Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

No one expected sunny optimism from Gilead Sciences Inc. during its fourth-quarter earnings call Tuesday, as its blockbuster hepatitis C (HCV) drugs continue to decline. But an HCV revenue forecast nearly $3 billion below consensus estimates was far worse than anyone expected. 

The grimness didn't end with the numbers; Gilead acknowledged it may not be able to return to revenue growth even in 2018 without making a deal. Shares fell as much as 10 percent on Wednesday, to their lowest levels since 2014. 

GILD Chilled
Gilead shares tumbled after the company gave disappointing revenue guidance
Source: Bloomberg
Intraday times are displayed in ET.

Some of Gilead's problems are out of its control; the nature of its curative drugs and the disease they treat made explosive growth and rapid decline unavoidable. But the company can be blamed for mismanaging this boom-and-bust cycle and the cash it accumulated on the upside. 

HCV is slow to progress, and these drugs cure more than 95 percent of patients in a matter of months. That has created a unique problem for Gilead. Many patients delayed treatment until Gilead's drugs came out, resulting in an initial sales boom, at a time when the company had little competition and lots of pricing power.

But now, most of those patients no longer need the drug; competing drugs are crushing prices; and healthier patients are in no particular hurry to get treated. The result is a more rapid and extreme decline than anyone expected. 

One Shining Moment
Gilead's curative hepatitis C drugs generated unprecedented sales, and are seeing an unprecedented dropoff
Source: Bloomberg

Gilead's HIV business continues to grow with new drug launches, and the company has another potential bestseller on the way. But even in an optimistic scenario, these medicines won't make up for the HCV decline. After a sequence of clinical trial failures, there's little confidence anything else in Gilead's pipeline will make much of a revenue dent any time soon. 

Instead of using its cash to try to fix that, Gilead has chosen to buy back stock.

The abstract merit of buybacks can be debated until the end of time. Gilead's, not so much.

The company was aware it would face an HCV revenue decline at some point in the next few years. Yet it elected to buy a huge amount of shares at prices the stock may not reach again for a long time:

With shares currently sitting at $66 and grim revenue guidance, Gilead's share repurchases don't look like an exceptionally good use of cash
Source: Gilead slides

This has been a more efficient way to destroy value than making an expensive acquisition, with none of the upside.

Gilead on Tuesday said it was retreating from buybacks, but said it would raise its dividend by 10 percent. 

Though Gilead finally seems to see the need for M&A, it has missed the best opportunity to use its stock as currency. Any potential acquisition knows it is desperate. Several potential targets have already been snapped up. And the pricing bar for acquisitions has been set high by Pfizer Inc.'s $14 billion deal for Medivation last year and Johnson & Johnson's $30 billion purchase of Actelion in January.

Tesaro Inc., a rumored Gilead target, has more than quadrupled in value since releasing positive data on its lead cancer-drug candidate. Shares rose 14 percent on Wednesday on reports it is considering a sale. 

Quadruple Plus
Tesaro shares have jumped from less than $40 to more than $180 on positive clinical trial data and buyout speculation
Source: Bloomberg

Gilead still has $32 billion dollars in cash and will remain highly profitable even as its HCV drugs decline. It can arguably afford to take its time. But continuing to do so will only prolong the misery of its investors. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Max Nisen in New York at

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