Why Gilead Should Take a Page Out of Celgene's Playbook, But Will Have Trouble Doing So

Why Gilead Should Take a Page Out of Celgene's Playbook, But Will Have Trouble Doing So July 27, 2016
By Alex Keown, BioSpace.com Breaking News Staff

FOSTER CITY, Calif. – What does Gilead need to do to ensure a healthy and robust financial future? For some the answer is obvious—take a page out of the playbook of rival drugmaker Celgene and spend money to develop partnerships that will generate new streams of revenue.

While that might seem a simple enough maneuver to execute, The Street’s Adam Feuerstein notes that’s not so easy to pull off. Since 2014, Celgene has spent more than $3 billion in partnerships, most noticeably the $1 billion the company invested in a 10-year partnership with Juno Therapeutics or the more recent deal with Jounce Therapeutics that could be worth up to $2.5 billion. Celgene also has collaborations with companies like Agios , Bluebird Bio , Epizyme and others. In 2014, Celgene entered into 10 deals, shelling out an average of $222 million in upfront payments to its partners. Celgene’s partnership goals has been a strategic effort to diversify revenue streams so it is not so financially dependent on its blockbuster blood cancer drug, Revlimid.

The bulk of Foster City, Calif.-based Gilead Sciences’ revenue is generated from sales of its blockbuster hepatitis C drugs Harvoni and Sovaldi. Those two drugs helped drive Gilead to a record revenue year in 2015, nearly $32 billion—more than three times what the company generated in 2012. The two drugs alone counted for $20 billion in annual revenue.

However, Gilead’s revenue is predicted to be slightly less this year, about $30 billion and even lower in future years as the hepatitis C patient pool is shrinking, Feuerstein noted. This is all while Gilead continues to have other hepatitis treatments in its developmental pipeline. In January, Gilead submitted a New Drug Application to the U.S. Food and Drug Administration for tenofovir alafenamide, an investigational, once-daily treatment for adults with chronic hepatitis B virus infection.

That dwindling patient pool is one of the things that makes it hard for Gilead investors to comfortably wait several years for any such deals to pay off. Some expected Gilead to use its resources to snap up a competing company in order to see immediate benefits from any revenue that company could generate. Feuerstein said it’s due to the high revenue streams that Harvoni and Sovaldi have brought in that makes it hard for investors to support risky partnerships, in comparison to Celgene due to the potential loss.

However, growth through acquisition is something that leadership at Gilead has examined. In February, Gilead’s Chief Executive John Miligan said he was eying some growth opportunities, particularly in the oncology, inflammatory diseases and liver disease fields. In an interview with Kenra Investors, Norbert Bischofberger, Gilead’s executive vice president of research and development and chief scientific officer, said Gilead is looking at products that will not only complement its HCV and other liver drugs, but would look at other drugs outside that scope. And the company has made M&A moves, recently snapped up the Acetyl-CoA Carboxylase (ACC) inhibitor program Gilead now holds following its $1.2 billion deal to acquire Cambridge, Mass.-based Nimbus Apollo, Inc. The drug program is aimed at treating non-alcoholic steatohepatitis, which complements its hepatitis programs.

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