I give Gilead Sciences a holding note (NASDAQ: GILD) because the company is in an excellent sector for recessions due to its lack of a cyclical nature and because Lenacapavir seems likely to be approved. However, given its low performance over the past five years, I have no confidence in Gilead’s ability to outperform the industry.
Gilead Sciences is a Foster City, California-based biotechnology company founded in 1987. Currently, the company’s market capitalization is $82.05 billion. The company has EPS of $3.27 on a share price of $64.12, giving the company a PE of 19.62, which is higher for a biotechnology company. This is likely due to the market somewhat pricing in future Lenacapavir approval and revenue. Gilead pays an impressive dividend of 4.52%. In addition to the dividend, the company returned capital to shareholders with $72 million in share buybacks. For the second quarter of 2022, the company posted revenue of $6.1 billion, earning it $2 billion in non-GAAP net income.
Gilead has underperformed other pharmaceutical companies over the past ten years. The company went from $30 in 2012 to over $170 in 2015. However, since then the company has been on a downward trend. Interestingly enough, 2015 was when the company started paying out its dividend, which has been steadily increasing since it was first issued. 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 greater size had a stake. If Gilead had experienced a similar rise, it would have been one of the best performing pharmaceutical stocks during this period. Instead, it just had normal operational growth. Despite this downward trend, the company is still up 96% over the last ten years.
What is Lenacapavir?
Lenacapavir is an HIV/AIDS drug sold under the brand name Sunlenca and developed by Gilead Sciences. The drug can be taken orally or injected under the skin. The drug is being researched to treat patients with multidrug-resistant HIV and is used in preventive medicine with a six-monthly injection for pre-exposure prophylaxis. Medicines.com wrote: “While most antivirals act on a single stage of viral replication, lenacapavir is designed to inhibit HIV-1 at multiple stages of its life cycle and has no known cross-resistance with other existing drug classes. If approved, lenacapavir would be the only HIV-1 treatment option given twice a year.”
Based on clinical data, a recent report on Lenacapavir commented:
Lenacapavir is a first-in-class capsid inhibitor and has no known cross-resistance with other existing drug classes…This patient population, with highly resistant HIV infection, represents a significant unmet medical need. satisfied. Throughout the CAPELLA study, 83% (30 of 36) of participants receiving lenacapavir in conjunction with optimized background therapy achieved an undetectable viral load (
Approval in Europe
On June 23, 2022, the Medicines Committee for human use (CHMP) of the European Medicines Agency (EMA) has adopted a positive opinion recommending the granting of a marketing authorization for the medicine Sunlenca, intended for the treatment of adults suffering from the virus of the multidrug-resistant human immunodeficiency type 1 (HIV-1) infection. Typically, 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 approval delayed due to manufacturing issues. The problem was not with the clinical data of the drug, but with its method of storage. Lenacapavir had been stored in borosilicate vials, and due to vial compatibility issues, the FDA issued a clinical stop. Gilead has since addressed the issue and believes they are ready to go. Gilead plans to store injectable Lenacapavir in aluminosilicate glass now. After resolving this issue, Gilead resubmitted its NDA for Lenacapavir in July, which the FDA accepted and gave a PDUFA date of December 27, 2022.
Since the drug is already approved in the EU and the clinical discontinuation was due to a manufacturing issue unrelated to the clinical data, I believe Lenacapavir will be approved. After approval:
Lenacapavir revenue is expected to reach $1.08 billion in 2027, according to the consensus forecast from GlobalData. Gilead is studying Lenacapavir combined with a broad range of agents to address the need for an effective HIV treatment regimen, said Gilead Sciences Vice President of HIV Clinical Research Dr. Jared Baeten.
In 2022, Gilead is expected to earn $24 billion. While $1 billion in sales in one year won’t drastically change the company’s outlook, Lenacapavir will be a great source of additional revenue. Pharmaceutical companies must constantly find new sources of revenue to replace those lost to expiring patents. The approval and eventual sales success of Lenacapavir will further demonstrate Gilead’s ability to grow its internal pipeline into future revenue, a great sign for the future of the company.
Risks and Conclusions
There is never a guaranteed drug approval, so there is a risk that Lenacapavir may not be approved. Additionally, Gilead is in a slow growing industry. Gilead will underperform the market during bull markets due to its inability to grow quickly like some companies. However, investors have a more stable investment during bear markets that pays a very high dividend.
In conclusion, I give Gilead Sciences an expectation note. I think Gilead is in a great business for a recession, and I think Lenacapavir will probably be approved. The endorsement will be a catalyst and a new revenue stream for the company, helping it perform through the coming bear market. However, Gilead has struggled against its competitors, and I think there are better investments in this sector.