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Shares of Gilead Sciences Inc. rallied in afternoon trading on Monday over investor excitement about a coronavirus treatment candidate.
Gilead had said Jan. 31 that it is working with Chinese authorities to test its investigational antiviral remdesivir as a treatment for coronavirus infections.
There are currently no approved treatments or vaccines for the novel virus, which was first identified in December in Wuhan, China. Since then, at least 361 people have died and 17,205 have been sickened.
The stock GILD, +5.50% shot up as much as 8.7% to a seven-month high intraday, before paring gains to be up 5.3% in afternoon trading.
According to SVB Leerink’s Geoffrey Porges, citing Chinese news sources, Gilead this weekend received approval from China’s Food and Drug Administration to start a randomized, controlled clinical trial in Wuhan for 270 patients who have mild to moderate forms of pneumonia as a result of a coronavirus infection. The trial is expected to run through April.
He cautioned investors, however, not to expect remdesivir to be a big money maker for the company as a treatment for coronavirus over the longer term.
‘Therapies of this nature are likely to provide a short-term financial boost, but unlikely to yield a significant impact on long-term shareholder value.’
The drugmaker said while the therapy hasn’t demonstrated to be safe or effective for any use, the company has data showing that remdesivir had “in vitro and in vivo activity in animal models” against Middle East respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS), both of which are coronaviruses similar to 2019-nCoV.
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“Gilead has provided remdesivir for use in a small number of patients with 2019-nCoV for emergency treatment in the absence of any approved treatment options,” Merdad Parsey, Gilead’s chief medical officer, said in a statement.
A paper published Jan. 31 in the New England Journal of Medicine outlined a positive response to intravenous remdesivir recorded in a patient undergoing treatment for pneumonia stemming from a coronavirus infection. The 35-year-old man had recently returned to Snohomish County, Washington, from a trip to Wuhan. He was the first U.S. citizen to be diagnosed with the novel virus.
The finding is encouraging, Porges said, but requires caution for investors.
“Despite the headline excitement associated with remdesivir, we believe it is unlikely to be a long-term value driver for Gilead’s stock,” SVB Leerink’s Porges wrote in a research note. “Therapies of this nature are likely to provide a short-term financial boost, but unlikely to yield a significant impact on long-term shareholder value.”
Porges lays out the case why treatments like this are rarely lucrative. Treatment duration tends to be short; companies are “likely” to be limited in the price they can charge, given the public health benefits of such a medicine; and markets like China and Indonesia may simply produce their own versions of a specific therapy.
Read: Why the coronavirus ‘poses a more significant threat’ to markets, economy than past epidemics
The lack of treatment options for the coronavirus infections, which have been reported in 24 countries, has triggered a market rally in companies that say they develop vaccines, diagnostic tests, and antiviral therapies like remdesivir or AbbVie Inc.’s ABBV, +1.32% antiviral Aluvia. “Some companies who are doing this are cash-hungry and struggling to survive,” Brad Loncar, CEO of Loncar Investments, said last week in an interview. “If you can get a pop in your stock price, you might be able to raise money and bring in some cash.”
The Gilead is scheduled to report its fourth-quarter earnings on Tuesday afternoon. The stock has gained 3% over the last three months, compared with the S&P 500 SPX, +0.82% , which is up 6%.
