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Gilead: Btripla Jury Still Out

http://www.thestreet.com/story/10810364/gilead-btripla-jury-still-out.html

Adam Feuerstein

FOSTER CITY, Calif. (TheStreet) -- Investors have shredded Gilead Sciences(GILD) in the year since the company announced last July plans to develop a new single-pill HIV treatment in a partnership with Johnson & Johnson(JNJ).

Over the weekend, new efficacy and safety data from two late-stage studies of the new pill -- nicknamed Btripla -- were released at an international AIDS meeting and largely met Street expectations.

Gilead shares are up about 3% to $33 in Monday trading, but the stock is still miles away from the $48-49 level of last July when Gilead announced Btripla's development plans. Gilead announces second-quarter earnings Tuesday afternoon.

Gilead acts like a dead stock walking mainly because investors are taking a jaundiced view towards the company's assertion that Btripla and the "Quad" (another of Gilead's new all-in-one HIV pills under development) are solutions to the challenges facing the company when patents on its key HIV drugs begin to expire around 2018.

Gilead is the first of the large-cap biotech firms to suffer significantly from the same "patent cliff" fears that have beset Big Pharma companies like Pfizer(PFE), Eli Lilly(LLY) and Merck(MRK) in recent years.

Nearly 90% of Gilead's $6.5 billion in 2009 drug sales comes from the HIV treatment market, so the company is dead in the water unless it can either come up with new patent-protected HIV medicines or diversify the company's revenue stream outside of HIV.

Btripla is a once daily, single-pill co-formulation of J&J's experimental drug TMC278 with Gilead's current HIV drug mainstay Truvada. Gilead pioneered the single-pill HIV treatment approach when it debuted Atripla in 2006, which combines Truvada with Sustiva, a pill marketed by Bristol-Myers Squibb(BMY).

Atripla sales totaled $2.4 billion in 2009 but the drug's future is clouded by looming patent expirations for both the Sustiva and Truvada components. Moreover, Gilead receives nothing financially from the Sustiva portion of Truvada. On the other hand, Gilead will receive 30% economics on the TMC278 portion of Btripla, if approved.

If Gilead can convince doctors to switch patients from Atripla to Btripla (in essence swapping Sustiva for TMC278 while keeping patients on Truvada), the company will make more money and stave off a generic threat to Atripla.

Btripla data is being presented this week from two studies that compared the efficacy and safety of TMC278 compared to Sustiva. Abstracts of the data were released over the weekend, with more complete presentations scheduled for Thursday at the International AIDS Society (IAS) meeting in Vienna, Austria

After one year of treatment, 84% of HIV patients treated with TMC-278 demonstrated a significant reduction in HIV viral load compared to 82% of patients treated with Atripla. The result showed the two drugs to be statistically non-inferior, which satisfied the primary endpoint of the two studies.

From a safety perspective, patient discontinuations due to adverse events were lower for TMC278 arm (2.2%) compared to Sustiva arm (7.2%).

One big question market from this weekend's Btripla data, however, is the 9% of TMC278 patients who experience virologic failure in the two studies compared to 4.8% of Sustiva-treated patients.

Virologic failure is a concern for HIV doctors because it means patients' HIV levels either never fall or are suppressed initially before rebounding. Virologic failure can be a sign that a patient's HIV is mutating in ways that make it more resistant to treatment.

Investors were expecting to see higher rates of virologic failure in TMC278 patients compared to Sustiva based on phase II data previously presented. But what's not yet clear from the new data are the sorts and severity of the HIV mutations being caused by TMC278.

In previous phase II studies followed for two years, the virologic failure rates for TMC278 and Sustiva equalized between the first and second years. It remains to be seen whether the same thing happens in the phase III studies, which is why investors are still viewing Btripla with some caution.

Gilead may also have to contend with competition from other, new HIV drugs in development, including a so-called integrase inhibitor from GlaxoSmithKline(GSK) that has data being presented at the same IAS meeting this week.

During a conference call with investors Monday morning, ISI Group biotech analyst Mark Schoenebaum said his initial feedback on Btripla from an HIV doctor indicated some reluctance to use Btripla over Atripla based on the virologic failure data released over the weekend.

At the same time, Schoenebaum reiterated his position that Gilead "continues to look really cheap" at these stock levels. He pegs fair value today in the $45 range.

Gilead will release second quarter earnings Tuesday afternoon. The company is expected to earn 87 cents a share on an adjusted basis on total revenue of $1.96 billion. Worldwide HIV sales are expected to reach $1.59 billion. Investors will be paying close attention to Gilead management's discussion of U.S. demand for its HIV drugs as well as efforts by some European countries to cut the price of HIV drugs.