Valuations in the stock market are sky-high, but it's possible to find companies that are reasonably priced. Biotech giant Gilead Sciences (GILD 1.22%) is a good example. It is trading at a mere 8.5 times forward earnings, compared to the average of 10.4 in the industry.

But attractive valuation metrics alone aren't enough to make a stock a buy; it's essential to consider the fundamentals of the business, too. With that in mind, let's look into what's going on with Gilead Sciences right now and whether it is worth purchasing its shares. 

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The pandemic tailwind 

Gilead Sciences' shares have performed on par with the broader market this year. That's arguably due to strong financial performances spearheaded by the company's therapy for COVID-19, Veklury. Formerly known as Remdesivir, Veklury is an antiviral administered via intravenous infusion. In the third quarter, Gilead Sciences' total sales came in at $7.4 billion, 13% higher than the year-ago period; that's a strong performance for a biotech company of this size. 

But without the $1.9 billion in sales Veklury generated -- compared to the $873 million it recorded during the third quarter of 2020 -- Gilead Sciences' top line would have decreased by 3%. The drugmaker now expects Veklury sales between $4.5 billion and $4.8 billion for the current fiscal year-- which is higher than the $2.7 billion to $3.1 billion range it had previously projected. 

A surge in cases of COVID-19 -- likely due to the delta variant -- caused a rise in demand for Veklury. And with the new omicron strain of the virus now circulating, there could be yet another increase in cases. However, there are risks Gilead Sciences faces in this market, especially competition. For instance, pharma giant Merck is looking to enter this space. 

Patient taking a pill in a room with gray walls, a gray couch, and a shelf in the background.

Image source: Getty Images.

Merck developed a medicine called molnupiravir (in collaboration with Ridgeback Therapeutics ) that decreases the risk of hospitalization or death in patients with mild to moderate cases of COVID-19. Molnupiravir does have an advantage: It is a pill that patients can take from the comfort of their homes. Veklury needs to be administered by a healthcare professional.

Pfizer and NRx Pharmaceuticals are two other companies looking to dip their toes into these waters. With increased competition in the COVID-19 therapy market, Gilead Sciences' share of this segment could shrink. 

Beyond COVID-19

Putting Veklury aside, Gilead Sciences does have other potential growth drivers. The biotech is one of the leaders in the market for HIV drugs. It holds a 75% share of this space in the U.S. Gilead Sciences' best-selling HIV drug is Biktarvy. During its recent third quarter, sales of this medicine came in at $2.3 billion, 20.4% higher than the year-ago period.

True, Gilead Sciences' overall HIV revenue decreased by 8% year over year to $4.2 billion. But that's in part because, as CEO Daniel O'Day put it, "treatment prescription volumes remain below pre-pandemic levels." It's also worth noting that Truvada and Atripla, two of Gilead Sciences' HIV medicines, lost patent exclusivity last year and are now facing generic competition. Some of the company's other segments are also struggling.

Total revenue from its hepatitis C virus products dropped by 8% to $429 million. Gilead Sciences is also a leader in this area, with a 60% market share in the U.S. It's harder for a company in this position to post strong top-line growth. Gilead Sciences expected to deal with these issues by launching Filgotinib in the U.S. market, it's a potential treatment for rheumatoid arthritis that was widely expected to reach blockbuster status. 

Although, the U.S. Food and Drug Administration (FDA) declined to approve this medicine in August of last year, citing its potential effects on male fertility as the reason for the thumb down. Gilead Sciences eventually decided to give up this project in the U.S. even though it is currently authorized for use in Europe and Japan. That means growth in the short run will have to depend on Veklury -- and perhaps on lenacapavir, a potential regimen for HIV patients.

Gilead Sciences submitted an application to the FDA for lenacapavir in June. If the potential treatment earns the green light, it would become the first six-month, long-acting HIV regimen. This therapy holds real promise, and it could provide a boost to Gilead Sciences' HIV franchise -- as well as its top line -- in the next couple of years. The company has dozens of other pipeline programs too. 

Given the company's storied history and its long-standing leadership and expertise in several lucrative markets, it's not yet time to give up on this biotech stock. While the near term still looks a bit murky, the company could still be an excellent stock to buy for those willing to be patient.