Remdesivir is the first coronavirus treatment. So why is Gilead’s stock plunging?

Gilead, which has the first FDA-authorized coronavirus treatment, has seen its stock slump.

Remdesivir is the first coronavirus treatment. So why is Gilead’s stock plunging?

You’re in the midst of an unprecedented pandemic. A well-known biotech giant gained emergency authorization for its coronavirus drug to beat back the virus wreaking havoc. Encouraging clinical trial data from both the company and the federal government have been unveiled in the past 48 hours.

But now, the company’s stock is down about 4.8% as of Friday afternoon trading—a massive decline for a firm with more than $100 billion in market value. So what gives?

Drugmaker Gilead has been on a tear this week over its experimental COVID-19 treatment remdesivir. The drug was the first treatment granted emergency Food and Drug Administration (FDA) authorization for COVID-19.

It’s no miracle cure, as experts like Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), have stated—but it’s a critical first step to reducing the burden on the health system and improving the lives of patients with the most severe COVID-19 cases.

You’d think that investors would be rushing into the breach given the circumstances. Why not put your chips into a company that’s trying to save thousands of lives and the economy at large?

The reality is more complicated given the nature of treatments for infectious diseases and a global outbreak which may force, via public pressure, considerably lower price points which don’t turn a profit.

“Biotech investors know there’s no money in this,” says Brad Loncar, an experienced biopharmaceutical investor. “What’s happening during this crisis is that biotech is front and center, and biotech ‘generalists’ are throwing money at everything they see in the headlines.”

Put another way: Investors who aren’t as savvy to the complexities of medicine and biological science are basing their investment decisions on short-term news cycles rather than long-term public health effects.

“This is emblematic of what I call ‘virus stocks,’ because the coronavirus isn’t going to be that much of a money-making thing for most companies, from Gilead to to firms like Johnson & Johnson which are investing in COVID-19 vaccine research,” says Loncar.

Gilead plans to give away its first batches of remdesivir essentially for free. It also said on Thursday that it will invest $1 billion into continued development and manufacturing for remdesivir—a massive commitment which may not garner a whole lot of financial return.

Company executives seem to be aware of the financial challenges.

On Friday, Gilead CEO Daniel O’Day told CNBC that, going forward, it would have to be cognizant of its duty to the public to make remdesivir accessible while also making it a sustainable product for shareholders in a tough balancing act. “We understand our responsibility both to patients and also to shareholders,” he said.

Antibiotics, antivirals, and infectious disease treatments can be a tough sell to the investing class since they’re usually not lucrative profit-makers, and the conditions they treat may often afflict the most vulnerable in society.

But while this individual drug might not be a big money maker, Loncar believes the innovation Gilead has shown is worth considering for long-term investors. The science that goes into developing drugs like remdesivir—which has been more than a decade in the making—is obviously a strength.

“Gilead is a world class company with world class drugs, and some investors are throwing money at it based on the headlines,” he says. “But I do think, over the longer term, this situation will change how investors think about these things.”

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3 changes businesses will need to adapt to post-coronavirus

Government intervention, a contact-free economy, and automation will all define the new normal.

3 changes businesses will need to adapt to post-coronavirus

First, there will be more government intervention—and therefore greater scrutiny of business. Governments around the world have pumped trillions into their economies directly and have also cut interest rates and applied other forms of monetary stimulus. As governments step up to serve, or save, the private sector, the means they choose will differ. Some will outright nationalize, some will take equity stakes, some will provide loans, and others will choose to regulate. How much, how fast, and in what ways governments eventually reduce their economic role will be some of the most important questions of the next decade.

With many businesses likely to be operating to some extent with public money, the public will expect—indeed, demand—that their money be used for the benefit of society at large. Of course, this was already happening: In August, 181 American CEOs vowed to “promote an economy that serves all Americans” in a statement of the Business Roundtable. But with citizens potentially facing higher taxes or fewer services (or both) to pay for the stimulus, this pressure will likely not be eased. This raises complicated questions. What does it mean for businesses to do right by their employees and customers? If a financial institution accepts a bailout, how should it think about calling in loans? And as the coronavirus pandemic reveals or heightens awareness of social fractures, business will be expected to be part of finding long-term solutions.

Second, the world will see the rise of a contact-free economy. In three areas in particular—digital commerce, telemedicine, and automation—the COVID-19 pandemic could prove to be a decisive turning point. 

In terms of e-commerce, the pandemic has accelerated a change in shopping habits that was already well established. In Europe, 13% of consumers said that they were considering online retailers for the first time in April, and in just Italy, e-commerce transactions rose 81% in March.

The figures for telemedicine are just as striking. Teladoc Health, the largest independent U.S. telemedicine service, is adding thousands of doctors to its network, according to the Wall Street Journal. Sweden’s KRY International, one of Europe’s biggest telehealth providers, noted a 200% increase in registrations. France, South Korea, and the U.S. have all changed regulations to ease access to telemedicine. 

As for automation, the robots were coming well before COVID-19. In late 2017, the McKinsey Global Institute estimated that automation could affect from 400 million to 800 million jobs by 2030. These trends could accelerate: Over the three recessions that have occurred in the past 30 years, the pace of automation increased during each, according to a National Bureau of Economic Research paper cited by the Brookings Institution.

In effect, it is becoming possible to imagine a world of business—from the factory to the shop floor—in which human contact is minimized. But not eliminated: Getting back to normal will include popping into stores again, and many patients will still want to chat with their doctors in person. Still, the trends are unmistakable. Businesses may need to reallocate investment—for example, hospitals might offer both telemedicine and clinic visit options—and rethink their strategic plans to take them into account. 

And finally, companies will need to reconsider how they can establish more resilience. The pandemic could end up rivaling, or even exceeding, the 2008 financial crisis in economic damage. The U.S. Congressional Budget Office has projected that in the second quarter, GDP could fall 12%, and that unemployment could stick at double digits into 2021—a level never reached during the financial crisis. 

The implication is that companies will have to rethink, not tweak, their business models. For example, supply chains built on just-in-time inventory and distributed component sourcing may well have to be reconsidered, given the way many have been disrupted. Instead, companies will have to build, or strengthen, backup and safety plans, be it deeper layers of succession planning or significantly expanding work-at-home capabilities for more employees. Investors are likely to take note and to devise ways to incorporate new resiliency metrics into their valuation, as they have begun to do with climate-related risks. Many companies will need to rebalance their priorities, making additional resiliency measures as important to their strategic thinking as cost and efficiency. 

Because necessity is often the mother of invention, the pandemic could bring some positive outcomes. Individuals, communities, businesses, and governments are all learning new ways to connect. And businesses are finding faster, cheaper ways to operate. In-person conferences have gone virtual. Remote working has soared. These changes could make for better management and more flexible workforces.

Nurturing a next normal that will be better than what it replaced will be a long-term test for all institutions, global and local, public and private. For all of us, instead of looking to the past, it will be critical to reconstruct for the future. 

Kevin Sneader is the global managing partner of McKinsey & Company and is based in Hong Kong. 

Shubham Singhal is a senior partner in McKinsey’s Detroit office and the global leader of the Healthcare Systems & Services Practice.

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