Biotech darling Gilead Sciences, Inc. (GILD) was almost the brand new owner of rival drugmaker Achillion Pharmaceuticals, Inc. (ACHN) yesterday—if only on Twitter. Rumors ran rampant on the social media site yesterday that Gilead had canceled an appearance at the same health conference Achillion had bowed out of because the two were in talks for a deal.
So far, the only deal done was the one in biotech’s Twittersphere, said market watchers Tuesday, when the smoke had cleared. A Gilead spokesperson said post-market close Monday that Gilead would be appearing at the conference after all, killing any expectation of a buy.
“Let’s be realistic, Gilead isn’t buying Achillion. Gilead has no need to make defensive acquisitions and the incremental benefit from owning ACHN-3102 is small relative to the cost,” wrote closely watched biotech columnist Adam Feuerstein over at The Street. “Investors are pining for Gilead to acquire something, but not in hepatitis C, which is already (or will soon be) in a declining market precisely because of the company’s success.”
Achillion has been floated before as a possible target because analysts worry Gilead may be feeling pressured by a new experimental hepatitis C drug being developed by Achillion which has shown promising Phase II results when combined with Gilead’s own blockbuster near-cure Sovaldi. The shortened treatment duration could take a bite out of Gilead’s sales, warned market watchers this week, as the drug, ACH-3102, continues to meet important milestones.
With a standard 12-week course of Sovaldi costing $84,000, a drug that can cut that timeline in half would be a significant threat to Gilead’s bottom line.
Achillion attracted a lot of notice last fall when it said a combo of ACH-3102 and Sovaldi had functionally cured 100 percent of the patients involved in a small, 8-week trial. Then in February, it released results that showed that the combo was able to replicate that 100 percent cure rate after only six weeks of treatment—a truncated timeline that could eventually cost Gilead billions of dollars in lost revenue.
“The success of ACH-3102 suggests that it could be a better drug than ledipasvir, and that opens up the potential for ACH-3102 to be paired up with other Sovaldi alternatives,” wrote Todd Campbell, a columnist at the Motley Fool in April. “Achillion Pharmaceuticals hopes that its own in-house option, ACH-3422, can prove to be just as potent as Sovaldi, and if it is, that it can achieve similar short-duration cure rates when paired up with ACH-3102.”
Sovaldi sells for approximately $1,000 per pill, while its sister medication, also from Gilead, Harvoni, sold about $2.1 billion in 2014. Similar competitor AbbVie (ABBV)’s HCV medication Humira recorded $12.5 billion in sales and is now gaining on the coattails of AbbVie’s new hepatitis C treatment, Viekira Pak.
But Gilead would be smart to stick to smaller, cancer-focused companies when going shopping, Royal Bank of Canada (RBC) analyst Michael Yee wrote in a note Friday, as the company begins trying its hand at deal making.
Yee said that although Gilead has the cash to do bigger deals, its expertise and pipeline are cancer-based, and it should make smaller buys as opposed to a larger “transformational” one. Gilead’s cancer pipeline remains its crown jewel and should be nurtured, wrote Yee. That distinction is an important one, because some analysts have been pushing for Gilead to merge with larger competitor Vertex Pharmaceuticals (VRTX), a deal Yee apparently thinks is unnecessary.
“[For Gilead] 1) expectations are low on this program (few if any investors ask on it), (2) pipeline is all upside for Gilead at this point, (3) management is quietly building a pipeline and we predict they’ll continue to do more cancer and immuno-oncology deals less than $5B in size and they’re looking in European Union (EU) perhaps using OUS (Outside US) cash.”
Gilead finally made Wall Street analysts happy last week when the company said it would acquire privately-held Danish company EpiTherapeutics for $65 million, a week after the company’s chief executive said the firm was open to doing deals.
The company is a good bolt-on fit for Gilead, said execs at the time.
“Epigenetics is a promising area of research and the EpiTherapeutics team is a recognized scientific leader in this field,” said Norbert Bischofberger, Gilead’s executive vice president for Research and Development and chief scientific officer.
“This therapeutic class represents a strategic fit with our existing research portfolio, including the potential for novel combination approaches. We look forward to working with colleagues from EpiTherapeutics to advance these programs toward clinical development in diseases with significant unmet medical need.”
Gilead has been facing stressors on other fronts as well. In early February it was once again pressured to drop the price of Sovaldi, this time offering a discount to German regulators to $46,625 for a 12-week course of the drug, an almost fire sale drop from its regular cost of $84,000 per course.
The GKV association of Germany’s statutory medical insurers, who provide coverage for 90 percent of Germans, said February 12 that is has managed to talk Gilead into lowering the price of Sovaldi to 43,562.52 euros. Then that price tag is subject to a further 5.88 percent discount for other statutory insurers, leaving Gilead and its shareholders increasingly frustrated by the brutal pricing war surrounding its hepatitis C therapies.
The news is not entirely unexpected, Gilead has had to offer discounts in the American market as well, a fact it lamented to Citigroup analysts in mid-February, said head biotech analyst Yaron Werber in a note to investors.
“Gilead believes that they had to provide higher rebates to get access to the public segments as state Medicaid programs have more restrictions than private plans. AbbVie was very aggressive on pricing and so the landscape weakened considerably faster than anticipated due to exclusivity contracts,” wrote Werber.
“Gilead expects volume to ramp up but it is not clear how fast in the public system. The 46 percent gross/net adjustment assumes a certain level of use in the public system and could be lower if the volume is slower to materialize,” he said. “The prison system is expected to kick into gear in 2016. In general rebates for Sovaldi are much lower than Harvoni.”
Gilead has been continuing its charm offensive this spring, sending Chief Operating Officer John Milligan and Vice President of Investor Relations Patrick O’Brien to lunch with analysts at Citigroup two months ago, who came away upbeat about the controversial firm’s business structure and convinced it will soon be attempting more mergers and acquisitions.
“We came out bullish that Sovaldi/Harvoni’s volume will increase in U.S. and Europe in 2015 driven by increased rebates to public segments. Gilead’s pipeline is also advancing and Simtuzumab should have interim 48 week data in late 2015 in NASH,” wrote Werber.
Despite telling the BIO CEO and Investor Forum in February that Gilead “feels no urgency for mergers/acquisitions, but if we did, it would be thoughtful and reflective,” Milligan’s time with Citi left analysts feeling the company is hungry for new deals, particularly in oncology.
“We detect that management is definitely gearing up the company to be very active on M&A in 2015 and oncology will likely be a key focus,” wrote Werber. “We do not anticipate one sizable deal that will have an imminent change but instead see a few smaller deals to bolster the pipeline for the mid-term.” Gilead’s team also remains convinced profits will stay high, just months after Gilead Sciences, Inc. (GILD) sold $10.3 billion of its new hepatitis C drug Sovaldi in 2014.
Both Sovaldi and Harvoni have treatment rates close to 90 percent, making them essentially a cure for many patients—success several companies are attempting to duplicate soon, posited analysts.
“Management is also confident of the sustainability of hepatitis C cash flow for the next decade based on the rate of patients being treated, continuing innovation, and focus on eradication of disease,” said Werber. “Hence management is very confident in its ability to do stock buybacks, provide a dividend, and do M&A. But the meeting also noted that there is little visibility as to how fast the public hepatitis C segment will grow, where treatment volumes will grow to, and where pricing will be as the market will get more competitive.”
May 19, 2015
By Riley McDermid, BioSpace.com Breaking News Sr. Editor