Gilead still mum on M&A as it slashes 2017 guidance
- Despite a "solid" fourth quarter, Gilead Sciences' product sales were down year-on-year at $30 billion in 2016 from $32.6 billion, driven by lower hepatitis C drug sales as more patients are cured, treatment timelines are shortened and competition increases.
- Gilead has slashed its 2017 overall guidance to between $22.5 billion and $24.5 billion and its HCV guidance to between $7.5 billion and $9 billion, in contrast to analysts' expectations of $12 billion for the HCV franchise.
- HIV sales have taken up some of the slack, with 2015 approval Genvoya hitting $1 billion in 2016.
With sales of its blockbuster HCV franchise flailing, analysts and investors are hoping the company will start turning to M&A to fill its pipeline. The company has been notoriously slow to make any deals and frustration in mounting —particualrly in light of recent guidance changes.
Given the January 2017 announcement that Alessandro Riva, ex-Novartis, is stepping into the role of hematology and oncology therapeutic head, and the fact that the company has $32.4 billion cash in its coffers (up from $26.2 billion in December 2015), this could mean that it's time for Gilead to up its cancer pipeline with deals, mergers or acquisitions.
"So we still feel very good about the company. We feel very good about our cash flow for the future. I think it's still for us a desire and a need to have a right strategic fit for the company. That is the driver for why and when we do any mergers or acquisitions or partnerships, much more so than the need for cash flow, because we feel very comfortable about where we are," said CEO John Milligan on the call.
Gilead's total hepatitis C sales were down 15% in the fourth quarter 2016, driven by falls in patient starts. Gilead COO Kevin Young said during the fourth quarter call on Tuesday that he expects these to drop even more in 2017 in all major markets.
"The year was not without its challenges, notably navigating the changing dynamics of the HCV market in countries around the world," said Gilead CFO Robin Washington.
Jefferies analysts stated that Gilead's fourth quarter was solid, but that it was generally in line, but "overshadowed by guidance dramatically lower than consensus."
"Gilead cited lower new patient starts as a major contributing factor for the decline in guidance—though given Rx patterns we believe this may be a bit conservative, and likely bakes in the general lack of visibility," Jefferies analysts wrote in a note to investors.
As well as the fall off in patients who had been 'warehoused', Gilead is facing competition for its Solvadi (sofosbuvir) and Harvoni (ledipasvir/sofosbuvir) from Merck & Co's Zepatier (grazoprevir/elbasvir) and AbbVie's Viekira Pak (ombitasvir/paritaprevir/ritonavir).
"Shorter durations as well as increased competition make up the rest of the difference, though we had not expected as significant a competitive impact until 2018," the analysts added.
Other drivers in the continued fall in sales, according to Young, include: "a change in the profile of patients coming into treated care. A greater number of patients have less advanced disease, and thus there is less urgency to begin using curative direct-acting antivirals like Harvoni and Epclusa. In addition, an increasing percentage of untreated patients face circumstances that favor delay such as ongoing drug or alcohol use, co-morbidities or unstable living conditions."
Epclusa (sofosbuvir/velpatasvir), launched in 2016, has already made sales of $1 billion, and a new combination regimen is on the horizon, but this may not make all the running, according to analysts at Maxim Group: "We expect to see 2017 as another tough year for the HCV franchise, even with the potential approval and launch of the new HCV regimen (sofosbuvir/velpatasvir/voxilaprevir) in 3Q17 (PDUFA date on August 8)."
As the income from hepatitis C falls, Gilead is looking to HIV to make up at least some of the difference. Genvoya (elvitegravir, cobicistat, emtricitabine, tenofovir alafenamide), approved in late 2015, surpassed $1 billion in 2016, becoming the most prescribed HIV regimen across all U.S. treated HIV patient groups. Other recent combination launches include Odefsey (emtricitabine, rilpivirine, tenofovir alafenamide) and Descovy (emtricitabine and tenofovir alafenamide), both made available to patients in 2016. Data from the Phase 2 study of bictegravir, a non-boosted integrase inhibitor given in combination with Descovy, will become available next week
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