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Drug development is an uncertain enterprise. The rewards can be great, but failure is the most typical outcome, cautions growth stock expert Doug Gerlach, editor of Investor Advisory Service.
Gilead Sciences (GILD) has endured a string of setbacks, some due to bad luck and others self-inflicted. A new CEO looks to return the company to its old winning ways. Market expectations are low, which could offer a setup for investor success.
Gilead has led the charge in the highly successful war against HIV and AIDS. The company estimates that 89% of newly treated HIV patients in the U.S. currently receive a Gilead product.
More from Doug Gerlach: Can Eagle Pharma Fly through its Oncology Trials?
In Europe, four of the top five most-prescribed regimens include a Gilead product. In total, its HIV medicines produced $14.6 billion in revenue last year, up 12% compared to 2017. 2019 estimates call for 10%-12% growth once again.
Today, a newly treated HIV patient is expected to have a life expectancy close to the healthy population average. Side effects and drug resistance have been largely eliminated. Where does the market go from here? It is becoming more difficult to innovate in the HIV space.
Gilead’s portfolio of HIV medications should carry it for another ten years or so, but the company will have to look elsewhere if it wants to thrive beyond the early 2030’s when its most innovative HIV drugs lose patent exclusivity.
Gilead has not had much success venturing beyond its expertise in HIV. It came close recently but bungled what should have been a windfall success.
In 2011 Gilead purchased Pharmasset for $11 billion, acquiring a Phase II molecule which would ultimately prove a groundbreaking, curative treatment for Hepatitis C. In the first four years of launching in the Hepatitis C market, Gilead enjoyed total revenue of approximately $50 billion.
On that score, the Pharmasset acquisition was a financial success. However, Gilead did a poor job defending its market against competitors and has lost market leadership to AbbVie. 2019 revenue from this treatment is likely to be in the vicinity of just $3 billion.
Much worse, Gilead appears to have wasted most of the rewards via ill-timed stock buybacks, a risky acquisition, and R&D initiatives which have yet to bear fruit.
From 2014 to the present, Gilead is approximately $10 billion underwater compared to the price it has paid for its own shares. In 2017 the company paid $12 billion for an emerging oncology company called Kite Pharma.
See also: Four Favorites in the Oil Patch