CNBC Stock Blog

Gilead Still a ‘Buy,’ Despite Hep C Results: Analyst

Investing in biotech companies is a risky business. A company can outperform the market with a drug breakthrough or, in the case of Gilead Sciences, its shares can drop like a stone.

Six out of the 10 patients treated for hepatitis C with a combination of the company’s experimental drug GS-7977 relapsed, the Gilead disclosed Friday. Its share price plunged as much as 20 percent in response.

Still, the news failed to sway the Gilead faithful.

“This is just par for the course. There’s a reason people do trials on their drugs. You don’t know what the answer is until you get the data,” said ISI analyst Mark Schoenebaum, who has a “buy” rating on Gilead.

But he acknowledged to CNBC Friday that “it’s a painful day for people like me, who are recommending the stock.”

Gilead’s experimental drug was bought through its $11 billion acquisition of Pharmasset. Schoenenbaum said that with “20-20 hindsight” investors might think it would’ve been better for Gilead to have waited until Pharmasset had developed the drug further before paying so much to buy the company.

He stressed the small number of patients tested have a form of the liver disease that is traditionally very hard to treat.

“They may need to use the drug for a longer period of time, longer than three months, maybe use it for six months, and that hasn’t been tried yet,” Schoenenbaum said of Gilead’s trials.

The results may also show that one drug can’t cure the disease alone and might have to be used in combination with other hepatitis C drugs, he added. Gilead has several such drugs in its pipeline, but other companies, including Bristol-Myers Squibb, are further along with their drugs and could benefit from Gilead’s setback.

But Schoenenbaum still believes the longer-term opportunity to own the stock outweighs the risks.

“The downside risk is 10 percent, while the upside opportunity, if they can recover as data is presented, could be as much as 20 percent or more,” he said of Gilead. “For right now, it’s bad news.”

Additional News: In Trial, Hep C Patients Saw Viral Relapse: Gilead

Additional Views: 6 Stocks Unworthy of Biotech Bull Market


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Neither Mark Schoenebaum nor his company own shares of Gilead.