A Change From Gilead
Summary
- Gilead wouldn't give the details the market wanted regarding the remdesivir business model on the recent earnings call.
- Its recent update can be interpreted as attempting to provide any color possible on the business model to satisfy the market.
- The recent update itself isn't much, but I think it could signal that the company has heard the complaints and may provide details on the remdesivir business model with more urgency.
Gilead Sciences (NASDAQ:GILD) produced solid results recently with its COVID-19 drug remdesivir, but the market reaction has been muted. In an article earlier this week, I noted that remaining uncertainty on a few factors concerning remdesivir had stopped the stock running. GILD is listening to the market it seems, as this article discusses, by trying to address some of the uncertainty.
Analysts dropped some hints
On the company's Q1'20 earnings call, analysts repeatedly attempted to get clarity on the profitability of remdesivir by asking about potential revenues and pricing of the drug. GILD was forthcoming with details on expenses, both in Q1'20 and going forward, but stayed mute on revenue and pricing.
... On the revenue side, it is just as Andy mentioned also and I mentioned, it's too premature. You know there's a lot of moving parts right now... On the expense side, Andy, I mean, obviously you had mentioned already that up to $1 billion and unclear on how the accounting will occur.
- Daniel O'Day, GILD CEO
I appreciate it... A billion of expenses and not knowing the revenue, it's an interesting position. Appreciate it. Thank you.
- Michael Yee, analyst at Jefferies, Q1'20 earnings call (Emphasis mine)
One analyst seemed to note that providing numbers on expenses and nothing on revenue was not ideal. Another analyst asked what the difference between COVID-19 and HIV was, perhaps attempting to get something on the remdesivir business model.
... Gilead has generated effective returns for investors and effective return on capital from treating hepatitis C and potentially nearly eliminating hepatitis C from treating HIV and turning it into a chronic disease, and to building a really important global stockpile of antiviral for influenza. So, what's special about COVID.
- Geoffrey Porges, analyst at SVB Leerink
... You mentioned some parallels to HIV, HCV even Tamiflu. But there's been no other time like this in the history of the planet than any of us have been alive...I guess the short answer to your question is, I don't think there is a precedent to this.
- Daniel O'Day, CEO at GILD, Q1'20 earnings call
Analysts went further, in some cases with downgrades. Raymond James noted they were downgrading GILD, as they were unwilling to "wild guess remdesivir NPV."
GILD is trying to reassure investors on revenues
Firstly, I want to highlight an issue facing remdesivir which came up months ago. The territories where remdesivir will see use do not only include Europe and the US. In India and China, patent law doesn't always operate the same way as it does in the US. Back when Solvadi was taking the market by storm, the Chinese State Intellectual Property Office (SIPO) rejected a critical patent application from GILD, and India's patent office also rejected the application. GILD is also forced to sell its medications for much less in many ex-US territories. For example, a 2016 article noted the price of Solvadi was $4 a pill in India rather than $1000 a pill in the US.
In January, Wuhan Institute of Virology filed a patent for remdesivir (a statement on the website of the institute confirmed this on February 4). GILD responded by noting it invented remdesivir and filed patents worldwide in 2016 (the Chinese patent application was still pending as of February 2020). Despite the concerning move, the institute said it would "not exercise any intellectual property rights if foreign pharmaceutical firms are willing to contribute towards combating the outbreak in China." This statement makes it sound as though, provided GILD could produce enough drug for China, that the move might be a cautionary one, rather than something more aggressive.
Figure 1: Screenshot of a headline that doesn't sound so good for GILD longs. Source: FierceBiotech article.
Then, in February, FierceBiotech noted that Chinese company BrightGene had reported that it was successful in copying GILD's remdesivir. Luckily, the headline isn't as concerning as it sounds, as the company noted that marketing the drug would still require permission from GILD.
GILD looks like it will be giving that sort of permission to companies worldwide now. On Tuesday, May 5, GILD noted it had made progress ex-US with remdesivir.
Gilead is in discussions with some of the world’s leading chemical and pharmaceutical manufacturing companies about their ability, under voluntary licenses, to produce remdesivir for Europe, Asia and the developing world through at least 2022. The company is also negotiating long-term voluntary licenses with several generic drugmakers in India and Pakistan to produce remdesivir for developing countries.
- Company Statement, May 5 (Emphasis mine)
A voluntary license is an authorization from a patent holder (GILD, in this case) to others (usually generics companies) allowing them to make or import or distribute a patented drug, thus treating it like a generic, provided they agree to some terms.
In an April 4 letter, GILD CEO Daniel O'Day noted that remdesivir is difficult to produce, raw materials are scarce and the global capacity to make finished vials is limited (there are only so many companies that can make sterile drug products). GILD's confirmation and additional details regarding its efforts worldwide confirm that supply is constrained. Supply-constrained systems often justify price increases in response to increased demand. I don't think GILD is going to engage in any exploitative practices because the company has already shown its concern for the optics, making sure to avoid looking like a profiteer with remdesivir. On the other hand, I would suggest that those licenses will be pretty popular, with governments pressuring pharmaceutical manufacturers to obtain a license and get involved with producing remdesivir. Indeed, many drug manufacturers in China and India are state-owned.
The company teaming up with other pharmaceutical manufacturers to meet demand is good news. Some of the first news we get on remdesivir revenues might come from details of agreements with generic drug manufacturers. Those agreements might include something along the lines of a split in revenues, or something more complex. Some sort of numbers on revenues, even from a contract, is the beginning of GILD giving some numbers on how remdesivir will bring in money. Further, GILD setting up these licenses with manufacturers in the developing world may avoid a situation where one country decides to do what it has to do in order to meet demand and go around GILD's patents.
Conclusions
GILD putting out a company statement, which was subsequently picked up by Reuters, of something we already knew about (check the April 4 letter above - GILD had already said it would have to team up with others) sends a message, in my opinion. It means GILD has listened. The company came under pressure, the market wanted details and GILD has at least provided something. I expect this to be the beginning of very open lines of communication on the details of the remdesivir business model analysts have been asking for, and I find myself more bullish on GILD. Earnings have passed and been digested, a round of updates on analyst ratings has come and gone, and the stock is going to trade on news. The news for the rest of Q2'20 is filgotinib and remdesivir, particularly details on the business model. This initial piece of news may not be good for a huge rally, but it is a nice shift from "let's save the world," to "let's remember our shareholders too."
Figure 2: Upcoming milestones. Source: GILD earnings call presentation
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Comments (82)
I thought that patent theft was only possible in dictatorships, but not in the promised land of democracy like the United States. Expropriation must always be well compensated in a democracy. So there shouldn't be any heavy damage. The development costs, which should have long been written off for tax purposes, will be compensated in any case. And the normal company profit is also secured. Only usury prices are not covered. That's why I don't understand the analysts. The profit zone is also better intact than analysts thought for 2020. I will stick with it: GILD is a must have for long-term investors.
“Once the company has secured approval and launched in the U.S., the company will able to turn some of its attention towards a registration trial for Vyrologix as a monotherapy. Furthermore, CytoDyn is looking to test Vyrologix as a pre-exposure prophylaxis (PrEP) for HIV, which would arguably make Vyrologix the world's premier HIV therapeutic.”2) Leronlimab also appears to be effective against COVID19 and far superior vs competition. COVID-19 patients die due to the chain reaction known as a cytokine storm in the immune system which causes pneumonia and other deadly internal consequences . Lerolimab is a viral entry inhibitor that works by blocking the CCR5 portal that the COVID-19 virus uses to enter cells.It addresses the COVID-19 induced deficiencies caused across the spectrum of the disease. More specifically, very positive trials results among 54 EIND CONVID patients approved by the FDA for compassionate care in NYC and California showed that Leronlimab is the perfect Trifecta bet because it: 1) restores the patient's immune system, 2) controls the deadly cytokine storm and 3) reduces the patient's viral load. A long expected article reviewing the first cohort results at the Montefiore Medical Center in NY is FINALLY out for peer review. Additional articles are expected. For now, it should be known that all 23 COVID-19 patients belonging to a second cohort survived. These were also ICU patients with 6 patients were in critical condition (intubated) and 17 severely-ill patients, needing oxygen support. The article's title is: Disruption of the CCL5/RANTES-CCR5 Pathway Restores Immune Homeostasis and Reduces Plasma Viral Load in Critical COVID-19 www.medrxiv.org/...but for now this following key paragraph captures some of the findings. Note the last sentence. This may present a threat to the World's blood banks' transfusion supply.107 At study day zero,all ten critically ill patients received a subcutaneous 700mg injection of
108 leronlimab following baseline blood collection. Because defining features of severe
109 COVID-19 disease include plasma IL-6 and T cell lymphopenia2, and we observed
110 >100-fold increased CCL5 levels compared to normal controls (Fig 1d), we longitudinally
111 monitored these parameters for two weeks after leronlimab treatment. A reduction of
112 plasma IL-6 was observed as early as three days following leronlimab and returned to
113 healthy control levels by day 14 (Fig. 2a).In contrast, more variable levels were observed
114 with IL-1b, IL-8, and CCL5 after leronlimab treatment (Supplementary Fig. 2). Following
115 leronlimab administration, a marked restoration of CD8+ T cells (Fig. 2b) and a
116 normalization of the CD4+ and CD8+ T cell ratio in blood was observed (Fig. 2c). These
117 immunological changes occurred concomitant with full leronlimab CCR5 receptor
118 occupancy on the surface of CCR5+ T cells and macrophages (Fig. 2d, 2e). Low levels
119 of SARS-CoV-2 have been detected, but not yet quantified in the plasma of COVID-19 patients.Elsewhere in the article, what I find more interesting is that the researcher (Dr. Bruce Paterson) may have identified the real culprit behind COVID-19. Importantly, the blood tests involving the same COVID-19 EIND patients suggest that the inflammation, blood clotting and other side effects that are now being seen in people affected by the COVID may be caused by an excess of the Rantes protein.This excess of Rantes increases production of a cytokine named IL-6 which triggers the production of inflammatory proteins. Rantes is a NEW significant discovery regarding COVID-19. His research shows that Rantes in COVID-19 patients is found 100 times above the normal levels in critical patients,and 5 times the normal level in mild to moderate patients. Lerolimab appears to BLOCK the Rantes protein. The Leronlimab's blockade also increases CD8+ cell production which lowers viral levels. Hopefully, this finding will be confirmed,thus, reducing the COVID mortality.
Remdesivir is what is known as a prodrug. A prodrug is altered by infected cells to yield the active ingredient, which in this case is basically GS-441524 with the addition of one phosphate group (i.e., GS-5734). Gilead scientists slightly altered GS-5734 to protect the added phosphate group and allow absorption into cells. This form of GS-441524 is what is known as Remdesivir. Once in the cells, cellular enzymes remove the protection to yield GS-5734. GS-5734 is further activated by the addition of two more phosphates in the cells to the triphosphate form of GS-441524. This is the molecule that inhibits the production of viral RNA. We chose to use GS-441424 for treatment of the coronavirus disease FIP because it had identical antiviral properties to Remdesivir and at the time was not under consideration by Gilead Sciences for use in humans. GS-441524 is also much cheaper to make than Remdesivir.
Therefore, there was no apparent conflict with using one form for cats and another form for humans. However, Gilead came to believe that our cat research would interfere with their ability to get Remdesivir approved for humans and refused to grant animal rights for GS-441524. This refusal, coupled with the desperate need around the world for the treatment of FIP, led to a Chinese black market for GS-441524. FIP is also a significant problem in pet cats in China, and Chinese cat owners were even more desperate for a treatment for FIP than owners in other countries. The first papers describing GS-441524 treatment of cats with FIP were published in 2018 and 2019 and thousands of cats have been treated since then.
In spite of this experience, the medical profession, including researchers, have been seemingly unaware of the use of GS-441524 for a coronavirus disease of cats and its relationship to Remdesivir. Veterinarians also have considerable experience with coronaviruses, coronavirus diseases, and coronavirus vaccines for swine, calves and poultry that has gone unappreciated. Pet ferrets also suffer a severe FIP-like disease caused by their own species of coronavirus.
What will happen to supplies of GS-441524 for cats if Remdesivir is proven to be safe and effective as a treatment for Covid-19? GS-441524 is the first critical step in the production of Remdesivir and it is logical to assume that there will be a competition between cats and humans for it. On a positive note, world wide approval for Remdesivir may also help change minds against granting animal rights for GS-441524. If approved for human use, Remdesivir, if not GS-441524, would become “legally” available through veterinarians. However, the safety and efficacy of Remdesivir for FIP has not been established.
seekingalpha.com/...
"IP protection in China has long been criticized by the Western world and was cited as a reason behind the latest trade war President Donald Trump waged against the country. As part of the first phase of a broader trade deal (PDF), the White House recently signed with Beijing to resolve the dispute, China has promised to implement some American-style enforcement of drug patent rights. These include allowing for a preliminary injunction against a generic maker amid a patent fight."
www.fiercepharma.com/...I'm hoping cooperation wins and some sort of deal can be struck, but let's see.
1. What will each of the many production partners cost to produce the drug? I assume it will be less in India, more in the US and who knows in Pakistan.
2. What political headwinds Gilead faces in the US and elsewhere for any price above cost recovery? It will probably vary from country to country.
3. Whether or not China actually tries to steal the drug or decides to pay for its use.
4. The degree to which insurance companies and Medicare decide to reimburse for its use and the amounts to be paid.
5. The degree to which doctors and hospitals adopt the drug.
This is only a partial list. Many of these issues are completely beyond management's control. Instead of venting our frustration at the lack of certainty, We all need to shut up and see what unfolds.
Thanks, again for a concise update.
