Market Thoughts - Feb 6 – Gilead Jumps but Remains Criminally Undervalued

Disclaimer: This post does not constitute financial advice. Author has a long position in Gilead and AstraZeneca. Do your own due diligence before making an investment.

It was a wild week in the markets, but again we’ll focus on Gilead, because it remains the most undervalued large-cap biotech stock on the market.

Last Monday the shorts started hitting the stock again. This is such a familiar pattern it’s almost laughable. They’ll nuke the stock from Monday to Wednesday, and then let it recover on Thursday and Friday.

You might be looking at Friday’s stock action and be thinking, “Wow Gilead finally did good for once.” The stock hit a high of $69.36, but then the shorts smashed it down again to $68.46. They likely did this to burn the thousand of options that were opened Friday over the $69 strike.

How professional option burning like this remains legal I have no idea. It’s one of the reasons I rarely purchase short-dated options. It’s too easy for Wall Street to play games and burn you out.

It’s like selling someone a token they can put in a slot machine which expires in a few days, and then destroying the slot machine. “Sorry, friend, better luck next time.”

In any other industry, behavior like this would be illegal. Somehow, Wall Street gets away with it.

Let’s take a look at the one-month chart.

As you can see, Gilead already hit north of $68 on January 20th, trading off tailwinds from the Morgan Stanley price upgrade to $83. This caused the stock to jump about 7%.

Morgan Stanley again upgraded Gilead’s price target to $87, but the stock remains lower than when they upgraded it to $83. A very clear sign of manipulation.

Here are some posts that bears were making on various stock message boards before Gilead’s earnings were released. They wanted people to believe that the earnings would be bad, even though management had already guided upwards.

These bears are so dumb they couldn’t come up with a better excuse other than “Earnings will be bad.” While I feel it necessary to read this garbage during the week to maintain a handle on the stock, I find myself daydreaming of the weekend and all the beer I’ll be drinking to cleanse my brain of their moronic drivel.

Short volume remains high, but short interest remains low. What’s happening is probably this: Short sellers abuse the stock during the day and then cover before their short interest is reported. This allows them to nuke to stock and hide the fact that they’re doing so. (You’ve probably noticed the large amount of Gilead shares that trade just before close, or right at 4pm.)

Gilead short volume.

With every approval/positive study result, Gilead will jump. Covering each day allows shorts to burn calls in the short term, and not get their faces ripped off in the long term.

$IBB jumped 1.76% on Friday. Since Gilead is one of its largest holdings, you would expect that to track. So really Gilead was only up about 2.24% after their stellar earnings report. Thus, we can conclude that the manipulation continues.

Did you guys listen to the conference call?

It was probably their best one in recent memory. Definitely read the transcript if you missed it.

It turns out that inhaled remdesivir trials are still ongoing. Things are “going well” per the Chief Medical Officer. He was grilled on what was taking so long and his answer was basically this: Inhaled remdesivir is a different delivery system so it’s being treated as a new drug. They need to start from scratch with safety and efficacy trials.

The good news is they didn’t shut it down after the first trial and have moved on to a second more advanced trial.

Governments should take note of this. They’re very gung-ho about making purchasing agreements, and setting up infrastructure for vaccines, and they should be doing the same thing for inhaled remdesivir.

If it inhaled remdesivir works, it will be a total gamechanger. I outlined why in this article, but the jist of it is this: Remdesivir is an antiviral. Antivirals are more effective the sooner you use them. The current from of remdesivir is intravenous. Intravenous is a crappy method for administering an antiviral because you need to be in a hospital setting. By then it could be too late, which is why the WHO Solidarity study didn’t pan out. They were giving remdesivir to patients on high-flow oxygen (very bad shape) so remdesivir, as you would expect, did nothing. The WHO study was poorly designed and will be criticized harshly by historians if the next generation of remdesivir is highly effective.

Inhaled remdesivir would allow doctors to prescribe it the second they think a patient has Covid-19. Since the drug is being given earlier, then theoretically it should have a better effect.

The ideal scenario is that inhaled remdesivir turns Covid-19 into a mild inconvenience as long as you catch it early enough.

The market for this is incalculable.

Governments have spent trillions on bailing out their economies. They’ve spent hundreds of billions on vaccines, of which the long-term efficacy is unknown.

Just today, the Financial Times is reporting that the AstraZeneca vaccine is less effective against the South African variant. [Source]

Given that the South African variant is more contagious and resistant to vaccines, it might become the dominant strain going forward.

As stated in the conference call, remdesivir attacks the virus in a different way than vaccines, meaning current and future mutations likely won’t affect the usefulness of remdesivir.

The future is murky. Gilead, however, is not.

Their stock price remains monstrously undervalued compared to their earnings and their pipeline’s potential.

Gilead purchased Immunomedics so they could acquire trodelvy. Trodelvy is expected bring in 4.5B in sales at its peak for triple negative breast cancer.

They’re currently running trodelvy trials on 10 other tumors. Even if each of these tumors is a tiny 1B market (they aren’t), and only half of them are approved, you’re looking at another 5B in revenue.

If trodelvy is wildly successful, it might one day bring in revenues of 30B/year, which is more than Gilead is bringing in now.

No wonder they paid through the nose to acquire Immunomedics. The $22B price tag might someday look extremely cheap.

Management said they expect to bring in only 2B-ish from remdesivir sales in 2021. They’re clearly sandbagging this number to avoid media scrutiny from organizations that focus on Gilead’s margins.

Saying a drug is overpriced because it only costs $50 to produce, but sells for $3,000 is as dumb an argument as paying a PHD a low fee because it only took them 30 minutes to solve the problem.

You’re not paying them for the 30 minutes. You’re paying them for the 10 years it took them to earn the knowledge to produce the solution.

Billions of dollars and decades of work go into some drugs. Limiting their revenue potential because you don’t like their margins is a great way to ensure that no future development is done on anything.

Okay, next rant: Price targets.

Everyone likes price targets, but most of them are bull. Analysts are working within a short time frame, whereas companies like Gilead might take years to bring their pipeline to fruition.

A price target like $87 is ridiculous because there’s no time frame relative to drug readouts. Gilead could tread water for six months, and then jump to $87 on a single approval.

I could throw numbers around like $200 or $300 but they’re irrelevant as long as Gilead remains manipulated by the parasites on Wall Street.

Gilead’s fair value TODAY is around $93, based on their revenue compared to their flatlining peers.

If you give them a growth premium (like maybe because they have a fatter pipeline than almost anybody) then their value is closer to $150.

If the pipeline plays out, and inhaled remdesivir becomes the standard of care for Covid-19, and Covid-19 remains a thing, then the price target is Tesla-levels of ridiculous. It snowballs even harder since Gilead’s margins are high. This allows them to roll cash into more acquisitions.

Gilead isn’t the Apple of biotech, they’re the Berkshire Hathaway.

But the stock is still being manipulated. You can tell this by its after-hours and pre-market action. No stock on the planet is more red pre-market and after hours than Gilead. It’s just red, red, red all the time. Wall Street does this to psychologically abuse you into selling.

Don’t let the parasites get you down. If they nuke the stock again on Monday, I’ll just yawn and buy some more.

Good luck. – David Stone