Like many of you, I’ve been watching Gilead Sciences (NASDAQ:GILD) for a while now as it works on a treatment for the novel coronavirus. The company’s recent breakthrough with its remdesivir treatment is important for everyone who follows GILD stock.
And now that remdesivir has emergency use authorization from the Food and Drug Administration to treat Covid-19, we can expect millions of doses of remdesivir to make its way to patents.
What that means for GILD stock for the short- and long-term, though, is less clear. Gilead has already agreed to donate its entire initial supply of remdesivir and plans to spend $1 billion on research.
Budget hawks on Capitol Hill are already sounding alarms about drug pricing, raising concerns that companies with a coronavirus vaccine will gouge the market, like disgraced pharma “bro” Martin Shkreli.
I don’t expect that to happen with Gilead.
GILD Stock at a Glance
GILD stock is up 25% year-to-date as many investors sought the ground floor on remdesivir treatments.
Gilead reported first-quarter earnings last week of $5.55 billion, beating analysts’ estimates of $5.45 billion. Adjusted non-GAAP earnings were $2.1 billion, or $1.68 per share, beating analysts’ estimates of $1.57 per share.
Gilead reported that total product sales were up $200 million in the quarter, thanks to increased buying from the coronavirus pandemic. But research and development costs were also higher, increasing 4% to $1.1 billion, as the company worked on remdesivir testing.
Several analysts downgraded GILD stock after its earnings because it’s not clear how the company plans to recoup its remdesivir investment. “We believe investors should temper remdesivir profit expectations in near- and long-term,” Needham analyst Alan Carr says.
Remdesivir Has Gilead in the Spotlight
Remdesivir is an antiviral drug first developed by Gilead to treat Ebola patients. The drug is designed to block viral replication by preventing the virus from using the body’s natural cellular machinery to replicate itself.
Gilead uses remdesivir to effectively treat Ebola as well as the MERS and SARS viruses, and it was one of the first drugs that doctors began using on an experimental basis as the coronavirus swept around the globe.
Last week, the company released its preliminary results from clinical trials, showing that at least half of Covid-19 patients treated with a five-day supply of remdesivir improved.
Another study, from the National Institute of Allergy and Infectious Diseases, showed that patients treated with remdesivir recovered in 11 days, which is four days faster than those who didn’t take the drug.
Over the weekend, Gilead CEO Daniel O’Day pledged to get new doses of the drug to doctors quickly. Speaking on CBS’ Face of the Nation, he said:
“We intend to get [remdesivir] to patients in the early part of this next week, beginning to work with the government which will determine which cities are most vulnerable and where the patients are that need this medicine … We’ve donated the entire supply that we have within our supply chain and we did that because we acknowledge and recognize the human suffering, the human need here, and want to make sure nothing gets in the way of this getting to patients.”
How Much Can Gilead Charge for Remdesivir?
The Institute of Clinical and Economic Review, which often comments on drug pricing, says a fair market value for remdesivir is $4,460 per patient.
Gilead has about 1.5 million doses in its supply chain that it already agreed to donate, but it hasn’t said how much it will charge for new doses. Gilead is preparing to treat 1 million patients by the end of the year.
Piper Sandler analyst Tyler Van Buren says that pricing could generate $2 billion in sales for Gilead this year.
Gilead’s pricing hasn’t been announced yet. But the company is under scrutiny because it spent a company record $2.45 million to lobby Washington in the first quarter. Two Democrats in Congress, Rep. Rosa DeLauro of Connecticut and Rep. Lloyd Doggett of Texas, are already asking for an “appropriate accounting” of any taxpayer-based research into remdesivir.
“Taxpayers are often the angel investors in pharmaceutical research and development, yet this is not reflected in the prices they pay,” Doggett and DeLauro wrote.
Gilead’s price point will be a key point of contention when its announced. But as Van Buren points out, is $4,500 too much for insurance companies to pay to save a life?
Not likely.
The Bottom Line on Gilead Sciences
Gilead is in an enviable position as the first company to have a government-approved treatment for the coronavirus. And it’s making all the right moves right now by donating 1.5 million doses to treat as many people as quickly as possible.
Down the road, Gilead will have to balance its need to make a profit with corporate citizenship. Taking guidance from organizations like the Institute of Clinical and Economic Review will be important for Gilead not to face a backlash.
Gilead was already on my list of top biotech stocks to buy. It has been recently upgraded from a ‘B’ to an ‘A’ grade in my Portfolio Grader.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.