Gilead Sciences (GILD) is down 10% Wednesday -- the stock is now trading at a three-year low -- following last night's dismal guidance warning revenue from its hepatitis C drugs was likely to fall 40%-50% in 2017 compared to last year.
On its conference call last night, Gilead management sounded defeated. The company is shrinking, the opposite of what biotech companies are supposed to do.
Gilead CEO John Milligan had no reassuring answer to a question posed by an analyst: Is there a strategic plan in place to get Gilead growing again? Without buying something, Gilead can't grow, Milligan admitted. But so far, Gilead has been unable or unwilling to pull the trigger on a growth acquisition, even with $32 billion in cash on its books.
How did Gilead -- one of the biotech industry's great success stories -- fall to this low point?
I posed this question on Twitter Tuesday night:
Thinking more about $GILD. Perhaps the awful, brutally honest lesson here is: Curing disease is great for patients but sucks for business.— Adam Feuerstein (@adamfeuerstein) February 8, 2017
It's a provocative question because it invokes the worst conspiracy theories thrown at the pharmaceutical industry in which people accuse drug makers of stifling research into disease cures because it is more profitable to treat symptoms. Hook patients on pills forever.
For the record, I don't believe that charge. There is no cure for cancer hidden away in a vault somewhere. But the boom-and-bust of Gilead's hepatitis C franchise is also a cautionary tale for anyone who believes developing and selling a therapy that cures disease is a no-brainer business win.
Maybe, it's fairer to say curing disease can be great for business -- until it's not.
Gilead acquired Pharmasset in November 2011 when its stock was around $20 per share (split adjusted.) Even with the recent slide, Gilead shares have tripled in value. At the stock's peak in 2015, Gilead shares were up six times.
In 2013, Gilead total revenue was $11.2 billion. In 2014, the first full year for sales of the hepatitis C drugs Sovaldi and Harvoni, Gilead revenue exploded to $24.9 billion. In 2015, Gilead revenue grew again to $32 billion, of which $19 billion came from hepatitis C. That's insane growth. Gilead made billions of dollars from its hepatitis C drug franchise. Shareholders were rewarded. By all measures, curing hepatitis C was great business for Gilead.
Why did it end? Because when you cure disease, the pool of patients shrinks. Gilead admits the number of hepatitis C patients starting therapy is falling, and those patients that are available to treat today are harder to reach. There is also more competition from Merck (MRK) and Abbvie (ABBV) selling their own hepatitis C cures. Insurance companies are taking advantage of the competition and shrinking patient pool to drive larger discounts and rebates, which eats into revenue and profits.