One of the bright spots in an otherwise fairly "blah" quarter for GlaxoSmithKline (NYSE:GSK) was the report that Triumeq and Tivicay, two drugs for HIV, were rapidly ramping up sales -- to the tune of about $311 million and $240 million in sales last quarter, respectively. Triumeq and Tivicay are both owned and marketed by ViiV Healthcare, which is a joint venture among GlaxoSmithKline, Pfizer, and Japanese pharma Shionogi. Gilead Sciences (NASDAQ:GILD), the goliath in the HIV space, even mentioned Triumeq on their most recent earnings call, with President John Milligan admitting that "Triumeq has been doing well on its launch, and it has been taking some market share from Gilead" (this and other quotes courtesy of S&P Capital IQ). With analysts estimating up to $5 billion in peak sales for Triumeq and Tivicay, these drugs present an immediate danger to Gilead's $10 billion HIV franchise.
We've known this was coming
Formed in late 2009, ViiV is focused strictly on finding new HIV treatments. It was built to threaten Gilead, which holds (and has held for the last several years) a dominant position in HIV, with big-name drugs like Atripla, Truvada, and Viread bringing in a boatload of money for the company. Here are Gilead's sales numbers for HIV drugs last year:
Even with Triumeq's foray into historically Gilead territory, Milligan noted on the call that Gilead is still the big dog in the space: "7 of 10 patients new to treatment are receiving a Gilead product, and 6 out of 10 roughly are receiving a Gilead single-tablet regimen."
It's also been very clear that ViiV's Triumeq was designed specifically to target Atripla. ViiV actually tested Triumeq against Atripla in the head-to-head SINGLE study, finding that Triumeq outperformed Atripla, with 80% of patients still virologically suppressed at 96 weeks on Triumeq compared to only 72% with Atripla. According to Viiv, the difference was primarily due to more patients in the Atripla arm discontinuing due to reactions to the drug. This brings the specific threat ViiV poses to Gilead into clearer focus: Gilead's #1 HIV drug by 2014 sales is under direct attack, and by a drug that outperformed it in a head-to-head trial. The choice for physicians is pretty obvious, and it's clearly beginning to weigh on Gilead's HIV franchise. Notice that only one major Gilead HIV drug shrank sales last quarter:
|Drug||Q3 2015 Sales||Year-over-Year Growth|
Now, in all fairness, Atripla sales have been slipping since before Triumeq was approved by the FDA in August 2014, so the decline isn't all due to Triumeq (Gilead tested Stribild vs. Atripla back in 2013 and has been upfront about wanting to switch patients from the lower-margin Atripla to other, higher-margin drugs). Nonetheless, it's definitely a factor.
The attack isn't limited to Atripla, by the way -- ViiV recently released data showing that patients switching to Triumeq from a number of different drugs had similar viral suppression (effectiveness) and were happier with their treatment as compared to those who remained on other drugs. Given Gilead's numbers above and the enormous HIV market (36.9 million people worldwide live with HIV, according to the WHO), you can see how that $5 billion peak sales estimate I mentioned above could be achieved.
Here's how Gilead's going to fight back
Gilead doesn't plan to take all of this lying down. And why should it? The company is flush with cash after a monster run with Hepatitis C drugs Sovaldi and Harvoni and a recent $10 billion bond offering, so it has plenty of firepower to protect its market share.
The company has a whole slew of next-generation HIV drugs based around Tenofovir alafenamide fumarate (or TAF, for short). TAF is designed to replace Viread, which goes off patent in 2018 and is present in most of the drugs in the above chart. Combos containing TAF have nicely outperformed Viread, lining up a good dataset for Gilead to use when seeking FDA approval. The first test of that dataset will come on November 5th, with the first combo (E/C/F/TAF) up for potential approval then. These give Gilead a solid opportunity to retain and expand market share.
But the company has a more specific plan for Triumeq. On Gilead's recent third quarter earnings call, management disclosed that they're taking direct aim at Triumeq in an incoming clinical trial. Gilead plans to test a single-tablet combination of GS-9883 and emtricitabine/TAF (F/TAF) versus Triumeq in a clinical trial that they hope to enroll later this year.
Talk about poetic justice. If it works.
So, where does that leave us?
Nothing that's happened really changes the Gilead investing thesis (or lack thereof). If you think that the biotech, which just doubled its quarterly net income in a year and which is currently valued at around ten times next year's earnings, still has some serious room to run given its fantastic management and broad pipeline, these developments don't significantly undercut that thesis. If you're not generally bullish on the stock, then greater competition gives you no reason to consider investing now. As for me, I'm waiting to see what the GS 9883 + F/TAF vs Triumeq trial will report, and until then I remain solidly confident in Gilead's growth prospects.
Michael Douglass owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.