Last year, biotech company Gilead Sciences (GILD -0.44%) rose in prominence thanks to antiviral medicine Veklury, which was sometimes touted as the most promising potential treatment for COVID-19. But a lot has happened since then for the drugmaker, and in the past 12 months, Gilead Sciences' stock has underperformed the broader market, as the following graph illustrates.
This poor showing does have one silver lining, though. Shares of Gilead Sciences are reasonably valued at 9.7 times forward earnings, compared with an estimated forward price-to-earnings ratio of 21 for the S&P 500. If there is a rebound in the cards for the biotech -- and if it can soundly beat the market from here on out -- initiating a position in Gilead Sciences at current prices will pay rich dividends down the road.
With that said, how likely is a strong comeback for Gilead Sciences?
Here's what went wrong
A series of factors caused Gilead Sciences' lackluster performance in the past year. Perhaps the most important was the debacle surrounding filgotinib. The company -- and many analysts -- once regarded this potential rheumatoid arthritis (RA) drug as a future blockbuster. However, in August, Gilead Sciences announced that the U.S. Food and Drug Administration (FDA) had declined to approve the drug.
The reason? The FDA had concerns surrounding filgotinib's potential impact on sperm count. In December, Gilead Sciences decided it would no longer pursue FDA approval for filgotinib as a treatment for RA in the United States. Up to that point, some investors had remained hopeful that the company would work things out with regulators. This disappointing outcome was a non-negligible blow to Gilead Sciences' prospects.
Veklury to the rescue
The filgotinib-related drama aside, Gilead Sciences has other problems. For instance, the company's HIV franchise -- which was supposed to be its saving grace -- seems to be struggling. In the first quarter ending March 31, the company's HIV business racked up $3.7 billion in revenue, 12% lower than the year-ago period. The decrease was largely caused by declining sales of Truvada -- one of its best-selling HIV drugs -- which in turn came from the loss of exclusivity on the medicine.
While sales of Biktarvy, Gilead Sciences' top-selling HIV drug, jumped by 8% year over year to $1.8 billion, that wasn't enough to keep the company's revenue from its HIV franchise from declining compared to the prior-year quarter. The pandemic is also an important factor behind the lower revenue for several of its business segments, including HIV. Despite these headwinds, Gilead Sciences recorded total revenue of $6.4 billion, 16% higher than in the first quarter of the previous fiscal year.
Along with Biktarvy, the company had revenue of $1.5 billion from Veklury to thank for that. Excluding sales of the COVID-19 medicine, the company's total revenue dropped by 11% year over year to $4.9 billion. According to management, 50% of hospitalized COVID-19 patients in the U.S. are treated with Veklury, and it's also popular in international markets. Gilead Sciences expects sales of Veklury to reach between $2 billion and $3 billion for the full fiscal year.
The coronavirus medicine will lose steam as the pandemic subsides. But Gilead Sciences' other businesses should pick up, thereby providing a nice boost to its revenue. The biotech can also rely on its cancer medicine, Trodelvy. In the first quarter, sales of this drug came in at only $72 million; it was the first full quarter of revenue recognition for the product.
But in April alone, Trodelvy earned FDA approval for metastatic breast cancer and metastatic urothelial cancer. The drug is still undergoing other clinical trials, and Gilead Sciences sees a massive market opportunity made up of well over 50,000 cancer patients in the U.S. alone. Trodelvy could become a key growth driver for Gilead Sciences in the future.
Is it a buy?
Gilead Sciences has more than three dozen clinical programs in its pipeline, and it recently entered into a partnership with pharma giant Merck to co-develop HIV treatments. The biotech looks set to continue adding to its lineup. I have no doubts that Gilead Sciences' revenue, excluding Veklury, will eventually start growing again.
And while I think the biotech company is likely to perform better in the market from here on out, I don't think Gilead Sciences is in a position to deliver market-shattering returns. If you're looking for a stock that will make you rich over the next decade or so, there are much better options.