consideration. An investor who has low risk tolerance might find the big debt increase to be too much to swallow, however, Gilead's assets are capable of covering the liabilities. The net profitability will continue to be persistent thanks to the patents on the top selling products. A long term investor would find Gilead to be an excellent opportunity to invest in due to the aforementioned reasons which include a low P/E and a promising future in which Gilead holds in its product pipeline. Despite the increased debt, Gilead is a good investment at a bargain and one should seriously consider in investing with this great company.

14 Recommendation