Drug Development

Porges: Gilead’s hep C bash is winding down and it doesn’t have a cure for the hangover

Geoffrey Porges, Leerink

Geoffrey Porges, Leerink

Leerink analyst Geoffrey Porges has often been willing to prescribe harsh medicine to big biopharma players that need to wake up fast. This morning, he took a hard poke at a slumbering Gilead, which he believes is in for a wicked fall as its monumental hep C franchise faces rapidly dropping patient numbers.

Porges downgraded the stock $GILD – which dropped 1.5% this morning – after he turned openly bearish on hep C revenue forecasts. The analyst writes:

Put simply HCV is turning out to be a “flash-in-the-pan” market, just as it has been in past cycles, and despite the large pool of “treatable” patients, and we believe the market volume could potentially decline all the way from last year’s ~270,000 patients treated in the US (total market) to the long-term average volume of 60-70,000 treatment presentations per year with a similar or lower number in Europe.

Once it became clear that Gilead was quickly moving past its peak on hep C, a number of analysts quickly began to stoke expectations for a major M&A deal. After all, Gilead made the big score in curing hepatitis C by buying Pharmasset in a jaw-dropping $11 billion buyout. And it’s sitting on a mountain of cash. But despite some dealmaking and a big licensing pact with Galapagos, it hasn’t done nearly as much as many had hoped to see.

You can include Porges in that group, with a vengeance. He describes Gilead’s executive team as standing in the way of an onrushing stampede of bears.

As to the company’s much heralded business development strategy and opportunities, we fear that the company has become paralyzed by its size and good fortune, and the uncertainty about its outlook and its capabilities. Its communications about its strategy and intent have been confusing, and the company appears unwilling to match the market’s price for high quality assets, or to invest the cash necessary to build a pipeline, and a future, for a company of its size. When deals do come (which they undoubtedly will), we fear that there may be a resounding chorus of disappointment, based on being too little and too late, to offset the $5bn in revenue erosion we now forecast between 2015 and 2020. In our opinion Gilead needs to be contemplating the type of large transactions that diversify it away from these antiviral franchises, and offer the prospect of substantial incremental revenue, and a return to growth, in a reasonably foreseeable future. While the internal pipeline has some promise, it seems to us to be no more than a drop in the bucket for a company of its present size and valuation.

Of course, Porges’ advice has also been ignored. He wanted Amgen to spit up, but that never happened. Something has to happen at Gilead, though. And Porges leads us to believe that it had better be quick and impressive.

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