Who Is Gilead's Competitors
Final Paper: Gilead Sciences Inc.
Our company, Gilead Sciences is a leading biopharmaceutical company that discovers, develops, and commercializes therapeutics. Currently, Gilead is a publicly traded company and a member of the NASDAQ Biotechnology Index and the S&P 500. Our company currently has a portfolio of 15 marketed products as well as a growing pipeline of investigational drugs focusing on HIV/AIDS, hepatitis, serious respiratory, cardiovascular, metabolic conditions, cancer, and inflammation. Over the past decade , we have been a strong competitor in the market up until this past year.
During the past 12 months, our stock prices have fluctuated quite a bit with a 52 week low of $36.98 and a 52 week …show more content…
high of $76.28. (Shown in Figure 1) (MarketWatch) The reason for the dramatic drop in market value compared to a 13.6% gain in the S&P 500 is due a pipeline of external concerns, which we as a company need to address this upcoming year. (Douthat)
There are many factors that contribute to Gilead’s downturn in the market such as the upcoming end to the patents on our highest revenue producing medications and controversy in the highly marketed new investigational drugs that we’re currently developing.
Since our founding, Gilead Sciences has followed a business strategy of differentiation in a focused market. We have also been dependent on our “first-mover advantage” to enable us to discover and patent the best drugs in the market, so that buyer power is almost significantly eliminated. Yet, now many of our investors are beginning to wonder if Gilead can continue to innovate and survive against the upcoming threats of new branded competitors, major patent expirations, and increased pricing …show more content…
pressures.
Even us, the top biotechnology company isn’t exempt from the patent expiration cycle and in the next decade Gilead Science’s top revenue producing drugs will lose their patents. For example, the patents on Atripla and sub-component Emtriva will expire in 2021, the patents on Viread will expire in 2017, and the patents on Sustiva will expire this upcoming year of 2013. The second that Sustiva’s patent ends, there is no doubt that generics will appear on the market, as this happens with all patent expirations. Many investors’ fears are that patients will chose to reduce costs with generic Sustiva over our products, introducing the threat of substitutes products. (Samaha)
With these patent expirations looming over us, we at Gilead Sciences have been working around the clock to develop new medicinal innovations in the HIV/AIDS field. Our two highly marketed new drugs Stribild and Tenofovir seem to be the most promising yet. But even with its benefits each drug has been facing different types of criticism from both investors and consumers. Gilead’s other challenge in 2013 will be to adjust the price of our HIV drug, Stribild. The company is currently facing complaints from AIDS activists because of the reported estimate annual cost of $28,500 of Stribild. Even though, the industry of biopharmaceutical has high buyer power, we as a company need to emphasis our products’ differentiation to lower this force. Accommodating to these concerns will be especially challenging because we need to keep both our customers and investors content.
Tenofovir, another HIV drug, is also facing skepticism as well. Tenofovir has shown very positive results from the study performed on South American women in reducing the risk of contracting HIV. Yet, there has been a lot of opposition to our application for Tenofovir’s patent in India due to concerns of accessibility due to price and slow production. Like Stribild, one of our main focuses in 2013 will be to balancing pricing concerns for customers and investors as well as expediting the development of Tenofovir. (Silverman) Fortunately for Gilead, these upcoming challenges can be assisted with the growing influence of information technology in the business world. Since Gilead is a pharmaceutical and biotechnology company, information technology can assist in all fields from developing new technology to making sure day to day operations run more efficiently.
As Chief Finance Officer of Gilead, my duties for the company doesn’t just call for number crunching, but it also includes providing forecasts, managing risks, and providing insight into every aspect of the business cycle such as pricing and production. Without information technology, I would not be able to take on any of these responsibilities. Information technology provides me with access to database management systems which is crucial since all my duties involve an in depth analysis of past transactions, inventory, payrolls, etc.
First off, as CFO I am responsible for the financial statements that Gilead provides to the public. These financial statements are especially important for the upcoming quarters due to our recent instability in the stock market. Our hopes for 2013 will be for investors to regain confidence in us as a company. In order for this to happen, they will need to review our financial statements to see our improvements in retaining earnings as well as our predictions for the future years. I can only produce these financial statements with the help of information technology. Our accounting department uses database management systems to store and organize all our transactions throughout the year in order to produce our income statement, our statement of cash flows, our statement of retained earnings, and our balance sheet. After they produce these statements, I review them to make sure they are accurate so that I could publish them during quarterly and annual reviews.
These financial statements rely on the actual budgeting of the company, which is another active role in my position. Again, there is no way I could make recommendations for a budget or make sure we adhere to one without information technology. I need to be able to store all the transactional data that comes in on a daily basis into a single database to review over in order to get the analytical information needed such as product statistics, sales projections, future growth, and trends. All these different pieces of information will help me accurately plan out a formal budget that will cut costs as well as maximize revenue to produce optimum results. Producing optimum results is a priority for us in 2013 so we can come back into the market as the leading biopharmaceutical company once again.
Risk management is also a big part of my title as CFO at Gilead. This responsibility not only just includes currency related risks but also includes risks related to failing to comply with laws and regulations as well as managing the potential uncertainty throughout our business operations. For 2013, most of my focus in risk management will be towards our expiring patents and continued operations on new drugs, especially Tenofovir. Information technology allows me to have instant access to all the paperwork related to our patent as well as constant communication with officials as questions appear. IT also enables me to be look online to do research on which competitors and substitute products might be entering the market soon by using business aiding websites and applications such as Hoovers, so that Gilead can plan accordingly to keep sales. Tenofovir, my other big focus, will require very close monitoring as its release date seems to be in the near future. Through IT, I will be able to stay in contact with those performing the tests in Africa to get instant updates on their end. This way, if anything unplanned occurs, I can be able to make the decision of whether to continue or discontinue operations. If the product does launch though, I will also be able to get feedback through IT with concerned activists, consumers, and investors so that I can set a price range that will satisfy everyone’s needs.
Overall, even though this past year has proved quite challenging for us, with the right technology and use of business intelligence to make good decisions, 2013 can be a very promising year for Gilead Sciences, Inc.
References (with excerpts)
1. Douthat, Ned. "Order A Double Of HIV Cocktail King Gilead Sciences." Forbes. Forbes Magazine, 19 July 2010. Web. 06 Dec. 2012.< http://www.forbes.com/sites/greatspeculations/2010/07/19/order-a-double-of-hiv-cocktail-king-gilead-sciences/>
Excerpt:
“Gilead Sciences has been a serial disappointment in the biotechnology sector, as pipeline concerns have dragged the stock down by 31% over the last twelve months compared to a 13.6% gain in the S&P 500.
Gilead has attempted to support its stock by announcing $1 billion worth of stock buyback authorization through January 2011 (Gilead Sciences Announces a Large Buyback), and they are surely snapping up shares at this lowest price in years. Nothing has seemed to work for GILD stock and coming into the day the stock was trading for under 9x this year’s earnings! Today, the concerns over its pipeline take a back seat to an exciting development for Gilead and the stock has risen about 3% in response.
A drug known as Tenofovir, developed by Gilead, has shown significant efficacy in reducing the risk of contracting HIV says a study of more than 900 women in South Africa (Financial Times). This microbicidal gel treatment is the first such treatment to have shown to be effective. The market’s muted reaction to the success of the so-called Caprisa study is reasonable, as the drug will of course still need further study and regulatory approval before it can be approved for sale. In our view, this is a positive development that speaks to some of the promising projects which Gilead hopes will fill its pipeline.
Nearly three-quarters of Gilead’s revenue comes from antivirals Atripla and Truvada, but those drugs face increased competition from generics as they lose patent protection down the road.
GILD is the obvious market leader in AIDS treatments and they will not lose patent protection for still a few years.
So much concern swirls around the pipeline or lack of promising blockbusters there to replace Atripla and Truvada, but there is still time to discover them yet. Of course, Tenofovir is just one drug that GILD is currently developing and the company already has a good number of drugs already in production and gaining share as they look to expand beyond their strong HIV franchises. For example, the company has a partnership with Roche for the popular influenza drug, Tamiflu. Furthermore, the company has a heap of cash and generates tremendous cash flow that it has the ability to be a buyer of some of its smaller rivals with strong prospects. We like to think of Gilead’s exceptionally strong balance sheet as a tool that will allow them to maneuver and pursue growth.
At Ockham, it is no secret that we think the current valuation of GILD is too cheap and thus we have our most bullish Greatly Undervalued stance on the shares. The stock trades well below the historically normal multiples of cash earnings and sales per shares because of the concerns over their dependence on those two key drugs. Of course, we share concerns about so much of the company’s revenue coming from its HIV drugs, but we do expect those drugs to be strong for another few years (at least) until they have found their next big thing. At this point, we think the stock has effectively priced in a lot of bad news, and any further positive developments about Tenofovir or another drug outside of the AIDS treatments could easily send this stock higher to a more normal valuation. Value investors often seek stocks that have fallen out of favor with the market, yet continue to have a strong fundamental underpinning; Gilead is just such a stock.”
2.
Stock Information taken from MarketWatch (http://www.marketwatch.com/investing/stock/gild)
3. Samaha, Lee. "Earnings View." : Gilead Facing Challenges. N.p., n.d. Web. 06 Dec. 2012.< http://earningsview.blogspot.com/2011/01/gilead-facing-challenges.html>
Gilead Facing Challenges
“It has been a difficult couple of years for investors in the stock of Gilead Sciences and, they could be forgiven for thinking that more headwinds are coming in 2011. A number of well documented issues have challenged the biotech and pharmaceutical industry. Firstly, US Health care reforms have hurt sales, put pricing under pressure and an increasing amount of the cost increases are becoming less tax deductible. Secondly, increasing patent expires are challenging the incumbent suppliers, Finally, European medical authorities are putting increasing pressure on prices.
Furthermore, Gilead has its own specific issues. One of the key drugs in its anti-HIV franchise (Viread) will see its patent run out in 2017. Viread made up 10% of product sales revenues in 2010. Gilead has been hit with pressure on HIV funding in the US and this could replicated worldwide.
However, as all good investors should ask themselves, is it already in the
price?
Gilead Sciences Downside Priced in for 2011?
At the full year results Gilead reported product sales of $7.39bn and guided towards full year revenue of $7.9-8.1bn and as for the issues discussed above
This range includes the full-year impact of U.S. healthcare reform, which we estimate to be 5% to 6% of U.S. net product sales. It also includes the full-year impact of mandatory price decreases in several countries of the European Union, as a result of austerity measures
I 've summarised some points from the guidance
Product Sales of $7.9-8.1bn
Non-GAAP product gross margin of 74-76%
Non-GAAP R & D $950m-1bn
Non-GAAP S G & A $1-1.05bn
For Q4 revenues were actually down, but this is because of a reduction in royalties from Tamiflu as a result of a mild flu season in 09-10 causing de-stocking by customers. This is likely to correct itself in time, so is not an undue concern. It 's time to look at individual product sales.
Consensus estimates
Estimates
2008
2009
2010
2011E
2012E
2013E
EPS ($)
2.1
3.06
3.69
4.09
4.58
5.23 growth 46%
21%
11%
12%
14%
PE ($38.21)
18.2
12.5
10.4
9.3
8.3
7.3
It is clear that the market is discounting Gilead 's growth potential, this is mainly to do with the expiry of patents for Viread in 2017. Viread is the reason why Gilead is so successful and this issue is critical to understanding this business. It will be discussed below. Turning to Gilead 's marketed products.
Gilead Product Sales
.
A breakdown of yearly product sales
(thousands)
2005
2006
2007
2008
2009
2010
Atripla
206
903
1,572
2,382
2,927 growth 338%
74%
52%
23%
Truvada
568
1,194
1,589
2,107
2,490
2,650 growth 110%
33%
33%
18%
6%
Viread
779
689
613
621
668
732
growth
-12%
-11%
1%
8%
10%
Hepsera
187
231
303
341
272
201
growth
24%
31%
13%
-20%
-26%
Emtriva
47
36
31
31
28
28
growth
-23%
-14%
0%
-10%
0%
Ambisone
221
223
263
290
299
306
growth
1%
18%
10%
3%
2%
Leitaris
113
184
240 growth 63%
30%
Renaxa
131
239
growth
82%
Others/Royalty/Contract
227
447
527
261
557
627
growth
97%
18%
-50%
113%
12%
Gilead is very much an HIV based company and all of the drugs listed above-down to Emtriva- are Antiviral drugs. I 'm going to focus on the HIV franchise first.
HIV is primarily a sexually transmitted disease that infects CD4+ T cells, which causes the body to kill them. In turn, reduced CD4+ T cell levels causes the body to lose its immunisation capabilities and the body is vulnerable to infection.
HIV therapy usually consists of a various combinations of four different classes of drugs.
1. Nucleo-side/tide reverse transcriptase inhibitors (NRTI) are the first class of antiretroviral drugs and inhibit reverse transcription by incorporating into the growing viral DNA chain
2. Non-nucleoside reverse transcriptase inhibitors (NNRTI) inhibit reverse transcription by binding on a different site of the enzyme
3. Protease inhibitors (PI) prevent viral replication by inhibiting the activity of proteases
4. Integrase inhibitors (II) block the action of integrase which is a viral enzyme that integrates the viral genome into the host cell
Gilead 's strategy is to protect its leadership in HIV by releasing new combination of these drugs in order to offer a multi-therapy approach. This strategy inevitable involves a certain amount of cannibalisation.
Gilead HIV Combination Drugs
HIV Franchise
Mode of Action
Status
Veriad
NRTI
Marketed
Truvada
NRTI*2
Marketed
Atripla
NRTI*2+NNRTI
Marketed
Truvada/TMC278
NRTI*2+NNRTI
NDA Filing
Elvitegravir
II
Phase III results 2011
Quad
NRTI*2+NNRTI+PK Enhancer
Phase III results 2011
Cobicistat
Phase III results 2011
Viread (tenofivir) is an NRTI and is Gilead 's first major antiviral. Sales have peaked and the drug is in decline for HIV, however, Gilead has succeeded in establishing it as treatment for Hepatitis B.
Truvada is the first combination drug for Gilead and combines Viread (tenofivir) with another NRTI called Emtriva (emtricitabin). Truvada is priced lower than its successor Atripla and should still see good sales.
Atripla is the next in the sequence and combines Truvada (tenofivir+emtricitabin) with an NNRTI called Sustiva (efavirenz) from Bristol Myers Squibb.
Truvada/TMC278 is a combination of Truvada (tenofivir+emtricitabin) with a different NNRTI called TMC278 (rilpivirine) from a subsidiary of Johnson & Johnson (Tibotec). It was NDA filed in late 2010 but Gilead received a 'Refuse to File ' letter from the FDA. According to Gilead this is due to some technical information which-although embarrassing-should be dealt with in a resubmission in a few months. It is intended to replace Atripla. This is useful as Sustiva will go off patent in 2013.
Elvitegravir is an II which is in late phase III trials. If approved, it will be the second II on the market after raltegravir, of which, it is being compared to in the trial. It maybe combined with a PI in future.
Quad is the latest combination drug in Phase III trials and results are due later this year. It combines Truvada(tenofivir+emtricitabin) with elvitegravir and Cobicistat. A phase II trial has demonstrated that it is non-inferior to Atripla.
Generic threats to Gilead in HIV Therapy
The patents for Sustiva (used in Atripla) will expire in 2013 and it is prudent to assume that generics will be on the market. This is a thread to Gilead because patients may be able to reduce costs by taking generic Sustiva plus Truvada instead of the more expensive Atripla. Indeed, this is partly why TMC278/Truvada and the Quad regimen are being developed. There is a danger that the cost savings will not be outweighed by the benefits of TMC278/Truvada. Quad is aimed at treatment experienced patients.
Furthermore, Viread will start to lose its patents in 2017 and there is already significant competition from a large Indian generic manufacturer Cipla. Viraday is a generic version of Atripla that Cipla sells worldwide for a fraction of the cost. Indeed, Cipla claims to be the worldwide leader in generic anti HIV therapy sales.
Moreover, if Cipla and others establish themselves in the US via selling generic Sustiva to be combined with Truvada than they could be establishing a foothold with which to launch much cheaper generic copies of Truvada when the Viread patents start to expire in 2017.
Gilead Not Just About HIV
As outlined above Gilead has significant non HIV products, the most interesting being Letairis in pulmonary arterial hypertension (PAH) which is seeking to grab market share from industry leader Tracleer. Letairis has the benefit of being a once a day regimen, however Actelion have replied to the threat and have Macitentan in late stage development. This drug (once a day regimen) is demonstrating potency and doesn 't have the liver toxicity issues of the other two. If successful in phase III, this drug could crimp Letairis sales growth.
Gilead also has a couple of drugs in development for Hepatitis C (HCV) including a polymerase inhibitor and a protease inhibitor. Gilead looks to be a little bit late to the party here. Both Vertex and Merck intend to start marketing their own protease inhibitors this year. In fact Vertex is interesting for other reasons too.”
4. Silverman, Ed. "Backlash Over Gilead New HIV Drug Begins." Backlash Over Gileads New HIV Drug Begins Comments. Pharmalot, 30 Aug. 2012. Web. 06 Dec. 2012. .
“Let the battle begin. As soon as Gilead Sciences announced that the price for its newly approved Stribild HIV medication – a once-daily combination pill – would be $28,500 annually, some AIDS activists threatened to take action to find a way to lower the cost. Now, the AIDS Healthcare Foundation is angling to place a referendum in front of San Francisco voters to require city officials to hold talks with drugmakers about pricing for ‘essential medicines.’
“We have a financial crisis in our country. Even as we’re counting down to implement the Affordable Care Act, we see rationing for HIV patients over the last several years,” AHF president Michael Weinstein told a media teleconference call yesterday. “…The cost is totally unsustainable… And the net effect of this pricing is, basically, a future bankruptcy of the AIDS Drug Assistance Programs.”
Also known as ADAPs, these state programs provide meds to those with limited means, but are under financial pressure thanks to the recession. As of August 9, there were 1,125 individuals on ADAP waiting lists in seven states, according to the National Alliance of State & Territorial AIDS Directors. This is a 63 percent drop from April. Nonetheless, 21 ADAPs, including seven with current waiting lists, have instituted additional cost-cutting steps over the past three years and two ADAPs are considering new or additional measures by March 2013 (read here).
Such concerns earlier this month prompted 14 Democratic members of Congress to write Gilead (GILD) to caution the drugmaker about Stribild pricing. They noted that, while Gilead froze prices through 2013 for drugs provided to ADAPs, the drugmaker boosted prices for its meds in the commercial market, which could cause Ryan White Part B-funded co-pays and deductibles to rise and leave less funding available for ADAP (back story).
A key complaint that activists have about Stribild pricing is that the drug is not considered much of a medical advance over Atripla, another once-daily Gilead pill that costs several thousand dollars less. In clinical trials, as many as 90 percent of those on Stribild had undetectable amounts of HIV in their blood after 48 weeks, compared to 84 percent treated with Atripla and 87 percent treated with a combination of Truvada, another Gilead drug; Norvir, which is sold by Abbott Laboratories; and Reyataz, a Bristol-Myers Squibb drug. “This new drug is not an improvement over preivous drugs in any significant way we felt the cost shouldn’t be any higher,” says Weinstein.
But unlike Atripla and another HIV combination treatment called Complera, each of which contain a Gilead medicine, Stribild contains only Gilead compounds. This means the biotech does not need to split the revenue with other drug makers and analysts at GlobalData note this is a significant advantage as Gilead eventually faces a growing threat from generics.
Add in the convenience Stribild offers and fewer psychiatric side effects than Atripla, these factors prompted some Wall Street analysts to forecast that Stribild can notch as much as $2.7 billion in revenue by 2016. Although Stribild costs 33 percent more than the list price for Atripla, RW Baird analyst Thomas Russo called the pricing appropriate, noting the cost is similar to other, less convenient, multi-tablet HIV regimens.
Of course, ringing the register will also depend on insurance coverage. AHF, for instance, is calling for insurers to require prior authorization for Stribild prescribing, which would create an additional hurdle before prescriptions can be filled and may slow the revenue growth. Whether this will actually become a payer policy, however, remains to be seen. Meanwhile, Gilead is offering a patient assistance program
But AHF vows to place a referendum on the San Francisco ballot in time for a vote in November 2013. To do so, the organization will need to gather some 9,700 signatures by next summer. But why San Francisco? The city has a very large population of people who are HIV infected and drug prices have a significant impact on its finances, according to AHF, which uses this language in its proposed referendum (which you can read here).
“We believe an initiative in San Francisco will send a powerful message to Congress, state legislatures and, most of all, to the pharmaceutical industry that they’ve gone too far,” says Weinstein. “… We need to focus (public attention) on what robber barons Gilead has become… The price (for Stribild) is higher than the income of the majority of people who (might) take it.”
Whether the referendum will make the ballot, of course, remains to be seen. And even then, the initiative is not guaranteed to achieve the intended outcome. Talks may be held and subsequent public pressure may make Gilead executives uncomfortable, but again, it is unclear if pricing will actually be effected. Then again, the approach is, indeed, one way of raising public awareness.
Gilead, by the way, did recently take other steps to appease activists. Earlier this month, the biotech struck a deal with three generic drugmakers – Mylan Laboratories, Ranbaxy Laboratories and Strides Arcolab – to transfer info for making a key ingredient in Atripla, Stribild and Truvada for developing and low-income countries
“This move to actively participate in technology transfer within the generics market is likely to cannibalize the sales of Atripla,… but might have done more to boost the brand image of Gilead and assuage non-profit AIDS organizations,” wrote Ramya Kartikeyan and Brad Tebbets, infectious disease analysts at GlobalData.”
Our company, Gilead Sciences is a leading biopharmaceutical company that discovers, develops, and commercializes therapeutics. Currently, Gilead is a publicly traded company and a member of the NASDAQ Biotechnology Index and the S&P 500. Our company currently has a portfolio of 15 marketed products as well as a growing pipeline of investigational drugs focusing on HIV/AIDS, hepatitis, serious respiratory, cardiovascular, metabolic conditions, cancer, and inflammation. Over the past decade , we have been a strong competitor in the market up until this past year.
During the past 12 months, our stock prices have fluctuated quite a bit with a 52 week low of $36.98 and a 52 week …show more content…
high of $76.28. (Shown in Figure 1) (MarketWatch) The reason for the dramatic drop in market value compared to a 13.6% gain in the S&P 500 is due a pipeline of external concerns, which we as a company need to address this upcoming year. (Douthat)
There are many factors that contribute to Gilead’s downturn in the market such as the upcoming end to the patents on our highest revenue producing medications and controversy in the highly marketed new investigational drugs that we’re currently developing.
Since our founding, Gilead Sciences has followed a business strategy of differentiation in a focused market. We have also been dependent on our “first-mover advantage” to enable us to discover and patent the best drugs in the market, so that buyer power is almost significantly eliminated. Yet, now many of our investors are beginning to wonder if Gilead can continue to innovate and survive against the upcoming threats of new branded competitors, major patent expirations, and increased pricing …show more content…
pressures.
Even us, the top biotechnology company isn’t exempt from the patent expiration cycle and in the next decade Gilead Science’s top revenue producing drugs will lose their patents. For example, the patents on Atripla and sub-component Emtriva will expire in 2021, the patents on Viread will expire in 2017, and the patents on Sustiva will expire this upcoming year of 2013. The second that Sustiva’s patent ends, there is no doubt that generics will appear on the market, as this happens with all patent expirations. Many investors’ fears are that patients will chose to reduce costs with generic Sustiva over our products, introducing the threat of substitutes products. (Samaha)
With these patent expirations looming over us, we at Gilead Sciences have been working around the clock to develop new medicinal innovations in the HIV/AIDS field. Our two highly marketed new drugs Stribild and Tenofovir seem to be the most promising yet. But even with its benefits each drug has been facing different types of criticism from both investors and consumers. Gilead’s other challenge in 2013 will be to adjust the price of our HIV drug, Stribild. The company is currently facing complaints from AIDS activists because of the reported estimate annual cost of $28,500 of Stribild. Even though, the industry of biopharmaceutical has high buyer power, we as a company need to emphasis our products’ differentiation to lower this force. Accommodating to these concerns will be especially challenging because we need to keep both our customers and investors content.
Tenofovir, another HIV drug, is also facing skepticism as well. Tenofovir has shown very positive results from the study performed on South American women in reducing the risk of contracting HIV. Yet, there has been a lot of opposition to our application for Tenofovir’s patent in India due to concerns of accessibility due to price and slow production. Like Stribild, one of our main focuses in 2013 will be to balancing pricing concerns for customers and investors as well as expediting the development of Tenofovir. (Silverman) Fortunately for Gilead, these upcoming challenges can be assisted with the growing influence of information technology in the business world. Since Gilead is a pharmaceutical and biotechnology company, information technology can assist in all fields from developing new technology to making sure day to day operations run more efficiently.
As Chief Finance Officer of Gilead, my duties for the company doesn’t just call for number crunching, but it also includes providing forecasts, managing risks, and providing insight into every aspect of the business cycle such as pricing and production. Without information technology, I would not be able to take on any of these responsibilities. Information technology provides me with access to database management systems which is crucial since all my duties involve an in depth analysis of past transactions, inventory, payrolls, etc.
First off, as CFO I am responsible for the financial statements that Gilead provides to the public. These financial statements are especially important for the upcoming quarters due to our recent instability in the stock market. Our hopes for 2013 will be for investors to regain confidence in us as a company. In order for this to happen, they will need to review our financial statements to see our improvements in retaining earnings as well as our predictions for the future years. I can only produce these financial statements with the help of information technology. Our accounting department uses database management systems to store and organize all our transactions throughout the year in order to produce our income statement, our statement of cash flows, our statement of retained earnings, and our balance sheet. After they produce these statements, I review them to make sure they are accurate so that I could publish them during quarterly and annual reviews.
These financial statements rely on the actual budgeting of the company, which is another active role in my position. Again, there is no way I could make recommendations for a budget or make sure we adhere to one without information technology. I need to be able to store all the transactional data that comes in on a daily basis into a single database to review over in order to get the analytical information needed such as product statistics, sales projections, future growth, and trends. All these different pieces of information will help me accurately plan out a formal budget that will cut costs as well as maximize revenue to produce optimum results. Producing optimum results is a priority for us in 2013 so we can come back into the market as the leading biopharmaceutical company once again.
Risk management is also a big part of my title as CFO at Gilead. This responsibility not only just includes currency related risks but also includes risks related to failing to comply with laws and regulations as well as managing the potential uncertainty throughout our business operations. For 2013, most of my focus in risk management will be towards our expiring patents and continued operations on new drugs, especially Tenofovir. Information technology allows me to have instant access to all the paperwork related to our patent as well as constant communication with officials as questions appear. IT also enables me to be look online to do research on which competitors and substitute products might be entering the market soon by using business aiding websites and applications such as Hoovers, so that Gilead can plan accordingly to keep sales. Tenofovir, my other big focus, will require very close monitoring as its release date seems to be in the near future. Through IT, I will be able to stay in contact with those performing the tests in Africa to get instant updates on their end. This way, if anything unplanned occurs, I can be able to make the decision of whether to continue or discontinue operations. If the product does launch though, I will also be able to get feedback through IT with concerned activists, consumers, and investors so that I can set a price range that will satisfy everyone’s needs.
Overall, even though this past year has proved quite challenging for us, with the right technology and use of business intelligence to make good decisions, 2013 can be a very promising year for Gilead Sciences, Inc.
References (with excerpts)
1. Douthat, Ned. "Order A Double Of HIV Cocktail King Gilead Sciences." Forbes. Forbes Magazine, 19 July 2010. Web. 06 Dec. 2012.< http://www.forbes.com/sites/greatspeculations/2010/07/19/order-a-double-of-hiv-cocktail-king-gilead-sciences/>
Excerpt:
“Gilead Sciences has been a serial disappointment in the biotechnology sector, as pipeline concerns have dragged the stock down by 31% over the last twelve months compared to a 13.6% gain in the S&P 500.
Gilead has attempted to support its stock by announcing $1 billion worth of stock buyback authorization through January 2011 (Gilead Sciences Announces a Large Buyback), and they are surely snapping up shares at this lowest price in years. Nothing has seemed to work for GILD stock and coming into the day the stock was trading for under 9x this year’s earnings! Today, the concerns over its pipeline take a back seat to an exciting development for Gilead and the stock has risen about 3% in response.
A drug known as Tenofovir, developed by Gilead, has shown significant efficacy in reducing the risk of contracting HIV says a study of more than 900 women in South Africa (Financial Times). This microbicidal gel treatment is the first such treatment to have shown to be effective. The market’s muted reaction to the success of the so-called Caprisa study is reasonable, as the drug will of course still need further study and regulatory approval before it can be approved for sale. In our view, this is a positive development that speaks to some of the promising projects which Gilead hopes will fill its pipeline.
Nearly three-quarters of Gilead’s revenue comes from antivirals Atripla and Truvada, but those drugs face increased competition from generics as they lose patent protection down the road.
GILD is the obvious market leader in AIDS treatments and they will not lose patent protection for still a few years.
So much concern swirls around the pipeline or lack of promising blockbusters there to replace Atripla and Truvada, but there is still time to discover them yet. Of course, Tenofovir is just one drug that GILD is currently developing and the company already has a good number of drugs already in production and gaining share as they look to expand beyond their strong HIV franchises. For example, the company has a partnership with Roche for the popular influenza drug, Tamiflu. Furthermore, the company has a heap of cash and generates tremendous cash flow that it has the ability to be a buyer of some of its smaller rivals with strong prospects. We like to think of Gilead’s exceptionally strong balance sheet as a tool that will allow them to maneuver and pursue growth.
At Ockham, it is no secret that we think the current valuation of GILD is too cheap and thus we have our most bullish Greatly Undervalued stance on the shares. The stock trades well below the historically normal multiples of cash earnings and sales per shares because of the concerns over their dependence on those two key drugs. Of course, we share concerns about so much of the company’s revenue coming from its HIV drugs, but we do expect those drugs to be strong for another few years (at least) until they have found their next big thing. At this point, we think the stock has effectively priced in a lot of bad news, and any further positive developments about Tenofovir or another drug outside of the AIDS treatments could easily send this stock higher to a more normal valuation. Value investors often seek stocks that have fallen out of favor with the market, yet continue to have a strong fundamental underpinning; Gilead is just such a stock.”
2.
Stock Information taken from MarketWatch (http://www.marketwatch.com/investing/stock/gild)
3. Samaha, Lee. "Earnings View." : Gilead Facing Challenges. N.p., n.d. Web. 06 Dec. 2012.< http://earningsview.blogspot.com/2011/01/gilead-facing-challenges.html>
Gilead Facing Challenges
“It has been a difficult couple of years for investors in the stock of Gilead Sciences and, they could be forgiven for thinking that more headwinds are coming in 2011. A number of well documented issues have challenged the biotech and pharmaceutical industry. Firstly, US Health care reforms have hurt sales, put pricing under pressure and an increasing amount of the cost increases are becoming less tax deductible. Secondly, increasing patent expires are challenging the incumbent suppliers, Finally, European medical authorities are putting increasing pressure on prices.
Furthermore, Gilead has its own specific issues. One of the key drugs in its anti-HIV franchise (Viread) will see its patent run out in 2017. Viread made up 10% of product sales revenues in 2010. Gilead has been hit with pressure on HIV funding in the US and this could replicated worldwide.
However, as all good investors should ask themselves, is it already in the
price?
Gilead Sciences Downside Priced in for 2011?
At the full year results Gilead reported product sales of $7.39bn and guided towards full year revenue of $7.9-8.1bn and as for the issues discussed above
This range includes the full-year impact of U.S. healthcare reform, which we estimate to be 5% to 6% of U.S. net product sales. It also includes the full-year impact of mandatory price decreases in several countries of the European Union, as a result of austerity measures
I 've summarised some points from the guidance
Product Sales of $7.9-8.1bn
Non-GAAP product gross margin of 74-76%
Non-GAAP R & D $950m-1bn
Non-GAAP S G & A $1-1.05bn
For Q4 revenues were actually down, but this is because of a reduction in royalties from Tamiflu as a result of a mild flu season in 09-10 causing de-stocking by customers. This is likely to correct itself in time, so is not an undue concern. It 's time to look at individual product sales.
Consensus estimates
Estimates
2008
2009
2010
2011E
2012E
2013E
EPS ($)
2.1
3.06
3.69
4.09
4.58
5.23 growth 46%
21%
11%
12%
14%
PE ($38.21)
18.2
12.5
10.4
9.3
8.3
7.3
It is clear that the market is discounting Gilead 's growth potential, this is mainly to do with the expiry of patents for Viread in 2017. Viread is the reason why Gilead is so successful and this issue is critical to understanding this business. It will be discussed below. Turning to Gilead 's marketed products.
Gilead Product Sales
.
A breakdown of yearly product sales
(thousands)
2005
2006
2007
2008
2009
2010
Atripla
206
903
1,572
2,382
2,927 growth 338%
74%
52%
23%
Truvada
568
1,194
1,589
2,107
2,490
2,650 growth 110%
33%
33%
18%
6%
Viread
779
689
613
621
668
732
growth
-12%
-11%
1%
8%
10%
Hepsera
187
231
303
341
272
201
growth
24%
31%
13%
-20%
-26%
Emtriva
47
36
31
31
28
28
growth
-23%
-14%
0%
-10%
0%
Ambisone
221
223
263
290
299
306
growth
1%
18%
10%
3%
2%
Leitaris
113
184
240 growth 63%
30%
Renaxa
131
239
growth
82%
Others/Royalty/Contract
227
447
527
261
557
627
growth
97%
18%
-50%
113%
12%
Gilead is very much an HIV based company and all of the drugs listed above-down to Emtriva- are Antiviral drugs. I 'm going to focus on the HIV franchise first.
HIV is primarily a sexually transmitted disease that infects CD4+ T cells, which causes the body to kill them. In turn, reduced CD4+ T cell levels causes the body to lose its immunisation capabilities and the body is vulnerable to infection.
HIV therapy usually consists of a various combinations of four different classes of drugs.
1. Nucleo-side/tide reverse transcriptase inhibitors (NRTI) are the first class of antiretroviral drugs and inhibit reverse transcription by incorporating into the growing viral DNA chain
2. Non-nucleoside reverse transcriptase inhibitors (NNRTI) inhibit reverse transcription by binding on a different site of the enzyme
3. Protease inhibitors (PI) prevent viral replication by inhibiting the activity of proteases
4. Integrase inhibitors (II) block the action of integrase which is a viral enzyme that integrates the viral genome into the host cell
Gilead 's strategy is to protect its leadership in HIV by releasing new combination of these drugs in order to offer a multi-therapy approach. This strategy inevitable involves a certain amount of cannibalisation.
Gilead HIV Combination Drugs
HIV Franchise
Mode of Action
Status
Veriad
NRTI
Marketed
Truvada
NRTI*2
Marketed
Atripla
NRTI*2+NNRTI
Marketed
Truvada/TMC278
NRTI*2+NNRTI
NDA Filing
Elvitegravir
II
Phase III results 2011
Quad
NRTI*2+NNRTI+PK Enhancer
Phase III results 2011
Cobicistat
Phase III results 2011
Viread (tenofivir) is an NRTI and is Gilead 's first major antiviral. Sales have peaked and the drug is in decline for HIV, however, Gilead has succeeded in establishing it as treatment for Hepatitis B.
Truvada is the first combination drug for Gilead and combines Viread (tenofivir) with another NRTI called Emtriva (emtricitabin). Truvada is priced lower than its successor Atripla and should still see good sales.
Atripla is the next in the sequence and combines Truvada (tenofivir+emtricitabin) with an NNRTI called Sustiva (efavirenz) from Bristol Myers Squibb.
Truvada/TMC278 is a combination of Truvada (tenofivir+emtricitabin) with a different NNRTI called TMC278 (rilpivirine) from a subsidiary of Johnson & Johnson (Tibotec). It was NDA filed in late 2010 but Gilead received a 'Refuse to File ' letter from the FDA. According to Gilead this is due to some technical information which-although embarrassing-should be dealt with in a resubmission in a few months. It is intended to replace Atripla. This is useful as Sustiva will go off patent in 2013.
Elvitegravir is an II which is in late phase III trials. If approved, it will be the second II on the market after raltegravir, of which, it is being compared to in the trial. It maybe combined with a PI in future.
Quad is the latest combination drug in Phase III trials and results are due later this year. It combines Truvada(tenofivir+emtricitabin) with elvitegravir and Cobicistat. A phase II trial has demonstrated that it is non-inferior to Atripla.
Generic threats to Gilead in HIV Therapy
The patents for Sustiva (used in Atripla) will expire in 2013 and it is prudent to assume that generics will be on the market. This is a thread to Gilead because patients may be able to reduce costs by taking generic Sustiva plus Truvada instead of the more expensive Atripla. Indeed, this is partly why TMC278/Truvada and the Quad regimen are being developed. There is a danger that the cost savings will not be outweighed by the benefits of TMC278/Truvada. Quad is aimed at treatment experienced patients.
Furthermore, Viread will start to lose its patents in 2017 and there is already significant competition from a large Indian generic manufacturer Cipla. Viraday is a generic version of Atripla that Cipla sells worldwide for a fraction of the cost. Indeed, Cipla claims to be the worldwide leader in generic anti HIV therapy sales.
Moreover, if Cipla and others establish themselves in the US via selling generic Sustiva to be combined with Truvada than they could be establishing a foothold with which to launch much cheaper generic copies of Truvada when the Viread patents start to expire in 2017.
Gilead Not Just About HIV
As outlined above Gilead has significant non HIV products, the most interesting being Letairis in pulmonary arterial hypertension (PAH) which is seeking to grab market share from industry leader Tracleer. Letairis has the benefit of being a once a day regimen, however Actelion have replied to the threat and have Macitentan in late stage development. This drug (once a day regimen) is demonstrating potency and doesn 't have the liver toxicity issues of the other two. If successful in phase III, this drug could crimp Letairis sales growth.
Gilead also has a couple of drugs in development for Hepatitis C (HCV) including a polymerase inhibitor and a protease inhibitor. Gilead looks to be a little bit late to the party here. Both Vertex and Merck intend to start marketing their own protease inhibitors this year. In fact Vertex is interesting for other reasons too.”
4. Silverman, Ed. "Backlash Over Gilead New HIV Drug Begins." Backlash Over Gileads New HIV Drug Begins Comments. Pharmalot, 30 Aug. 2012. Web. 06 Dec. 2012. .
“Let the battle begin. As soon as Gilead Sciences announced that the price for its newly approved Stribild HIV medication – a once-daily combination pill – would be $28,500 annually, some AIDS activists threatened to take action to find a way to lower the cost. Now, the AIDS Healthcare Foundation is angling to place a referendum in front of San Francisco voters to require city officials to hold talks with drugmakers about pricing for ‘essential medicines.’
“We have a financial crisis in our country. Even as we’re counting down to implement the Affordable Care Act, we see rationing for HIV patients over the last several years,” AHF president Michael Weinstein told a media teleconference call yesterday. “…The cost is totally unsustainable… And the net effect of this pricing is, basically, a future bankruptcy of the AIDS Drug Assistance Programs.”
Also known as ADAPs, these state programs provide meds to those with limited means, but are under financial pressure thanks to the recession. As of August 9, there were 1,125 individuals on ADAP waiting lists in seven states, according to the National Alliance of State & Territorial AIDS Directors. This is a 63 percent drop from April. Nonetheless, 21 ADAPs, including seven with current waiting lists, have instituted additional cost-cutting steps over the past three years and two ADAPs are considering new or additional measures by March 2013 (read here).
Such concerns earlier this month prompted 14 Democratic members of Congress to write Gilead (GILD) to caution the drugmaker about Stribild pricing. They noted that, while Gilead froze prices through 2013 for drugs provided to ADAPs, the drugmaker boosted prices for its meds in the commercial market, which could cause Ryan White Part B-funded co-pays and deductibles to rise and leave less funding available for ADAP (back story).
A key complaint that activists have about Stribild pricing is that the drug is not considered much of a medical advance over Atripla, another once-daily Gilead pill that costs several thousand dollars less. In clinical trials, as many as 90 percent of those on Stribild had undetectable amounts of HIV in their blood after 48 weeks, compared to 84 percent treated with Atripla and 87 percent treated with a combination of Truvada, another Gilead drug; Norvir, which is sold by Abbott Laboratories; and Reyataz, a Bristol-Myers Squibb drug. “This new drug is not an improvement over preivous drugs in any significant way we felt the cost shouldn’t be any higher,” says Weinstein.
But unlike Atripla and another HIV combination treatment called Complera, each of which contain a Gilead medicine, Stribild contains only Gilead compounds. This means the biotech does not need to split the revenue with other drug makers and analysts at GlobalData note this is a significant advantage as Gilead eventually faces a growing threat from generics.
Add in the convenience Stribild offers and fewer psychiatric side effects than Atripla, these factors prompted some Wall Street analysts to forecast that Stribild can notch as much as $2.7 billion in revenue by 2016. Although Stribild costs 33 percent more than the list price for Atripla, RW Baird analyst Thomas Russo called the pricing appropriate, noting the cost is similar to other, less convenient, multi-tablet HIV regimens.
Of course, ringing the register will also depend on insurance coverage. AHF, for instance, is calling for insurers to require prior authorization for Stribild prescribing, which would create an additional hurdle before prescriptions can be filled and may slow the revenue growth. Whether this will actually become a payer policy, however, remains to be seen. Meanwhile, Gilead is offering a patient assistance program
But AHF vows to place a referendum on the San Francisco ballot in time for a vote in November 2013. To do so, the organization will need to gather some 9,700 signatures by next summer. But why San Francisco? The city has a very large population of people who are HIV infected and drug prices have a significant impact on its finances, according to AHF, which uses this language in its proposed referendum (which you can read here).
“We believe an initiative in San Francisco will send a powerful message to Congress, state legislatures and, most of all, to the pharmaceutical industry that they’ve gone too far,” says Weinstein. “… We need to focus (public attention) on what robber barons Gilead has become… The price (for Stribild) is higher than the income of the majority of people who (might) take it.”
Whether the referendum will make the ballot, of course, remains to be seen. And even then, the initiative is not guaranteed to achieve the intended outcome. Talks may be held and subsequent public pressure may make Gilead executives uncomfortable, but again, it is unclear if pricing will actually be effected. Then again, the approach is, indeed, one way of raising public awareness.
Gilead, by the way, did recently take other steps to appease activists. Earlier this month, the biotech struck a deal with three generic drugmakers – Mylan Laboratories, Ranbaxy Laboratories and Strides Arcolab – to transfer info for making a key ingredient in Atripla, Stribild and Truvada for developing and low-income countries
“This move to actively participate in technology transfer within the generics market is likely to cannibalize the sales of Atripla,… but might have done more to boost the brand image of Gilead and assuage non-profit AIDS organizations,” wrote Ramya Kartikeyan and Brad Tebbets, infectious disease analysts at GlobalData.”