This Biotech Leader Has More Upside Potential

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Gilead Sciences  (NASDAQ: GILD  ) has been on a tear lately -- the biotech leader has risen by nearly 65% year to date on the back of strong financial results and encouraging prospects for its hepatitis-C portfolio. But this growth story is far from over; thanks to its dominant position in HIV treatment and promising pipeline, Gilead is still poised to outperform.

Leadership in HIV
Gilead is the undisputed leader in HIV treatments; the company makes most of its revenue from different drugs to fight the disease. Viread, Emtriva, and combo drug Truvada have been the company's growth drivers over the last years and the all-in-one triple combination pill, Atripla, has been the most recent winner, generating more than 40% of Gilead's revenues as of the last quarter. 

Atripla combines Gilead's Truvada with Bristol-Myers Squibb's Sustiva, and it's the first pill approved by the Food and Drug Administration as a single pill for HIV treatment. By providing a much simpler treatment, Atripla has significant advantages when it comes to patient compliance and affordability.

Complera, a combination of Truvada and Johnson & Johnson (NYSE: JNJ  ) 's Edurant, reached the market in 2011, and it has been performing strongly with an increase of 159% in sales to $188.6 million during the last quarter. Complera improves upon some of the side effects caused by Sustiva, and it has broadened Gilead's lead in HIV treatment.

Stribild could be the company's next big winner in HIV. This all-Gilead regimen combines Truvada with Gilead's integrase inhibitor; it entered the market in 2012 and generated sales of $191.5 million in the first six months of 2013. Even if Stribild cannibalizes other Gilead drugs, the company will most likely benefit from its success as it doesn't have to share much of its profit with partners and the Stribilid patents don't expire until 2029.

Stribild will be facing strong competition from Merck's (NYSE: MRK  ) well-established integrase inhibitor Isentress, which produced sales of $1.5 billion for the company in 2012, an increase of 11% versus 2011. Although Merck has the leadership position in this segment, Gilead's competitive strength in HIV treatment and its ability to offer a one-pill regimen gives it a material advantage. 

According to the company's management, Atripla, Complera, and Stribild were the number one, two, and three most prescribed HIV regimens for treatment-naive patients in the U.S, so Gilead is as strong as ever in its main segment. 

Strong pipeline
Gilead has a deep pipeline of products in advanced stage, not only when it comes to HIV treatment, but also for cardiovascular, respiratory, and oncology diseases. The biggest opportunity, however, is hepatitis C, and Gilead's drug sofosbuvir has some very real chances at becoming a blockbuster in a gigantic market.

According to the World Health Organization, about 150 million people are chronically infected with hepatitis C virus, and between 3 million and 4 million people become infected with the virus every year. The organization estimates that more than 350.000 people die from hepatitis-C-related liver diseases every year.

Clinical trial data for sofosbuvir has been remarkably encouraging. Gilead was granted priority review from the FDA in June, and the company could launch the drug in the first quarter of 2014 if things go as expected. 

Considering the size of the opportunity, it should come as no surprise to see many other players fighting for a piece of the hepatitis-C market. Johnson & Johnson may even be ahead of Gilead with its simeprevir drug for oral hepatitis-C treatment: The pharmaceutical giant got priority review acceptance from the FDA for simeprevir on May 13, and the drug has delivered strong clinical results in the experimental phase.

AbbVie (NYSE: ABBV  ) is another contender in that competition; the company's hepatitis-C drug combination received the breakthrough therapy designation from the FDA, and AbbVie's head of drug development, Scott Brun, told Bloomberg that he believes the company has "a very good shot at being first" in the race versus Gilead and Johnson & Johnson. However, AbbVie's treatment is a combination of four different pills with their own time schedules, and this could be a big disadvantage when it comes to patient compliance and costs.

Vertex Pharmaceuticals (NASDAQ: VRTX  ) suffered a setback in July when the FDA placed a partial clinical hold on its hepatitis-C drug VX-135 due to potential liver problems detected in patients receiving 400 mg dose of the drug. Vertex is not out of the race yet; the FDA is still allowing the company to continue studies of VX-135 at the 100 mg level, but Gilead is now in an advantaged position versus Vertex. 

There is plenty of competition when it comes to hepatitis-C drugs, but Gilead looks well positioned to benefit from that huge opportunity in the middle and long term.

Bottom line
Gilead has experienced quite a run up lately, but that doesn't mean this growth story is over. Thanks to its dominant position in HIV, deep pipeline of drugs and especially promising prospects in hepatitis C, this biotech leader still offers plenty of upside potential for investors.

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