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Morningstar | Gilead's HIV Dominance Underpins Wide Moat, With Potential Growth in Oncology and Immunology

Gilead generates stellar profit margins with its HIV and HCV portfolio, which requires only a small salesforce and inexpensive manufacturing. We think the firm's portfolio and pipeline support a wide moat, but Gilead needs HCV market stabilization, strong continued innovation in HIV, solid pipeline data, and smart future acquisitions to return to growth. Gilead's tenofovir (TDF) molecule--in Viread, Truvada, and older single-tablet regimens--historically formed the heart of the firm's $15 billion HIV franchise. Combo pills offer convenience and affordability, as patients are less likely to miss doses and develop drug resistance, and they only need to make one copayment. The newest combo pills--replacing TDF with TAF--reduce bone and kidney safety issues and are seeing rapid uptake. Gilead's biggest competitive threat in HIV is Glaxo; Triumeq saw rapid growth in 2015, and Glaxo is launching two-drug regimens based on its integrase inhibitor Tivicay (Juluca in 2017 and a combo with generic drug lamivudine in 2019) that also bypass Gilead's drugs. However, Gilead's Genvoya (2015), Odefsey (2016), Descovy (2016), and Biktarvy (2018) launches push patent protection into the late 2020s and are boosting Gilead's market share. The $11 billion Pharmasset deal brought key HCV drug Sovaldi. Sovaldi and Harvoni (a combination of Sovaldi and ledipasvir) peaked at more than $19 billion in sales in 2015. However, demand has been shrinking as patients are cured, and competition from AbbVie and Merck has led to several rounds of significant price-discounting. We expect Gilead and AbbVie to share a $5 billion-plus market in the long term.Gilead is building a pipeline outside of HIV and HCV but will need more acquisitions like Kite (with CAR-T therapy Yescarta) to see strong growth. Gilead's first cancer drug, Zydelig, launched in 2014, is limited by safety concerns, but we're more optimistic about the firm's immunology portfolio, including JAK1-inhibitor filgotinib from the Galapagos collaboration. Lead NASH program selonsertib recently failed in a phase 3 trial, but Gilead has an ongoing midstage trial exploring combination therapy with other mechanisms in NASH.