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Gilead Sciences Takes 2 Steps Forward and 1 Step Back

By Cory Renauer - Jan 13, 2016 at 10:41AM

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Gilead's antiviral segment gets even stronger, but expansion into other fields remains elusive.

Image source: Gilead Sciences.

While most of us, myself included, were getting back into gear after the holidays, Gilead Sciences (GILD -0.47%) was busy racking up headlines. The hepatitis C leader received news from regulators that could strengthen its position in this space even further. The following day, it announced a clinical win with a blockbuster hepatitis B treatment that could also strengthen this franchise.

But not all of Gilead's headlines in the new year have been positive. The company's efforts to branch out into other liver-related indications took a turn for the worse when independent data monitors suggested that a trial with simtuzumab end early because of a lack of efficacy.

One pill to treat them all
It's difficult to overstate the success of Gilead's combination hepatitis C treatment, Harvoni. Approved by the FDA in October 2014, sales of the drug in the first three quarters of 2015 reached an astounding $10.5 billion. As impressive as those numbers are, during this period the drug had approval only for treatment of genotype 1 patients, a population that comprises roughly 75% of U.S. hepatitis C infections.

Image source: Gilead Sciences.

In November, the FDA expanded Harvoni's label to include genotypes 4, 5, and 6. However, these three genotypes make up a tiny sliver of the U.S. market. The additional genotypes prevail in several emerging markets, but genotyping in these regions is often lacking. This is why Gilead's pan-genotypic candidate, which would eliminate the need for genotyping, represents such an exciting opportunity.

During the trials supporting its pending application with the FDA, the combination of experimental velpatasvir and sofosbuvir -- the latter of which is the active ingredient in Sovaldi and half of Harvoni -- performed well enough across all six genotypes that genetic screening shouldn't be necessary. The FDA considers the improvement over existing options significant enough to give the application a priority review, which should shave about four months off the process.

Gilead expects a decision from the FDA by the end of June. If approved, this should be plenty of time to get out in front of its only significant competitor in the hepatitis C space, AbbVie. The Illinois company didn't even begin a phase 3 program for its pan-genotypic combo until last November.

Hepatitis B and HIV
A priority review wasn't the only good news to begin the year for Gilead. With all eyes on its hepatitis C programs, it's easy to forget Gilead has a strong presence in other types of infection. Hepatitis B and HIV treatment Viread won FDA approval way back in 2001, but it's still selling at a run rate of more than $1 billion per year.

On its own, the drug comprised 3.6% of third-quarter 2015 revenue, but it's also a component of HIV drugs Stribild, Complera, Atripla, and Truvada. Combined, these four treatments racked up sales $2.6 billion in the third quarter of 2015 alone, comprising 31% of total revenue for the period.

Image source: Wikimedia Commons.

However, Viread, or tenofovir disoproxil fumarate, is associated with kidney damage and decreasing bone mineral density. If that isn't bad enough, it goes off patent in 2018.

But a new formulation, tenofovir alafenamide, or TAF, is on the way. Although already approved as part of Gilead's new HIV combination therapy, Genvoya, regulators need to know that TAF alone is an improvement over Viread in hepatitis B patients.

The results of a head-to-head hepatitis B study pitting Viread against TAF are in. Even though TAF isn't much of an improvement in terms of efficacy, patients receiving it showed significantly improved signs of kidney function and less of a decrease in bone mineral density.

Gilead probably won't develop new versions of all its HIV treatments that contain Viread, but two HIV candidates containing TAF are awaiting regulatory decisions in the U.S. and EU, and a third is in phase 3.Going forward, TAF's improved safety profile should go a long way toward convincing end payers that Gilead's new HIV treatments are worth the expense as older options lose patent protection.

Two down, two to go
Gilead may be the market leader in hepatitis C and HIV, but shareholders would breathe a little easier if it diversified its revenue stream. In the third quarter, antivirals comprised nearly 94% of the company's total product sales. Simtuzumab was supposed to help in this respect, with trials in a handful of varied indications.

Things aren't going so well. In 2014, the antibody failed to significantly slow progression of pancreatic cancer compared with standard chemotherapy. More recently, independent data monitors informed Gilead that simtuzumab would miss the mark again, this time in idiopathic pulmonary fibrosis, a fatal disease characterized by scarring of the lungs. Gilead was fortunate in that it was able to terminate the trial midway through a phase 2 trial and not a larger, more expensive phase 3 study.

Despite two previous failures, it isn't time to give up hope for simtuzumab. Gilead will continue to study the drug in non-alcoholic steatohepatitis and primary sclerosing cholangitis. Both ongoing phase 2 trials include 96 weeks of treatment and observation. Like the terminated pulmonary fibrosis trial, independent data monitors have looked at the results part of the way through and decided that both trials should continue.

There's a long way to go, but an approval for either indication would probably push simtuzumab into blockbuster territory, giving Gilead's revenue stream some much-needed diversity.

Cory Renauer has no position in any stocks mentioned. 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.

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