As the coronavirus outbreak continues to spread around the world, only a couple of companies have successfully brought treatments to clinical trials so far. One of them is Gilead Sciences (NASDAQ:GILD), whose former Ebola drug candidate, remdesivir, appears to be an effective way to treat COVID-19 symptoms.
Understandably, investors are excited about what this could mean for the company, with shares of Gilead having shot up by 22% over the past couple of months as the COVID-19 outbreak continued to worsen. As the virus continues to spread, remdesivir could be in high demand from countries all around the world. The question worth asking, however, is just how much of a financial impact remdesivir as a COVID-19 treatment will have on Gilead.
Let's dive into the details and take a deeper look at how much money Gilead stands to rake in.
Remdesivir, initially known as GS-5734, was first meant as a treatment for Ebola. Despite the fact that it failed to prove as effective as initially hoped, the antiviral drug has seen some success in treating other types of viruses, including Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS).
In late January, remdesivir was successfully given to a COVID-19 patient on a compassionate-use basis. The results were impressive, to say the least, with almost all symptoms disappearing following the treatment. Since then, clinical testing with remdesivir has been pushed through at an accelerated rate, with the Chinese government working with Gilead to accomplish this.
The pharmaceutical giant recently announced it had entered into two new phase 3 trials in Asia, in addition to two ongoing clinical trials in China's Hubei province. Gilead also has a separate trial in the U.S. headed up by the National Institute of Allergy and Infectious Diseases (NIAID). All of these trials will test remdesivir's effectiveness in reducing patient symptoms in varying doses delivered intravenously, while closely monitoring for any adverse reactions or side effects. The two most recently announce phase 3 trials feature the largest sample sizes, testing 1,000 COVID-19 patients between the two studies.
An important distinction
As an intravenous antiviral drug, remdesivir is effective at reducing already existing symptoms and stymieing the spread viruses throughout the body. However, that's not the same thing as preventing the infection from occurring in the first place. Treatments that are capable of pre-emptively protecting someone from a disease, like a hepatitis vaccine or a flu shot, are referred to as prophylactic treatments.
While there are tens of thousands of people around the world currently infected with COVID-19, there are many more people who would be interested in a drug that could pre-emptively protect them from infection. As such, companies developing a COVID-19 prophylactic stand to make a lot more money than a treatment that merely treats the symptoms.
Although remdesivir currently isn't being tested as a COVID-19 prophylactic, there are some signs that the drug could have preventative properties after all. A recent non-related clinical test found that the drug proved to be an effective prophylactic in preventing Rhesus monkeys from contracting MERS, a condition similar to COVID-19. Given the genetic similarities between Rhesus monkeys and humans, there's a chance that remdesivir could prove to be an effective COVID-19 prophylactic after all, something which would drastically increase the drug's demand.
What's the potential market size?
Calculating the total market size for a possible COVID-19 treatment isn't easy, especially since the total market is determined by just how much the virus spreads. In less than two weeks, countries like Italy have seen the number of confirmed cases multiply by over a dozen times. Regions that seem to have things under control can quickly spiral into a dangerous epidemic in less time than one would think.
Some analysts, such as Geoff Meacham of Bank of America Merrill Lynch, said in February that the total upside for remdesivir isn't that impressive and won't do much to change Gilead's long-term financial outlook. He predicted that total COVID-19-related remdesivir sales would reach a one-time figure of just $2.5 billion.
The optimal dosing schedule for remdesivir is still uncertain, with current clinical tests experimenting with a five-day and 10-day treatment schedule, although doctors have had success in administered a single large dose of the drug as well. Analysts from Morgan Stanley predicted that the company could charge as little at $260 per treatment plan in China, which would be the main market for remdesivir (at least right now). If one assumes that the nearly 18,000 currently diagnosed COVID-19 patients in Hubei province all take a full treatment plan of remdesivir when (or if) it becomes available, that adds up to just $4.7 million in potential revenue if the virus doesn't drastically spread further.
As mentioned before, however, there's the chance that remdesivir could prove to be an effective prophylactic, although additional clinical studies will need to be performed before this is proven to be the case. If so, then the market for remdesivir changes drastically.
If we just look at the worst-hit parts of mainland China, there are around 11.1 million people in the city of Wuhan and approximately 61.9 million in Hubei province. Of course, that's not to say that the entire population would end up taking the drug, but even if we say that around half the province's population, maybe 30 million, take remdesivir on a preventative basis, Gilead would still make a lot of money.
In that situation, the total addressable market in just Hubei would be worth $7.8 billion, assuming the previous $260 price target for the drug. In comparison, Gilead's Q4 2019 revenue came in at $5.8 billion. Of course, Gilead would have a hard time supplying that much remdesivir at first, but it goes to show just much money the drug could make if everything went right.
What should investors do?
Investors also need to consider that while Gilead is ahead of the competition right now, other companies are working on competing COVID-19 treatments. Moderna is developing an mRNA-based vaccine that's beginning phase 1 trials, while Inovio Pharmaceuticals announced it was accelerating its development timeline for its own COVID-19 candidate. Clinical trials for Inovio's drug are expected to begin in April, with the data expected to be released sometime in fall 2020.
At this time, however, Gilead's remdesivir appears to be the best hope for COVID-19 patients at the moment. Officials from the World Health Organization (WHO) said in February that remdesivir shows the most potential right now. The real question is whether or not this will remain the case in the long-term. While I do think Gilead's stock will continue to rise in the future as markets react optimistically to further remdesivir developments, I think long-term investors shouldn't expect the drug to be the cash cow that some are making it out to be.
However, even factoring out remdesivir, Gilead remains a compelling investment. Its core HIV business, which includes the well known oral prevention pill Truvada, has seen double-digit growth rates over the past decade. Additionally, Gilead has a number of potential blockbuster drug candidates in development, including filgotinib, a rheumatoid arthritis treatment that could bring in as much as $1.3 billion in revenue by 2024. Even if remdesivir doesn't turn out to be a smash hit, there's still a lot of good things going on for the company.