I believe there’s a good chance that Gilead’s (NASDAQ:GILD) anti-viral drug, remdesivir, will become both a treatment and a vaccine for the coronavirus from China. If that happens, the drug will become a major positive catalyst for Gilead stock.
But at the very least, it’s highly likely that the drug will become one of the most widely used treatments for the virus, with stockpiling of the drug by governments becoming a minor positive driver of the shares. Meanwhile, Gilead’s strategy of acquiring promising drugs should be positive for the company and its stock over the long-term.
Remdesivir Could Become the Coronavirus Vaccine
Remdesivir, which works by preventing viruses from reproducing, was found to prevent MERS, which is similar to the coronavirus, in monkeys. Specifically, monkeys were given remdesivir 24 hours before they were infected with MERS. After six days, the monkeys that received the drug “showed no signs ” of the virus, while other, untreated monkeys all got sick. Remdesivir has been shown to effectively “inhibit (coronavirus) infection” in preliminary lab tests of human cells.
Meanwhile, there was another indication that the drug could become the coronavirus vaccine. Specifically, during the company’s fourth-quarter earnings conference call, the company’s CEO, Daniel O’ Day, said Gilead’s “team really been working night and day…over the past couple of weeks” to manufacture the drug.
That sounds like Gilead might be looking to make enough of the drug for it to become a vaccine that’s given to healthy people as well as to infected individuals.
And since the safety of the drug has already been established for humans with Ebola, it will have a huge time-to-market advantage over other vaccines being developed.
Estimating Vaccine Revenue
Flu vaccines generate $2.2 billion each year, but because coronavirus is meaningfully more deadly, I think we’d see much higher vaccination rates among the general population for a coronavirus vaccine.
I, for example, have never gotten a flu vaccine, but I would get a coronavirus vaccine. Further, governments will likely look to stockpile remdesivir because it could potentially be used to combat other viral outbreaks or to treat unvaccinated people who get coronavirus.
Consequently, I’d conservatively estimate that Remdesivir would generate $6.6 billion of annual revenue for Gilead if it’s used as the main vaccine for coronavirus in the first year of its use and $5 billion in subsequent years. Revenue from the vaccine would decline after the first year because stockpiling would drop off in subsequent years.
The company’s total revenue in 2019 was $22.4 billion, so if my estimate is correct, remdesivir could increase the company’s revenue by nearly 30% in the first year and by nearly 22% in subsequent years. Thus, if remdesivir becomes the coronavirus vaccine, Gilead’s shares should get a meaningful lift.
Treatment Is a Positive Catalyst for Gilead Stock
If 300,000 people ultimately get coronavirus, and Gilead gets an average of $1,000 per person treated, that’s $300 million of revenue. If we assume that governments stockpile triple that amount and also pay an average of $1,000 per dose, its total revenue from the drug in the first year would come to $1.2 billion.
Plus, if no vaccines are developed, it might get another $50 million of revenue each year from treating people who have caught it and $25 million of revenue from additions to government stockpiles. In 2019, $1.2 billion would have raised its revenue by 5%, and $75 million would have increased its top line by 0.3%. In this scenario, I think that Gilead’s shares would rise 5%-10% above their current levels.
Gilead’s Acquisition Strategy Is Smart
As Gilead’s revenue from its hepatitis C drugs has waned due to its decision to launch cheaper versions of those drugs, the company has, quite intelligently, acquired promising treatments.
In 2017, it bought Yescarta, a CAR-T drug that is being used to treat a form of non-Hodgkin’s lymphoma. The drug has gained market share recently in a form of non-Hodgkin’s lymphoma called Diffuse large B-cell lymphoma, Reuters recently quoted SunTrust analysts as saying.
Gilead also recently bought Forty Seven (NASDAQ:FTSV) for $4.9 billion, acquiring its lead drug, magrolimab, in the process. Magrolimab switches off a “do not eat me” signal emitted by tumors. It’s in the early stages of development and can also be used to treat Diffuse large B-cell lymphoma.
Although the revenue generated by Yescarta has been disappointing so far, the company is still working on expanding its use to additional indications, and the best days of CAR T may still be ahead. Gilead had $24.67 billion of cash and $25.32 billion of debt as of the end of Q4, but it could still have one or two other major acquisitions up its sleeve.
The Bottom Line on Gilead Stock
Given the success of remdesivir in tests and Gilead’s decision to spend money on mass-producing the drug, I think there’s a 65% chance that it will be used as a vaccine for coronavirus and an 85% chance that it will be used to treat the virus.
Meanwhile, the company’s acquisition strategy should yield meaningful benefits over the longer term, and the stock has a forward price-earnings ratio, based on analysts’ average 2020 EPS estimate, of just 11.5. Given all these points, I’d recommend buying the shares now.
As of this writing, Larry Ramer owned shares of Gilead stock. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.