Gilead Is Too Busy With Its Pipeline For A Big Acqusition

| About: Gilead Sciences, (GILD)


With 180 active clinical studies at the end of 2015, of which 61 were Phase 3 clinical trials, Gilead scientists and management have plenty of work.

Zydelig - as just one example - is an important and novel entrant into an emerging science and demands focus. A lot is at stake.

A large acquisition would be a distraction and could derail organic growth.

Gilead's need for an acquisition is Seeking Alpha groupthink, not Gilead-think.

With a robust pipeline and $32 billion in annual sales of more than a dozen products, Gilead's (NASDAQ:GILD) 8,000 employees already have their hands full. They do not need a big acquisition.

According to the company's 10-K for 2015, there were 180 active clinical studies at the end of the year, of which 61 were Phase 3 clinical trials. The pipeline includes 15 novel drugs for more than 20 different indications. Gilead will focus on these and not be distracted by an acquisition - the COO as much as said so on the 4th quarter conference call. He knows it, and maybe Wall Street knows it too. Just look at some of Gilead's work in progress.

  1. Take Zydelig, for one. Investigators from academia and pharma are exploring the best way to deploy this highly specific inhibitor of a PI3 kinase enzyme that is especially active in B-cell malignancies. In combination with anti-CD20 monoclonal antibody rituximab, Zydelig was so effective in prolonging PFS in patients with previously treated CLL that the phase 3 was halted early (Furman et al, NEJM 2014).
  2. Another enzyme particularly important in B-cell malignancies is called Syk, which is short for Spleen tyrosine kinase. Entospletinib (GS-9973) is an oral, selective inhibitor of spleen tyrosine kinase. In a Gilead-sponsored, phase 2 open-label trial of entospletinib for CLL (Sharman et al, Blood 2015), the 12-month PFS was 60%, versus approximately 70-80% for Imbruvica in previous CLL trials. The serious adverse event rate of 29% was considered "acceptable" by the authors.

    So, Gilead decided to combine these two small molecules in another phase 2 study (Barr et al, Blood 2016) in the hope that simultaneous inhibition of two kinases in the B-cell signaling pathway would have synergistic effects. And it did. The combination of Zydelig and GS-9973 was shown to be safe in healthy volunteers, but in patients with CLL and NHL (Non-Hodgkins Lymphoma), the combination was too potent in an adverse way. The trial was suspended after 12 of the first 66 patients enrolled developed non-infectious pneumonitis - 5 of these required artificial ventilation, and 2 died. Inflammatory cytokines were elevated in these patients, which strengthened the case for guilt by association with other cancer therapies that do likewise, including CAR-T cells, which are now well known for producing cytokine storm.

    Gilead actually knew about Zydelig-related non-infectious pneumonitis prior to August 2014, when the paper by Sharman et al. was submitted to Blood. This statement appears in Discussion: "The initial attempts to combine entospletinib with idelalisib resulted in an unexpected pneumonitis syndrome attributed to excessive mammalian target of rapamycin-like activity of the combination at the dose and schedule studied." Actually, among the 110 treated with Zydelig plus rituximab in that earlier study, 7 developed pneumonia and 4 developed pneumonitis.

    While the company's response to adverse events seems to have been sluggish, I don't see Zydelig as a failure. I see it as a two-edged sword like many other cancer therapies before their optimal use has been precisely defined. Sharman et al. put it this way: "Therapeutic inhibition of kinases involved within the BCR signaling cascade is an emerging field, and many questions remain." Zydelig is an important drug, and I expect Gilead to invest a lot more in defining its optimal use.
  3. Experimental results in a transgenic mouse model of congenital long QT syndrome type 3 presented at the American Heart Association meetings in 2014 showed that late sodium current inhibitor GS-6615 (eleclazine) had potent anti-arrhythmic properties. Eleclazine is now in a multinational phase 3 registered trial (NCT02300558) with an expected enrollment of 40 and study completion date of August 2018. This will be a first-in-class drug, which the FDA will consider a new molecular entity. It will not replace the need for implanting defibrillators in high-risk patients, but it may reduce the need for shocks and be an important addition to beta-blockers, which have been used with modest effect for decades in people who inherit mutations resulting in long QT and life-threatening torsade de pointes. But that is also being tested in the TEMPO trial, which is now in phase 2 (NCT02104583). Eleclazine's effect on exercise capacity in patients with hereditary hypertrophic cardiomyopathy is also being assessed in the LIBERTY-HCM Trial (NCT02291237).
  4. Momelotinib started out as Cytopia's CYT387. After a merger with YMI Biosciences in 2009, it was acquired by Gilead in 2012. CYT387/momelotinib is a small molecule Janus kinase inhibitor like ruxolitinib (Incyte's (NASDAQ:INCY) Jakafi), against which it is being compared in a multinational phase 3 trial called Simplify 1 (NCT01969838) for myelofibrosis, a bone marrow stem cell disorder. The planned enrollment of 420 by October 2016 is reportedly behind schedule. There are 3 reasons why momelotinib will not have a huge impact even if approved: 1) competition from other JAK-1/2 inhibitors; 2) as exemplified by ruxolitinib, this drug class alleviates cytokine-related symptoms in myeloproliferative neoplasms, but is not disease modifying - there is rapid relapse and withdrawal symptoms after stopping the drug; 3) frequent and serious neurological side effects (references: Treatment of Myelofibrosis- A Moving Target. Cerquozzi & Tefferi. Cancer J 2016); Myeloproliferative neoplasms: A decade of discoveries and treatment. Tefferi. Am J Hematol 2016).
  5. The discovery of Acetyl-CoA carboxylase inhibitor ND-630 is described in this recent article by a Nimbus scientist and co-workers (Harriman, PNAS 2016). These inhibitors, the development of which has encompassed decades, might not only prevent NASH, which is the initial indication proposed in the phase 1 study, but ACC-inhibitors also have the potential to reverse other abnormalities that are part of the so-called metabolic syndrome, including insulin resistance, dyslipidemia, and central obesity. The phase 1 trial of NDI-010976 is not yet registered at Gilead has acquired the Nimbus's ACC Program, but not the company. This is very early, and it could be years until an entirely new class of drugs comes to market.

Other than dissatisfaction with movement in its stock price, I do not understand why so many SA authors groan over the need for Gilead to make a big acquisition. R&D is more important to Gilead than M&A, which makes many other shareholders very content owning this company long term. And the low P/E simply implies that the market is predicting gradual, but huge, reductions in the selling price for Solvaldi-related chemicals. These authors (Hill et al. J Virus Erad 2016) predict that eventually a 12-week course of combo generics will cost $200. But don't worry - huge profits for Gilead now needn't be sustainable if they are reinvested in the kind of research that results in peer-reviewed publications in prestigious journals, like the few cited above.

And the list goes on - want a couple more? Check out this one (Warren et al, Nature 2016) about GS-5734, which is effective against the Ebola virus. Or this basic research on the pathogenesis of hepatitis B (Decorsière et al, Nature 2016). Forget the big acquisition and wait for Solvaldi-funded research to bear fruit on the Gilead tree.

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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