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Gilead Sciences: Now is Not the Time to Get Sticker Shock

Monday, June 29, 2020 | Chris Markoch
Gilead Sciences: Now is Not the Time to Get Sticker Shock

Gilead Sciences (NASDAQ:GILD) is struggling to hold onto gains in midday trading following the release of pricing for its Covid-19 treatment remdesivir. What would normally be seen as a home run for investors is meeting headwinds as consumer groups cry foul.

The company announced patients with private insurance will be charged, $3,120. The exact out-of-pocket cost will depend on a variety of factors including insurance and income. “We’re in unchartered territory with pricing a new medicine, a novel medicine, in a pandemic, said Gilead chief executive officer Dan O’Day in an interview with The Associated Press.

That price is lower than what some analysts had initially forecast. And the price for remdesivir is even lower ($2,340 for a typical treatment course) for individuals covered by government health programs in the U.S. and other developed countries.

Gilead claims the drug has an accessible price. But as The Associated Press reports, that is not pacifying consumer groups who suggest that the drug should have a much lower price tag.

“This is a high price for a drug that has not been shown to reduce mortality,” Dr. Steven Nissen of the Cleveland Clinic said in an email. “Given the serious nature of the pandemic, I would prefer that the government take over production and distribute the drug for free. It was developed using significant taxpayer funding.”

Peter Maybarduk, a lawyer at the consumer group Public Citizen, went even further calling the price “an outrage.”

“This is a drug that received at least $70 million in public funding” toward its development, he said. “Remdesivir should be in the public domain.”

For its part, Gilead says it will have spent $1 billion on developing and making remdesivir by the end of 2020.

Gilead Has a Tremendous First Mover Advantage

Since the outbreak of the novel coronavirus, approximately two dozen large and small biotechs that are working to develop a vaccine, treatment and/or testing kit. Gilead is one of the world’s best known pharmaceutical companies. That was a key reason, in addition to the fact that remdesivir is already used to treat pneumonia, Gilead was one of the pharmaceutical companies that received significant backing from the U.S. government.

Despite receiving approximately $70 million from the federal government, Gilead stock has largely traded sideways this year with a hefty degree of volatility. Stocks like Gilead are trading on the news. The problem for remdesivir is that the initial data has been confusing for researchers.

However, remdesivir is being shown as the first drug of its kind to show sustained success in battling the novel coronavirus, particularly in its ability to get patients out of intensive care faster. According to Geoffrey Porges, an analyst from the firm SVB Leerink, that is a benefit that health care systems will pay for.

Expect Slow, Sustained Growth

Porges gives Gilead an Outperform rating. Porges raised the stock’s rating in early June as well as significantly increasing his 12-month price target from $73 to $94.

“This forecast has more uncertainty than any that we have published in the last 15 year,” Porges acknowledged, “but it reflects our view that remdesivir works.”

It’s Not a Miracle Drug, But it’s What We Have

Investors however need to remember that remdesivir is not a miracle drug. It’s not going to be effective for every Covid-19 patient. And in its current intravenous form, it is not a preventative drug. Its effectiveness thus far has been in helping severely ill patients recover from the virus.

Gilead is also beginning trials on an inhaled form of remdesivir that may prove to be effective outside of a hospital setting. This can help reduce the strain on hospitals and healthcare workers. They are also looking into the drugs success with vulnerable patient groups such as children and pregnant women as well as looking into how the drug may work as part of a cocktail with other treatments such as Eli Lilly & Co. (NYSE:LLY) and Incyte Corp.’s (NASDAQ:INCY) Olumiant and Roche Holdings Actemra.

In fact, many analysts have suggested throughout this pandemic that antiviral treatments used in the right combination, much like the treatment for HIV, may be a necessary bridge while a safe and effective vaccine is created. Not coincidentally, Gilead is one of the leaders in the current market for HIV drugs.

Once the dust settles, investors will realize that remdesivir is not going away, and it’s likely to become a fixture in treating the novel coronavirus until – and unless – there is a vaccine. For that reason, first movers have an advantage that investors would be wise to capitalize on.

 

 

 

 

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Eli Lilly And Co (LLY)2.0$150.26flat1.97%24.39Buy$172.27
Incyte (INCY)1.6$86.55flatN/A-95.11Buy$102.30
Gilead Sciences (GILD)2.7$62.25flat4.37%-259.36Hold$78.93
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