What’s Next For Gilead?

Biktarvy could not have come at a better time for Gilead. The company’s top line growth has been falling for several quarters. Its blockbuster HCV franchise is in free fall, yet still represents over 20% of Gilead’s total revenue. In Q4 total revenue fell 9% sequentially while revenue from HCV was down over 30%. The HCV runway is in decline and sales are also getting hit by Abbvie’s (ABBV) Mayvyret, which is indicated to treat genotypes 1-6. Abbvie generated Q4 2017 HCV revenue of $510 million, up sevenfold versus the year earlier period. GILD’s HIV franchise generated $3.9 billion in revenue last quarter, up 3% sequentially. It is now 67% of total revenue, so future declines in HCV revenue should have less of an impact.

That said, Gilead’s future is likely tied to the prospects for Kite and the company’s M&A prowess. The $12 billion acquisition of Kite and its late stage treatment of B-cell non-Hodgkin lymphoma energized GILD bulls. Per Cowen up to 5,300 relapsed/refractory patients would be candidates to be treated by Kite’s Yescarta. Gilead could potentially treat about 1,000 patients in 2018 and build a critical mass over time. 5,300 patients at a full price of $373,000 per regimen could generate about $2 billion in annual revenue. That would not fully-replace HCV revenue which has a run-rate of over $5 billion.

Gilead has a cash hoard of $36 billion that it could use for acquisitions. The company has a core competency in acquiring companies with late-stage drug pipelines. Financial markets could crater sans additional bank stimulus. This could potentially make a bevy of biotechnology companies cheaper, and more attractive acquisition targets. If financial markets continue to fall then certain biotech names could become willing sellers by the first half of 2019.


In addition to the revenue slide Gilead’s Q4 EBITDA margin was 45%, down from 63% in Q3. Margins could continue to slide as the high-margin HCV business continues to erode. Biktarvy could be a blockbuster in waiting. I could become a buyer of GILD early next year financial markets fall far enough to create attractive M&A opportunities. For now GILD remains a sell.



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