Gilead's hepatitis C freefall just keeps going. What's the company to do?

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Another quarter, another slump for Gilead’s hepatitis C franchise. The one-time powerhouses Sovaldi and Harvoni have fallen victim to competition and payer discounting, with sales plummeting 31% for the quarter.

Gilead’s hep C top line got some help from inventory stocking and one-time revenue in other quarters. Its HIV meds beat analyst estimates by 10%-plus, and overall sales weren't quite as bad as forecast. But not surprisingly, market-watchers zeroed in on Gilead’s hep C shortfalls--and the company’s lack of a quick solution, including some sort of big M&A move.

Indeed, the hep C sales pain was more intense than market-watchers had expected. HCV revenue came in below some analyst estimates by a double-digit margin, and lower than consensus by 3%. And that’s despite new sales from the recent rollout Epclusa, a regimen that spans all hep C genotypes.

Gilead’s share of the market was stable, “but the three negative ... dynamics of lower prices, shorter treatment duration, and decreased patient volumes--particularly in EU markets--continued to erode reported sales for Harvoni and Sovaldi beyond the incremental sales from the newly launched Epclusa regimen,” Leerink Partners analyst Geoffrey Porges wrote in a Wednesday investor note.

None of this rationale is particularly new; the hep C slide has been painfully obvious since last year, and that’s the rub. Analysts and investors have been clamoring for M&A to fill in Gilead’s gaps. After all, the company has done it before; the hep C franchise itself came via an $11 billion deal for Pharmasset back in 2011. The question “Who are you going to buy?” is a repeated refrain on the company’s earnings calls.

Gilead isn’t quite so desperate to answer that question, however. So far, Gilead has inked a few licensing arrangements, including a $1.2 billion deal with Nimbus, which is developing a drug in the hot non-alcoholic liver disease (NASH) field. As for outright takeovers, it has only promised that it’s “active” out there in the dealmaking arena, but “disciplined”--and this quarter was no different.

“You don't want the sense of urgency to overwhelm your discipline because then you'll do things that don't make long-term sense,” CEO John Milligan said during the company’s Q3 earnings call. “And that's been the history in all businesses, and that's one we apply here. So we're currently very, very active. We'll do things when they make sense for us and not before then.” 

And for Gilead, “making sense” seems to be a narrow target. It won’t pay premium prices, that’s for sure. “[T]he bar is high, but we're very engaged and remain engaged in M&A,” CFO Robin Washington said during the Q3 call.

Rumors put the California-based Big Biotech among bidders for the star player in biopharma M&A this year, the cancer biotech Medivation, but Pfizer won that deal with a $14 billion bid.

A hefty price, but one analysts were able to justify for Pfizer’s purposes, provided Medivation’s pipeline pays off as promised. 

Meanwhile, with a “transformative deal” elusive at Gilead, the company has been struggling to keep its hep C drug revenue up. Payers looking for hep C bargains are still squeezing sales, the company said Tuesday. Gilead cited a “greater-than-expected payer mix shift towards greater discounting,” Evercore ISI analyst John Scott said in a Tuesday investor note, adding that Medicaid programs are still refusing to cover hep C drugs for patients without severe disease.

Not surprising, then, was Gilead’s move to stop working to improve on its suite of current hep C remedies, which already offer impressively high cure rates. It’s also clearing out a number of other development programs, as FierceBiotech reports.

And it's looking for other, related sources in the liver-disease area, as the Nimbus deal illustrates; after $40 million upfront earlier this year, the company paid out another $200 million to Nimbus this week for its quick progress. It’s shifting focus toward NASH, a potentially lucrative area with, unfortunately for public health, a growing number of patients. Gilead also chose to advance its own NASH med, GS-4997, into late-stage testing next year. It’s focusing that med on reversing liver fibrosis in patients with advanced disease--a tall order, Porges notes.

Plus, a set of other drugmakers are also eyeing NASH, including the diabetes drugmaker Novo Nordisk, which needs a sales boost of its own. All eyes, investors and potential NASH rivals included, will be on forthcoming Phase II data for GS-4997 when it’s presented at a liver disease meeting coming up, Porges predicted. Observers will eye that data “to assess whether GS-4997 has the profile to deliver on this endpoint and the potential to offset any of the continuing erosion of its substantial HCV franchise.” Gilead certainly hopes it does.