QUOTE AND NEWS
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Gilead Sciences (NYSE: GILD) is a biopharmaceutical company that specializes in the development and commercialization of drugs for the treatment of HIV infection, hepatitis B infection (HBV), cystic fibrosis, fungal infections, and influenza A and B. The company currently produces a market-leading HIV drug portfolio as well as other drugs, which face strong competition from drug-makers such as GlaxoSmithKline (GSK), Novartis AG (NVS), Merck (MRK), Enzon Pharmaceuticals (ENZN), and Bristol-Myers Squibb Company (BMY).In 2010, Gilead generated $7.95 billion in revenues and net earnings of $2.9 billion.[1]

Gilead's profitability can be potentially affected by various factors, including legislative and regulatory changes in federal and private insurance coverage of its drug products, competition from the development of generic drug substitutes, supply shortages of active ingredients in its drugs, the success of clinical trials of newly-developed drugs, and changes in FDA regulations.

Company Overview

In 2010, Gilead generated $7.95 billion in revenues and net earnings of $2.9 billion.[1]

As a biopharmaceutical company that focuses on the discovery, development, and commercialization of therapeutics for currently incurable diseases such as HIV infection, hepatitis B, and cystic fibrosis, Gilead has developed a strategy that relies on collaboration in the commercialization and research sectors as well as acquisitions of smaller companies with promising products.

Collaborative Strategy

  • Commercial Collaboration Partnerships: As a significant part of Gilead's business strategy, the company has established numerous collaborations with other pharmaceutical institutions for the commercialization of some of its products. These include a partnership with Japan Tobacco to commercialize Gilead's HIV drug portfolio in Japan, an agreement with GlaxoSmithKline (GSK) to commercialize products internationally, as well as various commercialization agreements with Pfizer (PFE), Astella Inc., and OSI Pharmaceuticals, Inc.[2]
  • Manufacturing Partnerships: All of Gilead's leading antiviral and therapeutic products are produced by third-party contract manufacturers. However, Gilead does have limited manufacturing capabilities to produce active ingredients in its drug products in order to improve existing manufacturing processes.[4]

Business Segments

Gilead's product portfolio includes HIV therapeutic drugs that make up more than half of total sales revenue, as well as Tamiflu (antiviral treatment for resilient influenza), Hepsera (treatment of Hepatitis B), and AmBisome (treatment for invasive fungal infection).

The company is comprised of three segments: Antivirals, Other Products (includes treatments for pulmonary hypertension, heart pain, and fungal infections), and Royalties.

Antivirals (80% of 2010 Revenue, $6.53B)[1]

The company's two blockbuster drugs are both in this segment: Truvada', an oral once-daily formulation that consists of a fixed-dose combination of Gilead's other anti-HIV medications, Viread and Emtriva; and Atripla, a once-daily oral anti-HIV medication, that Gilead co-promotes with Bristol-Myers Squibb.

Other Products (13% of 2010 Revenue, $1.08B)[1]

This segment's largest products are: Letairis, a treatment for pulmonary arterial hypertension; Ranexa, a chronic angina treatment; and AmBisome, an antifungal used to treat a range of fungal infections that Gilead co-markets with Astellas Pharma.

Royalties (7% of 2010 Revenue, $559.5M)[1]

This segment contains two drugs that were developed by Gilead but are now marketed by other pharmaceutical companies. Tamiflu is an oral antiviral used to treat and prevent influenza A and B. Tamiflu is sold as a seasonal vaccine and is currently marketed by Roche. Macugen is an injection of protein used to treat macular degeneration. Macugen was developed and marketed in the United States by OSI Pharmaceuticals and is marketed internationally by Pfizer.

Research & Development ($1.07B in 2010)

Researching and developing new drugs is the single most important consideration when identifying the prospects of any pharmaceutical company. A successful drug pipeline is critical because former blockbusters losing patent protection must be constantly replaced by new viable drugs.

Gilead's pipeline focuses primarily on HIV and cardiovascular prospects with additional compounds for HCV and respiratory disorders.

Trends and Forces

Reliance on Insurance Coverage Regulations

Legislative and regulatory changes to government drug reimbursement programs such as Medicare and Medicaid, as well as changes in insurance coverage by private insurance providers, may affect the pricing of Gilead's drug products. Depending on what changes occur to these program coverages, Gilead may see a decline in revenues if physicians recommend different drug products due to reimbursement differences. Gilead expects that generic alternatives to Truvada will emerge into the market, which could affect the decision of insurance programs to discontinue or reduce reimbursement for Truvada use. This would cause a decrease in Gilead's sales revenue, as patients move away from Gilead products in favor of generic alternatives covered by insurance. [5]

Increased Risk of Generic Drug Competition

A significant percentage of Gilead's sales come from only a few drugs, namely Truvada and Tamiflu. Currently, Truvada does not face significant competition due to lack of similarly effective HIV antiviral drugs, but as generic alternatives are produced, market share for Truvada may decrease, which would result in a considerable decline in sales revenue. [6] Truvada's current patent protection lasts through 2021.[7]

Reliance on Third-party Partners for Clinical Trials

Due to Gilead's reliance on third-party contract research organizations to conduct clinical trials, it is unable to directly control the timing, expense and quality of clinical trials. These factors may negatively impact Gilead's drug portfolio through prohibiting timely new drug development and increasing costs for the company. [8]

Manufacturing Ability Restricted by Suppliers

To comply with FDA regulations, some of the ingredients used in making the drugs that Gilead commercializes are produced at only one facility. If delivery of materials from these facilities is delayed for any reason, this could affect the success and timeliness of clinical research trial results and product manufacture processes. [9]

International Sales Affected by Exchange Rates

Gilead's drugs are marketed heavily in Europe and Asia, and international revenues make up more than half of the company's total revenues. Therefore, fluctuations in foreign currency exchange, trade regulations, and less stringent intellectual property rights protection mechanisms in foreign countries could affect the company's overall profitability.[10]

Tightening FDA Regulations

Beginning in 2009, the FDA implemented a series of reforms that include stricter monitoring of drug adverse events, more funding for the agency, stronger ability to force product recalls, more scientific expertise within the agency, more transparency. While the tightened regulations and increased transparency will eventually improve the overall quality of pharmaceutical products, companies will have to adjust to the stricter standards and stronger enforcement.[11]

Competition

Gilead's products mainly compete with other antiviral drugs commercialized by a number of other companies and institutions around the world. Due to the nature of the industry, Gilead's drugs compete with other available products in areas such as efficacy, safety, ease of use, doctor acceptance, price, and insurance coverage.

Competition in the pharmaceutical industry lies mostly in specific drug markets. For example, a new diabetes drug is not going to have any effect on an existing cholesterol drug, no matter how successful it is. As a result, financial data on the pharmaceutical companies do not tell the whole story. Instead, it may be more appropriate to analyze Gilead's competitors by each drug market (See section on Major Drugs and Industry Trends).

  • Johnson & Johnson (HAN:JNJ) -
  • Pfizer (PFE) - Pfizer is the largest pharmaceutical company in the world and competes with Gilead Sciences. Pfizer markets Gilead's Macugen vaccine internationally.
  • Novartis AG (NVS) - Novartis is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • Abbott Laboratories (ABT) - Abbott Laboratories is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • Merck (MRK) - Merck is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • Bristol-Myers Squibb Company (BMY) - Bristol-Myers Squibb is a large diversified pharmaceutical company that competes with Gilead Sciences. Bristol-Myers Squibb copromotes HIV medication Atripla with Gilead Sciences.
  • Eli Lilly and Company (LLY) - Eli Lilly is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • Amgen (AMGN) - Amgen is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • AstraZeneca (AZN) - AstraZeneca is a large diversified pharmaceutical company that competes with Gilead Sciences.
  • Roche Pharmaceuticals (RHHBY) - Roche Pharmaceuticals is a large diversified pharmaceutical company that competes with Gilead Sciences. Roche markets Gilead's Tamiflu anti-influenza drug.

References

  1. 1.0 1.1 1.2 1.3 1.4 Gilead Sciences Announces Fourth Quarter and Full Year 2010 Financial Results
  2. GILD 2006 SEC Filing 10-K, Item 1, Pg. 8
  3. GILD 2006 SEC Filing 10-K, Item 1, Pg. 12
  4. GILD 2006 SEC Filing 10-K, Item 1, Pg. 17
  5. GILD SEC Filing 2006 10-K, Item 1a, Pg. 32
  6. GILD SEC Filing 2006 10-K, Item 1a, Pg. 23
  7. More Bullis Calls on Gilead Sciences, SeekingAlpha.com, 7/10/07
  8. GILD SEC Filing 2006 10-K, Item 1a, Pg. 25
  9. GILD SEC Filing 2006 10-K, Item 1a, Pg. 35
  10. GILD SEC Filing 2006 10-K, Item 1a, Pg. 28
  11. The FDA: A tough tonic
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