As generic drugs take on an increasingly prominent role in the HIV/AIDS drug industry, it should be comforting to investors that Gilead Sciences (GILD) is still making intelligent moves to distance itself from its generic competitors. Low-cost generic drugs help increase the affordability of treatment, and in 2018, Gilead will face the loss of patent protection of multiple HIV treatments. As its new Stribild drug has recently been approved by the Food and Drug Administration, however, Gilead now has a way to counteract this future loss of revenue, making it a more stable long-term investment. Gilead may still face major competition from GlaxoSmithKline (GSK), but it still appears to be a solid investment. It has been a consistent stock, and with Stribild, it will not have to share revenue with its previous partners Bristol-Myers Squibb (BMY) and Johnson & Johnson (JNJ). I expect strong numbers from Gilead in the market, so I would recommend this stock at the moment.
It is necessary to first understand how important generic competition is for HIV treatment. The President's Emergency Plan for AIDS Relief (PEPFAR) has been successful at increasing the number of patients receiving treatment, but it could only make greater strides here after incorporating low-priced generic drugs. Brazil has also recently expanded its anti-AIDS program that has previously challenged patents in attempts to improve access to cheaper generic drugs. Worldwide, roughly 8 million people are now being treated for HIV/AIDS, and nearly 1.4 million began receiving treatment in the past year. Low-price drugs have allowed many people to receive treatment that could not have previously afforded it. This does not mean everyone is receiving treatment, however, as 2.5 million people were newly infected in the past year, outpacing the increase in the number receiving treatment via generic drugs.
These new patients are the ones that Gilead is looking at with its new HIV drug Stribild. This is a combination drug that includes four of Gilead's existing medications, and the FDA has recently given its approval of the combination drug. Stribild will make treatment easier by combining these medications into a simple drug, and it is supposedly better than previous treatments when it comes to side effects as well. Analysts have been optimistic about this drug. An analyst from Deutsche Bank Securities estimated that 35% of new patients will use the drug, even if it will cost around $29,000 per year. Deutsche Bank Securities also gave a "buy" rating and set a 12-month target price at $68. Despite many patients opting for low-cost alternatives, Gilead still has ways of maintaining an optimistic future.
Other analysts have been optimistic about this development as well. UBS has raised its target price for Gilead to $65, and because the drug is high in price and wholly-owned by Gilead, there is an expectation for Stribild to improve Gilead's margins. It is selling at $2,342 per month, which is higher than its drug Complera ($1,830) and its drug Atripla ($1,757). With Complera, Gilead shared profits with Johnson & Johnson. With Atripla, it shared profits with Bristol-Myers. With Stribild, however, it owns all four of the medications being used, and it should be able to enjoy larger profits as a result.
Not all is perfect with Gilead's future, however, as a couple obstacles may stand in the way of its success. The first seems like a non-issue to me, which is that some are upset that the price is so high due to the great need for affordable HIV treatments. Activists may bring this idea a little bit of attention, but when 35% of new patients are expected to be willing to incur the cost, there does not seem to be a real pricing issue to me. The second issue is a little more important, as GlaxoSmithKline has been developing an HIV drug, dolutegravir, with its partner Shionogi, and study results have been positive. In fact, its drug has already been shown to be more effective than Gilead's Atripla. This means that Gilead will eventually face more competition in the high-end market. Gilead's earlier launch shows that it is still ahead of the competition to some degree.
GlaxoSmithKline is currently trading around the relatively high price of $45, but it may have some future success coming with its experimental HIV drug. Of course, it now has bigger competition to deal with, as it previously only showed its drug to be better than Atripla. I am neutral on this stock at the moment, but I think dolutegravir is an important drug to watch when monitoring this company.
Bristol-Myers and Johnson & Johnson both look bad at the moment. As Gilead focuses more on Stribild, profits will probably drop with Complera and Atripla. Bristol-Myers is trading around $33, and it has revenue growth of -18.24%, showing some already-existing troubles. Johnson & Johnson is sluggish, though a little better, having revenue growth of -0.74%, but it is currently trading around the high price of $68. I do not recommend either of these stocks.
Gilead is currently below target prices, trading around $58. It has revenue growth of 12.54%, and its 10-year chart shows that the stock has generally been a good long-term investment. Stribild is something that should help Gilead in the long term, even if new competitors like GlaxoSmithKline arise. People may continue to complain about the price, but the fact is that Gilead's treatment will be available to a group of people that will not be considering cheap alternatives. Low-cost treatment regimens have become much more competitive with generic competition, and this high-end focus is key for Gilead remaining a major player in the field. Although I do not think the future will be absolutely perfect for Gilead, I do think this development makes them a relatively stable long-term investment, and I do recommend investing in Gilead stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.