Please ensure Javascript is enabled for purposes of website accessibility

What's Behind Gilead Sciences, Inc.'s 9.5% Rally in June

By Cory Renauer - Updated Jul 7, 2017 at 6:38PM

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

Investors cheered a draft executive order intended to lower drug spending that would probably leave Gilead's bottom line untouched.

What happened

Shares of Gilead Sciences, Inc. (GILD -1.09%), a big biotech best known for its HIV and hepatitis treatments, perked up 9.53% in June according to data from S&P Global Market Intelligence. Investors viewed a draft of an executive order as a sign the Trump administration has no intention to enact drug pricing controls promised along the campaign trail.

So what 

Accusations that the pharmaceutical industry is "getting away with murder" followed by promises to take drastic action to lower drug prices justifiably made Gilead Sciences shareholders nervous. The company's hepatitis C antiviral treatment, Sovaldi, premiered with a list price of roughly $1,000 per pill and, along with several other drugs with seemingly outrageous prices, made the pharmaceutical industry a favorite whipping post for American politicians on both sides of the aisle.

pills stacked in the shape of an upward sloping stock chart.

Image source: Getty Images.

Despite tough talk about reigning in runaway drug prices, a draft of an executive order revealed last month contains little that would curb Gilead's pricing power for its market-leading antiviral treatments. For example, one proposal might force pharmacy benefit managers to pass on more of the rebates and discounts they wrangle from companies like Gilead to patients. This would probably benefit consumers but have little effect on drugmakers.

Now what

Rather than punish companies like Gilead for perceived capital offenses, it appears the administration is prepared to grant some of the industry's wishes. The executive order was drafted following discussions with Trump's Drug Pricing and Innovation Working Group, which happens to be headed by a former lobbyist for Gilead Sciences, Joe Grogan. One idea the group focused on concerns extending the patent life of drugs in foreign markets.

Another talking point that would do wonders for Gilead is a program that involves issuing 10-year U.S. Treasury bonds directly to drug manufacturers to help Medicaid and Medicare pay for pricey hepatitis C treatments. Hepatitis C can take years to present life-threatening symptoms, and at the moment, just a tiny sliver of those infected have received treatment. If the finished version of the executive order contains such a provision, it would deliver a tsunami of profits to Gilead's doorstep.

Cory Renauer owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: long August 2017 $75 calls on Gilead Sciences. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.45 (-1.09%) $0.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

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