Gilead Sciences Inc. is the latest biotechnology stock to rally as investors bet on the emergence of a drug to defeat the coronavirus. But analysts are taking a more sober position on Gilead: Good stock, ignore the coronavirus-fuelled hype.
The shares rose 5 per cent on Monday after a report in The New England Journal of Medicine said that a drug in the company’s antiviral pipeline – remdesivir, an experimental Ebola treatment – showed encouraging results when used on an American patient with the coronavirus.
That’s right – tentative results from one patient boosted Gilead’s value by US$4-billion in one day, based on its outstanding shares. The share price increased another 1.6 per cent on Tuesday, ahead of Gilead’s fourth-quarter financial results, which were released after markets closed.
Gilead is just the latest company to attract eager investors who believe that a cure for the coronavirus – an epidemic that has sickened thousands of people in China and killed more than 420 – will translate into spectacular riches.
Some of the smaller biotech names, with market capitalizations well under US$500-million, have seen particularly big ups and downs over the past couple of weeks.
Novavax Inc. saw its share price leap 71.1 per cent on Jan. 21. The U.S.-based company’s president of research and development, Gregory Glenn, said in a number of television interviews around this time that he was confident that Novavax could develop an effective vaccine.
The share price has since retreated more than 30 per cent, though, as skepticism mounted.
Similarly, Inovio Pharmaceuticals Inc. – current market cap US$217-million – saw its share price surge 55 per cent between Jan. 23 and Jan. 27, after the company announced that it had won a grant to develop a vaccine for the coronavirus. The shares have since slumped about 31 per cent.
“At this point, we would be surprised if any of the R&D efforts that have been brought to light over the past week or two manifest into treatments effectively used to treat the current strain of coronavirus,” Jared Holz, a health care equity strategist at Jefferies, said in a recent report.
In the case of Gilead’s remdesivir treatment, the skepticism among analysts is based on two concerns. The first: Is Gilead really on the cusp of developing an effective treatment?
“While Gilead seems to have as good a shot as any at this point to address [the coronavirus] … we aren’t sure yet if the single-patient clinical anecdote is as supportive as press reports have indicated,” Steven Seedhouse, a biotech research analyst at Raymond James, said in a note.
The second concern: Even if Gilead is winning this race, will an effective rollout have a meaningful financial impact on a pharmaceutical giant with a market capitalization of US$85.4-billion and estimated revenue of US$22.5-billion in 2020?
The answer: probably not.
Brian Abrahams, senior biotechnology analyst at RBC Dominion Securities, cited the 2009 H1N1 flu pandemic as a useful comparison. The H1N1 infected an estimated 60 million people worldwide, according to the Centers for Disease Control and Prevention. Roche Holding AG, which developed Tamiflu, an antiviral medication that proved an effective treatment against that outbreak, reported that the drug generated global sales of US$1.9-billion in 2009.
Given that the current number of people in China sickened with the coronavirus is about 20,000 – a small fraction of the number of H1N1 cases 11 years ago – the upside for Gilead could be limited, especially longer-term.
“While the drug may indeed be expected to have some effect treating the virus … the path for supplying the agent during a pandemic would be unlikely to enable any clear monetization for Gilead that would be meaningful relative to its core multibillion-dollar franchises,” Dr. Abrahams said in a note released on Monday evening.
Still, he’s upbeat on the stock and recommends it as his top pick. Despite gains this week, the share price is down about 45 per cent over the past five years and trades at just 9.6 times analysts’ estimated earnings.
“We think [Monday’s] stock move on coronavirus headlines, if anything, just serves to highlight [Gilead’s] antiviral platform prowess and the unwarranted negativity around the stock that should continue to facilitate upside on any positive developments,” Dr. Abrahams said.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.