The Hidden Gems in Gilead Sciences' Pipeline

When most biotech investors think about Gilead Sciences (GILD 0.07%), they usually think of the company's portfolio of antiviral drugs and its newly approved potential blockbuster hepatitis C treatment, Sovaldi.

Gilead's antiviral portfolio, which mostly consists of HIV drugs, generated $9.3 billion in revenue in 2013, accounting for 86% of the company's top line. Sovaldi, which was approved last December, is expected to hit annual peak sales of $7 billion, eventually offsetting losses from the 2017 U.S. patent expiration of Viread, which is used in five of its main HIV drugs.

However, investors often overlook Gilead's hidden strengths. Let's take a look at some of these hidden gems in Gilead's pipeline and how they could affect companies like Infinity Pharmaceuticals (INFI), Actelion (NASDAQOTH: ALIOF), and Incyte (INCY 0.17%).

Gilead's CLL and NHL drugs
On January 13, the FDA accepted Gilead's new drug application (NDA) for idelalisib, a targeted treatment for indolent non-Hodgkin's lymphoma (iNHL). Gilead also submitted another NDA for the treatment of relapsed chronic lymphocytic leukemia (CLL) last December. iNHL and CLL are both blood cancers. Idelalisib's iNHL indication is scheduled to be reviewed by the FDA on Sept. 11, 2014.

Idelalisib targets a signalling pathway known as PI3K. When the PI3K pathway is overactive, cell death is reduced and cancer cells can proliferate more easily.

If approved for both iNHL and CLL, idelalisib could compete against two other drugs -- Infinity and Takeda's IPI-145, and Pharmacyclics' and Johnson & Johnson's Imbruvica. IPI-145 targets the same PI3K pathway as idelalisib, while Imbruvica directly targets an enzyme known as BTK, which plays a role in multiple signaling pathways that can help cancer cells survive and spread.

Source: Company and industry websites.

In my opinion, the estimates for idelalisib are very conservative, especially when Wall Street already expects blockbuster sales from IPI-145, which could reach the market much later than Gilead's drug. Moreover, the FDA has already granted idelalisib a Breakthrough Therapy designation for CLL, indicating that it could be a significant improvement over current treatment options.

Idelalisib isn't Gilead's only blood cancer drug. Last December, Gilead announced positive interim results from a phase 2 study of GS-9973, an investigational oral drug for patients with CLL and non-Hodgkin's lymphoma (NHL). The company reported that 69% of the CLL patients experienced tumor shrinkage of 50% or more after eight weeks of monotherapy.

Gilead's aggressive defense against Actelion
Meanwhile, Gilead COO John Milligan recently noted in a Bloomberg interview that the company was considering a head-to-head study comparing its pulmonary arterial hypertension (PAH) drug Letairis against Actelion's Opsumit. Opsumit is Actelion's successor to its blockbuster PAH drug Tracleer, which will lose patent protection in November 2015.

The FDA approved Letairis in 2007 and Opsumit last October. Gilead's message is clear -- it wants to assert the superiority of its drug against Opsumit, which analysts believe could generate peak sales of $1.4 billion. By comparison, sales of Letairis rose 27% year over year to $520 million in 2013.

The market for PAH drugs has grown increasingly crowded over the past few years, with new treatments from Bayer and United Therapeutics gaining FDA approval last year. Generic versions of Tracleer will inevitably fragment the market further after 2015.

Going head-to-head against Opsumit is a gutsy move. If the study is successful, Gilead could sap away Opsumit's projected blockbuster sales, but if not, it would do Actelion a major favor.

Gilead's JAK inhibitor
Last but not least, Gilead's momelotinib, an experimental JAK inhibitor, is similar to Incyte and Novartis' drug Jakafi (known as Jakavi overseas). JAK inhibitors target Janus kinase enzymes, which cause interference in a signalling pathway known as the JAK-STAT pathway. Blocking signals along that pathway can be helpful in treating a variety of cancers and inflammatory diseases.

Gilead is recruiting patients for a phase 3 trial testing momelotinib as a treatment for the blood disorder myelofibrosis. Jakafi is currently the dominant myelofibrosis treatment on the market, and is marketed in the U.S. by Incyte and overseas by Novartis. In 2013, Incyte reported $235 million in U.S. Jakafi sales, while Novartis reported $163 million in international sales for a total of $398 million. Analysts believe that Jakafi/Jakavi could eventually achieve peak sales of $1 billion.

Gilead is moving ahead by directly comparing momelotinib to Jakafi in a phase 3 trial. Positive data from Gilead's trial could strike a blow against Incyte and Novartis, as well as Geron, which has been struggling to convince investors that its experimental myelofibrosis treatment, imetelstat, is still a contender after 20 out of 79 patients dropped out of a key Mayo Clinic sponsored trial in January. Investors should also note that momelotinib could also have a future as a treatment for metastatic pancreatic cancer, an indication that Incyte is currently testing Jakafi for in clinical trials.

The Foolish takeaway
In conclusion, there's much more to Gilead Sciences than HIV and hepatitis treatments. These hidden gems in Gilead's pipeline all represent exciting new ways for the company to diversify its portfolio into hematology, oncology, and cardiovascular drugs.

While their success might not be felt in Gilead's stock price in the near term, they could figure prominently into Gilead's future over the next decade.