3 Slides Suggesting Gilead Sciences May Be Unstoppable

Image source: National Cancer Institute.

The biggest sports event of the year, the Super Bowl, may be less than four weeks away, but the Super Bowl for the healthcare sector kicked off yesterday in San Francisco. The J.P. Morgan Healthcare Conference is arguably the most important event of the year in healthcare as it gives more than 400 companies the opportunity to showcase their successes in 2015 and outline their advancements in 2016 and beyond. One such company that did so yesterday was biotech blue-chip Gilead Sciences (GILD 0.91%).

There's absolutely no sugarcoating the fact that Gilead Sciences kicked butt and took names in 2015. Through the first nine months of fiscal 2015 Gilead racked up $14.2 billion in total sales from its hepatitis C franchise ($10.5 billion alone coming from Harvoni), and it added another $8 billion from its HIV/AIDS portfolio of products. After generating "just" $9.7 billion in annual sales in 2012, Gilead is on pace for more than $32 billion in fiscal 2015.

But, what's really scary for its peers -- and great for its investors -- is that Gilead looks practically unstoppable. After listening to John Milligan, Gilead's President and COO, talk about his company during a 26-minute presentation yesterday (which I fully encourage you to listen to), I'm even more convinced that the following three slides demonstrate just how dominant this company could become.

Image source: Gilead Sciences. 

This is a multi-decade growth opportunity
HCV is a long-tail growth opportunity, and Gilead Sciences is just cracking the surface. Despite Gilead noting that there are in the neighborhood of 4 million treatable HCV patients within the United States, it's only been able to treat approximately 300,000 of them with a Sovaldi-based therapy (Harvoni is a cocktail drug comprised of Sovaldi and ledipasvir) between Dec. 2013 and Sept. 2015. If Gilead and physicians are only able to ramp up production and treatment to around 200,000 people per year, it would mean, even with competition, that Gilead would have until the mid-2020's before its U.S. HCV gravy train began to slow.

Of course, that's when the real patient potential could kick in. According to the World Health Organization, there are an estimated 180 million people worldwide with HCV. In emerging and still developing markets Gilead's margins would be relatively low to even non-existent. However, there's still plenty of time for emerging and developing markets to grow into profitable regions for Gilead. Ultimately, Gilead's HCV franchise looks to have a multi-decade growth opportunity on its hands, and I personally wouldn't be surprised if annual HCV sales topped $20 billion before the end of the decade.

Image source: Gilead Sciences.

Innovation in HCV makes unseating Gilead very difficult
In addition to having an enormous patient pool that could take decades to fully reach, Gilead is always finding ways to improve its HCV dominance.

First, Gilead brought Sovaldi to market in late 2013, providing sustained virologic response rates of 90% or better in genotype 1 HCV patients (genotype 1 comprises about 70% of all cases). Shortly thereafter in 2014 it introduced Harvoni which offered an even more favorable treatment profile and also high SVR rates of 90% or higher. Now, Gilead is working on two experimental HCV therapies, one of which looks to cement itself as potentially untouchable.

As reported last year, Gilead's Sovaldi in combination with velpatasvir delivered ridiculously strong virologic clearance over 12 weeks in four pan-genomic ASTRAL studies. In ASTRAL 1 the SVR12 rate was a whopping 99% in genotypes 1, 2, 4, 5, and 6, and 99% in ASTRAL 2 for genotype 2 patients. In ASTRAL 3, which examined genotype 3, arguably the toughest genotype to cure, SVR12 hit 95%. The sustained virologic response was even an impressive 94% in genotypes 1 through 6 with Child-Pugh class B, implying these patients had serious liver disease which often carries a two-year survival rates of less than 60%. Gilead has filed for approval of this combination therapy and has a PDUFA decision date of June 28, 2016.

Gilead is also developing a triplet drug comprised of Sovaldi, velpatasvir, and a protease inhibitor. The belief is that adding the protease inhibitor could further improve virologic clearance in genotype 3 HCV patients, reduce the already-small number of patients who fail to exhibit disease clearance in other genotypes, and most importantly, reduce the treatment timeframe to just eight weeks for most, or all, genotypes (with the exception of the patients who failed HCV clearance). Milligan noted concern about toxicity tied to protease inhibitors, but he appeared encouraged with the potential for moving the bar one notch higher.

Could anyone really challenge Gilead's pan-genomic HCV therapy? Perhaps the only contender is Merck (MRK 0.44%), which is the process of developing its own triplet. Merck's triplet demonstrated 90%+ SVR clearance rates in its clinical studies, but more importantly it did so in just eight weeks for genotypes 1, 2, and 3. There's further testing to be done here, but Merck's triplet is looking like the only near-term option that has any chance of giving Gilead a run for its money in HCV.

Image source: Gilead Sciences.

A pipeline and product portfolio worth marveling
Lastly, Gilead has plenty of options it can turn to beyond just HCV and HIV, even if they do make up the bulk of the company's current revenue.

Gilead's pipeline currently consists of 26 clinical programs, but as you can see to the left, there are far more waiting in the wings to hit preclinical trials. This is a deep pipeline spanning multiple indications, and it suggests that Gilead could easily have multiple therapeutic indications to rely on in the coming years.

For instance, Gilead is developing an intriguing oncology portfolio of products that could potentially deliver billions of dollars in sales. Expansion of Zydelig's label into frontline indolent non-Hodgkin lymphoma and frontline chronic lymphocytic leukemia could result in the drug approaching blockbuster status. Zydelig is currently in late-stage studies for frontline CLL and midstage studies for frontline iNHL.

We also need to keep our eyes on Gilead's work in liver diseases beyond HCV. Hepatitis B affects an even greater number of people than HCV, and nonalcoholic steatohepatitis, or NASH, affects around 2% of the U.S. adult population in its most severe form. Gilead is looking at treating NASH with a kitchen sink approach, tossing anti-LOXL2 antibody simtuzumab, a drug designed to target liver fibrosis, GS-4997 which is targeted at reducing inflammation, and GS-9674, an oral FXR agonist which is designed to handle metabolic complications tied to the disease, at NASH.

This is a deep pipeline that should continue to pay big dividends.

Gilead may be unstoppable
All companies have possible pitfalls and risks, but it's difficult to find many weaknesses with Gilead Sciences.

It's always possible that prescription drug reform strips its HCV program of its lucrative pricing power, but that seems highly unlikely, as such a move could drive innovation overseas. It's also possible that competition could weigh on HCV sales, but the market is certainly big enough for a few effective entrants. The way I see it, Gilead looks poised to continue to grow numerous aspects of its pipeline and product portfolio. Long-term and value investors taking note.