Gilead comments on split rumors
- A top Gilead executive on Wednesday dismissed market chatter the company could consider splitting its hepatitis C business from its portfolio of other drugs, telling investors at a conference hosted by Citi such a move was "not high" on Gilead's list of priorities.
- Norbert Bischofberger, the chief scientific officer for the big biotech, said it would be difficult to "untangle" Gilead's hepatitis C franchise from its other liver disease business.
- The idea for a possible split of the company has attracted attention recently as investors grow increasingly concerned over declining hepatitis C revenues. U.S. sales of Harvoni, Gilead's top-selling drug, fell by nearly 50% in the second quarter, pushing quarterly sales for the company's hepatitis C franchise down by almost $1 billion year-over-year.
In some ways, Gilead is a victim of its own success. Annual revenues skyrocketed above $32 billion last year, propelled by the success of the company's hepatitis C drugs Sovaldi (sofosbuvir) and Harvoni (ledipasvir/sofosbuvir). Both drugs are considered near-curative, leading to sustained virologic responses in over 90% of patients treated.
But as the hepatitis C market matures (particularly in the U.S.), fewer patients are expected to begin treatment. Sales of Harvoni in the U.S. totaled $2.8 billion over the first six months of 2016, down 51% from the $5.8 billion earned during the same period a year ago. Gilead cited lower Harvoni patient starts and "incrementally higher rebates for opening access" as key factors in the decline.
While Gilead recently won approval for its pan-genotypic hepatitis C drug Epclusa, investors are expecting hepatitis C revenues to continue to fall, raising questions about future growth.
A split could theoretically unlock trapped value by creating a new non-hepatitis C company with higher growth prospects stemming from a growing HIV franchise. Swedish biotech Medivir's planned year-end split and Biogen's divestment of its hemophilia franchise are two recent examples of this kind of thinking.
But Gilead's Bischofberger, speaking at Citi's annual biotech conference on Wednesday, said that scenario is unlikely to occur.
"We have discussed this internally actually much before this whole idea came up in the financial press, and came to the conclusion that it's something that we considered but it's not high on our list of priorities," said Bischofberger, explaining the franchise is intertwined with the liver business.
"For instance, we moved — we stopped research in hepatitis C about two years ago. Many of those people now work on hepatitis B cure. Our clinical group is very involved in liver disease, NASH in particular," he added.
Gilead is also sitting on nearly $25 billion in cash and equivalents, which investors are eager to see deployed. The biotech recently snapped up the liver disease company Nimbus for $400 million upfront and has licensed a experimental late-state drug for rheumatoid arthritis from Galapagos. That deal with Galapagos could be worth as much as $2 billion if all development milestones are hit.
But neither are the kind of transformative deals some investors are hoping for, particularly as Gilead stock continues its year-long slump. Speaking at the same Citi conference, Gilead chief operating officer Kevin Young said all options were on the table for future M&A but hinted at a more gradualist approach.
"It could be that we find a medium-sized company that we think is attractive, and perhaps one or two smaller companies," Young said.
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