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Why Gilead Sciences' Stock Could Be Heading Even Lower

By David Jagielski – Aug 29, 2020 at 7:30AM

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It's down 11% in just the past month.

This year has been a bit of a roller-coaster ride for shareholders of Gilead Sciences (GILD 1.29%). Things looked promising early on as investors, excited about the company's remdesivir drug as a possible treatment option for COVID-19, sent its stock price to a new all-time high by the end of April. 

However, it's been downhill since then as the company has faced multiple obstacles. Questions surrounding the effectiveness of remdesivir have cast a shadow over the stock's once-bright future. And concerns about its growth aren't going away. Let's take a closer look at why shares of Gilead may continue declining this year.

Recent remdesivir studies are concerning and could turn investors away

The Journal of the American Medical Association released a new study on remdesivir in August, showing that the drug was only minimally effective in treating COVID-19 patients. The data included 584 patients with moderate COVID-19 who developed pneumonia and required hospitalization.

Over a 10-day course, there was no significant improvement in patients who received remdesivir compared with those who didn't. And while the five-day treatment did show improvement, the researchers noted that "the difference was of uncertain clinical importance."

People working in a lab.

Image source: Getty Images.

Unfortunately, this is just the latest in a series of studies to provide more questions than answers surrounding remdesivir's effectiveness. In April, a study involving 237 patients in China (which ended prematurely) found that remdesivir didn't help people with severe COVID-19.

Another study, sponsored by the National Institute of Allergy and Infectious Diseases, was also released in April. This one included a much larger sample size, with 1,063 patients taking remdesivir over a 10-day course. The study's focus was on moderate-to-severe cases of COVID-19, and it found that patients who received remdesivir recovered four days earlier than those who received standard care. However, the difference in mortality rate (7.1% for patients who used remdesivir compared with 11.9% among those who didn't) wasn't statistically significant.

The U.S. Food and Drug Administration (FDA) issued temporary emergency use authorization (EUA) for remdesivir on May 1 for severe COVID-19 cases, and the company has donated 1.5 million doses of the drug to the government thus far. Gilead also filed for a New Drug Application (NDA) in August that would enable more widespread use of remdesivir; if this authorization is successful, it would not be temporary.

But without much in the way of positive results over the past few months, it's hard to be optimistic about the drug's effectiveness, regardless of whether the FDA approves Gilead's application. And with uninspiring results thus far, it may be difficult to convince patients and health officials that the drug is worth its price tag -- as much as $3,120 for a five-day treatment.

Filgotinib rejection only makes things worse

On Aug. 18, the FDA rejected another of Gilead's NDAs -- this time for filgotinib, which treats rheumatoid arthritis. The agency is requesting more information about studies relating to the drug; Gilead noted in its press release that the FDA "expressed concerns regarding the overall benefit/risk profile of the filgotinib 200 mg dose."

This doesn't mean that the FDA won't still approve the drug, but it delays the process. And even when Gilead does re-file, it may take over a year before it's approved (assuming it's successful). Analysts were projecting that the drug could add $3 billion annually in revenue to Gilead's top line.

It's a tough blow for a company that's struggled to grow its sales in recent years. From $26.1 billion in revenue in 2017, Gilead's sales fell to $22.4 billion last year. Without remdesivir or filgotinib helping drive sales growth in the future, there may not be much of an improvement in the company's top line in the quarters and years ahead.

A cheap price doesn't make Gilead a good buy

Year to date, shares of Gilead are flat, trailing the S&P 500's returns of 7%. The stock is trading at 19 times earnings and a price-to-book multiple of more than 4, both of which make it not terribly expensive. That said, it may be hard for investors to see a reason to invest in this company, given the question marks surrounding not just remdesivir but also filgotinib.

With so much disappointing news surrounding the company of late, this is a healthcare stock that you're probably better off staying away from. Investors could soon grow frustrated with the company and remdesivir, possibly leading to a much larger sell-off.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.

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