GILD Gilead Sciences Inc

Gilead Sciences, Inc. (GILD) recently announced disappointing results from a phase II trial (ELECTRON) of its pipeline candidate GS-7977, sending its share price down significantly. GS-7977, which was acquired as part of Gilead’s $11 billion acquisition of Pharmasset in January 2012, is being evaluated in hepatitis C patients (HCV) infected with genotype I virus in the ELECTRON study.

The study showed that the majority of genotype 1 HCV patients who have not responded to earlier interferon-containing regimens (null responder arm) experienced viral relapse within four weeks post treatment with GS-7977 in combination with ribavirin (standard of care) for 12 weeks.

Of the eight patients in the null responder arm, six relapsed within four weeks of treatment with GS-7977 and ribavirin. Two patients have completed only two weeks post-therapy and have not experienced any relapse yet. Management indicated that GS-7977 may need some other antiviral drugs to effectively treat certain HCV patient populations, thus kindling doubts about the effectiveness of the drug.

ELECTRON is a multi-armed trial evaluating GS-7977 in different types of HCV patients, in different regimens. The study was also evaluating genotype 1 treatment-naïve patients, data from which will be available in the next six months.

Earlier this month, Gilead had announced data from the study which showed that the combination of GS-7977 and ribavirin led to rapid virological response (RVR; undetectable virus at 4 weeks of therapy) in all evaluable (whether null responders or treatment naïve) genotype 1 (GT1) HCV patients.

GS-7977 is undergoing two other phase III trials in patients with HCV of genotype 2 and 3. Both studies are studying GS-7977 in combination with ribavirin. The candidate is also being studied in other phase II/III trials in combination with or without standard of care in several types of HCV patients.

Moreover, Gilead believes GS-7977 has the potential to be combined with Gilead’s internal HCV pipeline candidates resulting in multiple all-oral interferon-free single tablet regimens (STR). Though the unfavorable ELECTRON data will be a setback for the company, we believe GS-7977 still has significant potential to successfully treat HCV.

The HCV market is indeed attractive characterized by a significantly unmet need. A huge population suffers from HCV infection across the world. However, the number of the treated is much lower. This leaves the field open for new treatments.

Our Recommendation

We currently have a Neutral long-term recommendation on Gilead. The stock carries a Zacks #4 Rank (short term Sell rating) in the short run.

We like the company’s strong HIV franchise and its deep and diversified pipeline, particularly the potential blockbuster HIV combination pill Quad (a combination of HIV pipeline candidates, elvitegravir and cobicistat, and marketed HIV drug Truvada). We believe the positive outcome of two late stage trials of Quad will lead to its approval.

Despite the current clinical setback, we expect the acquisition of Pharmasset to provide a significant HCV franchise which can help mitigate the impact of the upcoming patent expirations. We are nevertheless concerned about patent challenges against its key HIV drugs.

 
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