Why Remdesivir Clinical Studies Will Lift Gilead Sciences

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As countries grow anxious in re-opening the economy, the invasiveness of the novel coronavirus threatens to prolong the stay-at-home order. Worse still is the high mortality rate on the elderly and those with pre-existing health conditions.

GILD Stock: Remdesivir May Give Gilead Sciences a Strong Lift

Source: Eyesonmilan / Shutterstock.com

So, if the virus persists in the population, it threatens to keep coming back year after year. This only heightens the immediate need for vaccines and antivirals.

Gilead Sciences (NASDAQ:GILD) is in a good position to continue evaluating the effectiveness of remdesivir for treating coronavirus patients. The University of Chicago is conducting a Phase 3 clinical trial in which many patients recovered quickly after receiving remdesivir.

“Most of our patients are severe and most of them are leaving at six days, so that tells us the duration of therapy doesn’t have to be 10 days,” says Kathleen Mullane, the infectious disease specialist running the study.

The study involved 125 people infected with Covid-19. Of those, 113 had severe disease and the company treated all of them with daily infusions of the drug.

Another study, however, weighed on GILD. The stock dropped April 23 after the World Health Organization posted, and then removed, negative results of a study that involved 237 patients. Gilead said the “study was terminated early due to low enrollment and, as a result, it was underpowered to enable statistically meaningful conclusions.”

Investors should question the lack of details and limited data for drawing any conclusions. Still, Gilead said, “trends in the data suggest a potential benefit for remdesivir, particularly among patients treated early in disease.”

Chicago Study Was Missing Key Data

Data shared from the University of Chicago study is missing a key component: a randomized control trial. Though the National Institute of Allergy and Infectious Diseases sponsored a safety and efficacy study for remdesivir, Gilead still needs to include a randomized control group. This would strengthen the confidence in the results and would confirm the current positive sentiment lifting GILD stock.

Investors bidding up GILD stock need safety data to weigh the value of remdesivir against the side effects. Patients, too, need to know the details of those who died while in the study. Furthermore, damage to the liver and other organs are a potential risk for patients. The drug may also cause death.

For example, in this study, two-thirds of the subjects treated with the antiviral showed clinical improvement. And of the one-third that did not get better, seven of the first 53 patients getting treated died.

Despite those mixed results, 17 out of 30 patients on ventilation were extubated. And in the observational report, the author wrote that “to date, no therapy has demonstrated efficacy in patients with Covid-19.” So, the scientific community will need to wait for the results of several randomized, controlled trials currently underway.

Remdesivir Is Ineffective Against Ebola

Despite Gilead stock trading at sharply higher levels, investors should not pin their hopes of remdesivir. Two studies deemed that the drug was ineffective against the Ebola virus.

From a revenue point of view, Gilead is unlikely to earn anything from the drug as it ramps up production and provides it to those who need it. The data from the treatment matters more right now. Still, the $22.1 billion in product sales, up 2% from last year, is due to its other products.

In 2019, Gilead’s HIV franchise delivered $16.4 billion in revenue, an all-time high and a 12% increase year-on-year. Biktarvy sales grew three-fold to $4.7 billion. The strong cash flow allowed the company to raise its dividend for the fifth consecutive year to 68 cents. And management increased shareholder value by increasing its share repurchase authorization by another $5 billion. It has $8.4 billion committed to the stock buyback.

Fair Value and Your Takeaway

Gilead Sciences has plenty of cash flow to manage its debt-equity ratio. In a five-year discounted cash flow revenue exit model, investors may assume the following growth profile:

Fiscal Years  2019 2020 2021 2022 2023 2024
Revenue (in millions) 22,449 22,673 22,900 23,816 24,531 25,021
Growth 1.5% 1% 1% 4% 3% 2%
EBITDA 6,491 7,482 7,557 7,859 8,586 8,757
% of Revenue 28.9 33 33 33 35 35
Financial model courtesy of finbox.io

At a 7.5% discount rate, GILD stock is worth between $84 – $101.

Disclosure: As of this writing, the author did not hold a position in any of the aforementioned securities.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/remdesivir-studies-lift-gild-stock/.

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