Maintaining Gilead's FVE After Solid Remdesivir Data

Gilead GILD released solid results from its second Simple study of remdesivir on June 1, and we're not making any changes to our $83 fair value estimate. The study focused on hospitalized patients with moderate COVID-19; patients had pneumonia but normal oxygen levels. Patients assigned to the five-day dosing schedule for remdesivir were 65% more likely to see a clinical improvement than patients receiving prior standard of care. Overall, we think this fits well with prior data from the Actt-1 study (showing improved recovery time and a trend toward a mortality benefit, particularly among patients receiving oxygen) and the Simple-severe study (showing that five and 10-day remdesivir dosing produced similar outcomes, effectively increasing the number of treatment courses available).

Remdesivir continues to look like an effective drug that significantly benefits patients who were too sick to recover on their own but not so sick that they had already progressed to mechanical ventilation. Based on the steady data from remdesivir and management comments on costs of production that were higher than our assumptions, we've updated our Gilead model and now use a $1,000 price for commercial sales of remdesivir (we still assume a 100% probability of approval around mid-2020) as well as a $250 price for future stockpiling. We've lowered our probability of stockpiling back to 40% from 60%, as progress with vaccines is moving faster than we had anticipated, which could reduce the need for antivirals by 2022 and 2023. Overall, this leads to $1.7 billion in potential remdesivir sales in 2020 and a peak of $2.5 billion in sales in 2021, with sales excluded from our model after 2023. While remdesivir is an example of the sort of innovative antiviral medicines coming from Gilead's pipeline, which has created a portfolio of HIV and hepatitis C drugs that support a wide moat, we don't think the drug will have a large and sustained impact on Gilead's future cash flows.

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