Gilead Poised to Go From Good to Great?

by James Brumley | August 25, 2012 6:00 am

Just when it looked like GlaxoSmithKline plc (NYSE:GSK[1]) found the right horse to pull ahead in the HIV horse race, Gilead Sciences (NASDAQ:GILD[2]) gets positioned to take the lead again.

Gilead’s so-called “Quad” pill — the combination of four different drugs — is scheduled for a yea-or-nay decision from the FDA on Monday. If the drug wins the approval the company (and the market) is expecting, Gilead Sciences will keep its title as the globe’s biggest maker of AIDS-related treatments.

Oh, the drug itself is simply “OK” … comparable to other drugs already on the market. But it could still be a big victory for the company, and by extension, for shareholders.

HIV Market

The HIV arena is a lucrative but crowded one. Current estimates say the size of the HIV/AIDS drug market is on pace to reach $15 billion by 2014, which is precisely why so many players — large and small alike — are taking a swipe at it.

As of right now, there are roughly a dozen or so HIV drugs that register sales of at least a few hundred million dollars. It’s a top-heavy list of HIV drug revenue, however.

The current best-selling HIV treatment is Atripla, made jointly by Gilead and Bristol-Myers Squibb (NYSE:BMY[3]). The No. 2 drug? Truvada, made solely by Gilead. The former generated sales of $3.2 billion in 2011, while the latter generated revenue of $1.9 billion last year. (Note that Atripla is partially made up of Truvada and Bristol-Myers Squibb’s Sustiva.) All told, Gilead Sciences owns about 40% of the HIV drug market, and did just under $7 billion in HIV-related drug sales last year.

That doesn’t mean other biopharma names aren’t legitimate threats to Gilead on the HIV battlefield. For example, Merck‘s (NYSE:MRK[4]) Isentress came in at the No. 3 spot, with 2011 revenue of $1.4 billion, and is holding its spot as the drug of choice for many prescribers and patients.

Quad and the Rest

The imminent “Quad” pill from Gilead combines four different therapies: elvitegravir, cobicistat, emtricitabine and tenofovir disoproxil fumarate. More important, with fewer side effects — Truvada can cause liver problems, and Atripla can cause neuropsychiatric issues — and compelling efficacy stats to support it, Gilead looks like it could be sitting on a winner.

It’s not alone in the HIV race, though.

GlaxoSmithKline, for instance, is developing a drug with Pfizer (NYSE:PFE[5]) and ViiV Healthcare Ltd. The new treatment unites ViiV’s Epzicom and Glaxo’s so-far-unapproved dolutegravir, which up until this point has shown to be more effective at reducing viral loads than Atripla and Isentress have. Problem: Dolutegravir still is a couple of years away from an approval, while Quad is a few hours away.

Merck also was trying to enter another horse besides Isentress in the HIV derby. Vicriviroc was in the works until early 2010 when the drugmaker scrapped its development due to lack of efficacy. Myriad Genetics (NASDAQ:MYGN[6]) canned the development of its HIV maturation inhibitor drug in 2010, even though the company had successfully identified a key protein required in the virus’ reproduction. You get the idea — the drugs’ failures are just a microcosm of so many more failed HIV treatment attempts, underscoring the depth of the challenge.

Point being, though competition is out there, whether it’s a formidable foe to Gilead remains to be seen. Oddly enough, the biggest threat to Gilead might be … Gilead.

Investors also might be concerned that Quad’s biggest competition is other Gilead drugs, meaning the company could cannibalize itself. And it’s not an invalid concern; Truvada and Atripla still will be out there, and Quad’s efficacy doesn’t measure better than Atripla’s (though it does cause fewer side effects). Given the choice, though, Gilead wouldn’t mind if it cannibalized itself a little.

Same Sales, More Profits

What makes Quad exciting isn’t its efficacy. It’s an encouraging drug, to be sure, but it doesn’t exactly leave Truvada, Atripla or even Isentress in the dust. But Gilead owns rights to all four component drugs in Quad, while it’s sharing revenue with Bristol-Myers Squibb on Atripla. Why split profits when you don’t have to?

Bottom line: Not that anyone was disputing it as the status quo, but if Quad wins approval on Monday, it could give Gilead an even bigger lead in the sizable HIV market. That’s not because the drug is leaps and bounds better than the rest, but because the drug would also partially renew the patent protection the company needs to keep itself out in front. Considering roughly two-thirds of the company’s revenue stems from HIV drug sales, that’s more than good news for shareholders.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

  1. GSK:
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  3. BMY:
  4. MRK:
  5. PFE:
  6. MYGN:

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