In late April, the shares of Gilead Sciences (NASDAQ: GOLDEN) they were near their 52-week high of $ 85.97. The stock has been falling since then, and is now trading at around $ 76. Year to date, the stock continues to rise 17%, and well above 4% the S&P 500 has seen during the same period.
A big reason for Gilead’s recent decline is the hype around the company’s potential COVID-19 treatment, remdesivir. Let’s take a closer look at why the excitement surrounding the drug has faded and whether you should consider buying Gilead stock anyway.
Recent remdesivir studies were disappointing
Studies of remdesivir and its effectiveness in the treatment of COVID-19 have not been so encouraging so far. On April 29, the National Institute of Allergy and Infectious Diseases released the results of a remdesivir study with 1,063 patients. The good news was that the drug was showing signs of effectiveness in the fight against COVID-19, but it was not the dump everyone expected.
Image source: Getty Images.
Results showed a 31% faster recovery time for patients taking remdesivir compared to those taking placebo. The mortality rate for patients who took the drug was 8% compared to 11.6% for those who did not.
On June 1, Gilead launched Phase 3 trials of the drug that looked at the 5-day and 10-day treatments. The results were not enough to enthuse investors, as only the 5-day course of treatment showed statistically significant improvement. Patients who took the shorter treatment option were 65% more likely to see clinical improvement on the 11th day compared to those who did not take remdesivir.
However, the hope was that as more people used remdesivir, more progress would be reported.
Is this a case with no news = bad news?
What is perhaps more worrying is that no significant progress has been seen since remdesivir has been sent to hospitals across the country. On May 1, the Food and Drug Administration (FDA) authorized the emergency use of Gilead for remdesivir to treat patients with severe cases of COVID-19, even when oxygen levels are low and a ventilator is needed.
Gilead has donated approximately 607,000 doses of remdesivir to health officials in the U.S., which the Department of Health and Human Services later distributed to states across the country. But despite all those treatments now in circulation, there has been no significant news to suggest that the drug is progressing significantly or performing better than recent, disappointing studies indicated it would.
The only caveat in all of this is that COVID-19 has proven to be a complicated disease, affecting people in different ways. It is possible that remdesivir may be effective in the right circumstances, which is not yet clear.
Does this mean that investors should get rid of stocks?
With the recent drop in the Gilead price, the stock is now trading at a price to earnings multiple of about 19, which doesn’t make it a too bad value buy. And with the stock paying a quarterly dividend of $ 0.68, it is producing a decent 3.5% per year, well above the 2% investors can normally expect from an average share in the S&P 500.
And there is hope beyond remdesivir, since Gilead also has filgotinib, which treats rheumatoid arthritis. The company submitted a new drug application to the FDA for filgotinib in December. If approved, it could inject Gilead’s top line with much-needed sales growth.
The company’s top line was stable in 2019. However, in Gilead’s first quarter results for fiscal year 2020, which launched on April 30, sales increased 5% from the same period last year. The growth was mainly due to higher sales of HIV products, which grew by 14%.
Overall, Gilead is a decent, low-risk purchase that could take off if health officials can find a way to make remdesivir more effective in treating COVID-19, or if the FDA approves filgotinib. At the very least, investors can secure a decent dividend and invest in a company that has been fairly stable, recording only a loss in its last nine quarters.
