Those who own shares of Gilead Sciences (GILD -0.84%) have been on quite the roller coaster ride this year. The stock reached a high in April as investors became optimistic about the company's new drug, remdesivir, and its potential to treat COVID-19 patients. On May 1, the U.S. Food and Drug Administration (FDA) granted an Emergency Use Authorization (EUA) for the drug to treat hospitalized patients with severe cases of the coronavirus. Gilead had donated 1.5 million doses of remdesivir to the U.S. government as of June 30.
However, the hype around Gilead's treatment has died down in recent months. The treatment has not proven effective for all patients, and vaccine companies are now in the spotlight. As a result, Gilead's stock has fallen below $70 for the first time since March. Is this a great time to grab a top healthcare stock at a cheap price? Let's take a closer look at whether Gilead is worth buying today.
Gilead is coming off a disappointing quarter
One of the reasons that Gilead's stock has struggled is due to the less-than-impressive second quarter results published on July 30. The California-based company's revenue of $5.1 billion was down 9.5% from the year-prior as the COVID-19 pandemic kept many people at home and away from healthcare providers, leading to less demand for and access to Gilead's products.
The HIV drugs that typically make up more than 70% of the company's total product sales were only down a total of 1% year-over-year. It was the combined performance of Gilead's other drugs that provided the largest drag on the quarter's sales. Letairis, which treats pulmonary hypertension, declined by $124 million from 2019, or 61%. Gilead's top Hepatitis C drugs, Ledipasvir/Sofosbuvir and Sofosbuvir/Velpatasvir, were down 65% and 32% respectively, and generated $284 million less in sales than the year-prior.
Image source: Getty Images.
But the company is making strategic moves to bolster its drug portfolio and decrease its dependence on HIV drugs. Gilead acquired immuno-oncology company Forty Seven in April for $4.9 billion. The deal gave Gilead access to magrolimab, a monoclonal antibody that shows promise in treating several hematological cancers including myelodysplastic syndrome (MDS), acute myeloid leukemia (AML) and diffuse large B-cell lymphoma (DLBCL). Although the acquisition bolstered the company's pipeline, it also sent Gilead's financials into the red with a net loss of $3.3 billion compared to a profit of $1.9 billion in the same period last year. Despite a poor Q2 performance, Gilead still expects product sales to ring in between $23 billion and $25 billion in the remainder of the year, up from a previous range of $21.8 billion to $22.2 billion.
If patients resume their regular visits to the doctor's office, that should help give Gilead's financials a boost and hopefully get the company back to being profitable. A serious threat to that scenario is the rising number of COVID-19 cases across the U.S. -- patients may not be eager or able to venture out of their homes to get access to Gilead's products.
A cheap buy with great potential
Shares of Gilead are up around 5% this year, tracking closely with the S&P 500. According to analyst projections, Gilead's stock is trading at a forward price-to-earnings (P/E) multiple of just 10.2. And its price-to-earnings-growth (PEG) ratio of less than 0.5 indicates that the stock possesses tremendous value now, given the growth that analysts expect from the business over the next five years.
Remdesivir may generate $7 billion in annual revenue by 2022, as governments around the world look to stop potential outbreaks of COVID-19, according to an analyst from SVB Leerink. It's important to note, however, that while remdesivir has shown effectiveness in treating some patients with the virus, its effects are inconsistent and it is not a perfect treatment option. In July, the company released results that showed 7.6% of patients taking remdesivir died from COVID-19. And while that was better than the 12.5% mortality rate of patients who didn't receive the drug, it still shows that the drug isn't a surefire treatment against the disease.
On August 8, Gilead announced that it submitted a New Drug Application to the FDA for remdesivir, which could lead to broader use of the drug. Gilead has conducted trials to determine how the drug affects patients with moderate cases of COVID-19 in an effort to expand on the data obtained from treating severe cases, which is currently permitted by its EUA. Because the EUA is only temporary, it will be important for Gilead to get the FDA's go-ahead in order to grow remdesivir's sales.
$7 billion of remdesivir sales could substantially boost Gilead's top line. That amount would have constituted almost a third of its annual revenue of $22.4 million in 2019. If the drug's sales realize that growth, buying the stock today at its current price could prove to be a bargain.
Should you buy Gilead?
Although this healthcare stock is falling out of favor with some investors, now is a great time to buy shares of Gilead. Remdesivir has shown meaningful progress in treating the novel coronavirus. Even if a vaccine against COVID-19 is approved, it won't be widely administered right away. There will still be a need for drugs that can treat patients who contract the virus. That reality could lead to awesome gains for the company.
Gilead is a low-risk investment right now. The company has recorded a profit in each of the past 10 years, and its sales have been down a modest amount considering the country's stay-at-home orders and the current lack of in-person medical care. Its most recent quarter shouldn't discourage investors; Gilead is well-positioned to bounce back in the next one.
