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Two Strikes for Gilead's Non-HIV Franchises

It is welcome news that Gilead (GILD) is planning phase 3 trials of a new four-pill combo to fight HIV. Analysts estimate the pill could generate $4 billion in revenues.

The company -- which has been fantastically profitable because of its specialty in HIV drugs -- may want to consider whether it should end its recent flirtation with heart drugs. Both of them have run into expensive problems recently.

In December it emerged that darusentan, Gilead's blood pressure candidate, not only was associated with heart problems but also missed a primary endoint in testing. Most observers, such as The Motley Fool, took this as bad news:

The loss of darusentan is a major blow to Gilead's diversification away from its HIV franchise. It still has a decent pipeline of non-HIV drugs, but most are in phase 1 or 2 testing, so it'll be quite awhile before HIV drugs aren't the main contributor to Gilead's revenue.
In fact, the cloud may have a silver lining. This is an opportunity for Gilead to get back to its knitting on HIV, instead of trying to turn itself into Pfizer (PFE), with all sorts of mainstream non-specialist drugs. (Even Pfizer is backing away from that model.) Those drugs may be popular, but they have higher per-pill marketing expenses.

Gilead's other heart drug, Ranexa for chronic angina, is under investigation by the Department of Justice. The feds want to know if there was anything wrong with Gilead's acquisition of CV Therapeutics, which owned the drug. Even if Gilead emerges unscathed from the probe, the company still has to make a profit on the drug. It paid $1.4 billion to acquire CVT; Ranexa thus far makes only $49 million a quarter (it's not a first-line treatment for angina).

It may indeed be the case that there will be an uncomfortable gap in Gilead's pipeline, but the company's long-run value is in its specialty, not its me-too drugs.