Gilead Sciences could at one time do no wrong. Its $11 billion purchase of Pharmasset in 2011 was a master stroke; it gave the company full access to what became some of the biggest-selling drugs in the world—drugs able to wipe out hepatitis C in huge numbers of patients.
The cost of the buy was big and, at the time, a risk. When the meds hit the market not too long after, they weren’t cheap, either. But Gilead weathered the criticism, and quite rightly claimed to have helped save millions of dollars in liver transplants and further medications for hundreds of thousands of hep C sufferers from around the world.
And Gilead was duly rewarded. In the middle of 2015, the company saw its shares peak at just under $120, with a market cap of around $150 billion. It made tens of billions of dollars in a few short years.
But then sales of its hep C meds inevitably slowed, especially because they effectively help stop a disease. Competition took a big bite out of its prices. And then the predictable question came up: OK, Gilead, what next?
Well, the company has brought out more hep C combos, added to its already burgeoning HIV franchise, and it's doing work in cancer and fatty liver disease, but has hit some speed bumps along the way.
Oncology has proved a particular frustration for the biotech: Its blood cancer med Zydelig (idelalisib) won an FDA nod in 2014 for three kinds of blood cancer, but serious side effects including death halted six trials using the drug in combination with a variety of others as a first-line therapy.
Late last year, Gilead also posted subpar data from two phase 3 trials of JAK inhibitor momelotinib in patients with the bone marrow disorder myelofibrosis, continuing its struggles in the clinic. The data raised serious doubts about momelotinib’s ability to hold its own against Incyte’s Jakafi (ruxolitinib), let alone unseat the blockbuster incumbent.
Gilead isn't yet playing in immuno-oncology, the current wave of cancer treatments, or in the early game for next-gen candidates in the form of CAR-T and CRISPR. Instead, it's focused on the Syk, BTK and BTE inhibitors currently filling its pipeline.
The company has said in the past that it is looking for “novel approaches” to immuno-oncology as it plays catch-up to Bristol-Myers Squibb, Merck and Roche. At the start of this year, Gilead hired former Novartis cancer vet Alessandro Riva to help it with this mission, which may just include deals.
Outside of cancer in 2016, Gilead also delivered weak data from trials of cardiovascular candidate eleclazine, ulcerative colitis hopeful GS-5745, GS-4997 (selonsertib) in pulmonary arterial hypertension and diabetic kidney disease, and simtuzumab.
When you have repeated failures in the lab and you can’t quite seem to make the R&D work on your own, you turn to M&A. There’s no shame it, and Big Pharmas do it all the time. Or, as Barclays Analyst Geoff Meacham put it last year: “Given that the internal pipeline is struggling to produce candidates that could provide a significant offset to the projected decline in HCV sales, we think external deployment of capital in a deal will be favorably received by investors.”
Gilead has become a Big Biotech, but as its own science fails to produce, it is not—despite the screams from some analysts and investors—looking to make a big buyout, and many fail to understand why, given that the company is sitting on tens of billions of dollars.
Some have praised its discipline and slow and steady approach in the deal stakes, pointing out that the biotech could have bought a real dud; but many investors have not been impressed with this approach. In 2016, its share price was eroded from a high of more than $100 a share to less than $72 by the end of December, sinking as low as $65 at one point in early February (after the release of its financials), with its market cap at the start of March around $93 billion.
That’s a loss of $60 billion in market cap terms over 18 months—or, to put it another way: the market cap of Incyte, twice, with enough left over for Ionis, just swept away. You can't wipe that level of value off from a company and not take action, but that is what Gilead has repeatedly done in 2016.
Gilead has been guilty of resting on its laurels, and investors have punished the biotech for this approach. Its pipeline became littered with increasing setbacks and failures last year, but it simply stood back and carried on when it needed to do something to stop the rot.
And this also has a wider impact, given that it has a percentage weight of the iShares Nasdaq Biotech ETF of just under 8% that, at the beginning of February, was higher (by a whisker) than Celgene. When Gilead does badly, this can drag down the sector's shares.
It's this severe erosion of confidence that earns the company its place amid the rotten tomatoes. It may or may not need a major deal, like a Genzyme or a Medivation, it may need middle-sized deals, or it may need a new CEO, scientists or execs. Riva is a step in the right direction here, but it is all happening too slowly with few exciting plans on the horizon, and all (outside of HIV) with a troubled pipeline.
A long-running joke from bio-Twitter is the picture of a skeleton, covered in dust, sitting at a desk, with the caption: "Gilead's M&A team." But Gilead needs to get serious about its future long-term growth and where it will find the next cutting-edge science if it wants to keep its place as a respected biotech. Its path in 2016 had many seeing it as a flash in the pan: a great buy in Pharmasset, watched as the money came in, but then the cobwebs started to form.