Gilead Sciences (GILD +2.08%) recently reported Q2 earnings, and it was an exciting quarter for the company. Three numbers buried in the earnings call (quotes below are courtesy of S&P Capital IQ) really highlighted to me why Gilead Sciences is in a great place today to drive revenue and earnings growth for years to come.
90%
The headlines swirling around Gilead Sciences always focus on its blockbuster hepatitis C treatments Harvoni and Sovaldi, and for good reason: Hepatitis C drugs brought in $4.9 billion of Gilead's $8.1 billion in revenue last quarter. Gilead has treated 130,000 hepatitis C patients so far in 2015, representing "a Gilead market share over 90% of all Hepatitis C patients" according to Gilead VP Paul Carter.
Over 90% market share. That's dominance, people. With numbers like that, you'd assume Gilead is the only company with a new hepatitis C drug on the market.
And yet, it isn't. AbbVie (ABBV 0.52%) is marketing Viekira Pak, which was approved by the FDA in December 2014, in 47 markets worldwide and brought in $385 million in sales last quarter. AbbVie expects Viekira to achieve a $3 billion annualized run rate by the end of this year. But Harvoni has some solid advantages: For example, it doesn't require the use of side-effect-laden ribavirin -- many patients have to take ribavirin with Viekira. Harvoni also has a dosing advantage, as patients only have to take one pill a day in the U.S. versus Viekira Pak's four to six pills, depending on ribavirin use. And Harvoni achieved $3.6 billion in sales in the last quarter alone, which highlights again Gilead's total market dominance in hepatitis C.
There are incoming threats -- AbbVie recently reported impressive phase 2b data for its own ribavirin-free single-pill combination, with commercialization anticipated in 2017, and Merck has submitted its own single-tablet formulation to the FDA for review -- but Gilead's management isn't resting on its laurels. Gilead is aggressively working to expand Harvoni's label outside type 1 hepatitis C -- and to more patients as a result -- and is developing its next generation of hepatitis C cures with a focus on shorter treatment duration. We'll have to see where things shift over the longer term, but that 90% market share is an incredible number to report and a great spot to be in today.
80%
As I mentioned above, hepatitis C gets the big headlines for Gilead. But let's not neglect its massive HIV portfolio, which accounted for over $2.7 billion of Gilead's sales last quarter. And Gilead is a similarly dominant player in HIV: VP Paul Carter highlighted this in last quarter's conference call by noting, "Gilead's HIV medications continue to be prescribed for approximately 8 out of 10 treatment-naive patients initiating therapy."
Unlike in hepatitis C, Gilead isn't a recent entrant in HIV treatments: 80% of new patients in HIV start on a Gilead drug. Management has been crafting this dominance for over a decade -- Viread, the oldest in Gilead's current lineup of HIV therapies, was approved in 2001 -- and is working hard to extend its successful run.
Viread loses U.S. and EU patent protection in 2018. And given that the drug is present in all of Gilead's HIV cocktails -- CFO John Milligan recently referred to it as a "cornerstone molecule" for the company's HIV program -- you can imagine how crucial it is for Gilead to retain that 80% treatment naive market share. Fortunately, management has a plan.
Gilead is studying a new drug called TAF to replace Viread in its various combo therapies, and the data looks very good: In Gilead Study 109, the E/C/F/TAF combo therapy outperformed its Viread-containing counterpart in HIV suppression. E/C/F/TAF is also better for bone mineral density than a comparable Viread combo therapy, indicating that the new cocktails Gilead is preparing to bring to market may have advantages both in safety and in efficacy compared to its current cocktails. The FDA has set E/C/F/TAF's PDUFA date for Nov. 5, 2015, so that's probably the next indication we'll get as to whether Gilead can easily maintain its market dominance in HIV. But management has lined up a powerful dataset to show doctors and patients why they should move off the Viread-backed therapies before the patent expires, thereby hopefully preserving Gilead's market dominance for years to come.
$14.7 billion
Gilead has $14.7 billion in cash and short-term investments on its balance sheet. When you couple that with the $5.7 billion in operating cash flow Gilead generated just last quarter, the company pretty clearly has some serious firepower. Gilead plans to return some of that cash to shareholders, with a recently instituted 1.6% dividend and a massive $15 billion authorized to repurchase shares over the next five years. And for many companies, that would be good enough.
But I suspect Gilead is going to go a step further and deploy that firepower to buy another drug or company when it finds an attractive acquisition target. Gilead's management has an impressive history of purchasing attractive drug pipelines, and I'm excited to see what the company goes after next. Executives have hinted that they're interested in cardiovascular or cancer, so keep your eyes peeled for opportunities there.
It's really about the future
Bottom line: Five years from now, nobody is going to care about how much money Gilead had on its balance sheet or its market-share dominance in HIV and hepatitis C in 2015. The real key for investors is going to be what management does with its incredible position today. That's the real reason I'm excited about Gilead -- this is a company that's reinvesting its cash in the business to get out in front of potential hepatitis C and HIV threats. And with the kicker of a potential transformative acquisition that can set up the company for even more long-term growth, there's a lot to love about Gilead Sciences.
