Declining demand for its hepatitis C drugs caused Gilead Sciences (NASDAQ:GILD) to be one of biotechnology's worst-performing stocks since 2015, but there could be signs that this company's worst days are behind it. Share prices have been improving since last summer, and this week, Gilead Sciences outlined a strategy for the future that could return it to its winning ways. Is this company getting itself back on track?

What's the back story?

Gilead Sciences has long dominated the market for HIV treatment, but its sales really took off in 2014, when it launched Sovaldi and Harvoni, two game-changing hepatitis C drugs that delivered 90%-plus cure rates in as little as eight weeks. 

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The massive size of the hepatitis C market and a big need for treatments that can halt the disease turned these drugs into multibillion-dollar blockbusters that were generating about $20 billion in annualized sales at their peak.

Unfortunately, the company's success in the indication attracted the attention of competitors AbbVie (NYSE:ABBV) and Merck & Co. (NYSE:MRK), both of which invested heavily in new drugs to challenge Gilead Sciences in the indication. The launch of competing drugs has significantly crimped Gilead Sciences' pricing power in the indication, even as the addressable market has declined as more patients achieve a functional cure.

As a result, Gilead Sciences' hepatitis C sales, and thus its total revenue, has been falling sharply since early 2016, when trailing-12-month sales were north of $32 billion.

GILD Revenue (TTM) Chart

GILD Revenue (TTM) data by YCharts

What management's saying

Last year, AbbVie rolled out its latest hepatitis C drug, Mavyret, and as I wrote at the time, it poses the biggest challenge yet to Gilead Sciences' dominance in the indication. Since winning approval in August, Mavyret's already captured 32% market share, and that has AbbVie guiding for its hepatitis C sales to nearly double to $2.5 billion in 2018.

Mavyret's success is coming at Gilead Sciences' expense. Gilead's hepatitis C sales fell to $1.5 billion in Q4 2017, down 54% year over year and 32% quarter over quarter. The rapid decline has Gilead Sciences forecasting that its hepatitis C sales will drop to between $3.5 billion and $4 billion in 2018, from $9.1 billion in 2017. While up to $1 billion of this year's decline will be due to fewer patients starting treatment because of a smaller addressable market overall, the vast majority of the decline -- between $4.3 billion and $4.6 billion -- is being blamed on the competition.

The expected decline puts pressure on Gilead Sciences' HIV drug franchise and new CAR-T cancer drug program to make up the difference. Management expects those programs will see sales growth this year, but that growth won't fully offset the hepatitis C headwind.

HIV drug revenue has benefited from the launch of new combination therapies that include TAF, an improved formulation of the long-standing HIV drug, Viread. In 2017, the company's HIV and HBV product sales were $14.2 billion, up from $12.9 billion in 2016. TAF-containing regimens now represent 62% of Gilead's U.S. prescription volume, and one of those drugs, Genvoya, has quickly become the most prescribed HIV therapy in the U.S. for treatment-naive and switch patients. Last year, Genvoya's sales totaled over $3.7 billion, including $1 billion in Q4 alone. In 2018, continuing momentum for its HIV drugs has management predicting that HIV revenue will increase by $1.5 billion.

Management didn't provide sales guidance for its chimeric antigen T-cell receptor (CAR-T), Yescarta, this week, but it did say that its certifying of additional treatment centers should allow it to reach about 80% of Yescarta-eligible patients by the middle of 2018. Since Yescarta costs $373,000 and the 80% figure represents thousands of patients, there's reason for optimism. However, it remains to be seen how much this drug will contribute to revenue. Novartis (NYSE:NVS) is expected to win approval soon for its CAR-T, Kymriah, in the same patient population as Yescarta, and Celgene's (NASDAQ:CELG) recently acquired CAR-T, liso-cel, could challenge Yescarta for market share as soon as next year. So far, Gilead Sciences has only recorded $7 million in Yescarta sales since its launch in October.  

Overall, Gilead Sciences is only forecasting sales of between $20 billion and $21 billion this year. That's not very encouraging, but management does have some intriguing drugs in the pipeline that could eventually kick-start sales.

Data from a phase 3 study of filgotinib in rheumatoid arthritis is anticipated this year, and if it's solid, then filgotiinib could have blockbuster potential. The market for rheumatoid arthritis is huge, and in early-stage trials it demonstrated impressive efficacy and safety. Gilead Sciences is also advancing drugs for non-alcoholic fatty liver disease (NASH) through trials, and data for selonsertib, its lead NASH drug, could be available in early 2019. If results are good, selonsertib could reach the market as early as 2020.

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What's the takeaway

Gilead Sciences benefits from industry-leading profitability and that gives it financial firepower to acquire additional drugs that could spark sales someday. Despite headwinds, operating margin was still a healthy 54% in Q4 2017, and as a result, its cash stockpile totaled $36.7 billion on Dec. 31, up from $32.4 billion at the end of 2016. 

If the company's hepatitis C sales stabilize this year, HIV and CAR-T sales grow, drugs in the pipeline advance, and the company deploys some of its cash on M&A, then 2018 could mark a bottom for its sales, and that could make it an intriguing time to consider adding Gilead Sciences shares to a portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.