Magazine

Gilead Sciences: High-Performing Pharmaceutical


Gilead owes much of its success to making it easier for patients to comply with complex and uncomfortable drug regimens

Gilead Sciences

Industry: Pharmaceuticals

Sales: $5.3 billion

Net Income: $2 billion

In late February 2008, some 40,000 people learned they may have been exposed to hepatitis C if they'd received injections of anaesthetics at the Endoscopy Center of Southern Nevada in the last four years. The scale of this exposure frightens public health officials because hep C can be a silent killer. The chronic liver disease, which afflicts some 3.2 million Americans and an estimated 170 million people worldwide, often produces no symptoms for a decade or more. But left untreated, it eventually can cause liver cirrhosis, cancer, and death. The best existing treatments involve yearlong drug regimens that cure only about 50% of patients, and often bring dire side effects.

The size of the hep C market and the lack of effective, patient-friendly treatments have captured the attention of John Martin, CEO of Gilead Sciences (GILD), one of the world's top developers of drugs for infectious diseases. "Hepatitis C represents an enormous unmet medical need and a big opportunity for Gilead," he says. And when Martin makes such pronouncements, investors in the biomedical sector listen up. Gilead's lush returns on its popular treatments for HIV/AIDS have landed it on the BW 50 list five years in a row. This year, the top slot went to the Foster City (Calif.) company, whose name is a biblical reference to a region where trees produce a healing resin called "balm of Gilead." Sales growth over the past three years has topped 38%, and in the same period shareholders reaped a 43.9% return. Gilead earned $2 billion on $5.3 billion in sales in the past 12 months.

Gilead owes much of its success to making it easier for patients to comply with complex and uncomfortable drug regimens. It was among the first companies to come up with once-a-day pills for HIV, replacing cocktails of medications that sometimes had to be administered intravenously. In 2008, Gilead's top three HIV treatments generated 84% of its product sales. Today, 8 of every 10 new patients diagnosed with HIV in the U.S. start on Gilead drugs and, typically, remain on them for many years.

SEARCHING FOR A LIFESAVER

As doctors and public health experts frequently lament, the number of new HIV infections each year is growing, not shrinking. Physicians estimate 56,000 people contract the disease annually in the U.S. alone, and at present only about 50% of infected people are being treated. Even as Gilead strives to reach a wider swath of this community, it is also hoping to broaden the use of once-a-day pills in other disease areas. One is hepatitis, which is caused by several different viruses that attack the liver. Gilead's first drug in this category—Hepsera, for the hep B virus—generated $341 million in sales in 2008. And it recently received approval in the U.S. and other countries to treat hep B patients with its HIV drug Viread. For drugmakers, this patient pool is important because it is nearly twice as large as the HIV population in the U.S., and only 3% of infections are currently treated.

An effective therapy for the hep C strain could be an even bigger lifesaver—as well as a blockbuster—according to some infectious disease experts. The illness is endemic in some parts of the world, and there is no vaccine against this strain. Alan Carr, an analyst with investment firm Needham & Co., estimates the market for hep C medications could reach $4 billion to $5 billion by 2015. Says Martin: "Like HIV, hep C will require a combination therapy. We need to develop multiple products and have a combination pill to treat this disease." Gilead faces competition from a number of companies in this arena, including Vertex (VRTX), a rising biotech star, and Schering-Plough (SGP), which is being acquired by industry powerhouse Merck (MRK). But that may not harm Gilead's prospects in the long run, says Jason Kantor, an analyst with RBC Capital Markets (RV). "Gilead isn't racing to become first in market but to be best-in-class."

How does the recession affect Gilead's prospects? In some previous slumps, drug companies have been a safe haven, but there are no guarantees. Earlier this year Gilead surprised analysts when it predicted slower sales for 2009.

As a result, Gilead is redoubling its efforts to diversify. In March, Martin said he would spend $1.4 billion to buy CV Therapeutics, which develops drugs for cardiovascular diseases. Gilead's focus on hard-to-cure infectious diseases may also put it in a strong position compared with some other drugmakers. Why? Because unlike people with, say, hypertension or arthritis—who can temporarily curtail their medications without causing irreparable harm—HIV patients who fail to comply with drug regimens can face dire consequences. "If you skip doses, the virus will mutate, you will develop resistance, and then the drug will no longer work," Martin says. In other words, for patients and for drug companies, it pays to take the pain out of compliance.

Return to the BusinessWeek 50 Table of Contents

McConnon is a staff editor for BusinessWeek in New York.

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