With the pharmaceutical sector abuzz amid the scramble for a marketable drug to treat COVID-19, Gilead Sciences' (GILD -0.76%) stock tumbled on Tuesday and Wednesday amid news of two of the company's COVID-19 drug clinical trials in China being canceled. But a positive update about its U.S. study helped the stock recover by the end of the week.
Nonetheless, Gilead's stable of existing antiviral therapeutics makes it a leading competitor in the race toward a drug for COVID-19. Thanks to prior efforts in drug development, the company has a plethora of therapeutics to test for efficacy against the coronavirus. But, more importantly, it's the company's history of effective antiviral drug development and weathering serious setbacks that makes its stock worth purchasing at its near-term values.
Gilead's antiviral pipeline is still a sustainable competitive advantage
Despite being less profitable than most of its major competitors like Pfizer (PFE -2.33%) and Merck (MRK -1.07%), Gilead's profit margin of 23.99% indicates that the company is well-positioned to serve healthcare markets efficiently. Likewise, Gilead's 2019 revenues of $22.45 billion and year-over-year revenue growth of 1.4% show it to be a slow but steady competitor in the pharmaceutical sector. When taking revenue loss from drug exclusivity protection expirations into account, Gilead's steady growth is all the more remarkable.
In 2019, 74% of Gilead's product sales stemmed from its collection of antiviral drugs for HIV. Given that none of Gilead's HIV therapeutic drugs are curative and that patients with HIV need to take the drugs for the rest of their lives, it's unlikely that the company will repeat its hepatitis C fiasco and shrink the target patient population to the point of collapsing demand for its drugs. Demand for Gilead's HIV therapeutics isn't static, either; HIV product sales increased by 12% to earn the company $16.4 billion in 2019. For the time being, Gilead's revenues are secure, as is its reputation for being a leading antiviral drug developer.
Unlike its larger competitors, Gilead isn't content to rest on its laurels of successful drugs on the market. Gilead's recent $4.9 billion acquisition of the immuno-oncology company Forty Seven and its 2017 purchase of Kite Pharma suggests that the company sees the benefit of expanding its pipeline to build on promising early stage drug candidates that don't necessarily synergize with its areas of established competence. In other words, Gilead is leveraging its ironclad revenues earned by its core drug collection to initiate speculative new high-risk, high-reward pipeline programs.
In the long term, there's a very strong likelihood of one of Gilead's new gambles becoming a blockbuster success, not unlike its HIV therapeutics. In the short term, however, Gilead is betting big on its trial-stage COVID-19 therapeutics.
Short-term clinical trial setbacks are valuable opportunities for investors
If any of Gilead's grouping of antiviral drugs could be repurposed to fight COVID-19, the financial windfall would dwarf nearly all of the company's prior efforts. In this vein, Gilead initiated multiple ongoing clinical trials examining its drug remdesivir's potential impact on COVID-19. From a drug development perspective, remdesivir is particularly appealing for Gilead to monetize, as its prior attempts to find a market for the drug during the Ebola epidemic were unsuccessful despite the drug's apparent efficacy.
As major pharma companies may spend upwards of $5.2 billion to bring a drug to market, it's no surprise that Gilead is eager to recoup its investment in remdesivir. Time will tell whether remdesivir will finally find its niche by treating COVID-19 or whether Gilead will need to keep looking for another viral disease to match the premade solution that it has in hand. While remdesivir is far more promising than much-discussed drugs for COVID-19 like chloroquine, it isn't the only drug under investigation, nor was it designed specifically for the role it may fill. This means that remdesivir might be used as a stopgap for COVID-19 if clinical trials show that it's helpful, but it's unlikely to be the only solution in the long term.
For the moment, it's important not to read too much into the cancellation of Gilead's two remdesivir trials in China, as at least four other programs are ongoing elsewhere. Likewise, while it may be tempting to buy Gilead after the surge caused by Thursday's promising preliminary data on remdesivir efficacy for COVID-19, waiting for the hype buying to settle is probably a more prudent course of action.
Importantly for investors seeking a deal, there's a good chance that at least one of the company's clinical trials for COVID-19 will hit a major roadblock before its completion. While clinical trial failures are a fact of life for pharmaceutical companies, they're also great opportunities to pick up stocks at a steep discount.
Regardless of Gilead's future success in bringing its antiviral drug roster to bear on the pandemic, the company's base of revenue won't be shrinking anytime soon, and astute pipeline investments paint a bullish picture for the long haul. Keep an eye out for bad news regarding Gilead's COVID-19 trials; short-term investors will panic and sell, missing out on the pharma stock's near-guaranteed long-term growth.