Gilead Fundamentally Strong

Gilead's Strong Fundamentals Should Continue

Business continues to look strong for Gilead Sciences (GILD). The company’s tenofovir-based HIV products (Viread, Truvada and Atripla) are number one and widening their lead. The clinical data continues to support the switching of patients from older generation molecules such as abacavir and lamivudine to Gilead’s franchise. Also driving impressive trends are revised HIV treatment guidelines from the U.S. Department of Health and Human Services recommending only Truvada (and Atripla) as the backbone of choice in naïve patients.

These new guidelines, put into place in November 2008, downgraded Epzicom to an alternative medication based on cardiovascular risk and high rates of virologic failure. Finally, the new FDA chief, Margaret Hamburg, a former New York City Health Commissioner, has significant experience in combating infectious disease, such as HIV/AIDS, and we believe that this type of focused leadership only further adds to the market potential for Gilead’s core products.

Outside of the core-HIV franchise, business is also progressing nicely. In August 2008, the FDA granted marketing approval for Viread as a once-daily treatment for chronic hepatitis B (HBV) infection. In only a few months on the market, management estimates that Viread has 26% new market share (NRx), eclipsing the market share of Glaxo’s (GSK) Epivir and Gilead’s Hepsera in the HBV category. Going forward, Gilead will focus its HBV efforts solely on Viread.

Letairis sales are also ramping to within our expectations. Two year safety and efficacy data presented at CHEST in October 2008 and ATS in May 2009 should continue to drive strong uptake for the drug. Prescriptions have doubled over the past 12 months.  

Gilead’s pipeline is also moving forward with the recent positive phase III DAR-311 data, and several programs moving into phase II and phase III for HCV and HIV. The most advanced, elvitegravir, is currently in a phase III trial with data expected later in 2009. Management recently got some good news from the FDA regarding the phase III requirements for elvitegravir and GS-9350 which should help speed along the process.

Add in Ranexa, Lexiscan, and a handful of other early-stage cardiovascular product candidates at CVT, and Gilead’s future looks very bright. The only mishap over the past few months came in September 2008 when the FDA rejected the new drug application for aztreonam lysine for cystic fibrosis. Despite the delay, we still see aztreonam lysine as a viable product, evidenced by management’s commitment to initiate a phase II trial in non-CF bronchiectasis.

With respect to the CVT acquisition, we applaud the move and think it is a positive strategic step forward for Gilead. CVT’s core focus in cardiology with chronic angina drug Ranexa represents an effective forward integration for Gilead, a company with a phase III candidate for resistant hypertension in darusentan. Gilead will maintain CVT’s 170 sales reps focused on Ranexa for the next several quarters. CVT just recently received approval expanding the label indication and removing significant cautionary language that was previously inhibiting Ranexa’s U.S. ramp.

We think Ranexa, in the U.S., has $500 million potential given the new label and effective promotion. Outside the U.S., Gilead will look to leverage the existing relationship with Menarini by helping to facilitate pricing and reimbursement efforts in Europe with Gilead’s infrastructure.

Gilead will also look to monetize the Ex-U.S. rights for Lexiscan, and reiterated CVT’s previous guidance to file for Lexiscan approval in Europe shortly. Once approved, perhaps in 2012, Gilead will utilize the CVT sales force to promote darusentan. In the meantime, Gilead expects to leverage CVT’s knowledge in developing and commercializing cardiovascular drugs to enhance the darusentan filing.

We view the acquisition of CVT by Gilead as a great, cost effective, opportunity for Gilead management to gain the knowledge and put the necessary infrastructure in place to diversify into the cardiovascular business, all while increasing revenues and eventually profitability immediately with Ranexa.

Gilead remains one of our favorite stories in biotech, and we recommend opportunistic buying at this level given the pull-back in the overall market. Upside to the story could come from the successful development of elvitegravir or darusentan, or ramping Ranexa above the current Street consensus. We would be aggressive buyers if the stock dropped below $40. Our target is $50.

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