Biotech giant Gilead Sciences (NASDAQ:GILD) has attracted widespread attention in recent weeks as its antiviral drug remdesivir gained momentum as a candidate for treating severe cases of COVID-19. Last week, remdesivir received authorization from the U.S. Food and Drug Administration (FDA) for use in severe cases of COVID-19, an event newsworthy enough to merit an audience at the White House by the CEO.

Gilead shares have been moribund for years as sales declines in the company's hepatitis C (HCV) drugs canceled out any gains from the rest of the company's portfolio. But the prospects for remdesivir have investors excited about the stock, which has risen 24% since January.

After this run-up in the share price, should you join the party and buy Gilead stock now?

The outcome for remdesivir is still very uncertain

The possibility that remdesivir could speed the recovery of severe cases of COVID-19 is great news, especially for the patients and for a world looking for some hope in the battle against this virus. But given what little we actually know about remdesivir, the jump in Gilead's share price seems overdone.

Benjamin Franklin on the $100 bill, with his face surrounded by multicolored pills

Image source: Getty Images.

The FDA's emergency authorization for remdesivir is based on preliminary results from a trial involving 1,063 patients who were hospitalized with severe COVID-19. On average, the patients treated with remdesivir recovered in 11 days, compared with 15 days for the placebo group. Mortality was a little lower with the treated group as well, but that result was not statistically significant.

That early data is certainly enough to consider remdesivir the new standard of care for severe COVID-19 for now, but there are still hurdles for Gilead to clear in order for the drug to be a winner in the long term. The results will need to be confirmed in other tests, and the investigational drug, which has not yet been formally approved for any indication, will also have to beat out new rivals in head-to-head competition. There are at least 10 clinical trials getting under way comparing remdesivir to other antivirals, including drugs that are already in the marketplace and sold by industry heavyweights such as Eli Lilly and AbbVie.

Beyond this current emergency situation, we don't know how many patients will eventually be treated with remdesivir and how much money Gilead will make from it. We don't know how it will compare with the other drugs in its class, whether it will win approval for a broad segment of patients or narrow one, and -- in the biggest unknown of all -- we have no idea what course this disease will take. There could be millions of hospitalized COVID-19 victims in 2021, or there could be a few thousand.

Gilead is donating enough remdesivir to treat at least 140,000 patients for free, but beyond that, the price the company will charge is still a mystery. Analysts in the company's conference call on April 30 tried several times to get an idea, but the company wasn't talking. Gilead expects to manufacture enough for a million courses of treatment by the end of the year, and even more next year, but the amount they'll charge for it, and even the amount they'll be able to sell, is still unknown.

Strengths were building before the pandemic

The company had some good things going for it before it landed in the coronavirus spotlight. The share price had gone nowhere for three years while the company was a victim of its own success. The company's drugs for hepatitis C cured the disease, resulting in a shrinking pool of patients to treat and a resulting decline in the top line. Investors were anticipating that the company would use its massive pool of cash to buy some growth with acquisitions, but Gilead moved more slowly than many of us were hoping. And when it finally made a big deal to buy cancer cell therapy specialist Kite Pharma, it was criticized for the high price it paid.

Still, the company has been laying the foundation for steady growth, and until recently, that progress hadn't been reflected in the share price. The Kite acquisition gave the company a foundation in oncology, and even though Kite CAR-T therapy Yescarta has yet to provide much of a boost to Gilead's revenue, sales are growing rapidly, up 46% in the last quarter. The company also recently acquired Forty Seven, a specialist in blood cancer drugs that builds on Gilead's immune-oncology pipeline.

An entry into the huge market for immunology drugs may pay off for Gilead even more quickly than its oncology investments. The company's investment in Galapagos NV has given it rights to filgotinib, a drug that's under review by the FDA and, if approved, could be launched later this year. The drug is submitted for rheumatoid arthritis, but it's also in phase 3 trials for ulcerative colitis, Crohn's disease, and psoriatic arthritis, and it's a real threat to take share away from AbbVie's Humira, the world's top-selling drug.

A new leadership team

I think the most important sign that the company is making a transition that will lead to higher growth is the change in leadership. The company brought in a new CEO last year, Daniel O'Day, who has been revamping the company's C-suite. O'Day, formerly CEO of Roche, hired former colleague Merdad Parsey from Roche's Genentech division to be chief medical officer, and he's added a new chief commercial officer and a new chief financial officer as well.

The new team has plenty of cash to work with. Gilead has $24 billion in cash on its balance sheet, and it generated over $9 billion in operating cash flow last year. Whereas the previous team didn't get high marks from investors for business development, the current management team is going to be making some serious effort to build new sources of growth.

The path to growth won't necessarily be smooth, though. Last year's decline in HCV drug sales was $800 million, leaving the company with a top-line gain of only $442 million, or 2%. The company also announced in December the latest of several clinical failures in its attempt to develop a treatment for non-alcoholic steatohepatitis, or NASH. However the company's core franchise in HIV is doing well, and pipeline investments should start paying off before long.

Short-term risk, but long-term potential

The attention on remdesivir has driven up the valuation of the stock this year, as this graph shows:

Gilead share price vs. analyst consensus estimate of earnings per share.

Gilead share price vs. analyst consensus estimate of earnings per share. Data source: YCharts.

The good news for Gilead investors was that the stock was cheap before the pandemic, and investors had yet to recognize the positive signs on the horizon for the company. For long-term growth and a safe 3.4% dividend, Gilead Sciences is a buy at its current valuation of just over 12 times the analyst consensus estimate of 2020 earnings per share.

That 24% price bump due to remdesivir's potential is a risk, though. The company said in its most recent conference call that it could potentially invest $1 billion during 2020 in developing remdesivir, and there's a very wide range of potential financial outcomes for the drug, as we've seen. Investors with the patience to watch the longer story play out could buy the stock now and hold for years. Any disappointment about remdesivir's potential -- reasonably likely, in my opinion -- could give investors an opportunity to buy this solid pharmaceutical business for a better price later this year.