Image Source: Gilead Lab
We felt answers to a few burning questions pertaining to the abysmal first-quarter 2018 earnings release by Gilead Sciences would be of value to our readers. We are not in the least bit impressed by the earnings print, but we feel patience may be well rewarded. The Questions: 1. When will the decline in the Hepatitis C franchise abate? 2. Which new product will drive future revenue growth? 3. Will Cytokine Release Syndrome sink the potential of Yescarta? 4. How durable is Gilead’s HIV franchise? 5. What else is in Gilead’s pipeline?
<< Read our write-up on Gilead’s first-quarter 2018 results
By Alexander J. Poulos
Question Number 1 – When will the decline in the Hepatitis C franchise abate?
We remain mystified by the analyst community’s fascination with the Hepatitis C franchise demise as it remains at the forefront of the commentary surrounding Gilead Sciences (GILD). The HCV franchise remains in terminal decline, a condition that was very apparent in April 2015 when new Rx’s written for HCV treatment (at the time Harvoni was the best-selling product) peaked. We have drawn the parallel between the erosion in sales of the HCV franchise to the dynamic typically seen with the loss of patent exclusivity of a branded product with a key caveat: the HCV loss is a tad slower with significant revenue yet to be extracted.
The entrance of AbbVie’s (ABBV) Mavyret will hasten the decline of Gilead’s HCV market share as the new entrant has captured roughly 30% of the market, but the gains may be fleeting as Mavyret’s overall course of therapy can be completed in eight weeks, thus hastening the decline in the backlog of available patients. Both AbbVie and Gilead have pulled R&D funding from additional HCV therapies, thus indicating both are content to manage the lifecycle of the existing products to maximize profitability. We think the HCV franchise is now to be used as a cash cow to fund other developments within Gilead’s pipeline.
Question Number 2 – Which new product will drive future revenue growth?
We do not believe a single product will restore growth at Gilead. Instead, we think a combination of new products will be the key to spurring expansion going forward, headlined by Yescarta. Yescarta is Gilead’s cutting-edge CAR-T treatment acquired via the acquisition of Kite Pharma in 2017. Yescarta gained approval in October 2017 for the treatment of Diffuse large B-cell lymphoma, a particularly aggressive form of cancer with bleak current treatments before the approval of Yescarta.
Diffuse large B-cell lymphoma (DLBCL) is the most common aggressive non-Hodgkin lymphoma (NHL), accounting for three out of every five cases. In the United States each year, there are approximately 7,500 patients with refractory DLBCL who are eligible for CAR T therapy. Historically, when treated with the current standard of care, patients with refractory large B-cell lymphoma had a median overall survival of approximately six months, with only seven percent attaining a complete response. Currently, patients with large B-cell lymphoma in second or later lines of therapy have poor outcomes and greater unmet need, since nearly half of them either do not respond or relapse shortly after transplant.
Quote Source: Gilead Sciences Press Release
The ZUMA-1 trial results remain simply stunning, in our view, as the treatment offers new hope to those afflicted with this dreadful disease.
Of 108 patients enrolled in the trial, 42% continue to have ongoing remission after just one CAR T-cell infusion, and 40% of patients have no evidence of cancer at a median follow-up of 15.4 months. More than half of the patients enrolled in the trial are alive at 15.4 months, whereas median survival is about six months with existing therapy.
Quote Source: The ASCO Post
Gilead has acquired a revolutionary treatment with a long runway for growth, in our view. The key to unlocking the maximum value of the franchise will come via additional label expansion into other forms of cancer in addition to EU regulatory approval.
Question Number 3 – Will Cytokine Release Syndrome sink the potential of Yescarta?
We cannot discount concerns of the side-effect of cytokine release syndrome (CRS) with Yescarta, however, as the FDA required a black box warning label indicating the potential for this to occur. We do not believe the risk of CRS will torpedo growth due to the outstanding risk-reward ratio of Yescarta versus traditional therapies. Those afflicted with Diffuse large B-cell lymphoma (DLBLC) are in a tough spot, and Yescarta offers the best chance for longer-term survival, in our view. As an aside, we have witnessed the risk of CRS manifest itself in other treatments. An alternative protocol was established to mitigate the risk, but the potential for CRS to develop still remains.
Question Number 4 – How durable is Gilead’s HIV franchise?
We feel the HIV franchise is extremely durable with the recently-approved Biktarvy, further expanding Gilead’s dominance in the category. Our optimism is centered on the new Rx’s trend with Biktarvy accounting for 14% of all new Rx’s written in the category, as of the end of April. The stunning growth of Biktarvy has widened Gilead’s market share to over 70%, with our expectation of the overall gain to widen further. We do feel some of the gains in market share are coming at the expense of current products, but the superior clinical profile coupled with the higher gross selling price, in our view, further strengthens the franchise.
Question Number 5 – What else is in Gilead’s pipeline?
We feel the most promising assets in Gilead’s near-term pipeline remain Filgotinib for inflammatory conditions and the company’s innovative approach towards providing a functional treatment for Non-alcoholic Steatohepatitis (NASH).
Filgotinib is a JAK-1 inhibitor that has posted impressive phase 2 results, most notably in Crohn’s and Ulcerative Colitis. The JAK-1 class is dosed in a very convenient once-a-day tablet versus the current standard of care, which requires multiple injections. The main issue plaguing the class is a rise in blood clots as seen in first-in-class to market Olumiant, which has torpedoed the product’s prospects in the US thus far, as the FDA has yet to authorize the product even though Europe has approved it for use.
Filgotinib, however, has reported a clean side-effect profile, but even the expected star of the class, AbbVie’s Upadacitinib, has reported an incidence of clots. A rise in blood clots may hinder the commercial viability of the class, which would be a shame since the products have posted superior results to the industry standard Humira. We would like to caution that this potential “class effect” may not be evident in all members of the class, however. We are very interested in phase 3 data, which in our view, would determine the ultimate viability of Filgotinib. Superior results to Humira with a “clean side effect profile” (no blood clots) would mean Gilead has a hit the proverbial home run.
Even though we feel the JAK-1 class may offer an incremental benefit to the patient, the plethora of worthy competitors will place a cap on the upside potential of the class especially when a biosimilar to Humira hits the US market. We prefer novel therapies with limited competition such as the competitive dynamics in the rare disease market or the dynamics of the PD-1 market, where two competitors dominate the market keeping prices stable.
We are more optimistic about the prospects for Gilead’s NASH treatment, as the field is wide open with a proverbial lack of adequate current treatments that can compete with a proposed NASH therapy. Gilead has moved Selonsertib, its key NASH asset, into a fully enrolled phase 3 trials along with phase 2-3 combination trials. Gilead has stated numerous times it believes combination therapy similar to the HIV and HCV platform will be necessary to develop a viable treatment for NASH. We anxiously await the outcomes of these trials as some of the competing products in the field have recently been discontinued due to a lack of statistically significant benefit.
Conclusion
We will not mince words: We are extremely disappointed with Gilead’s performance over the past six months. In our view, it seems the equity market is not enthused with big cap pharma/biotech as the entire sector is having a rough time so far in 2018. We hope the answers to the above questions will help clarify our views on Gilead Sciences.
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Independent Healthcare Contributor Alexander Poulos is long Gilead Sciences. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.