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The Government Will Distribute Gilead's Remdesivir. This Could Be Bad News for Investors

By Michael Dean McGrady Jr – May 11, 2020 at 11:16AM

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There are reasons to be concerned about the initial distribution model for Gilead Sciences' recently green-lit Remdesivir treatment for COVID-19.

The world can rejoice a little about Remdesivir, a COVID-19 treatment from Gilead Sciences (GILD 2.37%) that the U.S. Food and Drug Administration (FDA) has authorized for emergency use in treating acute cases of the novel coronavirus. The company initially produced the drug as a potential tool against Ebola in 2014, and proven -- if preliminary -- findings have shown that Remdesivir could increase the survivability rate of those diagnosed with COVID-19.

The FDA said that a clinical trial demonstrated Remdesivir's ability to shorten the time of recovery in patients being treated with the drug through intravenous administration. In its emergency use authorization, the agency mandated that the federal government will have the final say on how Remdesivir is distributed.

Disease experts are concerned about the drug's distribution

The Infectious Diseases Society of America and the HIV Medicine Association sent an open letter to Vice President Michael Pence and the federal COVID-19 task force requesting that they outline the details of how they plan to distribute Remdesivir and how they expect to remain ethical and transparent.

Image Source: Getty Images

Image Source: Getty Images.

The letter asks the Trump administration to ensure that health facilities in communities already disproportionately affected by the coronavirus, including communities of color, have equal access to Remdesivir. It also requests that the administration publicly release data so hospitals can use it. Basically, these infectious disease doctors want some indication of how the drug will be moving throughout the country. Let's consider some of the potential fallout from the mandate. 

Meat vs. drugs: all federal control

President Donald Trump recently issued an executive order forcing meatpacking facilities to remain open during the remainder of the pandemic and the various related states of emergency. Trump issued this order through the Defense Production Act, more or less, after lobbying from producers including Tyson Foods (TSN 0.16%).

Tyson is facing public scrutiny over its treatment of workers and its ability to fulfill the national demand for pork, beef, and poultry; analysts have warned that the use of the Defense Production Act, while offering short-term relief for businesses like Tyson experiencing significant hits to their sales, could affect future trading. 

Tyson's fiscal second-quarter earnings report shows overall earnings cratering on a 9% loss, among other disappointing numbers. And even with the federal government's focus on keeping meatpacking afloat, Tyson still projects nationwide shortages and more uncertainty in the future.

The moral of the story is that federal regulatory guidance and control over supply chains and production can make matters worse for companies, their employees, and their investors.  The intervention in Gilead's supply chains may well turn out like it has with Tyson -- i.e., it won't guarantee product delivery to the market, let alone bolster production at expedited rates.

Earnings and controversy considered, Gilead remains a buy

Remdesivir isn't the only thing Gilead has going on. The company is fighting with the federal government over patents related to its popular HIV treatment Truvada, and analysts are also concerned about pricing for Remdesivir and its international availability. Pricing worries stem from a 2013 controversy about Gilead's Sovaldi, a life-saving drug heralded as a cure for hepatitis C; critics said the company's price of $1,000 per pill was too high. Happily for Gilead, the Japanese Ministry of Health just announced that Remdesivir will be used for severe COVID-19 cases in that country, showing at least some international interest in the drug's potential. Domestic distribution and recent earnings reports, though, still paint somewhat of a mixed picture featuring controversy and potential long-term gains.

Gilead released its first-quarter earnings a few days ago, and shares fell 5% not long after as management failed to answer the market's concerns over Remdesivir distribution and its expected business model. An Axios report has noted that the Trump administration lacks uniformity regarding distribution of Remdesivir, citing anonymous sources who claim the process has not been equitable and that the drug hasn't reached some of the highest-priority medical centers that need it.

Gilead Sciences reportedly donated hundreds of thousands of doses of Remdesivir to the federal government after the FDA's emergency use authorization, which required the U.S. Department of Health and Human Services to coordinate with the Federal Emergency Management Agency to allocate and distribute the drug. An administration official says that about 5% of those doses -- approximately 32,000 -- were sent to the wrong counties in states including New York, New Jersey, Virginia, and Rhode Island because of problems with the distribution model. The resulting uncertainty could harm overall efforts to distribute Gilead's drug to those who need it most.

While there's reason to be concerned about federal control of Remdesivir in the short term, Gilead is still a buy if you consider its long-term revenue potential. With no official end date to the pandemic on the horizon and the COVID-19 virus expected to become a seasonal illness like the flu, Remdesivir sales could go through the roof, with the potential to generate more than $750 million next year and $1.1 billion in 2022. Right now, one of the most important things for healthcare investors to watch is the level of transparency from the federal coronavirus task force regarding Remdesivir treatment. If things look good on that front, this could be a strong opportunity to jump on board.

Michael McGrady owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tyson Foods, Inc. Stock Quote
Tyson Foods, Inc.
$68.67 (0.16%) $0.11
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$64.11 (2.37%) $1.49

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