Gilead Sciences (NASDAQ:GILD) beat Wall Street estimates when the big biotech announced its first-quarter results in late April. But the streak didn't last long.

Last week, Gilead announced second-quarter results that were below analysts' expectations. Its revenue declined 10.5% year over year, with adjusted earnings plunging 36%. But is Gilead stock now a buy after its disappointing Q2 results?

Man with hand on his head facing a wall with question marks and money bags drawn on it

Image source: Getty Images.

Why Q2 missed the mark

Gilead has been in the news quite a bit in recent months thanks to the clinical success for its COVID-19 therapy remdesivir. However, COVID-19 hurt Gilead in the second quarter rather than helping the company. 

For one thing, remdesivir didn't generate any appreciable revenue in Q2. Gilead donated its supplies of the experimental drug early on. Clinical studies of remdesivir increased the company's research and development expenses.

The bigger impact of COVID-19, though, was on Gilead's sales of its hepatitis C virus (HCV) and HIV drugs. Gilead reported that HCV product sales plunged 47% year over year in the second quarter to $448 million. Its HIV franchise sales slipped 1% year over year to $4 billion. Part of the problem was that there was significant stockpiling of these drugs in the first quarter of 2020.

Not all of Gilead's problems in Q2 were caused by the coronavirus outbreak, though. The company's 2020 Q2 results also compared negatively to the second quarter of 2019 because of around $160 million of favorable adjustments related to HCV and HIV rebates in Europe recorded in the prior-year period. Sales for pulmonary arterial hypertension drug Letairis and chronic chest pain drug Ranexa continued to slide due to generic competition.

Better days ahead

Investors shouldn't worry much about Gilead's disappointing Q2 results. The biotech should have better days ahead.

In fact, Gilead upped its full-year 2020 revenue guidance. It now expects full-year revenue will be between $23 billion and $25 billion. Gilead's previous outlook was for revenue of $21.8 billion to $22.2 billion. 

What's the main reason for this optimism? Remdesivir. Gilead thinks that it will sell up to 1.5 million courses of the COVID-19 drug during the second half of the year. At a price tag of $2,340 per course, that translates to added revenue of up to $3.5 billion. 

There are plenty of questions about how big a factor remdesivir will be over the longer run, especially as COVID-19 vaccines become available. However, Gilead Sciences CEO Dan O'Day said in the company's Q2 call, "But we know that vaccines are never 100% effective. They're never 100% utilized, so there will always be patients that need therapeutics."

In the meantime, Gilead is already seeing improvement in the markets for its core HIV and HCV drugs. The lifting of shelter-in-place orders has boosted sales as patients return to their normal physician visits.

An easy answer

So is Gilead stock a buy after its ugly Q2 results? I think there's an easy answer -- yes. 

Remdesivir will definitely provide a nice sales boost at least through 2021. My view is that it will continue to be a big winner even beyond then, especially if an inhaled version of the drug for outpatient settings is successful in clinical testing.

Gilead also awaits tremendously important U.S. and European approval decisions for filgotinib in treating rheumatoid arthritis. I expect wins in both markets and look for the drug to become Gilead's first immunology blockbuster over the next couple of years.

HIV drugs Biktarvy and Descovy should continue to deliver strong growth. I'm cautiously optimistic about the prospects for phase 2/3 testing for long-acting HIV candidate lenacapavir as well.

I also think that Gilead's oncology acquisitions will begin to pay off in a major way. Sales are steadily climbing for chimeric antigen receptor T cell (CAR-T) therapy Yescarta, which Gilead picked up with its 2017 acquisition of Kite. Gilead recently won FDA approval for its second Kite CAR-T therapy, Tecartus, as a treatment for relapsed or refractory mantle cell lymphoma (MCL). Gilead now has a late-stage cancer candidate that isn't a cell therapy thanks to its acquisition earlier this year of Forty Seven. 

My view is that Gilead is a bargain considering the growth potential that it has. The biotech stock trades at less than 11 times expected earnings. With an attractive dividend yield of nearly 4% thrown into the mix, Gilead appears to be a great pick right now.