What Gilead's Fourth Quarter Call Told Us About Their Core Business

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About: Gilead Sciences, Inc. (GILD), Includes: NVS
by: Chestnut Asset Management
Summary

Oncology: YESCARTA revenues expected to double in 2019.

Immunology: Biktarvy is prescriber's "go-to-treatment" in HIV.

Gilead needs to incite confidence in the pipeline to bring Wall Street on board.

Gilead's (GILD) fourth quarter revenue of $5.8 Billion exceeded Wall Street estimates. However, the earnings per share of $1.44 fell slightly below estimates, driven by one-off Harvoni cost of goods sold impacts. The company's guidance of $21.3-21.8 Billion signifies continued confidence in the business's growth strategy and minimal business impacts beyond those communicated in 2018.

As anticipated, the majority of the call focused on the businesses core: Oncology and Immunology

What Happened in Oncology?

Gilead is bullish on YESCARTA (a CD-19 CAR-T), forecasting revenues to double in 2019. However, fourth quarter sales growth was modest for YESCARTA, at $81 Million and $264 Million for the year, so why the aggressive sales expatiation for 2019? Gilead's management indicated there are now 68 cancer centers authorized to treat patients in the US and 12 in the EU. Only certified centers can administer CAR-T therapies, and Gilead has been battling with other CAR-T manufactures, such as Novartis (NVS), to get treatment centers certified with their CAR-T. With Gilead building up infrastructure to support the US delivery of YESCARTA, the company's 2019 attention turns to increasing the patient flow into these treatment centers, in part through educational initiatives with community oncologists to direct patients to the authorized centers. Gilead stated that adoption will gradually improve as centers gain more experience and patients become more active. Looking at the EU, the picture is starting to improve. We would have liked to see more EU treatment centers versus the 12 stated; however, Gilead has treated commercial patients in both the UK and Germany and has activated sites in France. Gilead anticipates further sales growth in Europe as more healthcare systems integrate YESCARTA and the company build manufacturing sites in the EU to support demand. Clinical trials and label expansions of YESCARTA are ongoing:

  • Gilead expects to file an IND for an allogeneic anti-CD19 CAR-T therapy (KITE-037) during 2H19
  • BCMA CAR-T program discontinued
  • ZUMA-2: Filing for FDA approval of KTE-X19 in MCL in 2H19
  • ZUMA-3: Completing enrollment in a pivotal phase 2 of KTE-X19 in adult ALL in 2Q19.
  • ZUMA-5: A pivotal phase 2 trial of YESCARTA in r/r indolent NHL, enrollment completed in 1Q19
  • ZUMA-6: A phase 2 trial in combination with a PD-L1 inhibitor, initiated in 1Q18
  • ZUMA-7: A pivotal phase 3 trial in second-line DLBCL

What Happened in Immunology?

HIV sales were $4.07 Billion. Performance in HIV is growing healthily and as Gilead benefits from Biktarvy's launch. Biktarvy had $551 Million in revenue in 3Q. The launch's pace of development from the lab to market makes it the fastest US launch program. Demonstrating Gilead's shrewd operability and acquired efficiencies in capitalizing on in-house HIV expertise and infrastructures. Biktarvy is the number one prescribed regimen for both treatment-naive and switch patients in the US and many KOLs and immunologists labeling Biktarvy as a "go-to-therapy" or preferred prescribing regimen in treatment naïve and switch HIV patients. Demand trends for Gilead's US franchise overall remain healthy, with US prescriptions up 3% quarter over quarter. As anticipated, a section of the HIV portfolio has been hit with patent expiry, however, we feel Gilead is successfully risk-reducing this impact through the introduction of an innovative medication in the form of Biktarvy.

In HCV, US revenue ($410 Million) and ex-U.S. revenue ($328 Million) declined. The decline was largely anticipated and continual sales declines have been accounted for in the company's 2019 sales guidance. Gilead called attention to impact from generic medications and their recently launched subsidiary company, Asegua Therapeutics, which recently began offering authorized generics of Epclusa and Harvoni.

Conclusion

Gilead is steadying the ship. The period of consistent and negatively impacting sales declines, largely stemming from contractions in the HCV business appears to be softening and offset by investments in oncology and HIV. YESCARTA and Biktarvy offer bright hopes of supporting the company's top-line in the year ahead. Though the Gilead pipeline hasn't been explored in this article, it is important to note the company is making a considerable investment in highly innovative and particular medications that may support the business's growth in years ahead. For now, we remain encouraged by HIV performances with Biktarvy. Post Gilead's 4Q update, it's likely Wall Street will reflect the learnings and insights in the company's ratings, modeling risks ahead as the company navigates towards greener pastures with R&D investments. Again, the main positive from this call was the concept of Gilead being "a steady ship", in terms of sales performance for 2019.

Disclosure: I am/we are long NVS, 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.