At least three things went down for Gilead Sciences (NASDAQ: GILD) in 2017: revenue, earnings, and free cash flow. Still, though, the big biotech's stock price increased nominally last year, rising by 4% in a year where the S&P 500 index jumped more than 19%.
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Gilead CEO John Milligan spoke at the annual J.P. Morgan Healthcare Conference in San Francisco Monday afternoon. One of the first things Milligan said was that the company was positioned for growth. But how will Gilead return to growing revenue, earnings, and free cash flow again? Milligan mentioned five key ways the biotech will turn things around.
1. Continued innovation in HIV
HIV is where Gilead first gained major success -- and it's the primary way the company will be successful in the future. There's a different group of HIV drugs that will carry Gilead forward than in the past, though.
Gilead's TDF-based drugs, including Viread, Atripla, and Stribild, dominated the HIV market between 2001 and 2014. Since 2015, TAF-based drugs have taken the baton. TAF regimens Genvoya, Descovey, and Odesfsey now make up 56% of Gilead's total HIV prescription volume.
The most impressive HIV drug yet could hit the market soon. Gilead expects to launch the bictegravir/F/TAF combo in the first quarter of 2018, assuming the FDA grants approval. A European launch is anticipated by mid-year. At the Credit Suisse conference held in November, Milligan was asked if the bictegravir combo is as good as it gets in treating HIV. He replied, "Yes."
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That could be true, at least for now. However, Gilead also has other research in progress for new long-acting injectables and drugs that could potentially address treatment-resistant HIV. Milligan also stated at the J.P. Morgan conference that the company hopes to one day develop a cure for HIV.
2. Stabilizing and stepping forward in liver diseases
Although Gilead's history is in HIV, the company's tremendous success in treating hepatitis C has been the big story in the last four years. However, hepatitis C virus (HCV) franchise sales have been falling, primarily because of slower patient starts after hundreds of thousands of patients have been cured. Gilead announced last year that it was discontinuing development of new HCV drugs. Milligan reiterated this point at the J.P. Morgan conference, stating that there was "little left to do."
However, he also underscored that HCV will continue to be very important to Gilead for a long time to come. Milligan said that the market will basically be split between Gilead and rival AbbVie (NYSE: ABBV), which launched its pan-genotypic HCV drug Mavyret last year. With pricing now relatively stable, Milligan said the company expects "more predictable but slightly declining patient flow in the future."
While HCV could stabilize, Gilead hopes to step forward in a big way in treating other liver diseases. Non-alcoholic steatohepatitis (NASH) is at the top of the list. Milligan highlighted Gilead's three pipeline candidates targeting treatment of NASH. The farthest along is ASK1 inhibitor selonsertib. Two late-stage studies are currently in progress for selonsertib. Milligan said that enrollment is expected to be completed in one of them, which is focused on NASH patients with F4 fibrosis, the most severe classification, by the end of January.
3. Leading the way in cell therapy
Gilead announced in August that it was acquiring Kite Pharma. The deal immediately catapulted Gilead into a leadership position in the promising oncology arena of cell therapy. Kite's lead drug, Yescarta, won FDA approval in October.
Milligan said the rollout of Yescarta has intentionally been slow because of the complexities involved with the therapy. However, he noted that 16 cancer centers have been certified so far, and that by the middle of 2018 centers that treat around 80% of covered patients will be certified.
What's next? Gilead has studies under way targeting other cancer indications for Yescarta. Three other cell therapy candidates are in phase 1 or phase 2 studies. Milligan said Gilead will also focus on increasing the efficiency of manufacturing, working to improve safety and effectiveness of cell therapies, and developing allogeneic cell therapy (made from another individual's cells) that could be "off the shelf."
4. Expanding into inflammation
Inflammation is another new area of focus for Gilead. The biotech partnered with Galapagos (NASDAQ: GLPG) in 2015, licensing JAK1 inhibitor filgotinib. Milligan sounded pretty excited about the potential for the drug.
Gilead is evaluating filgotinib in three late-stage studies targeting treatment of rheumatoid arthritis plus two other late-stage studies in treating Crohn's disease and ulcerative colitis. Results from the first phase 3 study for treating rheumatoid arthritis are expected in the second half of 2018.
5. Leverage financial strength for acquisitions and partnerships
Milligan briefly mentioned one other key way that Gilead can return to growth: acquisitions and partnerships. Subsequent to the Kite acquisition, Gilead made another smaller deal by buying Cell Design Labs, a leader in synthetic biology used in cell therapy.
At the end of the third quarter, Gilead had a whopping $41.4 billion in cash, cash equivalents and marketable securities. The biotech continues to generate strong cash flow despite slipping HCV sales. With lower tax rates in effect beginning in 2018, Gilead should continue to add to its cash stockpile. Milligan didn't say much about the potential for more acquisitions in his comments at the J.P. Morgan conference, but that doesn't mean additional deals aren't on the way.
Will all of this return Gilead Sciences to growth in 2018? Probably not. But is Gilead stock a buy? I think so. Everything Milligan discussed on Monday bodes well for Gilead's long-term growth prospects.
The biotech should continue to dominate in HIV. Gilead should hold its own against AbbVie in HCV, with sales eventually stabilizing and contributing massive cash flow along the way. The biotech has a good chance of success in cell therapy and NASH, in my view. I have a wait-and-see stance on filgotinib, but the drug could be a hit for Gilead as well. And I definitely look for Gilead to make more acquisitions and partnerships.
If you're looking for an explosive biotech stock this year, Gilead probably isn't for you. But if you're looking for an attractively priced stock with solid long-term prospects, Gilead appears to be one of the better choices on the market.
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