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Gilead Sciences' Novel Leukemia Drug Should Extend Company Profits

Mar. 11, 2014 4:47 PM ET | 3 comments | About: GILD, Includes: BIIB, JNJ, PCYC, RHHBY




Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
















Summary
•Gilead Science, which is the top drug maker for Hepatitis and HIV treatments, is developing novel cancer drugs.
•Its promising leukemia drug has been granted Breakthrough Therapy designation.
•If approved would bolster the company’s revenue which is already predicted to reach $16 billion by 2016.
•Gilead stock has a lot of room to continue to grow.

Gilead (GILD) Sciences has gained most of its fame as an antiviral drug maker, developing and selling a number of quality HIV and hepatitis medicines. In the past year the company has seen its stock rise significantly due to its novel hepatitis drugs, Sovaldi and ledipasvir, which appear to be able to cure certain hepatitis strains in a short amount of time without the need for interferon. These two drugs combined, according to Sanford Bernstein analyst Geoffrey Porges, could bring in revenue of $16 billion by 2016. While Sovaldi and ledipasvir have captured most of the company's headlines, there is another drug that the company is developing, idelalisib, and if approved by the U.S. Food and Drug Administration (FDA), could be the company's first potential blockbuster drug to fight cancer.

Idelalisib: A New Drug to Treat Certain Blood Cancers

Idelalisib is used in combination with Roche's (OTCQX:RHHBY) and Biogen Idec's (BIIB) rituximab for the treatment of non-Hodgkin's lymphoma (NHL) and chronic lymphocytic leukemia (CLL), the latter being the most common form of blood cancer. Sixteen thousand Americans are diagnosed each year with CLL, and 5,000 will die from the disease.

In CLL patients there is a slow increase in B lymphocytes (B cells), causing cancer cells to spread through the blood and bone marrow as well as the lymph nodes, liver, and spleen. Today's treatment for CLL requires highly toxic chemotherapy, which some experts say is worse than the disease. Rituximab, a monoclonal antibody against the protein CD20 (found on the surface of B cells), is used in combination with chemotherapy to destroy B Cells. Idelalisib is a targeted therapy, however, and taken twice daily in pill form in combination with Rituximab has shown to turn CLL into a manageable disease without the need for chemotherapy.

According to a study led by Richard R. Furman, M.D., a professor at Weill Cornell Medical College and an oncologist at New York-Presbyterian/Weill Cornell Medical Center, "We saw incredible responses in patients who used idelalisib. Their cancer quickly melted away. These types of responses were even seen in patients who didn't respond to chemotherapy."

Idelalisib works differently than previous CLL drugs as it targets the phosphatidylinositide 3-kinase (PI3K) enzyme that is central to a cellular pathway involved in the growth and proliferation of B cells. In CLL the PI3K pathway is hyperactive, and the PI3K-delta isoform is the predominant hyperactive subtype. Idelalisib targets the PI3K subtype and reduces proliferation, enhance apoptosis, and inhibit homing and retention of malignant B cells. And idelalisib does so without harming healthy cells; therefore the patient doesn't suffer the same toxic side effects as with chemotherapy drugs.

The study, which was stopped early due to the positive responses, demonstrated that idelalisib in combination with rituximab in previously treated CLL patients, who were not fit for chemotherapy, showed statistically significant improvement with acceptable safety over placebo plus rituximab. The patients showed significant improvement in term of progression-free survival, overall response rate, lymph node response, and overall survival. The benefit was observed even in heavily pretreated patients, including those with adverse genetic features.

Dr. Furman commented on the positive results found with idelalisib: "The treatment today for CLL can be worse than the disease, leading to a great deal of side effects and death. This study, and others we have conducted on idelalisib, demonstrates that we may no longer need to use chemotherapy in CLL. Even if this cancer remains incurable, it now can be treated as if it was a chronic disease with a pill, in the same way that high blood pressure is treated."

Susan M. O'Brien, M.D., of the University of Texas MD Anderson Cancer Center in Houston and a principal investigator of the study, also commented on the study: "New therapies that can drive CLL into remission while potentially avoiding or delaying the need for chemotherapy would represent a much needed clinical advance. The high overall response rate and durable disease control observed in this Phase 2 study suggest that idelalisib in combination with rituximab could become an important therapeutic option for CLL patients new to treatment."

While the FDA has started its standard review of idelalisib for NHL, setting a completion date of September 2014, it granted idelalisib a Breakthrough Therapy designation for CLL. The FDA grants Breakthrough Therapy designation to drug candidates that may offer major advances in treatment over existing options. The marketing application in NHL was filed last September on the back of a single phase II trial in patients whose disease had progressed despite treatment with Rituxan or conventional chemotherapy. Idelalisib's approval for NHL could add significant revenue as NHL is one of the fastest-growing cancers in terms of incidence in the developed world.

Competition Heats Up For CLL Treatment

While there is a lot of excitement for idelalisib, one must remember competition is fierce. Other pharmaceutical companies have been investing in similar targeted therapies for CLL. In mid-February, the FDA expanded the approval of Johnson & Johnson's (JNJ) and Pharmacyclics's (PCYC) drug, ibrutinib, for the treatment of CLL. The approval was based on a single-arm clinical trial that demonstrated a durable improvement in the overall response. Last November, ibrutinib gained approval as a treatment for patients with mantle cell lymphoma.

While the two treatments will compete for the CLL market, ibrutinib works differently than idelalisib. Ibrutinib is an irreversible small-molecule inhibitor of Bruton's tyrosine kinase (BTK), and it blocks B cell activation and signaling, which prevents the growth of malignant B cells that overexpress BTK. However, the market is growing and should support both drugs. Goldman Sachs sees peak sales for ibrutinib for CLL will reach $6 billion per year. Oppenheimer sees peak sales for idelalisib hitting at least $700 million annually for the CLL and NHL indications. However, Bernstein Research analyst, Geoffrey Porges, sees idelalisib sales reaching $2.5 billion by 2020.

Gilead has a market cap of $123.6 billion. Its stock has risen 75% YTY, closing on March 10thth at $80.23 per share. On February 4th the company reported fourth quarter revenue of $3.04 billion, beating consensus estimates of $2.85 billion. Earnings came in at $0.55 EPS for the quarter, beating the consensus estimate of $0.50, and rising 20% on a YOY basis. Gilead forecasts sales in 2014 to be between $11.3 billion to $11.5 billion. However, with Sovaldi already exceeding expectations, and now possibly now bringing in $5 billion in 2014, the current Street consensus for Gilead is $14.6 billion.

On February 26th, Zacks raised its rating from a "neutral" to an "outperform," and currently has a $101.00 target price. Earlier on February 21st, Barclays raised its price target from $90.00 to $95.00.

Conclusion

I like Gilead, even with its strong stock run YTY; the company's hepatitis platform revenue should continue to increase for a number of years to come. Now add in Gilead's cancer pipeline. If idelalisib (which may gain FDA approval later this year) is any indication of the future of its cancer drugs, I can see revenues increasing far beyond analysts' projections. The company currently has seven cancer studies in its pipeline, including a JAK1/JAK2 inhibitor called momelotinib in phase III testing for myelofibrosis, and three studies for the drug simtuzumab for myelofibrosis, pancreatic, and colorectal cancer all in phase II studies.

Though idelalisib may never reach the sales of J&J's ibrutinib, it still has the potential to bring in billions in revenue. According to Jennifer Brown, M.D., Director, Chronic Lymphocytic Leukemia Center at the Dana-Farber Cancer Institute, "Drugs like idelalisib are probably going to change the landscape of the disease in the next few years."

I look for Gilead's stock to continue its strong run in 2014.