What's the Deal, Gilead?
Gilead hasn't always had the Sidam touch when it comes to M&As. Its 2001 acquisition of Triangle Pharmaceuticals for $464
million delivered the experimental nuke Emtriva that Gilead would so profitably combine with Viread to make Truvada. "That
acquisition was one of the two or three best in all of pharma history," says Leerink Swann's Schimmer. "You now have to give
the management team the benefit of the doubt."
In the past four years, however, Gilead has spent a total of $4.5 billion on four acquisitions, with little to show for it.
In 2006, the biotech shelled out $2.5 billion to nab Myogen, whose drug for pulmonary hypertension, Letairis, was in line
for FDA approval. But the presumed prize was Myogen's other endothelin receptor antagonist, Darusentan, for the 2 million
patients with untreatable high blood pressure. However, after two Phase III trials failed, Darusentan—and its blockbuster
potential—were toast. In turn, the logic behind Gilead's $1.4 billion purchase of CV Therapeutics, a cardiovascular biotech
whose small sales force was to be leveraged to peddle Darusentan, appeared to crumble.
Not all the news is grim. Letairis, hampered by a slow launch, has recently begun to pick up steam, and in February, Cayston,
an inhaled antibiotic for lung infections in people with cystic fibrosis, received its long-awaited FDA approval. In June,
Gilead paid $120 million for CGI Pharmaceuticals, whose library of kinase inhibitors had first attracted Genentech. The lead
product targets a spleen tyrosine kinase with therapeutic potential for rheumatoid arthritis. An Enbrel-launch veteran, Kevin
Young is well versed in the markets for inflammatory diseases, should CGI's molecules, all preclinical, ever see the light
of FDA regulators' eyes.
While stalking virgin disease territory, Gilead has also staked out a potential spot in hepatitis C, a disease common among
patients with HIV. Once again, Gilead is playing Johnny-come-lately to a burgeoning market—one that could reach $5 billion
by 2015, according to Needham & Co. analyst Alan Carr. "Hepatitis C is a promising option for Gilead—it's antiviral, fixed
doses, HIV overlaps," he says. "But they need to move fast."
Both Vertex and Merck already possess protease inhibitors whose Phase III data shows a cure rate of up to 75 percent in patients
who failed other therapies. Yet even with effective drugs almost ready for prime time, R&D innovations could produce better,
safer drugs. "We have seven molecules in the pipeline," says Young. "They will not be the first, but we have an advantage
in terms of fixed-dose combinations—and we'll be testing only the very best." In April, however, Gilead hit its first C bump
when a Phase II caspase inhibitor had to be shelved due to liver toxicity. Fortunately, two other Phase II candidates still
A Golden or Gilded Gilead?
Gilead has the money and the time to more sagely execute a diversification plan. And Wall Street will be breathing down its
neck every step of the way. "Once you get to be the size of Gilead, in terms of market cap, it becomes very hard to move the
needle without a major acquisition or a major investment in R&D," says Miller Tabak's Funtleyder.
Yet even in the firm's specialty, a fledgling entrepreneurial spirit is raising the bar once again. With potential market
disruptions in the works—say, from ViiV's integrase inhibitor, BMS's attachment inhibitor, or TaiMed Biologic's entry inhibitor—Gilead
seems to recognize that a redoubled R&D effort will be required to avoid becoming an HIV has-been. "We're committed to staying
the course in HIV," says Young. "And while we're agnostic about where innovation comes from, we do have preclinical programs
in novel classes." Gilead has also established an in-house HIV Cure Project, with scientists focused exclusively on the once-and-future
dream of viral eradication.
Asked about the CEO speculation, Young is appropriately noncommittal. "All I can say is that every morning I see Gilead's
management team of John Martin, John Milligan, and Norbert Bischofberger come to the office, roll up their sleeves, and get
to work as hungry as ever."
Whichever growth path the HIV powerhouse follows, it will take much more than shedding its leadership skin to remain exceptional.
For one thing, the firm needs to pay less heed to its stock value and more to the value of the molecules in its pipeline.
It may also have to learn to outgrow—rather than keep trying to outperform—its own reputation as a phenom. Says Peter Tollman,
Boston Consulting Group's global biopharma leader: "Every extremely successful company needs to be able to recognize when
their winning strategy has run its course—and then come up with a new one that's sustainable based on data about their current
competitive position and opportunities."
Young's commercial experience at Amgen might even bust Gilead out of its small-molecule mindset and into the brave new world
of biologics. We don't feel overanxious that we have to do a big acquisition," says Young. "We prefer to do early-stage deals,
where we can develop the compounds ourselves. That kind of innovation is what we've always been good at."