Forget the Numbers, This Pipeline Is King

Sorry to be flippant, but with its Quad HIV pill set to receive a Food and Drug Administration decision on Aug. 27, and hepatitis C drugs racing to be next in class, the pipeline has become an integral part of Gilead's investment thesis.

Sure, a 12.5% year-over-year increase in revenue is something most pharmas dream about, and it seems to have beat analysts' expectations. Still, it's a far cry from when sales were growing at a 25% to 35% clip year after year.

With the focus on the pipeline, the most interesting part of the conference call was the company's plans for its hepatitis C franchise. Clinical trials for its lead molecule GS-7977, obtained in the acquisition of Pharmasset, are almost complete; Gilead expects to file for regulatory approval in the middle of next year. The drug would be approved for use in patients infected with genotype 2 3 in combination with ribavirin. In genotype 1, 4, 5, 6 infected patients, doctors would still have to combine the drug with a peg-interferon, Roche's Pegasys or Merck's (NYS: MRK) PegIntron, which doctors have been hoping to phase out, because of their side effects.

Unfortunately most U.S. patients are infected with genotype 1. Gilead's plan to treat genotype 1 patients without peg-interferon is a combination of GS-7977 and GS-5885. Gilead has little data for the combination, but GS-5885 is similar to Bristol-Myers Squibb's (NYS: BMY) daclatasvir, which has performed well with GS-7977. If Gilead's in-house combination works well, it could be ready for approval by mid-2014, squeezing out Merck's Victrelis and Vertex Pharmaceuticals' (NAS: VRTX) Incivek, and beating Bristol, Abbott Labs (NYS: ABT) , and others to be the first all-oral treatment for genotype 1 patients.

Of course, that's still a ways off, and quite a few clinical trials have to come through as expected. In the interim, investors should look at how quickly sales of the Quad pill can ramp up, and whether the patients are new to treatment or converting from other treatments, including Gilead's own Atripla. The latter won't help boost the revenue line, but should help the bottom line, because Gilead owns all four components of the Quad, but has to share Atripla revenue with Bristol.

I guess we'll have to go back to crunching numbers soon.

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