I held on to my shares of Gilead Sciences (GILD 0.47%) for a long time.
When sales for the big biotech's hepatitis C franchise sank a few years ago, pulling the stock down along the way, I stayed the course. When Gilead's seemingly promising nonalcoholic steatohepatitis (NASH) candidate selonsertib bombed in a late-stage study last year, I didn't panic. When Gilead began replacing nearly all of its top executives, I remained optimistic.
In fact, I was a champion for the biotech stock. But that's no longer true. I sold all of my shares several days ago. Here's why I finally gave up on Gilead.
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The final straw
I've been quite optimistic about the prospects for filgotinib, a drug that Gilead licensed a few years ago from Galapagos (GLPG 1.14%). My view was in line with the opinion of several Wall Street analysts: that filgotinib could become a megablockbuster over the next few years.
In February, I wrote that filgotinib was a better reason to buy Gilead stock than remdesivir. And that was before the antiviral drug was successful in late-stage studies and won emergency use authorization from the FDA in treating COVID-19.
Earlier this month, I maintained that Gilead was still a good pick even after it reported disappointing Q2 results. My reasoning was that the company would soon see better days. An important element of my optimism was that I was counting on an FDA approval for filgotinib in treating rheumatoid arthritis, setting the stage for future approvals in other autoimmune diseases.
Then Gilead announced on Aug. 18 that the FDA had handed it a complete response letter (CRL) for filgotinib. The agency requested data from the Manta and Manta-Ray studies, neither of which will wrap up until next year. Gilead also said that the FDA "expressed concerns regarding the overall benefit/risk profile of the filgotinib 200 mg dose."
One of the few reasons I ever sell a stock is when my underlying assumptions about the company's growth prospects prove to be wrong. Filgotinib's flop with the FDA was the final straw that convinced me it was time to sell my shares of Gilead.
Raising questions
I'm now concerned that Gilead's entire filgotinib program could be at risk. But the FDA rejection raises even more questions in my mind.
Before Dan O'Day took the helm as Gilead's CEO, it seemed likely that Gilead would have to wait to file for FDA approval of filgotinib until the Manta study was completed, because of the agency's safety concerns about the drug. However, in O'Day's first quarterly conference call as CEO in May 2019, it was abundantly clear he was pushing hard to speed up the regulatory submission.
O'Day also spearheaded a $5.1 billion collaboration agreement with Galapagos last year. That deal seemed to make sense considering the tremendous potential for filgotinib, which was already included in a partnership established several years earlier.
In hindsight, it would have been more prudent to make sure that filgotinib wouldn't run into problems before spending billions of dollars to expand the relationship with Galapagos. I liked the hire of Dan O'Day. Now, though, I wonder if he has perhaps steered Gilead in the wrong direction.
Best wishes
Don't get me wrong: I'm not super pessimistic about Gilead's prospects. The company remains a juggernaut in HIV. Biktarvy continues to be a monster success. I fully expect that Gilead's long-acting capsid inhibitor lenacapavir will be another big HIV winner. If a cure is developed for HIV in the future, it's likely to come from Gilead.
I also suspect that Dan O'Day will lead Gilead to become a bigger player in oncology over the long run. That's certainly what he appears to be attempting to do with the flurry of cancer-focused acquisitions and partnerships since he joined the company.
But a key component of my investing premise for Gilead Sciences hinged on filgotinib. I was convinced that the drug would usher the biotech into a new therapeutic area and become a major growth driver in the near term. That scenario is much less likely now.
I have nothing but best wishes for Gilead. Maybe I'll even buy its shares again sometime down the road. For now, though, there are other stocks that I believe offer more compelling risk-reward propositions. Sometimes it's best to admit you're wrong and move on.
