Gilead Stock: Is It A Buy After Dumping Its Arthritis Drug Onto Galapagos?

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Biotech company Gilead Sciences (GILD) makes an approved coronavirus treatment, but conflicting reports of the drug’s effectiveness haven’t helped Gilead stock.




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Doctors successfully treated President Donald Trump with Gilead’s remdesivir — now known by the brand name Veklury — when he was diagnosed with Covid-19. In November, fellow drugmaker Eli Lilly (LLY) gained emergency authorization for a coronavirus treatment.

Still, in October the World Health Organization said Veklury had little or no effect on death rates of Covid-19 patients. And, last month, a top intensive care doctor said Veklury shouldn’t be used routinely in critical care wards.

In addition, its September announcement of what would be its largest acquisition ever — $21 billion for cancer drug maker Immunomedics — has weighed on Gilead stock. In December, Gilead announced it would buy MYR GmbH, a German biotech focused on hepatitis treatments.

So, should investors consider buying Gilead stock right now?

A Fundamental Look At Gilead Stock

Shares have been volatile through its remdesivir coronavirus treatment efforts. Gilead stock has fallen 9.4% in 2020 as of midday Dec. 16. Gilead stock is trading barely above seven-year lows, after touching a 21-month high of 85.97 in March.

Besides its coronavirus efforts, Gilead is trying to stake its claim in HIV treatments. It’s facing off against an outlet mostly owned by GlaxoSmithKline (GSK) called ViiV Healthcare.

Also, Gilead is pushing into cancer drugs with the takeovers of biotech companies Forty Seven, Kite Pharma and now Immunomedics. It’s also signed a collaboration deal with Arcus Biosciences (RCUS).

Gilead used to be a powerhouse in treating hepatitis C.

The drug called Sovaldi gained Food and Drug Administration approval in 2013. The following year, it raked in $10.3 billion in sales. Gilead also had success with drugs dubbed Harvoni and Epclusa. About 95% of hepatitis C patients can now be cured with treatment.

In 2016, hepatitis C drug sales tumbled 23% as the number of cures increased. That trend has persisted ever since despite the addition of a new hepatitis C drug known as Vosevi.

Gilead Sciences Earnings Expected To Rise Again

In the wake of that hepatitis C drug sales cliff, earnings have mostly painted a dim picture. That looked to turn around in the third quarter. Then, earnings popped 29% to $2.11 per share. Sales rose 17% to $6.58 billion.

But the earnings release didn’t help Gilead stock as shares lost 2.2% on the report.

Analysts polled by FactSet expect another rebound in the fourth quarter. On average, they expect Gilead to report adjusted earnings of $1.73 per share on $6.43 billion in sales, up a respective 33% and 9% year over year.

Still, Gilead stock isn’t completely lining up with CAN SLIM rules for investing. Investors should look for stocks with 20%-25% or better earnings and sales growth in the most recent quarter.

Taking into account fundamental and technical measures, Gilead stock had a weak Composite Rating of 41 as of Dec. 16, according to IBD Digital. That puts shares in the bottom half of all stocks.

Annual Metrics: What Does 2019 Tell Us?

In 2019, Gilead earnings were $6.63 per share, minus certain items. That edged down a fraction on a year-over-year basis. Operating cash flow came out to $6.69 per share — less than 1% ahead of profit. The fastest-growing companies have operating cash flow at least 20% above earnings per share.

But sales inched up 1% to $22.45 billion. That was the first time sales rose since 2015.

Less bullishly, Gilead’s annual pretax margin hit 47.6% — its lowest in six years. Pretax margin also slowed for the fourth year running. When looking for strong stocks, it’s smart to consider those with accelerating pretax margins.

In 2020, analysts polled by FactSet expect Gilead to earn $6.61 per share on $23.7 billion in sales. Earnings would climb by 4% and sales 5%.

GILD Stock Technical Analysis: No Chart Pattern

Shares of Gilead stock are currently trading below their 50-day and 200-day moving averages.

Gilead has an RS Rating of just 5, meaning its shares have outperformed just 5% of stocks over the last 12 months. Leading stocks tend to have RS Ratings of 80 or above.

Gilead stock ranks just No. 166 out of 636 publicly traded biotech stocks by Composite Rating in IBD’s Stock Checkup. Keep tabs on those scores by visiting IBD Digital.

Which Mutual Funds Are Investing In Gilead?

Slightly more funds increased their GILD stock positions last quarter vs. those that cut their holdings, 1,133 vs. 991.

For now, Gilead stock has an Accumulation/Distribution grade of B-, meaning more institutional investors are buying than selling shares.

GILD Stock News: Coronavirus Treatment Gets FDA Nod

In May, the Food and Drug Administration granted Gilead an emergency use authorization for the drug now called Veklury. Gilead’s coronavirus treatment officially gained approval in October.

Physicians can administer remdesivir intravenously each day for five days or 10 days in patients hospitalized with Covid-19.

In late June, Gilead set a $3,120 price tag for U.S. commercial patients in need of its coronavirus treatment. The price tag for patients not covered by private insurance is $2,340. Those prices undercut more bullish expectations.

The Institute for Clinical and Economic Review, which examines the value of drugs, put a fair price for the coronavirus treatment at $4,500, RBC Capital Markets analyst Brian Abrahams said in a report. A week earlier, remdesivir gained conditional marketing authorization in Europe.

Will GILD Stock Fly On Coronavirus Treatment?

In an open letter from Chief Executive Daniel O’Day on Oct. 8, Gilead reported its data on Covid-19 patients recovering on average five days faster with remdesivir, and seven days faster for the most seriously ill. Gilead sells the drug under the band name Veklury.

Moreover, O’Day wrote that remdesivir reduced the likelihood of patients progressing to more severe stages of the disease where they would require new or additional oxygen support. And he wrote that in the largest group of patients in the study, those on low-flow oxygen, there was a significant reduction in mortality in a post-hoc analysis.

That day, the company said the New England Journal of Medicine published final results from a U.S. National Institute of Allergy and Infectious Diseases Phase 3 trial showing Veklury “resulted in consistent, clinically meaningful improvements across multiple outcome assessments compared with placebo in Covid-19 patients.

“The final results demonstrate that treatment with Veklury resulted in a faster time to recovery than previously reported,” Gilead said in a news release.

But just a week later, the WHO reported that remdesivir appeared to have little or no effect on hospitalized Covid-19 patients, as indicated by overall mortality, initiation of ventilation and duration of hospital stay.

2 Million Treatment Courses Of Veklury

Also on Oct. 8, Gilead announced a new supply deal with the European Union for its remdesivir, and GILD stock edged higher. Gilead said it’s on pace to produce more than 2 million treatment courses of Veklury this year.

On Oct. 5, GILD stock rose 2.3% on the news that President Trump had received remdesivir over the previous days after contracting Covid-19.

Gilead stock also edged higher more than 1% on Sept. 14, after the company announced its $21 billion acquisition of Immunomedics. That company’s drug Trodelvy recently received accelarate approval from the FDA to treat adult patients with metastatic triple-negative breast cancer who have received at least two prior therapies.

Also helping shares on Sept. 14 was the announcement of positive clinical trials data by Eli Lilly and partner Incyte (INCY) for their Covid-19 treatment candidate combined with remdesivir. They said they would seek U.S. FDA emergency use authorization for the treatment.

Other Gilead Stock News

On Aug. 19, GILD stock fell 4.9% after the company announced the FDA’s unexpected decision to seek two more years of data for the company’s rheumatoid arthritis drug, known as filgotinib.

But Gilead stock rose 1% on Sept. 28 after European officials approved filgotinib as a treatment for rheumatoid arthritis. It’s sold under the brand name Jyseleca.

On Dec. 15, Gilead said it wouldn’t seek FDA approval for filgotinib as a rheumatoid arthritis treatment. It also transferred primary responsibility in Europe to its partner, Galapagos (GLPG).

Gilead stock jumped in early March after the biotech company announced its $4.9 billion plan to buy Forty Seven, a cancer-focused player. Forty Seven is testing an immuno-oncology drug in blood cancers and solid tumors.

In 2017, Gilead spent $11.9 billion to acquire Kite Pharma, the maker of Yescarta, a CAR-T drug. CAR-T drugs also target cancer by training the immune system.

So, Is Gilead Stock A Buy?

Based on CAN SLIM investing principles, the short answer is no. Gilead stock is not a buy right now based on the metrics that other big winning stocks showed at the beginning of major price runs.

Investors should look for stocks that beat expectations while growing sales and earnings.

Shares of GILD stock currently aren’t forming a clear pattern or consolidation, as of Dec. 16, according to MarketSmith.com.

(Related: See stocks near a buy zone.)

It will be key to watch for data from additional studies of Veklury in coronavirus treatment, including its possible use in combination with other drug therapies. Also, it’s testing an inhaled version, and other studies remain ongoing.

Is it time to buy or sell these other large-cap stocks? Keep tabs on IBD analysis.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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