Gilead Sciences' Cancer Folly


Gilead Sciences reported last week that it has halted six trials that were evaluating the use of its oncology drug, Zydelig, in newly diagnosed cancer patients. The news came alongside an FDA warning to doctors of unexpected deaths within those trials, and it's a big blow to Gilead Sciences' plans to become a major player in the i1ndication.

Diversifying revenueGilead Sciences' foray into oncology is part of a two-pronged strategy to expand its sales beyond its top-selling HIV drugs, which rake in over $10 billion in sales annually.

Given that the company already controls over 80% market share in HIV, management has spent billions of dollars researching drugs that can be used in the multibillion-dollar hepatitis C and cancer markets.

So far, the company's efforts in hepatitis C have been far more successful than its efforts in oncology. Last year, Gilead Sciences two hepatitis C drugs -- Sovaldi and Harvoni -- hauled in more than $19 billion in revenue for the company, while sales of Zydelig totaled just $132 million.

Beaten outZydelig is approved to treat relapsing chronic lymphocytic cancer (CLL), relapsing follicular B-cell non-Hodgkin's cancer, and relapsing small lymphocytic lymphoma.

Because roughly 15,000 new cases of CLL are diagnosed annually in the U.S. and most CLL patients eventually see their disease return, expectations that Zydelig would become a top seller when it won FDA approval were high.

However, its Imbruvica, a competing CLL therapy that was approved around the same time as Zydelig, has become the CLL drug of choice among doctors.

Imbruvica was developed byAbbVie'sPharmacyclics and Johnson & Johnson , and it won FDA approval in February 2014. Exiting December, it was selling at an annualized $1.2 billion clip and this year, the gap between Imbruvica and Zydelig will widen following Imbruvica's approval for use in previously untreated CLL patients on March 4.

Coming up shortIndustry watchers were projecting $1.5 billion in peak annual sales for Zydelig when it won approval,so Zydelig's anemic performance thus far is already a big disappointment. Now that Gilead Sciences has shuttered trials that could have expanded Zydelig into the more lucrative first-line setting, those peak sales targets appear to be miles off-the-mark.

Gilead Sciences' decision to halt those trials probably wasn't a comfortable one. It can cost hundreds of millions of dollars or more to usher drugs through clinical studies. However, the decision was a necessary one.

According to the FDA, severe side-effects, including multiple deaths, occurred in the trials, which prompted the agency to send out a letter to doctors warning them of Zydelig's risks, and reminding them to report any adverse side effects noticed in Zydelig patients. EU regulators also reached out to doctors, advising them to prescribe antibiotics to patients to help prevent a specific form of pneumonia that's occurred in Zydelig patients.

Looking aheadZydelig's trial failure is disheartening to everyone who is eager to see new cancer treatment options become available, and while investors won't know the impact of this news on Zydelig's prescription volume for another quarter or two, it's hard to imagine that Zydelig will ever become anything more than a niche drug at this point.

If so, then Gilead Sciences' cancer strategy has taken a big step into the realm of uncertainty. The company does have some other cancer trials under way, including one in myelofibrosis that's interesting, but it's not clear to me what drug could serve as a backbone to Gilead Sciences' oncology program. Yes, Gilead Sciences has the financial firepower to buy its way into the indication, but cancer research is notoriously difficult, and therefore it may be best to ignore oncology as a reason to be long Gilead Sciences' shares until its strategy becomes more clear.

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Todd Campbell owns shares of Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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