On the surface, Gilead (NASDAQ:GLEAD) had a very disappointing second quarter, as they fell short of Wall Street’s consensus estimates. It was a stark contrast to just one quarter earlier in April, when Gilead handily beat estimates, peaking at around $84 per share at the end of the month. Fast forward to this week where after a disappointing earnings report, Gilead has seen a 15% drop in stock price from the previous quarter, now trading for $70 per share. So let us take a deeper look into the reasons that caused Gilead to underperform this last quarter, and why the second half of 2020 could be a promising one for the pharmaceutical giant.
First and foremost, revenue dropped substantially for Gilead with a 10% decrease year over year from the second quarter of 2019, and adjusted earnings tumbling over 35% on top of that. Gilead has mostly been in the headlines lately for its involvement in Operation Warp Speed, otherwise known as the great race for the COVID-19 vaccine. What most people did miss was that one of Gilead’s revenue streams, HIV and Hepatitis-C medication, fell drastically in the second quarter. Much of this loss was caused by people stockpiling the drugs in the first quarter as the COVID-19 first started to break out, meaning the demand in the second quarter was significantly lower. There was also a decline in sales for Ranexa and Letairis, as the generic version of these drugs is readily available at a fraction of the price, a combination that works well during a global economic shutdown.
But it is not all bad news for Gilead. Their COVID-19 drug Remdesivir is one of the sole treatments available right now as the pharmaceutical industry scrambles to create a vaccine. Even if a vaccine is produced and accepted, they are proven to be less than 100% effective, so medication may always be something that is required for the general population. The main reason to be excited about Remdesivir is the price. At approximately $2,340 a dose and with Gilead estimating they could move as much as 1.5 million doses this year, that equated to a revenue of over $3 billion from Remdesivir alone. As the global economy slowly opens up, there should be increased demand for their other treatments as well, meaning the temporary dip in revenues in the second quarter should be rectified.
For now, at nearly 20% off of their 52-week highs, Gilead seems like a promising stock to invest in as we inch closer to the full distribution of their medication for COVID-19. If the company is able to deliver as many doses of Redesivir as they believe they can, then their sales should see a noticeable boost in the back half of 2020. Along with additional medications coming down the pipeline for HIV and the continued advancements of their oncology therapies, Gilead is developing multiple revenue streams that should give their stock a boost for the foreseeable future.
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