Please ensure Javascript is enabled for purposes of website accessibility

Better Coronavirus Stock: Gilead Sciences or Abbott Laboratories?

By Alex Carchidi – Oct 11, 2020 at 9:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These two companies are both banking on the success of their coronavirus products.

Gilead Sciences (GILD 0.98%) and Abbott Laboratories (ABT 0.89%) are two of the largest and most formidable pharmaceutical companies in the world, and they're both on the front lines of the industry's response to the pandemic. Whereas Gilead's most recent claim to fame is its antiviral drug remdesivir, which may be effective against the coronavirus, Abbott's approach is to produce assays that can diagnose active infections and confirm past exposure. As with many other coronavirus stocks, both companies are being purchased by speculators based on perceptions of how useful their products will be in the ongoing fight against COVID-19.

In my opinion, the most important feature of a coronavirus stock is its prospect of capturing increasing revenue with its products over the duration of the pandemic. To accomplish this, a company would first need to develop effective therapeutic drugs, vaccines, or diagnostic tests. Then it would need to get its products approved for sale relatively quickly, as the competition is sure to be close behind. Finally, the company would need to manufacture and sell the product worldwide. As it turns out, both Gilead and Abbott plausibly meet the criteria I've outlined, but one of them is positioned to expand its revenue far more effectively than the other.

Various colors of pills are scattered in front of three pill bottles, with a surgical mask in the background.

Image source: Getty Images.

Gilead's remdesivir won't be enough to propel it to victory

As the manufacturer of the first drug to have regulatory authorization to treat all hospitalized patients with COVID-19, Gilead may seem like it's in an enviable spot. Early in the pandemic, remdesivir was a source of hope, with its favorable results from preliminary clinical trials leading to a surge of demand which coincided with the first spikes of infection. Unfortunately, it was all downhill from there for remdesivir's prospects.

To help meet early demand, Gilead agreed to give a handful of international drug manufacturers royalty-free licenses to produce remdesivir for the duration of the pandemic. While benevolent, this guaranteed that Gilead won't be able to capture all of the market for remdesivir, especially if other manufacturers can produce it more cheaply.

Shortly thereafter, a bigger problem revealed itself: Remdesivir isn't a game-changer drug. Some studies have failed to find that the drug is effective for COVID-19, and others have found its impact to be underwhelming. As a result, demand for remdesivir is no longer growing as rapidly as it was earlier in the pandemic.

Even at the peak of demand during the second quarter, Gilead's aggregate product sales dropped by 10%. On Oct. 1, Gilead announced that its manufacturing capabilities would be expanded enough to meet global demand in real time by the end of the month, even accounting for additional waves of infection.

This implies that demand has hit a ceiling. Unless Gilead finds a way to improve remdesivir's effectiveness, it won't be able to keep growing its revenue by selling the drug.

Abbott's testing products are flying off the shelves

Abbott Laboratories has the revenue growth momentum that Gilead doesn't, and that's all thanks to its substantial repertoire of diagnostic tests for the coronavirus. Since the first days of the pandemic, Abbott has released progressively more sophisticated assays to detect infections and pin down whether people have been infected in the past. Many of these tests have been met with fanfare by markets and clinicians alike, which can't be said about remdesivir.

SPY Chart

SPY data by YCharts.

It's clear that testing is going to be consistently in demand at least through the end of the pandemic. While it's true that Abbott faces plenty of competition in the testing market, it's important to note that the market itself is growing rapidly, and shows no sign of stopping. In the U.S., the seven-day average of the number of daily coronavirus tests per 1,000 people has increased by 605% since April. This is starkly in contrast to the market for remdesivir, which appears to be leveling off.

By actively innovating with its test design, Abbott has deeply penetrated the coronavirus diagnostics market, establishing itself in the niches of rapid testing, high-throughput testing, point-of-care testing, and laboratory-free testing. Sales of Abbott's rapid coronavirus tests earned it $180 million in the second quarter, causing its rapid diagnostics segment to grow by 9.6%. Separately, the company's non-rapid coronavirus tests earned the company $283 million in the same period, leading its molecular diagnostics segment to grow by 233.6%.

Gilead has no equivalent product to the generate these financial successes, and its efforts to innovate on remdesivir have yet to bear fruit, despite high expectations for the company's revenue this year. Nor is remdesivir's future remotely assured, compared to the importance of diagnostic tests during the pandemic. Thus, as a result of its superior positioning in its market and the ongoing rapid expansion of that market, Abbott is the better coronavirus stock.

Alex Carchidi 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Abbott Laboratories Stock Quote
Abbott Laboratories
$106.96 (0.89%) $0.94
Gilead Sciences Stock Quote
Gilead Sciences
$86.26 (0.98%) $0.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.