See Why Gilead's Cancer Business Is Driving The Stock To A Fever Pitch

Gilead Sciences' (GILD) first-in-class cancer drug and GILD stock are finally hitting their stride.

The biotech company is an expert in a means of battling cancer by reprogramming a patient's own cells with drugs called chimeric antigen receptor T-cell therapies, or CAR-T for short. But making bespoke drugs remains a challenge. For years, sales growth has missed expectations almost as much as it beat them — until 2022.

During the September quarter, sales from Gilead's first drug in this class, Yescarta, skyrocketed 81% to $317 million. That helped Gilead's overall oncology business soar 79% year over year.

William Grossman, Gilead's senior vice president of oncology clinical development, says it's a new day at Gilead. He credits cancer becoming a Gilead focus area to newish Chief Executive Daniel O'Day.

To put it in perspective, Yescarta brought in $96 million in sales during the first quarter of 2019 when O'Day took Gilead's reins. Sales surged year over year, but lagged expectations. This year, sales growth has accelerated every quarter and easily topped projections. GILD stock has followed the stratospheric pattern. Shares have soared 21% since the third-quarter report, as of Nov. 22.

"We're not a one-hit wonder," Grossman told Investor's Business Daily. "We're here to stay (and) we're here to become an industry leader in the oncology space."

GILD Stock: Fits And Starts In Cancer

To understand the quarterly success, it's important to look back at Gilead's early efforts in cancer.

Gilead acquired Yescarta-maker Kite Pharma in 2017. Shortly after, the Food and Drug Administration approved Yescarta for patients with a form of late-stage blood cancer. The agency later signed off on a similar CAR-T drug from Novartis (NVS) called Kymriah.

But Yescarta sales were held back as insurers debated whether to reimburse for the treatment and amid manufacturing challenges. Since the fourth quarter of 2018 — the farthest-back period for which FactSet has data — Yescarta sales have beaten expectations 56% of the time.

This year, though, looks to be a turning point. Sales have accelerated markedly, growing 32% in the first quarter, 66% in the second and 81% in the third. They beat GILD stock analysts' forecasts each time. And that's not the only feather in Gilead's cap. Sales of follow-up CAR-T drug Tecartus have beaten forecasts for the last four quarters. In the third quarter, Tecartus sales rocketed 72%.

That helped stoke a breakout for GILD stock. Shares broke out of a saucer base with a buy point at 74.22 in high volume on Oct. 28, according to IBD MarketSmith charts. Almost immediately, they sailed above the 5% chase zone.

Gilead also sells Trodelvy, a treatment it bought in its 2020 takeover of Immunomedics for $21 billion. Today, the drug is approved for patients with triple-negative breast cancer, a fast-growing disease that doesn't respond to most traditional treatments. It can also treat a form of bladder cancer.

Trodelvy sales also soared in the third quarter, rocketing 78% to $180 million.

Grossman calls Trodelvy a "cornerstone" of Gilead's oncology pipeline. Of almost 60 ongoing studies from Gilead's oncology efforts, more than half use Trodelvy as a component. Many of those are Phase 3 studies, meaning Trodelvy could gain new uses in the near future.

Oncology, The Next Growth Story

Since early 2019, Gilead has tripled its pipeline to 20 potential cancer treatments, Grossman says. BofA Securities analyst Geoff Meacham says Gilead's cancer pipeline is one to watch.

"In our view, the key to the Gilead growth story remains squarely on the expansion of its oncology pipeline and further acceleration of Yescarta and Trodelvy, both of which impressed in the third quarter," he said in a recent report.

He kept his neutral rating on GILD stock though, noting the "oncology pieces are there, but it will take time." But he raised his price target to 85 from 75.

Further expansion for Yescarta means making the drug available to earlier-stage patients.

Yescarta was previously approved for patients with large B-cell lymphoma and follicular lymphoma who worsened after two earlier treatments. But, this year, U.S. officials said large B-cell lymphoma patients could use Yescarta after just one failed treatment. European regulators now allow Yescarta as a second treatment option for patients with two forms of lymphoma.

That second treatment option for some patients "really has the potential to change the standard of care those patients were getting," Gilead's Grossman said. "We're seeing incredible response rates, incredible durability and really shaking the paradigm in how patients are treated."

Trodelvy Helps Drive GILD Stock

Gilead also is focused on expanding Trodelvy. Merck (MRK) is leading a study combining its blockbuster drug Keytruda and Trodelvy in non small-cell lung cancer. Further, the FDA is reviewing Gilead's application for Trodelvy in another form of breast cancer patients. The potential approval date is in February.

The latter "represents a large and difficult-to-treat population and should significantly accelerate revenue growth in mid-2023," Maxim Group analyst Michael Okunewitch said in a report. He has a buy rating on GILD stock.

In that same population of breast cancer patients, RBC Capital Markets analyst Brian Abrahams sees a $1.2 billion-plus opportunity for Trodelvy. In addition to the combination with Merck, Gilead is testing Trodelvy alone as a second and third option for non small-cell lung cancer patients. The potential for these programs "is not at all reflected in valuation," he said.

He has an outperform rating on GILD stock and recently raised his price target to 82 from 79.

Beyond Trodelvy, analysts are watching Gilead's partnership efforts. The company has more than 40 active partners in oncology, Gilead's Grossman says. A key one is magrolimab with MacroGenics (MGNX) in blood cancers known as myelodysplastic syndromes.

Gilead is working with Arcus Biosciences (RCUS) on a drug called domvanalimab in patients with non small-cell lung cancer. Domvanalimab aims to block TIGIT, a protein that helps tumor cells avoid immune system detection. Interim results later this year could further stoke GILD stock.

Highly Rated GILD Stock

There's a lot of interest in Gilead's oncology assets, says Grossman, the Gilead executive. Early on, investors knew Gilead best for its hepatitis C business. Then, HIV medicines took center stage. Now, oncology is shining bright.

Much of that is showing up in the performance of GILD stock, which has a bullish Relative Strength Rating of 96. This puts shares in the leading 4% of all stocks in terms of 12-month performance, according to IBD Digital.

Grossman says it took time for the company to establish its presence in the segment. And it's still early days.

"People look at assets like Trodelvy where we're going for multiple approvals out of the gate with very positive clinical data, the CAR-T space is being talked about with Kite becoming an industry leader there and our pipeline, I'm super excited about our pipeline," he said. "Stay tuned to the space."

Post a Comment

Previous Post Next Post