Will Gilead Sciences Net a $270 Million Windfall?

By Todd Campbell Markets Fool.com

A fierce battle for market share in hepatitis C treatment is taking a toll onGilead Sciences'(NASDAQ: GILD)financials, but a proposal to reform Obamacare may offer a tailwind friendly to the bottom line.

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Congress is proposing a repeal of Obamacare and, as part of that effort, a jettisoning of the taxes associated with it. If this replacement plan becomes law, then it could add hundreds of millions of dollars to the company's annual profits.

IMAGE SOURCE: GETTY IMAGES.

Give me a (tax) break

Obamacare includes a slate of taxes and fees to help offset its cost, and the branded prescription drug fee is one of them.

The prescription drug fee is assessed industry-wide, and it's apportioned based on each drugmaker's sales, so it's probably not too surprising to learn that Gilead Sciences -- one of the largest drugmakers on the planet -- gets hit pretty hard by it.

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In 2016, the industry paid $3 billion because of that fee, and of that, Gilead Sciences was on the hook for $270 million. The branded drug fee is supposed to climb to $4 billion in 2017 and $4.1 billion in 2018, and then drop to $2.8 billion per year from that point on. Given that fee schedule, Gilead Sciences would likely end up sending billions of dollars to the government in fees over the coming years.

Turning a freighter

Gilead Sciences pays a big chunk of the branded prescription drug fee because it markets some of the best-selling drugs in the world. Specifically, the company generates billions of dollars per year from its hepatitis C drugs Sovaldi, Harvoni, and Eplcusa.

These drugs were revolutionary when they were launched, and that resulted in doctors rushing to prescribe them, and their becoming billion-dollar blockbusters.Sovaldi was the first oral drug to deliver 90% functional cure rates over a 12-week dosing period. Harvoni built upon that success by boosting cure rates to the mid- to high-90s over a course of treatment as short as 8 weeks. And, Epclusa, the most recently launched of the three, significantly improved cure rates and dosing schedules for tough-to-treat variations of the disease, too.

Since 2014, these drugs have produced tens of billions of dollars in combined sales for Gilead Sciences, including over $14 billion last year alone.

Although these drugs have been a big success, competitors are beginning to challenge them for market share, and that has forced Gilead Sciences tocut their prices. Falling prices have taken a big toll on the company's revenue and net income. In 2016, Gilead Sciences' top line decreased 6.8%, and its bottom line dropped 25.4% from 2015.

To offset its sliding hepatitis C sales, Gilead Sciences' is investing heavily in drug research. It's studying a new rheumatoid arthritis drug, therapies for non-alcoholic steteohepatitis, an increasingly common cause of liver transplant, and cancer-fighting medications. Its R&D efforts to stem slipping sales hasn't produced any winners yet, but there are new drugs on the horizon that can get this company back on track for growth.

Every bit helps

Gilead Sciences spent $5.1 billion researching new medicine last year, and that spending isn't likely to slow as the company doubles down on efforts to expand into new indications. With billions of dollars going back into R&D programs and investors eager to see the company's profit find its footing, it's little wonder that any benefit from tax relief would be welcome news to investors. Admittedly, $270 million isn't a tremendous tailwind because of this company's size, but it's not chump change, either.

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Todd Campbell owns shares of Gilead Sciences.His clients may have positions in the companies mentioned.The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.