Gilead Sciences (NASDAQ:GILD) created Remdesivir to treat the Ebola virus. This is a coronavirus similar to, though not precisely like, the COVID-19 strain behind the global pandemic.
Now, having teased the drug’s results through fast trials that would usually be classed as preliminary, Gilead says it’s ready to profit.
Once donated supplies of 1.5 million doses are exhausted, probably in June, the company will start charging. Based on “Quality Adjusted Life Years,” the idea that drugs should be priced based on the value of a life, a price of $4,340 per treatment has been suggested.
Gilead sees a “multi-year commercial opportunity” in remdesivir, but the price of GILD stock has fallen over the past month. It opened May 22 at about $73/share, indicating a market cap of $92 billion on pre-Remdesivir revenues of $22.7 billion.
The Remdesivir Trial
Gilead was a profit machine long before COVID-19.
Gilead is best known for sofosbuvir, later sold as Sovaldi, a treatment for Hepatitis-C acquired for $10.4 billion. The drug costs $84,000 per treatment in the U.S. but a tiny fraction of that in international markets. In Sovaldi’s heyday, in the mid-2010s, Gilead brought over half its revenue to the net income line.
Since then, Gilead has been investing heavily to come up with another Sovaldi. Analysts think Remdesivir is it.
A clinical trial of 1,063 patients with severe COVID-19 symptoms found patients taking Remdesivir were discharged four days faster. Only 8% of Remdesivir patients died, against 11.6% of a placebo group.
Critics attacked the government for ending the trial early and giving placebo patients the drug. Remdesivir is not a cure for COVID-19, just a treatment. But media reports, and the company’s own plans, indicate it’s being treated as one.
The Gilead Profit Machine
Even without Remdesivir, Gilead is doing very well for investors.
Gilead reported net income of nearly $5 billion last year. Its price-to-earnings ratio of about 19 is below that of the average S&P stock. A 68 cent per share dividend is good for a healthy yieldof 3.68%. Five years ago, the dividend was 43 cents.
Gilead also has $21 billion in cash and short-term securities, though most of that value is outside the U.S. and unavailable for acquisitions.
Gilead stock has averaged just 6% in gains per year, as the company has used its Hep-C cash primarily to buy other companies in the search for another blockbuster. Remdesivir was created as an “orphan drug” for an African virus that died out. Its potential for treating the novel coronavirus is a happy accident.
Gilead’s reputation may be why investors aren’t rushing in to buy it.
Gilead used the so-called “double Irish” loophole to avoid taxes on international profits. Critics have said the company delayed research on an antiviral treating HIV to extend profits on an older drug. Its pricing on Sovaldi has been attacked as excessive. It has also Voluntary Licensing Agreements with Asian generic companies to keep them out of lucrative markets. Indian activists want its Remdesivir patent protection rescinded, and generic versions of remdesivir are already being created.
Even drug researchers don’t all trust Gilead. Researchers in Texas recently suggested that another Gilead drug, GS-441524, might work better than remdesivir. But that drug was patented in 2009, they write, remdesivir in 2017.
The Bottom Line
Should Democrats gain power in November, they’re going to go after Gilead. Gilead is already ramping up its lobbying to fight back.
That’s not to say the risks in Gilead stock are entirely political. Remdesivir isn’t a cure, but Gilead is investing as though it is. Should better COVID-19 drugs come along, and hundreds are in trials, Remdesivir may not be the blockbuster investors are looking for.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.