In a turbulent year for the biopharma industry, Gilead had a tremendously successful 2015 measured by its financial performance. With fourth quarter data still to come, the Foster City, California-based biotech raked in $24 billion in sales over the first nine months of 2015. Its new hepatitis C combo drug Harvoni made up much of that, accelerating quickly to a dominant market share.
However, the company’s pricing became a focal point of criticism from the public, patient groups, and lawmakers. The price of Gilead’s blockbuster drugs Harvoni and Sovaldi, while able to cure roughly nine in ten patients suffering from hepatitis C, were a notable flashpoint.
Although the FDA approved only one new Gilead drug in 2015, the company has a number of others nearing the end of its development pipeline. Additionally, its strong cash position has fueled speculation an acquisition may be in the offing.
With year-end results due out February 2, BioPharma Dive examined Gilead’s 2015 and how the company is positioned to do this year.
New drug approvals
In a record year for drug approvals by the FDA, Gilead only won approval for one new drug—Genyova. The four-in-one combination med was approved on November 5th for treatment of HIV-1 in adults and children over twelve.
It contains three of the same APIs as Gilead’s older HIV med Stribild, but relies on the new tenofovir alafenamide. This new formulation reduces the side effects of the drug by more efficiently introducing the active chemicals into target cells. Compared to the previously approved tenofovir used in Stribild, Genvoya is associated with lower kidney toxicity, along with limiting bone density loss. It does, however, carry a black box warning for lactic acid buildup and liver problems.
Despite setting up Genvoya as a successor to Stribild, sales of Stribild still grew by a robust 62% over the first nine months in 2015, compared to the same period in 2014.
Gilead has eight developmental drugs in or entering Phase 3 trials, five of which are in the oncology space – an area where Gilead typically hasn’t been as strong. Among the others, the company has two more tenofovir alafenamide (TAF) candidates which could gain approval by mid-2016.
One of the TAF drugs, aimed at treating Hepatitis B, was found to be “non-inferior” to Gilead’s Viread in two phase 3 trials. Its new drug application was submitted on January 12.
Furthermore, the FDA recently granted priority review to a pan-genotypic Hep C combo med. Currently, Sovaldi is approved to treat genotypes 1-4 of HCV. This new drug combines Sovaldi with another compound, velpatasvir, and is designed to treat all six genotypes of the disease. Harvoni is only approved to treat genotype 1 in the U.S. and Japan.
While almost 80% of U.S. patients have genotype 1 Hep C, only about 40% of patients in Asia do. Gilead estimates 70.8 million people suffer from the disease in Asia, making a pan-genotypic drug important to bolster Gilead’s success.
Gilead’s bread and butter is its Hepatitis C franchise, led by Harvoni and Sovaldi. When the FDA approved AbbVie’s Hep C med Viekira Pak at the end of 2014, it looked like Gilead had serious competition on its hands. This intensified after one of the largest pharmacy benefits managers in the U.S., Express Scripts, announced it would require all of its plan members to use Viekira Pak instead of Gilead’s two drugs. Furthermore, the PBM negotiated a discount from AbbVie’s list price, separating Viekira from the pricey Harvoni and Sovaldi.
Viekira Pak did quickly become the third best-selling drug for AbbVie, notching a little over $1 billion in 2015 Q1-Q3 sales. But this pales in comparison to the mega blockbusters Harvoni and Sovaldi.
AbbVie’s fortunes took a significant hit in October when the FDA warned Viekira could cause serious liver damage in patients with existing liver disease. Just last month, health informatics firm Advera Health Analytics released a study showing Harvoni was safer Viekira. AbbVie still expects Viekira sales will continue to grow, but only to $3 billion by 2020.
In addition to its Hep C franchises, Gilead also has a strong HIV portfolio. For HIV treatment naïve patients, the company estimates 73% begin treatment using a Gilead HIV drug.
However, GlaxoSmithKline’s Viiv Healthcare continues to threaten Gilead's position. Viiv’s two new HIV meds, Tivicay and Triumeq are forecast to reach over $6 billion in sales by 2020, according to Bloomberg. This could represent a significant challenge to Gilead’s market share.
Criticism: Pricing and patent plays
While 2015 saw tremendous success for Gilead, the company also faced significant criticism of its pricing, particularly for Harvoni and Sovaldi. The drugs are listed at $94,500 and $84,000, respectively, for 12-week treatment courses.
The Senate Finance Committee released a report in December 2015 suggesting Gilead has put profits ahead of patients. The report detailed that Medicaid programs spent $1.3 billion before rebates on Gilead’s Hep C meds. However, those drugs treated only 2.4% of enrollees. Gilead pushed back on the report, citing its $11 billion acquisition of Pharmasset through which it acquired the drugs and other R&D costs.
In June, two patient advocacy groups had sued the FDA for clinical trial data related to Sovaldi and Harvoni to help obtain more information on the price effectiveness of the drugs.
The entire pharma industry saw its pricing strategies become a focal point of criticism after Martin Shkreli, former CEO of Turing Pharmaceuticals, hiked the price of Daraprim by more than 5,000%. The blowback from advocacy groups and legislators bled into presidential campaigns as candidates weighed in on drug pricing.
Senator Bernie Sanders has been an outspoken critic, to the point where he has threatened to block the appointment of Robert Califf’s nomination for FDA Commissioner due to Califf's supposedly cozy relationship with industry.
Gilead also faced accusations from the AIDS Healthcare Foundation that its new medication Genvoya is merely a patent-extension ploy. The AHF pointed to the fact that Genvoya contains the same four chemicals as Stribild, although Genvoya has a different form of tenofovir.
As protests outside the JPMorgan Healthcare Conference this January have shown, pricing sensitivity will likely continue in 2016. As the presidential elections nears, criticism may heat up even more.
Financial performance: An outlier in ROE
Gilead had a banner year in 2015 (with Q4 results still to come). Over the first three quarters, revenue increased by 37% to over $24 billion compared to the same period in 2014. Sales of the Hep C med Harvoni drove much of this success, raking in over $10 billion in sales. However, Harvoni did eat into sales of its sister Hep C med Sovaldi, which dropped by more than half compared to 2014.
Gilead is still over-reliant on the US market, with 68% of its product sales coming from the U.S., although its products saw strong YoY growth in non-European international markets.
Compared to year end 2014, Gilead more than doubled its cash on hand to over $25 billion with a $10 billion unsecured note issuance in September. At the time, the company said the proceeds would be put toward “general corporate purposes,” such as repaying debt or stock buybacks. However, speculation has grown that the company may be eyeing an acquisition, perhaps in the mold of its 2011 Pharmasset buyout.
This speculation became more concrete when Gilead’s chief scientist, Norbert Bischofberger, told the Financial Times Gilead was searching for companies with proven drugs in development. Bischofberger did not rule out an acquisition in a therapeutic space outside of hepatitis C, although a complementary buy would be preferred.
As a result of raising the $10 billion, Gilead’s quarterly interest payments are estimated to clock in at $220 million per quarter beginning in Q4 2015. However, $6 billion of the issuance matures in 2026 or later.
Gilead trades at around 7.5 times book value, roughly average for the sector according to data compiled by New York University’s Stern Business school. Its return on equity of 109%, however, dwarfs the typical ROE of 22% in the biotech industry.
Apart from the conjecture raised by its cash hoard, Gilead had a relatively quiet year in deals.
Just before the end of the year in December, Gilead and Galapagos announced a partnership for the development and marketing of a JAK1 inhibitor called filgotinib to treat inflammatory diseases like rheumatoid arthritis. Gilead invested $425 million for a 15% stake in Galapagos in addition to a $300 million licensing fee. The deal could be worth up to $1.35 billion more based on milestone payments.
Once Phase 3 trials begin (slated for 2016), Galapagos will be responsible for 20% of global development activities, while Gilead will take over manufacturing and marketing/sales.
Additionally, back in May, Gilead acquired the Danish cancer company EpiTherapeutics for $65 million for its research in epigenetics.