RBC Capital analyst Brian Abrahams is a fan of Gilead Sciences (GILD) — in particular, its Biktarvy 3-in-1 drug cocktail for treating HIV-1.
It is “Biktarvy’s strong profile and robust launch, along with favorable demographic and pricing dynamics,” that Abrahams says “will underpin good HIV franchise sustainability through at least 2025” for Gilead Sciences. Combined with the company’s better known continued hepatitis-C drug franchise, which is experiencing declining revenue but market share and pricing stability, and should therefore be able to generate “~$17B in cash flows over the next decade,” says the analyst, Gilead Sciences is likely to outperform the market.
At the same time, Abrahams places very little value on the Gilead Sciences drug — remdesivir — that most investors are focusing on today as a potential cure to the SARS-CoV-19 coronavirus that causes COVID-19.
But that doesn’t mean Abrahams has nothing to say about remdesivir.
In fact, Abrahams devotes the bulk of his report on Gilead Sciences to the prospects for remdesivir (mercifully abbreviated “RDV” in the report) and ability to be used to treat COVID-19. Because, you see, while RDV may not hold much profit potential for Gilead in the near term (seeing as it’s giving away the bulk of the medicine it has produced so far, in service of alleviating the pandemic), RDV’s ability to save lives (and reassure consumers, and investors) has the potential to mitigate the COVID-19-caused recession we’re currently mired in, and thereby help to save the economy — and the stock market as well.
So what does Abrahams have to say about RDV? Several points are worth noting:
COVID-19 new infections
Based on the latest data, Abrahams estimates that new U.S. cases of coronavirus are growing at the rate of 24,000 a day in May, but that this rate of infection will decline 15% in June to about 20,000 cases per day, and continue falling throughout the summer — but then resume growing again as a second wave of COVID-19 strikes in the fall.
RDV vs COVID-19
That’s the bad news — coronavirus isn’t going away soon, and it may not go away not-soon, either. The good news is that clinical data shows that RDV is effective in treating COVID-19, and popular among patients. In the analyst’s estimation, in the near term at least, literally “every” COVID-19 patient and doctor treating a COVID-19 patient “will attempt to access RDV if qualified” to do so.
RDV versus production constraints
So demand for the drug is secure, but what about supply? Here’s the other big problem. Demand for RDV is robust, but assuming coronavirus infections slow at the 15% rate noted above, and then grow at the 10% rate also noted above, Abrahams calculates that even if only the 15% of COVID-19 patients both eligible to take the drug, and deemed likely to benefit from it, are prescribed RDV, the U.S. market will demand as many as 3,000 doses per day for the foreseeable future. At this level of demand, the analyst forecasts that U.S. demand will exceed supply by about 80,000 “courses” through August, and Gilead’s ability to produce enough RDV won’t catch up to demand for the drug before September.
In a worst case scenario, moreover, in which Gilead is unable to produce the drug at the levels it is targeting, and/or the company distributes 50% of its supply to patients outside the U.S., then potentially only half the patients who need it in the U.S., won’t be able to get it before October.
Or more poetically, RDV may well be a silver bullet to kill coronavirus. But unless we get more ammo, sooner, we’re not going to win the battle before August — and maybe not even then.
To this end, Abrahams reiterates an Outperform rating (i.e. Buy) on Gilead shares, along with an $88 price target, which implies nearly 17.5% upside from current levels. (To watch Abrahams’ track record, click here)
Yet, most of Wall Street is surveying the biotech giant from the sidelines, with TipRanks analytics demonstrating GILD as a Hold. Based on 28 analysts tracked in the last 3 months, 8 rate Gilead stock a Buy, 16 say Hold, while 4 recommend Sell. The 12-month average price target stands at $79.23, marking a modest upside of 6%. (See Gilead stock analysis on TipRanks)
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