nowhere.
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At high margins, you can imagine any revenue streams would translate into significant EBITDA. Again, unfortunately, the total addressable market is large enough that the impact on Gilead's bottom line could be large.
If Remdesivir is approved, I can easily see this therapy contribute between $1 billion up to $26 billion to Gilead's bottom line.
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EBITDA would fall off through time after that but not necessarily completely disappear. Increasingly, I'm of the inclination SARS-CoV-2 will end up endemic on a global scale.
For example, Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, recommends drug manufacturers should take the risk to ramp up production ahead of trials to prepare for COVID-19 becoming a seasonal occurrence.
According to Richard Preston, author of The Hot Zone. There is a pattern of viruses jumping from animal to the human species. It is the third coronavirus in a relatively short time to have done so. Urbanization and globalization turn novel viruses into potential global threats like COVID-19 turned out to be. The virus that causes COVID-19 will potentially be endemic to our species. Odds are there will be future coronavirus threats. remdesivir is specifically interesting to me because so far it has shown to be extremely effective against any coronavirus it has been tested on in vitro and in vivo.
How will things look in the fall?
Part of the Gilead letter that depressed me is that a company with such great expertise in virology as Gilead, is ramping up production to a level of 300K/month by October. That means they believe there's a good chance we aren't done with this problem by then and still need treatment at scale.
Cases are increasing by 80k a day currently (obviously this is gated by test capabilities around the globe, actual is in all likelihood much higher).
Again, enormous uncertainty around the trajectory and which geographies it will strike. Maybe the number of cases is going to decline as spring heats up or the summer rolls around. Let's just say I wouldn't buy any airline stocks, or companies that are dependent on events and or restaurants any time soon.
A vaccine is likely still a long time away. Think at least a year from now. Then there is the question around ramping up production of that vaccine. If remdesivir is a solid therapy, a vaccination may not actually become all that standard. With vaccines there's a slice of the population that's opposed to that to begin with.
I'm of the opinion that the mortality rate of COVID-19 is unacceptably high given the ease with which it spreads under normal living conditions. I've seen people point to the mortality rate and say that's not worth the economic sacrifice. That's a grave mistake for several reasons, most importantly:
1) There are a lot of uncertainties around much of the data, meaning you should err on the side of caution.
2) The mortality rate is "low" because of extraordinary efforts by healthcare workers, off-label therapies being applied and because we have an idea which groups are most at risk (there are senior homes where the staff voluntarily locked down along with the inhabitants).
3) For up to 15% of patients it is a very nasty disease even though they may not ultimately lose their lives.
4) Most countries (outside Asia) are managing the spread of the disease (more or less successful) based on intensive care capacity. A rather large number of patients require intensive care and if the standard of care deteriorates because of the volume of patients coming in you will see the mortality rate increase enormously.
On the other hand, the mortality rate is higher than it is ultimately likely to end up at because of 1) lack of testing means we are missing a lot of cases (this effect is huge).
On balance, for what it's worth, I unequivocally support government measures to delay the speed at which it spreads even though there is a severe economic cost.
If healthcare systems are not swamped Remdesivir works well. Perhaps other therapies work well (Maybe chloroquine and filavapir). A large slice of the population developed antibodies organically we may not even see a huge uptake of vaccination programs. Perhaps primarily focused on at-risk groups.
The point of all this is that there is a lot of uncertainty around the economics around Remdesivir. Many sell-side analysts are treating this as a one-off small revenue opportunity. Unfortunately, I think there's a good chance this will be a one-off massive revenue opportunity and it could continue to be a significant revenue stream for years to come.
Key takeaways for investors
This letter will allow analysts to start pricing in remdesivir sales quite accurately as soon as it's confirmed good-to-go (which I expect this month). Subsequently, expect updated notes coming out of the likes of Bank of America (BAC), Goldman Sachs (GS) et all.
The other key takeaway is that it seems extremely likely that remdesivir is actually effective. Gilead has treated over 1700 patients. Apparently, the medical community keeps requesting this therapy all the time.
In my earlier articles on this subject, I've given myriad anecdotal examples of patients that were treated successfully. There are also other soft-factors that point to potential effectiveness:
What The First 12 U.S. COVID-19 Patients Tell Us About Remdesivir
What The First 12 U.S. COVID-19 Patients Tell Us About Remdesivir
25-3-2020
12 Reasons Remdesivir is my best COVID-19 bet
12 Reasons Gilead With Remdesivir Is My Best COVID-19 Bet
16-3-2020
Economics of Remdesivir Gilead: Remdesivir's Potential Most Dependent On COVID-19 Spread 1-3-2020
17 reasons I'm confident Remdesivir is effective 17 Reasons Why I'm Confident Gilead's Remdesivir Will Work Against COVID-19 27-2-2020
Market is underestimating COVID-19 and Gilead is an opportunity Gilead: Potential Hedge If Covid-19 Is Taken More Seriously 17-2-2020
5 reasons why Remdesivir is likely to be effective Gilead Sciences: 5 Reasons Remdesivir Is Likely To Be Effective Against The Wuhan Coronavirus 10-2-2017
These all were published exclusively for subscribers at an earlier date.
Gilead is also giving away 140k treatments. They are specifically earmarking these for severe cases:
The 1.5 million individual doses are available for compassionate use, expanded access and clinical trials and will be donated for broader distribution following any potential future regulatory authorizations. These doses are for treating patients with severe symptoms, through daily intravenous infusions in a hospital setting. Having a potential treatment in our hands comes with significant responsibility. Providing our existing supplies at no charge is the right thing to do, to facilitate access to patients as quickly as possible and in recognition of the public emergency posed by this pandemic.
This just screams to me they are aware it is (at least somewhat) effective in severe cases. For people who have access to the trial data, it should be more or less blindingly obvious whether Remdesivir is effective. Based on patient anecdotes and the study into the first batch of U.S. patients I'm under the impression this is not a therapy where 51% of patients benefit.