When John Milligan speaks, people listen -- especially if they're Gilead Sciences (NASDAQ: GILD) shareholders.
Continue Reading Below
The big biotech's CEO and its CFO Robin Washington sat down to field questions at the RBC Capital Markets 2017 Healthcare Conference in New York City on Wednesday. Milligan spoke directly to some of the most pressing concerns for Gilead shareholders. Here are three things he said that you'll definitely want to know.
Image source: Getty Images.
1. We don't know when the HCV business will bottom out.
The biggest worry on the minds of Gilead shareholders relates to the plunging sales for the biotech's hepatitis C virus (HCV) franchise. John Milligan couldn't -- and didn't -- give any reason to think that there was a light at the end of the tunnel.
Milligan stated that Gilead doesn't know if the HCV business will stabilize yet, and added that the company "might not know until it happens." He said that his team initially thought that things might have stabilized last year, but "the dynamic didn't play out as expected."
The good news is that Gilead doesn't think there will be any big changes in pricing for the U.S. this year. However, the company provided plenty of data in its earnings conference call that showed patient starts will drop in 2017. Another issue is that the duration of treatments is decreasing because of more patients with less severe conditions.
There's also uncertainty about the future pricing for Gilead's HCV drugs. Milligan said that the big question is how new entrants could impact pricing. He answered his own question with this response: "We don't know."
2. Gilead's HIV competition faces big challenges.
Gilead's primary rival in the HIV market is Viiv Healthcare, which is majority-owned byGlaxoSmithKline (NYSE: GSK).The company recently announced positive results from a late-stage clinical study of its HIV drug Tivicay combined with Johnson & Johnson's Edurant.
John Milligan said that Viiv is "trying to change the treatment paradigm" for HIV with its doublet therapy, adding that it's "a hard thing to do." Milligan noted that, among the experts that Gilead's team has spoken with, there's not much enthusiasm for switching to doublet therapy.He expressed doubts that Viiv's doublet approach would work as effectively in the real world because HIV patients would potentially develop increased resistance to the treatment.
Like Viiv's doublet combo,Gilead's bictegravir/F/TAF triplet combo is in late-stage testing.Milligan acknowledged that Viiv will try to market its single pill doublet therapy versus Gilead's single pill triplet therapy. But he said that, with the doublet, "you're compromising." With Gilead'sbictegravir combo, though, Milligan stressed that no compromise is needed.
3. Look for one or more acquisitions this year.
Gilead Sciences CFO Robin Washington first addressed the biggest question of the session: What will Gilead do with its huge cash stockpile? Her response was that the company's top priority is to "focus on growth for the top line."
It didn't take very long for John Milligan to chime in on the topic. Perhaps his most memorable statement was that "you can't buy shares back into prosperity." Gilead has spent a lot on stock buybacks, but the company now appears to be aggressively moving in the direction of an acquisition.
Milligan provided a hint that there actually could be multiple acquisitions. He indicated that Gilead is looking at three areas to bolster -- oncology, inflammation, and non-alcoholic steatohepatitis (NASH). He said that the company is "working on a lot of different things" with respect to merger and acquisition activity. Any potential acquisition "could be small" or "could be large."
While Gilead wants to have a catalyst stemming from an acquisition this year, Milligan cautioned that it's not a certainty that will happen. He noted that, with some recent big deals, the "courtship" went on for a year. Milligan also laughingly said that "not every company wants to sell."
Worst to best
The sequence of these topics moved from the worst news for Gilead Sciences to the best. There's not a lot Gilead can do about the changing HCV market dynamics. The company's decision to shift its focus to other therapeutic areas is a good one. However, as John Milligan said, Gilead's HCV franchise continues to produce "tremendous margins and cash flow."
It remains to be seen if Milligan is correct about Viiv's challenge to Gilead with its doublet therapy. GlaxoSmithKline and Viiv could become a bigger threat than Milligan thinks, although Gilead'sbictegravir/F/TAF triplet combo should be a huge winner regardless of how successful the competition is.
While Milligan has said in the past that Gilead was looking to make an acquisition, his comments at the RBC conference were encouraging. If the biotech is indeed pursuing multiple deals to boost revenue in oncology, inflammation, and NASH (something Milligan didn't explicitly state, but hinted at), that's probably the best news Gilead shareholders have heard in a while.
10 stocks we like better than Gilead SciencesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Gilead Sciences wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017