Gilead: Whither Remdesivir?
Summary
- Gilead tapped its expertise in formulating potent antiviral agents to establish a beachhead for its remdesivir as a COVID-19 therapy.
- Gilead's experience in navigating the FDA's regulatory pathways enabled it to secure FDA approval for remdesivir in record time.
- The ebbs and flows of the pandemic have made managing remdesivir's production and predicting its revenues challenging.
- The world's great pharmaceutical companies are rushing to provide alternative therapies to compete with remdesivir.
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Gilead is one of many highly profitable large pharmas that has faced challenges in finding growth. Its matrix of quant factor grades set out below is typical:
In this article, I discuss the contributions that remdesivir is making to Gilead's growth profile, the likely durability of such impact and Gilead's attraction as an investment.
Gilead has established itself as one of the world's foremost champions against viral pathogens.
Gilead has had unparalleled success in generating therapies against viral diseases. Its assault on HCV has been effective beyond all anticipation. It shepherded therapy after therapy through clinical trials and on to FDA approval. It did so quickly and effectively, as a first mover. Its work to tame HIV/AIDS was equally legendary.
Gilead's (NASDAQ:GILD) VEKLURY developed as GS-5734 (remdesivir) was initially conceived as part of a far-sighted collaboration it pursued with the U.S. Centers for Disease Control and Prevention (CDC) and the U.S. Army Medical Research Institute of Infectious Diseases (USAMRIID). According to a research article, the goal of the collaboration was to:
...identify therapeutic agents for treating RNA-based viruses that maintained global pandemic potential, such as those that indeed emerged following the initiation of the program, including EBOV and the Coronaviridae family viruses exemplified by Middle East respiratory syndrome (MERS) and severe acute respiratory syndrome (SARS).
The project included development of a library of antiviral small molecule compounds thought to target RNA viruses. During the 2014 Ebola outbreak, GS-5734 proved to reduce viral replication, showing antiviral activity both in vitro and in vivo. This applied against SARS, and as the circulating human coronaviruses HCoV-OC43 and HCoV-229E, causative agents of the common cold.
In sum, by the time the COVID-19 pandemic was beginning to show its fangs Gilead had data in hand pointing to GS-5734 as a potentially effective therapeutic. In 02/2020 it began a series of clinical trials for remdesivir in treatment of COVID-19. These trials provided significant data that allowed the FDA and other regulatory authorities to consider remdesivir for approval.
Beginning with its 05/2020 EUA, Gilead advanced VEKLURY to become the first fully FDA approved COVID-19 therapeutic.
On 05/01/2020 Gilead issued its press release announcing grant of an EUA by the FDA for remdesivir to treat COVID-19. Subsequently, on 05/07/2020 Japanese regulatory authorities granted its exceptional approval. These approvals paved the way for Gilead to report VEKLURY revenues (slide 18) of $873 million in Q3 2020.
During it Q3 2020 earnings CC, CEO O'Day announced that VEKLURY received full FDA approval for treatment of hospitalized patients with COVID-19 in 10/2020. It was the first COVID therapeutic to gain full FDA approval and was approved for use in more than 50 countries.
During the call, CEO O'Day took a victory lap in reference to Gilead's development work as follows:
...[consider] how remarkable it is that we are in this position today. At the start of the year, most of the world had not even heard of COVID-19. The scientific community knew very little about the virus or its devastating potential. Today, less than 10 months later, we have an FDA approved therapy that is helping patients around the world to recover faster, and for some groups of patients Veklury is lowering the risk of death. All of this comes at a time when the rates of hospitalization sadly in many places are increasing.
... In the past quarter, ... [Veklury's] benefits have been unequivocally demonstrated by the gold standard of global clinical trials. The definitive results from the fully powered double-blind placebo-controlled and randomized NIAID ACTT-1 trial showed an average reduction in recovery time of five days. I sometimes imagine how I would feel if a family member was hospitalized for COVID-19. And I'm sure many of you think of this as well.
The ebbs and flows of the pandemic have made managing the production and predicting revenues challenging.
The logistics associated with VEKLURY's initial sales have been challenging as set out below:
VEKLURY
By Q4, 2020 VEKLURY's $1.93 billion in sales had advanced to making up more than a quarter of Gilead's worldwide total of $7.32 billion as excerpted below:
But for VEKLURY, Gilead's product sales for the year were down 7% overall (4% for Q4, 2020). In other words, VEKLURY turned Gilead's first pandemic year experience from a negative to a positive. In terms of forward revenues, the picture was clouded as to the course of the pandemic, particularly in light of vaccination uncertainty.
In its Q4 2020 earnings call CFO Dickinson tamped down future VEKLURY revenue expectations. He pegged them at $2-3 billion for 2021. He characterized VEKLURY as "a hedge against the potential impacts of the continued COVID-19 pandemic." Chief Commercial Officer Mercier noted that 50-60% of eligible hospitalized patients in the US were getting VEKLURY.
VEKLURY's performance in Q1 2021 tracked that quarter's heavy COVID hospitalization generating $1.5 billion in sales. This helped make up for COVID induced challenges elsewhere in Gilead's portfolio. VEKLURY's revenues fell back in Q2, 2021 coming in at a still respectable $0.829 billion.
Multiple new therapeutic entrants are advancing through clinical trials with goal of FDA approval.
VEKLURY currently has important first mover advantage. Searching clinicaltrials.gov for COVID-19 returns 6,674 studies. When you modify the search to include only phase 3 interventional studies that are recruiting patients the number drops to 302; when you modify the status to include phase 3 interventional trials that are not recruiting there are 220.
The point is there are a large number of late stage trials investigating potential COVID-19 therapies. As time rolls by various of these trials will be releasing data on potential competitors to remdesivir. Consider for example Merck's (MRK) and Ridgeback Biotherapeutics' pill molnupiravir.
The buzz generated by Merck's 10/01/2021 press elease has been extreme. The release touts it as potentially the first oral COVID-19 therapy. Pundits have labelled it as supporting a tamiflu approach to treating COVID. This approach has limits as pointed out by Anthony Fauci because of the need to start therapy within a day or two of becoming infected.
Still it seems quite possible that the FDA will award molnupiravir an EUA within the near future. Merck's PR cites it as potentially reducing hospitalization by 50%. Obviously such a therapy would be highly significant. If it receives FDA approval and if a significant number of patients are able to benefit (if they take it in time) it would cut the number of hospitalized patients. While such a result would be wildly beneficial for society, it could significantly cut into VEKLURY revenues.
The bottom line is that VEKLURY revenues are vulnerable. How this will play out in fact is uncertain. As I write on 10/03/2021, CEO O'Day's 09/2021 presentation at Morgan Stanley's global healthcare conference provides late word on VEKLURY/remdesivir. He pegged it as the standard of care base therapy for hospitalized patients in the US, used in 60% of cases. In terms of inventory its flow is fluid with little stockpiling.
He is sanguine as to its future; it is likely not one and done as some have considered. He noted:
...I think one has to look at it as a part of our business, maybe still difficult to predict, but an important contributor, particularly in the financial side as well to driving our business.
So - and I would say we're not finished. So we have oral programs. Remdesivir is a highly potent antiviral, and we have optimism that we might be able to convert that into our oral means, either alone or as we've done at Gilead time and time again in combination, co-formulated potentially or not co-formulated with another agent, to really allow us to have an ongoing treatment for this disease into the future.
Certainly, this seems to be a fair assessment.
Conclusion
"Whither Remdesivir?" That is the question. The answer is that its future as an independent therapy is bleak over the mid-to-long term. As matters now stand, its fate depends on hospitalization rates. Certainly everyone hopes, and there are good reasons to expect, these rates will drop back heavily.
COVID has proven to be tricky to predict, both in terms of its variations and in terms of societal response. As matters now stand VEKLURY is an entrenched incumbent. As such it is a reasonable bet that it will continue to insulate Gilead from pandemic related losses elsewhere in its portfolio for the next several quarters.
This invaluable pandemic hedging service will give Gilead breathing time to develop its ample pipeline of late stage therapies and upcoming milestone achievements. This article has focused on VEKLURY which provides backstop for Gilead as the pandemic unfolds. As for Gilead's overall prospects, I remain bullish for the reasons set out in my most recent Gilead article, "Gilead: The Widow's Walk".
Gilead is committed to paying a solid growing dividend, paying shareholders to wait while it develops its strong and growing pipeline.
This article was written by
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