Why Gilead Stock's Newest Drug Approval Isn't a Gamechanger

Gilead Sciences (NASDAQ: GILD  ) is finally an oncology company. It's been years in the making.

On Wednesday, the biotech got Zydelig approved to treat three different B-cell blood cancers: chronic lymphocytic leukemia, follicular B-cell non-Hodgkin lymphoma, and small lymphocytic lymphoma. All three indications are for patients that have failed a previous treatment. For the latter two, the FDA recommends that patients have failed at least two indications.

While Zydelig won't be competing against first-line treatments, it'll still have competition. Johnson & Johnson (NYSE: JNJ  ) and Pharmacyclics' (NASDAQ: PCYC  ) Imbruvica, for instance, is approved to treat chronic lymphocytic leukemia in those who have received at least one prior treatment. Unfortunately it's a little hard to know which drug worked better because Johnson & Johnson and Pharmacyclics tested Imbruvica in an open-label trial that didn't have a control arm. Gilead tested Zydelig in combination with Roche and Biogen Idec's Rituxan; the combination nearly doubled how long it took for patients' disease to progress compared to Rituxan alone, from 5.5 months to 10.7 months for the combination.

Gilead says there are 200,000 patients in the U.S. with the three blood cancers; capturing just a fraction of them could produce blockbuster sales at a reported monthly price of $7,200.

Zydelig has a boxed warning about the potential for liver toxicity, severe diarrhea, inflammation of the lungs and colon, and intestinal perforation. Normally for a cancer drug, you don't really have to worry about the boxed warnings; cancer patients and their doctors will tolerate severe side effects if it means prolonging life. But these leukemia and lymphomas are slow growing, meaning patients tend to live a long time with the disease, cycling on and off different drugs as they knock back the tumor cells until the tumor becomes resistant to the drug. Given the side effects, doctors may tend to use Zydelig at the end of the treatment, which will limit sales.

One drug makes not an oncology company
Especially for a company like Gilead, which brings in billions in sales of its HIV and hepatitis C drugs.

Investors shouldn't expect an instant blockbuster like Gilead got with Sovaldi. During the first quarter, Pharmacyclics booked $56 million in sales for Imbruvica. While that's not a bad start, especially since the label was only expanded to chronic lymphocytic leukemia in the middle of the quarter, Zydelig isn't going to move the revenue needle in the near term if it has the same kind of launch.

To really become an oncology player -- which comes with more respect from doctors and better margins -- Gilead needs two or three more drugs in its pipeline to play out. Unfortunately, only one of Gilead's other cancer drugs, momelotinib, is in phase 3 development. All of the other compounds are in phase 2 or earlier. 

If Gilead wants to bolster its oncology franchise quickly, its best bet is to acquire a drug already on the market, but finding an unpartnered one at a small drug developer is challenging. The next best option would be licensing a drug that's in phase 3 development and close to regulatory approval. I hear Puma Biotechnology has one that might be for sale.

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