Gilead Writes Down Kite Buy As Yescarta Sales Flatten Out
Executive Summary
Gilead takes $800m impairment charge against Kite acquisition a year after an $820m write-down. Kite and Yescarta are appear to be afterthoughts in discussions of Gilead’s portfolio and pipeline.
Perhaps one of the most interesting aspects of Gilead Sciences Inc.’s fourth quarter and full-year 2019 earnings call on 4 February was what the company did not talk about – an $800m pre-tax impairment charge it took in the fourth quarter related to its acquisition of Kite Pharma Inc. While the lymphoma treatment Yescarta, the centerpiece of the deal, posted flat quarter-over-quarter sales growth, mentions of Kite were scant during the hour-plus call.
Earlier this year, CEO Daniel O’Day spoke about Gilead’s potential to develop new growth-driving products through both internal and external innovation at the J.P. Morgan Healthcare Conference. (Also see "J.P. Morgan Notebook Day 1: No Big Deals, But Plenty Of Pipeline, Commercial Highlights" - Scrip, 14 Jan, 2020.) Returning to that theme during the earnings call, O’Day talked up the promise of Gilead’s partnership with Galapagos NV, including the potential for approval of JAK1 inhibitor filgotinib in rheumatoid arthritis and upcoming Phase III data with that compound in ulcerative colitis.
The company hopes filgotinib will be a best-in-class JAK inhibitor in RA – it has an August action date at the US Food and Drug Administration and also is under review in Europe and Japan. (Also see "Gilead Hopes Selectivity Will Ease Safety Labeling For Filgotinib" - Scrip, 25 Oct, 2019.)
Chief financial officer Andrew Dickinson reported that Yescarta (axicabtagene ciloleucel) brought in $122m globally during the fourth quarter, rising just 3% sequentially from $118m in the third quarter, which fell from $120m in the second quarter. Despite the recent flattening, fourth quarter Yescarta sales were up 51% from Q4 2018.
“The year-over-year increase was driven by a higher number of therapies provided to patients and its continued expansion in Europe,” Dickinson said. Full-year sales of Yescarta were $456m, roughly double the $264m posted in 2018, with $373m of sales in the US and $83m ex-US.
O’Day said last May, during his first quarterly earnings call as Gilead CEO, that the company planned to make Kite a separate business entity within Gilead with its own CEO, perhaps indicating a declining role in the Foster City, CA-based firm’s plans for growth. (Also see "Gilead To Let Kite Fly Free; O’Day Says It Will Become Separate Business Unit" - Scrip, 2 May, 2019.)
On the 4 February call, O’Day said Gilead looks forward to presenting Phase III data for Yescarta in relapsed/refractory diffuse large B-cell lymphoma (DLBCL) patients during the second half of 2020, and also cited a second Kite candidate, KTE-X19, as under review in the US and EU for relapsed/refractory mantle cell lymphoma.
The CEO did not mention the $800m write-down, however, which followed an $820m write-down of the Kite transaction during 2018. (Also see "Gilead Maintains Optimistic Outlook For Yescarta Despite Slow Growth" - Scrip, 4 Feb, 2019.) Recently appointed chief medical officer Merdad Persay pointed out in his overview of Gilead’s R&D pipeline that the company has 15 oncology candidates in clinical development, citing “a broad portfolio, including Kite.” (Also see "Gilead’s New O’Day Regime Has New R&D Structure " - Scrip, 10 Oct, 2019.)
The Yescarta sales came in below Jefferies’ projection for the quarter of $135m and Credit Suisse’s expectation of $138m, as well as a $129m consensus estimate given by Credit Suisse analyst Evan Seigerman in a 4 February note.
HIV Franchise Sets New Quarterly, Annual Sales Peaks
Overall, Gilead reported fourth quarter revenue of $5.8bn, up slightly from $5.7bn a year earlier, and full-year sales of $22.1bn, compared to $21.7bn in 2018. O’Day emphasized the strength of the company’s core business, noting that the HIV franchise had once again set quarterly and annual sales records. (Also see "O’Day Lays Out Plan For Gilead’s Continued HIV Dominance" - Scrip, 14 Jan, 2020.)
On the quarter, HIV sales of $4.6bn were up 9% year-over-year, according to chief commercial officer Johanna Mercier, while the annual total of $16.4bn accounted for a 12% increase over 2018.
“Today, approximately 80% of people living with HIV who are on therapy in the US are on a Gilead-based regimen,” O’Day said. “Across the franchise, we've seen durability and sustainability of the business, which we expect to continue in 2020 and beyond.”
He noted that much of the strength is being driven by Biktarvy (bictegravir/emtricitabine/tenofovir alafenamide (TAF)) and said that about one in two patients who are new to therapy and patients who are switching therapy are initiating treatment with Biktarvy.
“We're also very pleased with the early progress with Descovy (emtricitabine/TAF) for PrEP [pre-exposure prophylaxis],” O’Day said.
Biktarvy yielded sales of $1.57bn during the fourth quarter, nearly $1.36bn of that in the US, up 23% from the prior quarter. Full-year sales of $4.74bn more than quadrupled the $1.18bn realized in 2018. Biktarvy now is on the market in 29 EU markets, Mercier said, and is the number-one HIV therapy in Germany, France, Spain and Italy. Overall, Gilead’s quarterly HIV sales in Europe rose 10% year-over-year, she added.
Descovy brought in $437m worldwide during the quarter, and $1.5bn for the year. Mercier noted that 27% of US PrEP patients now take Descovy and Gilead expects to realize its goal of a 40%-45% market share in PrEP by the end of 2020.
For 2020, Gilead offered full-year product sales guidance of $21.8bn to $22.2bn, basically flat compared to 2019’s performance. O’Day said that while HIV is robust and continues to grow, there are headwinds Gilead has to factor in, including the US patent expiration of Descovy predecessor Truvada (emtricitabine/tenofovir disoproxil fumarate) in 2021. Truvada yielded $2.81bn in sales during 2019, including $768m in the fourth quarter, nearly all of it in the US.
A current drag on performance is generic erosion in the cardiovascular franchise. Mercier pointed out that recent generic competition has decreased sales of angina drug Ranexa (ranolazine) by 90% and pulmonary arterial hypertension drug Letairis (ambrisentan) by 65%. That trend is expected to continue in 2020, she said. Gilead did not break out individual sales of either product in its report.