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Gilead – Not Your Run of the Mill Mid-Tier Pharma

Gilead – Not Your Run of the Mill Mid-Tier Pharma

Courtesy of Pharmboy

At PSW, we have been hemming and hawing about inflation/deflation, how to right Washington, oil exploration, solar flairs, irrational exhuberance in the market, and why Gilead (GILD) has lost its prominence in the market’s eye.  Experts say it is the company’s pipeline, as one of its flagship drugs is expiring in 2013.  Others allege that the company is being shorted by hedge funds because the short interest is currently trading at 1 day.  

Gilead Sciences, founded in 1987, is a leading pharmaceutical player, with more than 2,500 employees. With headquarters in Foster City, California, and operations spanning across the globe, it focuses its research and clinical programs on antivirals, antifungals and antibacterials.  Gilead’s portfolio of 13 marketed products includes a number of category firsts and market leaders. 

Gilead’s first significant entrant into the HIV market in 2001 was Viread (a nucleotide analog reverse transcriptase inhibitor, or NtRTI). Viread was recently approved for the treatment of chronic hepatitis B.  It was followed in 2003 by Emtriva, and then in 2004, Gilead’s current blockbuster product Truvada (a combination of Viread and Emtriva) was launched.  Gilead’s newest HIV product is Atripla, a combination of Truvada and Bristol-Myers Squibb’s (BMS) Sustiva, which has achieved rapid sales uptake since its launch in 2006.  Below are Gilead’s main income drivers, and as one notices, the HIV franchise is the majority of the company’s income.

In July 2009, Gilead announced a collaboration with Tibotec (a division of t Johnson & Johnson) to develop and commercialize a fixed-dose combination (FDC) of Truvada and Tibotec’s TMC278 (rilpivirine). This decision was to develop, in essence, a second generation Atripla.  This was a wise move by Gilead because GSK has its own integrase inhibitor, GSK1349572, which has shown positive Phase II results and will eventually compete with GILD/JNJ’s fixed dose combination. In addition, GILD will lose patent protection on Atripla in 2013, so doctors (or GSK) could combine the new GSK drug with BMS/s Sustiva, thus inceasing the pricing pressure on GILD. Teaming with JnJ should help maintain Gilead’s already dominant FDC market share which is projected to be 40% of the HIV market.    

As a side note, the total market sales of antiretroviral medications in 2009 were estimated at $11.8 billion – and Gilead owned more than 20% of those net sales But new data with the JnJ drug is starting to raise some concerns.  Overall, JnJ said a combined analysis of its trials found that, after a year of treatment, 84.3 percent of HIV patients treated with TMC278 and Truvada achieved undetectable levels of the virus compared to 82.3 percent of patients treated with Atripla or similar drugs. The data also showed 9 percent of TMC278 patients experienced virologic failure compared to 4.8 percent of Sustiva-treated patients. HIV doctors are concerned about virologic failure – meaning patients’ HIV levels either fail to drop or rebound after an initial drop – because it could signal the virus is mutating, making it resistant to other drugs in the same class.  Now, viruses have a way to make trials a bit difficult by becoming resistant to drugs, so this will need to be monitored VERY closely, and where GSK may have the upper hand because their drug has not shown any resistance to GSK1349572.
Several years ago, Gilead realized that in order to grow, it had to expand its horizons and take some risk.  In November 2006, Gilead aquired Myogen for  approximately $2.5 billion. Myogen’s lead product candidate, Letairis (above), was launched for the treatment of pulmonary arterial hypertension (PAH), and provided Gilead a pathway into cardiovascular (CV).  Then, Gilead added to its new CV area by purchasing CV Therapeutics in in 2009 (Ranexa above).  Both of their CV drugs are gaining market share, so one needs to watch how they grow over the coming years. 

What else is in the pipeline that is going to drive future growth?  Here is a list from Gilead’s website.  Most is in the HIV franchise.  However the first product listed, Ambrisentan, for IPF is a long shot.  InterMune (pirfenidone) tried that one for an unknown mechanism of action and we know how that one turned out with the FDA.  I do not see GILD’s endothelin receptor antagonist working in IPF (it may help lower pulmonary hypertension, but a primary outcome of reducing fibrosis is not the right mechanism in my opinion).  Their Phase I compounds are too far down the road to take any bets on, so mid-teir and late stage pipeline is HIV good, and that is where they are counting on their growth.

Gilead’s pipeline lacks diversification, but the growth drivers behind their double-digit performance are the fFDC therapies Truvada (tenofovir disoproxil fumarate + emtricitabine) and Atripla (tenofovir disoproxil fumarate + emtricitabine + efavirenz).  These two combined are forcasted to see sales growth exceeding +$3.5 billion out to 2014.  BUT, Atripla sales growth will slow toward the end of the forecast period due to Sustiva (efavirenz; BMY), one of Atripla’s components, losing patent protection in 2013.  This could result in in separate prescribing of the two components and while this would equate to some increased sales of Gilead’s Truvada, Atripla most likely will suffer from sales erosion of almost $1 billion after 2014.

On the brighter side of things, GILD is selling for approximately 9 times this year’s consensus earnings and only 8 times next year’s projected earnings. It is selling at the low end of its five year range based on Price/Earnings, Price/Book Value, and Price/Cash Flow. It has a solid balance sheet with NO net debt!

I am somewhat cautious on GILD.  HIV belongs to them, hands down, but the BIG parts of the CV market is dominated by generics (or soon to be generics), and GILD needs to use their cash to make another strategic purchase that will bolster their pipeline.  Now it’s time for Gilead to step up to the plate and diversify!

Join us here in member chat and see my GILD picks among others, as well as the other strategies and plays by Phil & the gang have on a daily basis.  Further, one can learn HOW to trade the smart way, by buying stocks for a 15-20% discount using our buy/write strategies. 

I currently have no position in GILD, but that may change soon. 

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