A New Shot Prevents HIV—Breathes Life Into a Stagnant Biotech

Later this month, the Food and Drug Administration is widely expected to approve a groundbreaking twice-yearly injection to prevent HIV—a milestone in the decades-long fight against a devastating disease.

- David Wainer

For Gilead Sciences, the dominant player in HIV treatment, the breakthrough is doing what years of splashy but underwhelming acquisitions failed to achieve: It has Wall Street paying attention again. Since reporting last June that just two annual shots of lenacapavir prevented all HIV infections in a study of women and girls, shares have surged 73%.

Gilead still isn't very expensive: It trades at 13.3 times forward earnings—below the industry average of 14, as measured by the NYSE Arca Pharmaceutical Index, and hardly a stretch for a company on the cusp of a new product cycle.

Investors might fear they have seen this movie before. A decade ago, Gilead stock soared on excitement over its hepatitis C cure, only to stall once most patients had been treated and the market dried up. The company then fell into value-trap territory, weighed down by sluggish growth and a string of underwhelming cancer deals.

This time could be different—but only if Gilead can execute. Over 400,000 people in the U.S. are currently on pre-exposure prophylaxis, or PrEP—a medication that protects against HIV infection. To hit the $4 billion in annual sales that some analysts are forecasting by the end of the decade, the company will need to not only convert a big chunk of existing patients but also expand the overall market both at home and abroad.