Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Breaking News

Gold Rally Cut Short as Dollar, Yields Soar on Ramping US Inflation

Point/Counterpoint: The Case for Gilead

Stock MarketsAug 22, 2020 06:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters.

By Geoffrey Smith and Christiana Sciaudone -- It's been a rough week for Gilead.

The Federal Drug Administration shocked the pharmaceutical maker and its shareholders when it rejected an expected blockbuster arthritis drug until more data about its effects was available. Analysts said it could delay the drug, filgotinib, into next year.

Gilead does have a promising Covid-19 treatment, remdesivir, that is expected to drive as much as $3.5 billion in revenue. And it has its HIV treatments that still make up the bulk of sales. But the short-term case for Gilead shares is hard to argue.'s Geoffrey Smith writes about the upside for Gilead, while Christiana Sciaudone explains the bear case. This is Point/Counterpoint.

Bull Case: Setback means the stock is priced attractively

Gilead (NASDAQ:GILD) is that it is a company with a well-established track record of solid growth and decent shareholder returns that, after the latest setback, is now priced attractively.

Moreover, the knee-jerk decline in response to Wednesday’s news about filgotinib is overdone. The company still has a chance to address the FDA’s concerns, and the U.S. regulator’s decision need not stop it being approved in other jurisdictions such as Europe, where it has already received a positive if non-final opinion from a key committee.

At Thursday’s closing price, the shares yielded over 4%, and regular buybacks over the years have generally juiced shareholder returns by a couple more percentage points.

There is no obvious short-term risk to that record. Revenue from remdesivir, the investigational antiviral drug that some (but not all) studies indicate results in speedier recovery from the Covid-19 virus, has started to flow as of July 1 (it gave away all its stockpiles to the U.S. government in the first half).

At over $2,400 per five-day course for Medicare and $3,120 per course for private healthcare companies, that will soon add up, given that over 40,000 Americans are still being diagnosed every day for the virus, and hospitalizations run above 10% of cases in most districts. Depending on how the virus progresses, revenue of more than $2 billion in the rest of 2020 is quite realistic. RBC analyst Brian Abrahams says as much as $3.5 billion is possible.

Moreover, on the assumption that the medical establishment finally does get Covid-19 under control, its still-potent stable of antiviral drugs for HIV, as well as its hepatitis drug will soon overcome the dip in revenue caused by vulnerable patients staying away from their doctors’ clinics in the first half of the year.

Longer-term, the company also has a powerful and growing degree of optionality on a range of oncology drugs, as illustrated by this month’s agreement with immunotherapy specialist Tizona, which gave it the option to buy Tizona out for a total consideration of $1.55 billion. Such deals aren’t risk-free, as the failure to get filgotinib approved so far shows, but its partner in that project, but are still a rational, risk-adjusted approach to renewing the portfolio.

Bear case: A company forced to rest on its laurels

Gilead is a company forced to rest on its laurels, especially now that the U.S. Food and Drug Administration said, "Not yet!" to what was supposed to be its big new blockbuster drug.

Filgotinib should have been a billion-dollar smash hit and it still might, just not any time soon. 

“There’s really no way to sugarcoat this very surprising development,” Barclays analysts said in a note. They cut their peak sales estimate for the drug to about 527 million euros from 1.3 billion euros, Bloomberg reported. “This is essentially the bear-case scenario playing out.”

The expectations for filgotinib were high. While it takes five to 10 years to bring a drug to market, once there, it could see $5 billion in peak revenue, said Hartaj Singh, managing director at Oppenheimer who specializes in biotechnology. Singh has a buy rating on the company, seeing it as cheap for what it has to offer in the long-term, but he said he sees how short-term investors may not see things the same way.  

"This is a product that, even if it gets approved, will grow very, very slowly for the next three to five years," Singh said in a telephone interview. 

Also, consider that AbbVie (NYSE:ABBV) already has a Janus kinase inhibitor drug out on the market to treat rheumatoid arthritis, Rinvoq, for adults with moderately to severely active rheumatoid arthritis, according to a June 4 article on DocWire News. 

And let's look at Gilead's current stale stable of treatments. HIV treatments represent the bulk of Gilead's sales, with $8.1 billion of $10.7 billion in revenue in the first half coming from that segment. Where's the future? 

Most analysts agree that the Foster City, California-based company isn't all that. While 10 say buy, 11 say hold and one says sell. 

A potential bright spot should be Veklury, previously known as remdesivir, which received emergency use authorization from the FDA for treatment of Covid-19. But the data is still uncertain, and it will take a while to figure out its efficacy. 

A way out for Gilead could be some kind of partnership. In June, AstraZeneca (NYSE:AZN) was said to make an approach to merge with Gilead.  

Combining AstraZeneca's worldwide heft and focus on more primary-care diseases with Gilead's hyper focus on infectious diseases could yield benefits, Singh said. Their combined focus on oncology has little overlap and could also yield an oncology powerhouse.

But AstraZeneca has a high valuation without an attractive pipeline (kind of like Gilead) and current Gilead shareholders would stand to benefit little, Singh said. 

In short, there are no near-term benefits to buying Gilead. Traders seeking a faster return will want to look elsewhere.



Point/Counterpoint: The Case for Gilead

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (4)
Indiana Jones
Indiana Jones Aug 23, 2020 11:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Far too many other healthcare stocks (and other sectors) to buy with clearer future revenue streams. Also, would never buy a stock based on a take-out scenario. GILD is very dead money for now.
Camaro Camero
Camaro Aug 23, 2020 6:58AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Joe Bucks
Joe_Bucks Aug 22, 2020 2:20PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
VERY BULLISH on this stock
Dan Kyle
Dan Kyle Aug 22, 2020 9:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
its gotta hit 60 before it goes back up again. only sideways movements until another drop
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email