Please ensure Javascript is enabled for purposes of website accessibility

When Will Gilead Sciences' Unlucky Streak End?

By Keith Speights – Updated Nov 23, 2016 at 8:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sure, Gilead Sciences has had a lot of bad news lately. The big biotech, though, could probably end that unlucky streak on its own.

If it weren't for bad luck, Gilead Sciences (GILD 0.40%) might not have any luck at all.

At least it might seem that way lately for the biotech's shareholders. There has been plenty of bad news with Gilead's announcements in recent months. When will Gilead Sciences' unlucky streak end?  

Image source: Getty Images.

The streak

Most recently, Gilead announced disappointing results from a couple of late-stage studies of momelotinib in treating myelofibrosis. In its third-quarter earnings call, the company said that it wouldn't advance GS-5745 in treating Crohn's disease and that eleclazine failed to meet its primary endpoint in a late-stage study for treating long QT-3 syndrome, a rare heart rhythm disorder. 

A few weeks earlier, Gilead announced that it wouldn't pursue late-stage studies of GS-4997 in pulmonary arterial hypertension (PAH) or diabetic kidney disease (DKD) after mid-stage failures in both indications. Before that, Gilead canceled its phase 2/3 clinical studies of GS-5745 in treating ulcerative colitis.

These pipeline setbacks are especially concerning because Gilead needs all the help it can get. In addition to the company's seeming streak of bad luck with its pipeline, Gilead is also in the midst of a negative streak of financial results. Sales for Harvoni and Sovalid continue to plunge. 

All this bad news has taken its toll on Gilead's stock. Shares are down nearly 30% so far in 2016. Even the election results that helped most biotech stocks haven't been enough to turn things around for Gilead. While Gilead's shares bounced around 8% after the election, the stock has given up around half of those gains.   

Changing fortunes

What will it take for Gilead to break the cycle of bad news? Report some good news. I think that there are three potential ways that the biotech could end its unlucky streak.

First, Gilead could report better-than-expected results for its hepatitis C franchise. Don't expect Harvoni's sales to rebound. That probably won't happen. However, sales growth for new hep C drug Epclusa combined with an end to Harvoni's sales free fall would likely make investors much happier.

Second, Gilead could deliver positive results from its pipeline. At this point, any positive results would be nice. But Gilead really needs something that will be impressive, like overwhelming efficacy from one of its candidates targeting treatment of nonalcoholic steatohepatitis (NASH).

Third, the biotech could make an acquisition that pleases the investment community. Some are rooting for Gilead to buy Incyte (INCY 1.18%). Gilead CEO John Milligan particularly mentioned the company's interest in expanding its oncology portfolio. Incyte's Jakafi and strong pipeline of experimental cancer drugs, including epacadostat, could be just what's needed to turbocharge the stock.

The tricky thing with the acquisition game, however, is to buy a company that's a great fit while not paying so much that Wall Street frowns on the deal. My concern with Gilead buying Incyte is that the price tag could be too steep. Personally, I prefer the idea of Gilead making a string of smaller acquisitions.  

What will Gilead do?

Gilead doesn't have a lot of control over two of these options for ending its unlucky streak. If the biotech could have stemmed the sales loss for Harvoni already, it would have done so. And there's not a whole lot the company can do about how well pipeline candidates succeed. 

However, Gilead can certainly impact its fortunes with a smart acquisition strategy. All signs point to the biotech doing just that. Investors should be encouraged that John Milligan indicated that Gilead would set a high standard for any deals it made. 

While Gilead has experienced more bad news lately than good, the company's huge cash stockpile and solid cash flow give it the ability to end the streak. Like famous U.S. general Douglas MacArthur once said, "The best luck of all is the luck you make for yourself."

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.