Ignore These Risks to Gilead at Your Peril

Ignore These Risks to Gilead at Your Peril

Gilead Sciences (NASDAQ: GILD) has enjoyed remarkable success in the past year thanks to the launch of two instant billion-dollar blockbuster hepatitis C therapies, however, even best-in-breed biotech stocks like Gilead Sciences still face risks that could leave investors in the lurch. Read on to learn which three risks concern me most, and how they could impact Gilead Sciences down the road.

No. 1: The launch of a disruptive HIV medicine
Gilead Sciences is the leading maker of HIV medicines, and its long-standing dominance in that indication has provided it with the financial firepower to orchestrate game-changing investments, including its $11.2 billion acquisition of the company responsible for inventing its top-selling hepatitis C drug Sovaldi.

Gilead Sciences’ success in HIV hasn’t come overnight. Instead, it’s due to the launch of a string of remarkable therapies that have changed HIV from a death sentence into a chronic disease, and from the development of multi-drug combination therapies that have significantly improved dosing regimens. However, if Gilead Sciences gets too comfortable in its position at the top, innovative research into an HIV vaccine could pose a big threat.

Although we’re miles away from the commercialization of vaccine-like treatments that could control HIV without the need to take multiple pills daily in perpetuity, there are programs percolating at small biotech companies that investors ought to be tracking.

One of those research programs is under way at Sangamo Biosciences.

In March, the FDA gave the go-ahead to begin phase 1 studies of a gene-editing approach that could someday offer HIV patients a functional cure. The trial is being conducted by the City of Hope medical center using Sangamo technology to collect blood from HIV patients and reengineer it to eliminate the CCR5 protein used by the virus to infect cells. Also, Sangamo is already using that gene-editing technology in another phase 2 trial of SB-728-T for HIV, which is due to report results this year.

Admittedly, Sangamo’s research is still in the early stages, but it’s a great example of some of the game-changing work that’s occurring in HIV treatment, and for that reason, Gilead Sciences investors need to keep an eye on it.

No. 2: Shifting market share across HCV competitors
Investors are already well aware of the massively successful hepatitis C drugs Gilead Sciences recently launched, but for those new to Gilead Sciences, here’s a quick recap.

In December of 2013, Gilead Sciences won FDA approval of Sovaldi, an HCV medicine that revolutionized care by cutting treatment duration in half, removing side-affect-laden peg interferon from the dosing regimen for many patients, and delivering 90% functional cure rates. As a result, Sovaldi racked up $10.3 billion in sales last year, leading to Gilead Sciences’ revenue more than doubling to $24.9 billion in 2014.

In October, Gilead Sciences followed up Sovaldi’s success with Harvoni, a combination of Sovaldi and ledipasvir, for genotype 1 patients, and doctors have similarly rushed to embrace it. Because Harvoni cuts treatment duration to as little as 8 weeks for 40% of genotype 1a patients and delivers mid 90% cure rates, Gilead Sciences’ sales of Harvoni totaled $2.1 billion during its first quarter on the market.

The success of these drugs has turned Gilead Sciences into the de facto Goliath in the indication, but the sheer size and market opportunity for treating hep C has competitors circling, and that means competing HCV medicines are working their way through trials toward commercialization.

Two of these drugs have already won the blessing of global regulators.

AbbVie’s Viekira Pak won FDA approval in December, and an exclusivity deal with Express Scripts could turn it into an instant blockbuster this year. Bristol-Myers Squibb’s Daklinza has won the nod for use in Japan and, in certain instances, in Europe, and those approvals resulted in Bristol-Myers Squibb posting HCV sales of more than $250 million during the fourth quarter.

Additional competition could be coming via a combination therapy being researched by Merck & Co, and from small drug developers including Achillion Pharmaceuticals and Regulus Therapeutics. Achillion is working on HCV medications it hopes can drive treatment duration down to six weeks, or potentially even less, while Regulus has a program investigating a single or multidose injection that could offer up a functional cure.

Given how quickly research is occurring in HCV and how much money is at stake, you can bet we’re going to hear a lot more about these other alternatives in the coming year, and that means investors would be smart to be listening.

No. 3: Profit over pipeline
One of the most surprising moves that has recently been made by Gilead Sciences is its decision to begin paying shareholders a dividend.

Historically, biotech companies have chosen to reinvest profits back into their pipelines rather than return money to shareholders via dividend payouts, and that raises the question “could this dividend money be better spent elsewhere?”

Obviously, Gilead Sciences thinks that despite the dividend payout, it can continue to invest in its pipeline and acquire competitors, but investors won’t know for certain whether or not that assessment is correct for years.

Granted, Gilead Sciences’ rock-solid balance sheet is flush with cash, and its pipeline appears to be chock-full of intriguing immunotherapies and cancer drugs, but investors are still right to worry. After all, 90% of drugs entering human trials end up in the dust bin, and as noted previously, the company isn’t immune to competitive threats down the line.

Tying it together
Gilead Sciences investors may be best served considering both the good news driving the company’s success and the risks that could eventually dent the company. Doing that could allow investors to be better prepared to make decisions when times get tough. Although Gilead Sciences’ track record suggests it can navigate and thrive amid these challenges, investors should keep an eye open in case these risks become bigger threats.

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Todd Campbell owns shares of Achillion Pharmaceuticals. and Gilead Sciences.

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Ignore These Risks to Gilead at Your Peril

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