But the actual upside from this success may be limited because the two companies have failed to agree on how they will move ahead.
Usually, when you get an 88% cure rate for a drug therapy in a stage II trial, you go immediately to a larger stage III trial and ramp up the paperwork for approval. But Gilead paid $10.8 billion for its drug, called GS-7977, when it bought Pharmassat last year.
So even if this is a $4 billion/year market by 2018, as Michael Yee of RBC suggested yesterday, it will still take some years before Gilead breaks even. You can see why it wants to maximize that number.
In this case the drug was taken alongside Bristol-Myers's daclatasvir, which is an NS5A inhibitor. Daclatasvir is not the only NS5A inhibitor around, either. Privately-held Enanta has one. Achillon (ACHN) has one. There is, to put it simply, an NS5 frenzy out there..
So if you need an A and a B to make a cure, then there's a corporate dance that has to take place before anyone moves to Stage III. Gilead is really interested in going it alone here, using 7977 alongside its own GS-6885, an NS5A drug it owns but which isn't far enough along yet for this kind of trial.
Gilead's decision to do this, rather than dancing with the one that brought it to the party, is going to delay any move toward approval. And it's going to open the door to several rivals, or combinations of rivals, severely limiting Gilead's possible upside.
Even if you like Gilead, you might want to get some puts for downside protection. This roller coaster is going up-and-down several times before it stops at easy street.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.