I give a hold rating to Gilead Sciences (NASDAQ:GILD) because the company sits in an excellent sector for recessions due to its lack of a cyclical nature and because Lenacapavir looks likely to be approved. However, given its poor performance over the last five years, I don't feel confident in Gilead's ability to outperform the sector.
Gilead Sciences is a biotechnology company headquartered in Foster City, California, founded in 1987. Currently, the company's market cap is $82.05 Billion. The company has an EPS of $3.27 on a share price of $64.12, which gives the company a 19.62 PE, which is on the higher side for a biotech company. This is likely because the market is somewhat pricing in Lenacapavir's approval and future revenue. Gilead is paying out an impressive 4.52% dividend. In addition to the dividend, the company returned capital to shareholders with $72 Million in share repurchases. For Q2 2022, the company had $6.1 Billion in sales, earning the company $2 Billion in non-GAAP net income.
Gilead has underperformed other pharmaceutical companies over the last ten years. The company rocketed from the low $30s in 2012 to over $170 in 2015. However, ever since then, the company has been on a downward trend. Interestingly enough, 2015 was when the company started issuing its dividend, which has grown consistently since its initial issuance. Another reason for the poor performance is the lack of a Covid-19 bump from an incredibly lucrative treatment in which many other pharmaceutical companies of equal or bigger size had some stake. If Gilead had a similar bump, it would have been one of the top-performing pharmaceutical stocks over this period. Instead, it just had normal operating growth. Despite this downward trend, the company is still up 96% over the past ten years.
Lenacapavir is an HIV/AIDS medication sold under the brand name Sunlenca and developed by Gilead Sciences. The medication can either be taken by mouth or by subcutaneous injection. The drug is being researched for treating patients with multidrug-resistant HIV and used for preventive medicine with a twice-yearly injection for pre-exposure prophylaxis. Drugs.com wrote, "While most antivirals act on just one stage of viral replication, Lenacapavir is designed to inhibit HIV-1 at multiple stages of its lifecycle and has no known cross-resistance to other existing drug classes. If approved, Lenacapavir would be the only HIV-1 treatment option administered twice-yearly."
Looking at the clinical data, a recent report on Lenacapavir commented:
Lenacapavir is a first-in-class capsid inhibitor and has no known cross-resistance to other existing drug classes... This patient population, with highly resistant HIV infection, represents a significant unmet medical need. Throughout the course of the CAPELLA study, 83% (30 of 36) participants receiving Lenacapavir in conjunction with an optimized background regimen achieved an undetectable viral load (<50 copies/mL) at week 52. The participants averaged a CD4 count of 83 cells/µL.
On June 23rd, 2022, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) adopted a positive opinion, recommending the granting of a marketing authorization for the medicinal product Sunlenca, intended for the treatment of adults with multidrug‑resistant human immunodeficiency virus type 1 (HIV‑1) infection. In typical fashion, subsequently, Lenacapavir was approved for medical use in the European Union in August 2022.
Gilead is still waiting for the US Food and Drug Administration (FDA) to make a regulatory decision after Lenacapavir's approval was delayed due to manufacturing issues. The issue centered not around the drug's clinical data but its storage method. Lenacapavir had been stored in borosilicate vials, and due to vial compatibility problems, the FDA issued a clinical halt. Gilead has since addressed the issue and believes they are good to go. Gilead plans to store injectable Lenacapavir in aluminosilicate glass now. After resolving this issue, Gilead resubmitted their NDA for Lenacapavir in July, which the FDA accepted and gave a PDUFA date of December 27th, 2022.
Considering that the drug is already approved in the EU and the clinical halt was over a manufacturing issue unrelated to the clinical data, I believe that Lenacapavir will be approved. Upon approval:
Lenacapavir revenues are estimated to reach $1.08bn in 2027, according to GlobalData consensus forecasts. Gilead is looking at Lenacapavir combined with a broad range of agents to address the needs of an effective HIV treatment regimen, said Gilead Sciences vice president of HIV clinical research Dr. Jared Baeten.
In 2022, Gilead is projected to earn $24 Billion. While $1 Billion in sales in a year will not drastically change the outlook for the company, Lenacapavir will be an excellent additional revenue source. Pharmaceutical companies must constantly find new revenue sources to replace the ones they are losing to patent expiration. The approval and eventual sales success of Lenacapavir will further show Gilead's ability to develop its internal pipeline into future revenue, a great sign for the company's future.
There is never a guaranteed approval for drugs, so there is the risk that Lenacapavir will not be approved. Additionally, Gilead is in a sector with slow growth. Gilead will underperform the market during bull markets due to its inability to grow rapidly like some companies. However, investors have a more stable investment during bear markets that pays a very high dividend.
In conclusion, I give a hold rating to Gilead Sciences. I think that Gilead is in a great sector for a recession, and I believe that Lenacapavir will likely be approved. The approval will be a catalyst and a new revenue source for the company, helping it perform throughout the likely upcoming bear market. However, Gilead has struggled against its competitors, and I believe there are better investments in this sector.
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