Company / Analytics

Analytics, 07 May 2020

The Big Pharma behind Covid-19 drug remdesivir

The US Food and Drug Administration (FDA) has authorized emergency use of the Ebola drug remdesivir for treating the coronavirus. The authorization means the anti-viral drug can now be used on people who are hospitalized with severe Covid-19, bringing hopes that progress is being made in finding a cure for the virus.

Though experts warned the drug should not be seen as a “magic bullet” for coronavirus, the pandemic has shifted focus to the drug and Gilead Sciences, the biotechnology company behind it. Investors are paying close attention to any news out of Gilead on remdesivir, its portfolio of drugs, and ambitions.

Gilead is scrambling to supply enough of remdesivir to fuel clinical studies, compassionate use and expanded access programs, and emergency use for patients with Covid-19.

On Tuesday, the company announced plans to increase the manufacturing of remdesivir, which is quite challenging to make as it requires scarce raw materials. Gilead is in discussions with drug manufacturers across the world that may be able to produce the drug for other regions – Europe, Asia, and middle- and low-income regions. The discussions include negotiations for long-term voluntary licenses with multiple generic-drug makers in India and Pakistan, which would produce remdesivir for developing countries.

Gilead Stocks and History in Drug Production

Gilead’s stock has been volatile. Shares moved 1.9% higher in after-hours trading on Friday, May 1 following the announcement of the approval by the FDA. Year-to-date, the company’s stock has gained 23%, hitting a low of $62.23 on Jan. 21 before soaring to $85.97 high for the year on March 19, but the ride has been bumpy.

According to its website, Gilead develops unmet medical needs for patients living with life-threatening diseases around the world. The company used to be a powerhouse in treating hepatitis C. In 2013, the drug called Sovaldi gained FDA approval, and in the following year generated $10.3 billion in sales. Gilead was also behind the drug called Harvoni and Epclusa, which is used to treat about 95% of hepatitis C patients.

However, sales of the hepatitis C unit started tumbling in 2016 when they dropped by up to 23% as the number of cures increased. This trend has not stopped, even after the company developed an additional drug known as Vosevi. China approved the use of Vosevi for hepatitis C treatment in December 2019.

In Q1 2020 earnings, Hepatitis C drug sales continued tumbled by nearly 8% year over year to $729 million, due primarily to lower selling prices while sales of other products such as Letairis and Ranexa declined due to generic competition. Gilead’s earning has since painted a dim picture. But this appears to be changing as highlighted in recent earnings reports.

Gilead’s Earnings

Gilead’s Q1 2020 earnings report indicates that revenue reached $5.55 billion, up 5% year over year, above Wall Street estimate of $5.45 billion. Though the results were driven by the HIV drug Biktarvy which delivered impressive sales growth in Q1, more than doubling year over year and rising nearly 8% quarter over quarter to $1.69 billion, Gilead beat revenue estimates due to Covid-19 related sales.

Gilead reported that total product sales in Q1 were around $200 million higher due to increased buying associated with the Covid-19 outbreak. Without this boost, the company would have missed analyst estimates. Net income for the first quarter was $1.6 billion, or $1.22 per diluted share, based on generally accepted accounting principles (GAAP). This reflected a year-over-year decline of 21%. Adjusted earnings per share have declined for 14 of the past 16 quarters. In the first quarter, Gilead eked out 1% earnings gain to $1.68 per share. That beat estimates by 10 cents.

Gilead could have done even much better in terms of earnings. Gilead’s better-than-expected earnings were weighed down by remdesivir. The company reported that its research and development (R&D) expenses rose to $44 million, or 4%, year over year to $1.1 billion. Around $50 million of the increased R&D expenses stemmed from ramping up testing and manufacturing for remdesivir.

Gilead generated impressive operating cash flow, which totalled $1.4 billion in Q1. Most of this cash was used to buy back shares. Some $1.3 billion was spent on stock repurchases in Q1 alone. Additionally, Gilead spent its massive cash stockpile in debt payments ($500 million) and dividend payments ($874 million).

Though stock buybacks are often criticized, even with Gilead’s buybacks, debt reduction, and dividend payments, the company still ended the first quarter with cash, cash equivalents, and marketable debt securities totalling $24.3 billion. Gilead has less cash now, though, after completing its $4.9 billion acquisition of Forty Seven in April.

Will Gilead stock fly on Covid-19 drug? Is it a buy?

The short answer is Yes. We may not have a clear picture yet, as there remains a lot of uncertainty surrounding Covid-19. But analysis of the company’s drug portfolio, recent acquisitions, and investors perhaps provides some answers. This is in addition to the analysis of its earnings reports discussed above.

Mutual Funds investing in Gilead

Fidelity Contrafund, the world’s largest actively managed mutual fund, remains the key and long-term investor in Gilead stock. Fidelity manages 323 equity mutual funds with $635 billion in assets. Fidelity increased its holding in Gilead stock in December 2019 and March 2020.

More funds are currently adding Gilead stock or increasing their holdings given the attention the stock has generated, with positive data from national health agencies concerning the Covid-19 treatment.

Gilead’s Drugs Portfolio and Drug approvals

Gilead plans to have more than 500,000 courses of remdesivir by Oct. 1 and 1 million by year’s end. But it’s also donating 1.5 million doses of the drug, which could treat 140,000 patients under compassionate use, expanded access, and clinical trials which would allow more patients to enrol in the study.

Gilead is emerging as the leader in developing the treatment for Covid-19, as others race to find a vaccine. As early as February 2020, a World Health Organization representative said remdesivir might be the best candidate for treating Covid-19, leading to a nearly 5% rise in stock.

A range of acquisitions bolster Gilead’s pipeline

Gilead acquired Forty Seven on April 7 for $4.9 billion which has helped bolster its pipeline of oncology drugs. In 2017, Gilead spent $11.9 billion to acquire Kite Pharma, the maker of Yescarta, a CAR-T drug. CAR-T drugs also target cancer by training the immune system. In February, China’s National Medical Products Administration had accepted the application for Yescarta, in treating a form of blood cancer known as large B-cell lymphoma. The application was filed by a joint venture known as Fosun Kite Biotechnology.

The FDA also granted a Gilead drug a speedier priority review in the treatment of mantle cell lymphoma, a type of blood cancer. That drug, KTE-X19, is being developed by Gilead’s Kite.

In December, Gilead and Japan-based pharma Eisai entered into a collaboration agreement for the co-promotion of a drug called filgotinib as a rheumatoid arthritis treatment, pending approval. Gilead announced it has applied for approval of filgotinib in the United States.

In November, Gilead said a pooled analysis showed strong results for filgotinib in rheumatoid arthritis treatment. Filgotinib is being developed with Galapagos (GLPG). The two companies announced a collaboration deal in August 2019.

Looking Ahead

Going forward, all eyes will be on remdesivir in the immediate future. Analysts are particularly waiting on data from Gilead’s study of the drug in treating moderate Covid-19 patients, which results are expected later this month.

Whether Gilead is a buy, neutral or pass, investors could look at three critical factors: (i) visibility into a much more significant and durable remdesivir commercial opportunity than contemplated, (ii) M&A or other catalysts that change top-line growth trajectory, or (iii) unwinding of remdesivir-driven appreciation, in order to get a more constructive picture of Gilead shares.

There is still a great deal that we don’t know but in all, Gilead appears to be making progress in achieving its goal of bringing at least 10 transformative therapies to patients over the next 10 years.

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