Dividends and Cutting through the noise around Gilead’s coronavirus drug

In January China shut down the country to stop the spread of the coronavirus. For China had no choice because at that time, it was moving to the Lunar New Year celebration and many people travel to their ancestors home. (If you ever watched the Disney movie Mulan – the ancestors had a role). As investors, first you worry about the people and then you think what stocks could come out ahead and which ones will lose revenues because of the disruption.

In an article by David Berman he examined the drug companies. It is good for humanity that drug companies are working on possible cures for viruses such as coronavirus and as investors you need to examine the companies. They could be winners, but how much?

Gilead Sciences jumped 5% on news there is a drug in the pipeline, however the pipeline takes time to receive approval. In addition, Gilead Science has a market capitalization of $85.4 billion and estimated revenues of $22.5 billion in 2020. If the drug is used and used intensively will that make a meaningful impact on Gilead Science bottom line? The answer is likely no because the last big outbreak was H1N1 which affected 60 million people, Roche developed Tamiflu and reported sales of $1.9 billion. The number of cases of coronvirus is about 20.000 or double it, in the world of money making the drug is important but not significant for Gilead. The good news, the drug does serve to highlight its antiviral platform but it is not a billion dollar drug platform yet.

Other drug companies announced they are working on possible solutions and their shares increased then pulled back. If you are going to invest in the drug companies you need to understand how the Drug Approval Process works and what stage are the possible solutions at. The steps include: work in the lab, then work on small animals, then bigger animals and finally testing on people. All of this testing to see what the side affects are and if the drug actually helps takes time, usually years.

Linking to dividend paying stocks, when you buy them for the dividend the company has to have active management to ensure the conditions which allow them to pay a dividend remain. Dividend paying companies are not static companies, but companies which are constantly ensuring the competition stays at bay and profit margins remain healthy. They are similar to Gilead Sciences having multiple billion dollar revenue streams and constantly looking for more.

There are more questions than answers, till the next time – to raising questions.

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