Thousands of stocks have plunged during the coronavirus-fueled market downturn. Gilead Sciences (GILD 1.37%) isn't one of them. Shares of the big biotech have instead jumped 20% so far this year, putting Gilead in an elite group of stocks in positive territory in 2020.
But should you buy Gilead Sciences stock right now after its solid year-to-date gains? Allow me to try to talk you out of it -- before I attempt to convince you that investing in the biotech is a smart idea.
5 biggest reasons to stay away
There are some legitimate reasons you should seriously consider avoiding Gilead Sciences stock. I've listed five of the most compelling ones that I can think of below in descending order of importance.
1. Filgonitinib could be a dud.
Gilead has an awful lot riding on filgotinib. The company awaits U.S. and European regulatory approvals for the drug in treating rheumatoid arthritis. If anything goes wrong in the regulatory process or if all goes well but the commercial launch of the drug is really disappointing, Gilead's shares will be hammered hard.
2. HIV franchise sales growth could slow.
Although Gilead has dominated the HIV market for years, it has a significant rival with GlaxoSmithKline. An even bigger challenge is that two of the company's top-selling HIV drugs of the past, Atripla and Truvada, have already lost patent exclusivity in Europe and lose patent protection in the U.S. next year. HIV is Gilead's biggest moneymaker. If its HIV franchise sales slow too much, Gilead could be in trouble.
3. Pipeline candidates could flop.
Gilead's pipeline includes 10 late-stage programs. If any of these candidates flop in clinical testing, expect a sell-off.
4. Hepatitis C virus (HCV) revenue could sink more than expected.
The biggest albatross around Gilead's neck in recent years has been its HCV franchise. Although Gilead has predicted that its HCV sales will stabilize, the franchise still generates enough money that lower-than-expected revenue could weigh heavily on the biotech's share price.
5. The company could make a bone-headed, money-losing acquisition.
Gilead's 2017 acquisition of Kite Pharma hasn't come close to paying off yet. The company recently announced the acquisition of Forty Seven for $4.9 billion. There's a distinct possibility that Gilead could make a really bone-headed deal that causes investors to lose faith in its management team.
5 biggest reasons to buy Gilead stock
Now that I've tried to talk you out of buying Gilead Sciences shares, here are the five biggest reasons why I think buying the biotech stock is a great idea.
1. Filgotinib will probably be enormously successful.
The late-stage results for filgotinib in rheumatoid arthritis were really good. While there's no such thing as a sure thing in the regulatory approval process, the chances of the drug winning FDA and European approvals appear to be high. So do the prospects of filgotinib eventually delivering mega-blockbuster sales for Gilead.
2. Biktarvy -- enough said.
Sure, Gilead faces some challenges with Atripla and Truvada losing exclusivity. But Biktarvy is on track to become the most successful HIV drug ever. I don't see Gilead's HIV lead diminishing.
3. Have you seen the dividend yield?
Gilead's dividend currently yields more than 3.5%. The company has increased its dividend payout by a whopping 58% since initiating the dividend program in 2015. It also has an ample cash flow to keep the dividends flowing and growing.
4. Remdesivir could save the world.
A top World Health Organization (WHO) official said in February that Gilead's remdesivir was the most promising therapy right now for treating novel coronavirus disease COVID-19. Gilead is evaluating the antiviral drug in late-stage studies, with initial results potentially on the way later this month. It might be a wee bit of an exaggeration to say that remdesivir could save the world. But if the drug proves to be really effective at treating COVID-19, look for Gilead stock to take off.
5. A more promising pipeline potential than many think.
Sure, Gilead has had some pipeline setbacks, notably with its nonalcoholic steatohepatitis (NASH) candidates. However, I think the biotech's pipeline is more promising than it might seem. Gilead has some cancer cell therapies in development that could be big winners. And the company has some phase 1 and phase 2 programs that could be huge, for example, its long-acting HIV capsid GS-6207 and potential cures for both HIV and hepatitis B virus (HBV).
Risks vs. rewards
There's no sugar-coating that investing in Gilead Sciences comes with some risks. But that's true of any biotech stock. It's true of any stock, period. The question for investors is: Do a given stock's potential rewards outweigh those risks on balance?
My view is that Gilead's risk-reward proposition is a favorable one. Gilead has been a winner so far in a year chock-full of losers. I think it will be a winner over the long run, too.