Market Thoughts - Jan 23 - Gilead and Inhaled Remdesivir

Disclaimer: This post does not constitute financial advice. Author has a long position in Gilead, no position in GameStop. Do your own due diligence before making an investment.

Hello, everyone. Thanks for reading Market Thoughts.

It was a pretty hilarious week for GameStop traders. Friday morning I watched the price explode to +35% and thought, “Wow, this is nuts.” 30 minutes later it was 50%. I called my partner over and said, “This is what a short squeeze looks like.”

Then I looked back at page and it was up 70% and halted.

I’m not sure where GameStop is headed, but it’s a great example of what can happen to a stock with a low float, and a strong fan-base.

My main interest still lies with Gilead.

Tuesday morning was interesting. Gilead won their hepatitis C patent dispute with Merck when the supreme court declined to hear Merck’s case.

There was also an upgrade from Morgan Stanley. They moved the stock to overweight and upped their price target from $67 to $83.

This is extremely interesting. When I started doing research into the possibility that Gilead was being prepped for a buyout by investment bankers, I suspected the guilty party might be Morgan Stanley or Goldman Sachs. (Based on their previous history of facilitating mergers.)

Gilead is now up over 18% from its December lows.

That’s pretty significant.

It’s possible that whoever was manipulating Gilead got spooked and decided to cover.

The Efficient Market Hypothesis states that share prices reflect all information and consistent alpha generation is impossible.

But since there wasn’t any Gilead news from December 31st to January 10th (which saw a rally of 12%) then you can assume this theory, in the short term, is worthless. Gilead was in Wall Street Jail, and it was bankers that put them there.

What’s probably going is this:

Major players on Wall Street run operations on certain tickers. They have goals (moving a stock up or down), a timeframe to accomplish this, and they run smear campaigns on message boards. (Here you can see evidence of a smear campaign being run on Gilead by the same users that ran one on Celgene.)

These types of operations would require collaboration between the major players. This alliance would be held together by mutually assured destruction. Something like, “If you don’t blow up my operation on Gilead, I won’t blow up your operation on BlahBlahBlah.”

Gilead was insanely undervalued in late December. Any analyst worth their salt would have advised their bank to back up the truck and buy as much as possible. So why didn’t they?

That’s why it was interesting when Morgan Stanley upgraded Gilead, causing the stock to rip as much as 8% on Monday. It then cooled down the rest of the week and manipulators hacked away at it.

Last weekend (Jan 16/17) I noticed a distinct lack of negative posts on the Gilead boards. All of the regular bears had gone into hibernation.

Tuesday morning the good news dropped, and I thought, “Well, that figures.”

But by Wednesday afternoon the manipulators were back.

So, what explains this?

Let me be clear: There is no proof that Goldman Sachs or Morgan Stanley are involved in this. It’s just a theory. Two parties are definitely playing games here, but we don’t know who they are. So we’ll call them Player 1 and Player 2.

It’s possible that Player 1 decided that there would be too much heat on a buyout. They wanted legal cover in the event of an SEC investigation. The only holdout is Player 2.

It’s reasonable to assume that two players were involved in the destruction of Gilead’s share price. They could have been accomplished by passing shares back and forth.

How to Destroy a Stock:

Player 1 sells stock to Player 2 at the bid.

Player 2 waits a bit, then sells the stock back to Player 1 at the bid.

This constant selling at the bid triggers technicals, which leads to more people/algos selling, which leads to the price collapsing.

Meanwhile, paid bashers hit every message board they can. They post low price targets and negative comments. This does nothing to scare away die-hard fans, but it does scare away newcomers.

Imagine a stock popped up on your scanner. It’s near 52-week-lows, pays a high dividend, and has a great revenue. “Wow, I’m gonna buy some,” you say. Then you check out the message board.

Yikes.

It’s a sea of negativity. Tonnes of bearish posts. Tonnes of people agreeing with the bears. You can’t figure out what’s wrong with the stock, so you just move on.

That’s their goal. To scare people off.

So why did Gilead jump this week?

What might be happening is an argument between the two manipulators. Player 1 wants to quit. Player 2 wants to keep playing.

But without Player 1, it’s almost impossible for Player 2 to manipulate the price downwards. They would have to keep shorting. And now they’re worried about Player 1 betraying them. They could get ruined in a short squeeze.

Which could be imminent.

On Friday, the UK had some disturbing things to say about their Covid-19 variant. It’s 50-70% more contagious, and might be 30% more deadly. They also believe that their variant, and the South African variant, might cause vaccines to be only 50% as effective.

The deadlier part is tough to analyze. It’s a fact that covid deaths go up when your hospital system is overloaded. That’s the point of most lockdowns. Prevent the collapse of the healthcare system.

Is the UK variant actually more deadly, or are more people dying because they’ve run out of beds in the ICU?

Time will tell.

Israel will be a fascinating case study, as they are the furthest along at vaccinating their citizens. They have found that initial immunity from the first shot can be as low as 33% in people over 60. This rises to 89% after the second shot of the vaccine.

But how long does this immunity last? Will it work on future variants?

All of this is still unknown.

As Gilead investors, we can look forward to the inhaled version of remdesivir. I wrote a short article this week outlining why inhaled remdesivir might be a game changer. Check it out.

How long will remdesivir revenue last?

One of the comments parroted by bears is that the revenue from remdesivir is temporary. Everyone (including Gilead management) underestimated remdesivir revenue for Q4 2020.

If the vaccines are less effective on newer covid strains (which is looking likely) then everyone is underestimating remdesivir revenue for 2021.

We could be looking at 3 billion per quarter.

Or more.

Covid might be with us forever. It’s a depressing thought, but perhaps we’ll have good news soon. If the inhaled remdesivir is a success, then you can expect an extreme Gilead rally. Possibly an infinity squeeze.

Inhaled remdesivir, if it works in the way we all hope, would be one of the most demanded products on the planet.

Think you have covid? Visit the doctor and get diagnosed. Take a hit from the nebulizer and go home and sleep it off.

Gilead released a statement saying: “The mutations identified in these new variants have not significantly altered the part of the virus that remdesivir targets or have any association with known mutations conferring reduced susceptibility of coronaviruses to remdesivir in vitro.”

Heads up: Trials for inhaled remdesivir have taken longer than regular remdesivir. There also haven’t been any updates other than the CEO saying they had more than 40 trials ongoing.

This sets off red flags to me for two reasons.

One: It’s possible inhaled remdesivir doesn’t work, and they’re trying to run different studies with different subgroups with different end points to wrangle out a positive note so they can sell more remdesivir. Drugs that are swallowed, snorted, or puffed into the lungs are all absorbed differently by the body. Classic remdesivir is intravenous. It’s possible that intravenous is the only way that remdesivir works. (This would be sad.)

Two: Inhaled remdesivir does work, but there’s no way they can manufacture enough supply for the US, let alone anyone else. (It’s possible the good results are being purposefully delayed so Gilead can continue to ramp up production.)

Imagine they came out tomorrow and said, “A double-blinded, randomized study shows inhaled remdesivir prevents early covid from progressing into severe covid, but unfortunately we only have enough supply for America.”

What would happen is this: Every country would activate their emergency laws that allow them to override patents. They would manufacture their own inhaler and their own remdesivir and Gilead would make nothing.

Gilead would also look like dicks. Something they’ve been trying very hard to avoid, ever since the CEO got dragged in front of congress and was grilled about the cost of HIV meds.

Gilead has said many times there is more than enough supply of remdesivir. But that’s for hospitalized patients, which represent a small subgroup of overall Covid-19 patients. If you wanted to give remdesivir to everyone at risk of developing severe Covid-19, you’d need a heck of a lot more remdesivir. Twenty, thirty times? Impossible to say. It depends on the effectiveness.

The current treatment is a five-day course. Maybe the inhaled version is so effective they only need one course, inhaled through the lungs. That would bump availability by 5x. (Hopefully this is the case.)

What to watch for next week: Upgrades and options volume.

If you see Goldman Sachs, or another investment bank that facilitates mergers/buyouts upgrade Gilead then it might be safe to assume that Player 2 has capitulated and the manipulation is finally over.

If Gilead had a PE similar to its peers, they would have a stock price of $90-$120.

If there isn’t going to be a buyout, this means the 2023 LEAPS are probably the best deal on the market. On Friday the $80 Jan 2023 options were trading for only $5.70. That’s insanely low given remdesivir’s potential and Gilead’s oncology pipeline.

Given that 80% of Gilead shares are owned by institutions, there are only about 240 million shares available for retail.

For only 16 billion, and a few months of sneaky accumulation, you could buy up the rest of Gilead’s float. Then the company would simply be, not for sale.

If inhaled remdesivir in a success, and if their oncology pipeline is a success, and if someone has been accumulating most of that 20%...Gilead might just turn out to be a trillion-dollar company.

Sounds impossible, but imagine owning the company that cured COVID-19 and cancer.

Starting to see the picture?

No wonder it’s being manipulated.

One reader sent me a comment: “Try posting a positive Gilead comment on the Yahoo Finance board. You’ll get 7+ downvotes almost instantly. Pretty obvious what is going on here.”

Good luck out there.

I’m still buying Gilead on every dip. It’s undervalued at anything less than $90. Have a nice weekend. – David Stone