Shares of Gilead Sciences (GILD 0.28%) marched higher on Thursday, Feb. 2 in response to a fourth-quarter earnings report that exceeded expectations. A day later, the U.S. Food and Drug Administration (FDA) agreed to dramatically increase the addressable patient population for an important cancer drug called Trodelvy.
Gilead Sciences splashed out with a $21 billion acquisition of Immunomedics in 2020 for access to Trodelvy. Long considered a leader in the antiviral drug niche, management is betting heavily that Trodelvy can open up new avenues to growth.
Is Gilead Sciences a smart stock to buy now that Trodelvy is approved to treat a larger audience? Here's what you should know.
Trodelvy gets an expansion
On Feb. 2, The FDA approved Trodelvy to treat breast cancer patients with inoperable tumors that are hormone receptor (HR) positive and human epidermal growth factor receptor 2 (HER2) negative. Patients must also have received three previous lines of therapy.
During the study that informed the FDA's decision, treatment with Trodelvy reduced patients' risk of death by 21% compared to standard chemotherapy. This isn't the strongest survival benefit, but there's a dearth of new therapies approved to treat this patient population.
Last summer, a similar drug called Enhertu from AstraZeneca (AZN 2.31%) and its collaboration partner, Daiichi Sankyo, earned approval to treat breast cancer patients with tumors classified as HER2-low. Enhertu still isn't approved to treat the HER2-negative population.
Still an antiviral leader
Wall Street analysts who follow Gilead Sciences recently raised their price targets on the stock citing strong antiviral sales growth. Sales of the company's COVID-19 treatment, Veklury, are falling, but the company's HIV franchise is picking up the slack.
Fewer COVID-related hospitalizations and increasing availability of oral antivirals like Paxlovid from Pfizer are starting to pressure sales of Veklury, which is administered as an intravenous infusion. Fourth-quarter Veklury sales dropped 26% year over year to just $1 billion.
Fourth-quarter sales of Biktarvy, a once-a-day single-tablet regimen for new and pretreated HIV patients rose 15% year over year to $2.9 billion. Sales of Descovy, a drug approved for pre-exposure prophylaxis in 2019, rose 14% year over year to $537 million.
Cell therapies are another growth driver
In the fourth quarter, Gilead Sciences reported total cell therapy sales that jumped 75% year over year to $419 million. Fourth-quarter sales of Tecartus, a treatment for relapsed lymphoma patients the FDA approved in 2020, reached $82 million.
Yescarta, a cellular therapy first approved in 2017, earned an expansion from the FDA last April that could lead to billions in annual sales. Now, lymphoma patients who relapse after their first line of treatment can access Yescarta. This larger population caused U.S. Yecarta sales to more than double year over year.
Image source: Getty Images.
A buy now?
At recent prices, investors can scoop up shares of Gilead Sciences for just 12.4 times the midpoint of management's guided range for adjusted earnings in 2023.
At its relatively low valuation, long-term investors who buy Gilead now will come out ahead if the company continues growing at a snail's pace. Unfortunately, management thinks a slight earnings contraction is up ahead. Adjusted earnings that reached $7.26 per share in 2022 are expected to fall to a range between $6.60 and $7 per share in 2023.
If not for rapidly sinking Veklury sales, Gilead would be predicting earnings growth this year. With cellular cancer therapies, HIV antivirals, and Trodelvy pushing the needle forward, earnings growth over the long run seems highly likely. This might not be the most exciting pharmaceutical stock you can buy now, but investors who get in at recent prices have a great chance of coming out ahead over the long run.
