GIlead And The Future of HIV Therapy
FOSTER CITY, Calif. ( TheStreet) -- Amongst the hubbub over hepatitis C and the upcoming EASL conference, it can seem as though Gilead Sciences' (GILD) very existence hinges on whether or not the company can successfully develop a drug to treat the viral liver disease. That's not the case. In fact, the massively profitable HIV business remains the critical driver of Gilead's cash flow over the long-term.
The HIV market has lots of moving parts, so let me give you the conclusion first: Gilead faces a host of challenges over the next decade, but I don't think the company's market dominance will be significantly imperiled over that time. The threats -- new branded competitors, major patent expirations, and increased pricing pressure -- are real and shouldn't be overlooked, yet I think bearish forecasts of Gilead's impending demise in HIV are overwrought.
Having said that, I'm not buying Gilead today because the company's hepatitis C struggles suggest a more insidious concern: Can Gilead continue to innovate?
HIV treatment regimens include three drugs: two nucleoside reverse transcriptase inhibitors (NRTI) and either a non-nucleoside reverse transcriptase inhibitor (NNRTI) or a protease inhibitor (PI). For the last decade, Gilead has dominated; 90% of newly diagnosed patients' first-line drug cocktail includes Viread and Emtriva, two Gilead NRTIs. The company also markets Atripla, the first once-daily single-pill regimen -- it's a co-formulation of Viread and Emtriva with Bristol-Myers Squibb's (BMY) Sustiva -- which received FDA approval in 2006.
Patients who are not candidates for or cannot tolerate an NNRTI receive a protease inhibitor, or PI, usually alongside a "backbone" of Viread and Emtriva (Gilead has co-formulated the two drugs into a single pill, Truvada). The widespread use of Truvada enables Gilead to capture significant value from the HIV market -- more than 72% of all treated HIV patients take at least one of the company's drugs.
Gilead's Patent Problem
No biotechnology company is exempt from the patent expiration cycle. Although patents on Atripla and sub-component Emtriva continue until 2021, Sustiva's patent expires in 2013 and the key Viread patent expires in 2018. A few years ago, investors started to worry that generic availability of Atripla's components would have a significant negative impact on the company's long-term earnings.
Gilead's HIV "patent cliff" mitigation strategy involved developing a new single pill regimen without Sustiva (the first Atripla component to go generic). Last August, Gilead received FDA approval for Complera, which combines Truvada with Johnson & Johnson's (JNJ) Edurant (which had itself received approval a few months earlier). Essentially, Complera is Gilead's Atripla replacement strategy. With a 2023 patent expiry, Complera extends Gilead's Atripla-like economics -- roughly a two-thirds share of sales -- but still does not provide direct access to the NNRTI or PI market.