Gilead Hit With Downgrades on Questions of Remdesivir Profit

(Bloomberg) -- A Gilead Sciences Inc. analyst advised investors to take their profits on the company's $26.5 billion surge amid uncertainty on how the drugmaker could generate revenue from its Covid-19 drug candidate, remdesivir.

The biopharmaceutical company's plan to make the drug “affordable” and give away free doses for the time being clouds expectations of how it can use the medicine to turn a profit, SunTrust analyst Robyn Karnauskas warned clients in a note, downgrading the stock to sell from hold.

“While we commend Gilead and do believe during this pandemic the company is doing the right thing, fundamentally we find the current valuation too high and investor realization of lack of growth will return the stock back to fundamentals,” she wrote.

Shares of the Foster City, California-based company fell 5.9% at 9:38 a.m. in New York after reporting quarterly results Thursday evening. The drugmaker had gained 34% from a Jan. 21 low through Thursday's close, placing it among the top performers in the S&P 500 Index, which fell 12% over the same time period.

Karnauskas isn't alone in pouring cold water on optimism surrounding remdesivir's potential that has electrified Wall Street and Main Street alike. Analysts from both JPMorgan and Raymond James cut their recommendation on the stock to neutral-equivalents from buy ratings.

The “impressive remdesivir-inspired run” pushed JPMorgan's Cory Kasimov to the sidelines, despite what he called an “impressive feat on the humanitarian front to develop remdesivir for the Covid-19 pandemic.” He warned that while the drug has been a big sentiment boost for the company, it is unlikely to bring in tangible long-term cash flow.

The unclear prospect of turning a profit on the drug paired with the “seemingly de minimis activity in Covid-19” fueled Raymond James's Steven Seedhouse to advise investors to take a breather on the stock's red-hot climb.

With roughly a third of analysts holding buy ratings, Wall Street has never been this cautious on Gilead shares in at least the last five years, data compiled by Bloomberg show. On the whole, four analysts advise investors sell the stock compared to 17 recommending they hold on and just 11 advising clients continue buying. The stock closed above its average 12-month price target of $79.46 on Thursday, signaling analysts think shares will lose roughly 5.4% of their value in the next year.

Among the stock's bulls is Jefferies analyst Michael Yee, who ignored concerns of making a profit off the drug, boosting his price target to a Street-high $97 from $89. Interest from a more general investor base who view the stock as cheap on a price-to-earnings basis as well as improving industry sentiment are among the key reasons the stock will grind higher this year, Yee wrote.

Gilead “is under-owned and cheap and will continue to see money flow as a pharma-like stock that doesn't have a lot of binary risk,” Yee wrote. “Obviously, in our view, one should not expect Gilead to herald loudly big sales of” the drug on a public conference call.