Gilead Sciences(NASDAQ:GILD) stock needs a game-changing drug, and it needs one right now. At seven times trailing-12-month earnings, the stock is ridiculously cheap because the market assumes its best days are behind it. But what if Gilead already had that game-changer in the form of a ground-breaking, once-daily pill that was FDA-approved to prevent HIV?

Image source: Getty Images.

Intrigued? Here's what investors should know about how a drug called Truvada PrEP (Pre-Exposure Prophylaxis), could rapidly penetrate the huge HIV market and change the fortunes for this beaten-up biotech.  

A new world of HIV sales

Gilead's medication Truvada has been an extremely successful HIV treatment for over a decade, but it was never marketed to prevent the deadly virus in healthy people. And that's despite the pill achieving that label expansion in 2012, leading to it being hailed as a breakthrough in the battle to defeat AIDS.

That should have been a huge moment for Gilead investors. Priced at around $1,500a month, the medication could have penetrated a massive new market of healthy people and led to a serious revenue gain. It also could have alleviated fears that Gilead was losing its market-share advantage in HIV. While Gilead still owns around 80% of the HIV treatment arena, the biotech faces growing threats from over 35 competing treatments.

Meanwhile, Gilead stands alone in only one category: HIV prevention. But despite utterly monopolizing that market with the only FDA-approved drug, the big biotech never pulled the trigger on a marketing campaign. Instead, it decided to keep the medication a secret from those who needed it most.

Aren't drugmakers in the business of making money? What happened?

It's possible Gilead simply didn't want to get caught in a firestorm. After Truvada PrEP's approval, there were media reports claiming Gilead decided against marketing the drug because patient advocates said it might lead to unsafe sex practices.  But the Center for Disease Control (CDC) came down firmly on the side of the medication in 2014, advising Americans at risk to consider using it to avoid HIV infection. Clinical trials showed it was 90% effective in preventing HIV in healthy people, and users were not more likely to participate in risky sexual behavior.

While Gilead's former decision is a head-scratcher, it's also history. What matters is that the company has reversed course. In July, Gilead announced it would start advertising Truvada PrEP's benefits to doctors through professional publications, and sales immediately took off. Users of the medication ramped up a jaw-dropping 38% to 90,000 people last quarter, from around 65,000 using it for prevention in Q2.

However, the HIV market "is primarily driven by demand by patients," as David Piontkowsky, Gilead's VP of HIV Medical Affairs pointed out. So, Gilead's next move is an all-out advertising campaign to consumers to escalate sales even faster. In what might be a mea culpa, Piontkowsky also explained that attitudes toward the medication started to change a couple years ago as doctors, activists, and potential users started criticizing Gilead for "not saying enough."

Could PrEP put Gilead back in growth mode?

Truvada PrEP's growth could have a significant impact on the stock going forward since Gilead has become increasingly dependent on HIV for revenue growth. Revenue from HIV and other antiviral product sales grew to $3.5 billion last quarter. 

In terms of HIV sales, Truvada (in both applications, preventative and post-infection) is Gilead's powerhouse. The pill brought in roughly $858 million worldwide in the third quarter.   

Truvada has patent protection until 2021, but Gilead is also working on a successor preventive drug, F/TAF (emtricitabine/tenofovir alafenamide). F/TAF has been approved for HIV treatment and is under study as a preventative. Add that label expansion to Gilead's pipeline candidates in such fields as non-alcoholic steatohepatitis (NASH) and autoimmune diseases, and I think this company has some fantastic opportunities ahead.

PrEP's current sales are the tip of the iceberg

The CDC estimates 1.2 million Americans are at high risk for HIV. Given that 900,000 people were reported using PrEP last quarter, that's only 7.5% penetration for this drug, meaning its revenue growth is still in those exciting, early stages. In addition, the European Commission approved Truvada for PrEP last August. The approval sent European sales soaring upward sequentially by 60% last quarter.

However, while Truvada PrEP is successfully rolling out in the developed world, is it realistic to think low-income countries will be able to afford it?

Interestingly, there's good reason to say they can. There's been a lot of success in creating access to HIV treatment globally, despite how many experts were once initially skeptical about the antiretroviral treatments in relation to cost-effectiveness and the ability of people living with HIV in poorer countries to adhere to treatment.

Over the past 15 years, these concerns have mostly proven false. While there's still a tremendous amount of ground to cover, the scale of global response has been unprecedented. According to the World Health Organization, in 2016, more than 18 million people living with HIV had access to antiretroviral treatment.

Assuming Truvada PrEP achieves worldwide access, Gilead will need to make it more affordable in some markets, but it could still end up a megablockbuster because of its monopoly as a preventive drug. And meanwhile, it should provide a source of accelerating growth for Gilead, giving investors a reason to hold or buy the stock until Gilead's pipeline candidates pan out, or the company steps up to the plate with a promising acquisition.

Pivotal moment in HIV

In any case, with HIV/AIDS the sixth leading cause of death in the world, Gilead's decision to start marketing Truvada PrEP is a big moment in the HIV story. "This is a new, safe, and effective tool in our toolbox to prevent HIV," said Julia Raifman several years ago, when she led a study on Truvada's preventive benefit at Johns Hopkins School of Public Health. "But it does us no good if no one is using it."

Thankfully, with Truvada PrEP opening up a new world of HIV sales, that risk is rapidly disappearing behind us.