Gilead: Striking Gold With Myelofibrosis Pipeline?

| About: Gilead Sciences, (GILD)

Summary

GILD has several drugs working through phase 3 clinical trials.

There’s no guarantee that all of them will make it though the clinical trials and FDA approval.

Some can be evaluated on previous known findings and molecular structure.

Potential market impact can be analyzed and projected.

It might be better for GILD to buy the rights to an existing drug rather than solely relying on its own development.

Checking the Pipes

Gilead Sciences (NASDAQ:GILD) has several projects in phase 3 clinical trials, which means that they could potentially be only a few years out from FDA approval and addition to GILD's product lineup. While GILD's current hematology/oncology line only offering is Zydelig, its pipeline has several other phase 3 candidates. One such drug in the company's hematology/oncology pipeline is Momelotinib. The company's use for this compound is as a JAK inhibitor, which biologically impedes cytoplasmic Janus protein tyrosine kinases, or Janus kinases. JAK is crucially involved in cycles of cell growth, cell transformation, cell proliferation, and cell death. Mammals are known to have 4 varieties, JAK1, JAK2, JAK3, and Tyrosine kinase 2 (TYK2). When cytokines bind to their receptor areas, JAKs become active and transfer a phosphate to the cytokine, which leads to the above processes. Problems in this reaction pathway can result in disease states, while over-activation of JAKs can be responsible for the formation of tumors. Inhibition of the over-active JAKs can then slow this formation of tumors, thus GILD's interest in an inhibitor of such. GILD's primary interest in this chemical is in its efficacy against myelofibrosis, which results in the buildup of scar tissue in bone marrow and prevents formation of blood cells.

Our Player

Momelotinib, or CYT387 as it is sometimes known, is an ATP-competitive inhibitor of JAK1 and JAK2, and when JAK3 is present, 10 times more selective toward JAK1/JAK2. This means that CYT387 will compete to try and replace ATP in binding sites to inhibit the JAK pathways. Momelotinib is capable of inhibiting 50% of JAK1/JAK2 activity in concentrations of only 11 nM and 18 nM, respectively (this measure is called an IC50). To give an idea of scale, that means that only 4.5-thousandths of a milligram (0.0045 mg) would need to be used in a one-liter solution to make this 11 nM-concentration solution.

Source: Selleckchem

As drugs go, Momelotinib is a fairly small molecule, and somewhat simple-looking. GILD has used it in several clinical trials dating back to 2009, however because the drug is still in its trial phase no trial results have been posted. Other comparisons will be used in order to ascertain the efficacy of the drug in comparison to other similar, already-approved drugs.

The Market and Competitors

Myelofibrosis is one of the fastest-growing of the "orphan blood diseases" (diseases that are more rare, often without major treatment options) that affects roughly 1 out of 200,000 people. A JAK inhibitor would be effective at fighting this disease since it is postulated that overactivity in JAK1/JAK2 results in triggers that lead to myelofibrosis. This disease market grows at a compound annual growth rate of over 30%, with a global market size estimated at $600 million that will far surpass $1 billion by 2019. Although the market is smaller, new entrants can have significant pricing advantages, making potential entry into the treatment market fairly lucrative. An established major drug in the myelofibrosis treatment field is another JAK inhibitor, Jakafi (Ruxolitinib), held by Incyte Corp (NASDAQ:INCY) and approved by the FDA in 2011. INCY markets Jakafi inside the United States, while Novartis (NYSE:NVS) markets the drug under the name Jakavi outside the U.S. Aside from Jakafi however, there are few other FDA-approved treatments that are specifically targeted toward myelofibrosis.

Some Comparison

Like momelotinib, Ruxolitinib is also a small molecule, but even smaller and a bit more simple-looking.

Source: Selleckchem

However the wedge-shape connecting the upper-left pentagon to the line next to the "N" indicates a stereocenter, which means added complexity that could lengthen the formulation process. Momelotinib has no such stereo centers, although again is a slightly larger molecule so both are roughly equally complex, without getting into the stepwise chemical syntheses.

Binding Affinities of JAK Inhibitors

Inhibitors

JAK1

JAK2

JAK3

TYK2

Non-JAK Target

JAK1/JAK2 IC50

Ruxolitinib (Jakafi)

+

+

3.3/2.8 nM

CYT385 (Momelotinib)

+

+

11/18 nM

SB1518 (Pacritinib)

+

+

+

+

+

1280/23 nM

Click to enlarge

Source : Selleckchem, Wilson and others.

From more comparisons based on known activity, Momelotinib seems to be in the mid-range of JAK inhibitors based on IC50 measurements. Although Momelotinib is much more effective than Patritinib (another viable JAK inhibitor), its IC50 values are 4-5 times more concentrated than Ruxolitinib. This is confirmed by the dosing recommendations for Jakafi (Ruxolitinib) which is on the range of 5-25 mg per dose. The dose ranges being tested in GILD's trials of Momelotinib are a bit larger, mostly on the range of 20-100 mg. This could mean that either the dose ranges are still being determined, or more probably, that on a by-mass comparison Momelotinib is less potent than Ruxolitinib. This is not necessarily bad, but is still significant. Ruxolotinib is also more selective toward inhibition of JAK1/JAK2 than JAK3, with selectivity of roughly 130 times. This is compared to Momelotinib's selectivity of JAK1/JAK2 over JAK3 of only about 10 times. This is significant because as was noted above, it is the JAK1/JAK2 overactivity that is implicated in myelofibrosis. To inhibit all of the JAK family indiscriminately could result in harmful side effects such as infections. Based on these measures, Jakafi appears to be the stronger drug with a greater selectivity and might be the better myelofibrosis treatment. Additionally because it is the most high-profile treatments of myelofibrosis, it has the largest market share. INCY expects Jakafi to bring in at least $815 million in sales during 2016. Based on the above projections for the market size for myelofibrosis treatment, INCY not only captures virtually all of the treatment market, but also attaches a healthy premium onto its costs. Some of the reason for Jakafi's revenues surpassing the myelofibrosis treatment market's worth is that Jakafi can also be used to treat polycythemia, a disease state characterized by excess of red blood cells. Although it's not clear the breakdown between what percentage of Jakafi is used to treat polycythemia versus myelofibrosis, it's clear that Jakafi is the leader in JAK inhibition treatment.

GILD's Goal?

Although Momelotinib is a fairly effective JAK inhibitor with moderate selectivity toward JAK1/JAK2, Ruxolitinib could possibly be a more effective drug with fewer potential side effects. That's not to say that Momelotinib would be a useless drug, but if it's less effective and selective, it is unlikely to capture more of the market share than the likely more effective competitor. Instead of devoting all efforts toward developing a new JAK inhibitor, GILD might do just as well by acquiring the rights to Ruxolitinib, either from INCY, NVS, or both. Jakafi's patents appear not to expire before 2027, so by acquiring rights to this drug GILD could potentially capture a large part of the myelofibrosis treatment market. Momelotinib's phase 3 trials have already been marked as complete, but positive results have not yet been released. Pending positive results would still need to be followed by FDA approval before marketing. If GILD were to buy the already available Jakafi, the company would be able to reap the potential $815 million in U.S. sales immediately. Since Jakafi will bring in about $820 million in sales during 2016, if those sales are projected forward from 2017 through 2026 it could potentially bring in a total $8.2 billion for INCY over that time. This is ignoring the projected growth in the myelofibrosis treatment market. GILD might be able to offer $8.2 billion in exchange for this gem, which it could easily pay from its $24.6 billion cash pile, and would earn back over the time period with growth in the myelofibrosis market.

Final Thoughts

GILD could buy INCY outright, but its EV/EBITDA far outmatches INCY's EV/EBITDA, and GILD wouldn't be immediately helped by taking on the entire company.

Benchmarks: EV/EBITDA & P/E LTM Multiples

Click to enlarge

Source: Thanks to all the folks at finbox.io who created these excellent tools.

It might be best for GILD to just buy the rights to Jakafi instead, which would be immediately accretive to sales and earnings and would also more than pay off throughout the patent lifetime. The company could also press on with its own Momelotinib research, but it's probable that Momelotinib would only play second banana to Jakafi if Momelotinib does get approved for sale. GILD's pipeline has plenty of viable candidates, but Momelotinib doesn't seem to be one of the obvious standouts.

Author's Note:
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Disclosure: I am/we are long GILD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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