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With New CV Drugs, Gilead Tests Its Commitment to Efficiency

By Jim Edwards

Updated on: April 3, 2009 / 3:11 PM EDT / MoneyWatch

Gilead received some good news today with the results of a positive phase 3 study of its new high-blood pressure drug, darusentan.

Combined with Gilead's purchase of CV Therapeutics to gain the chronic angina drug Ranexa, this marks a new push into the cardio-vascular area for a company that has made its riches by dominating the HIV space.

But before we get all giddy about a company that, historically, has done almost everything right, it's worth asking whether Gilead is about screw everything up.

Gilead's success has come from its incredible efficiency, and that efficiency comes from its focus on expensive, specialist areas, HIV being the best example. For every dollar Gilead spends on sales reps it gets back $7.37 cents in revenue, more than double what most other companies earn. The company has only 3400 employees.

That clearly shows the benefit of being in a business where you have a smaller sales force talking to a highly focused audience with a high demand for new information.

The new audience it must target for its CV and heart porfolio is to some extent the opposite of that: It includes primary care physicians as well as cardio docs.

Gilead will have to staff these drugs with new reps, who run the risk of experiencing what much larger companies are already familiar with: the declining of effectiveness of lining up to talk to harried general practitioners.

And the problems don't end there. Darusentan is a non-first-line high blood pressure drug -- it is intended to be used when other drugs don't work. That means Gilead could have problems with insurance companies and other reimbursers who may say, we don't need to pay for yet another blood pressure drug when there are already so many on the market.

Ranexa has some of the same problems -- it's for chronic patients who haven't responded to other drugs and it can be used in tandem with them.

While Gilead is already a model of efficiency, its SG&A costs are rising, from $173 million in Q3 2007 to $194 million last quarter.

CFO Robin Washington told investors that for 2008, operating expenses were $1.5 billion, an increase of 18% over 2007. She promised to keep SG&A flat for 2009.

And Gilead does have some blots on its copybook. One is Letairis -- a pulmonary drug -- which only does $36 million in sales per year. The Street:

Gilead's $2.5 billion purchase of Myogen in 2006, which brought with it the pulmonary disease drug Letairis, has been a disappointment to date. What's to say that the latest push into cardiovascular medicine won't also under-perform?

Another was the 2006 purchase for $365 million of Corus Pharma which developed aztreonam lysine for cystic fibrosis. That drug was rejected by both the FDA and the Euro zone.