- GSK's 2-drug regimens are seen as potential threats to Gilead's HIV portfolio given the cost and safety benefits. However, sell-side experts and key opinion leaders remain unconvinced.

- Investors are also concerned about the recent slew of management departures, which could put the stock in near-term limbo and delay turnaround progress

- Other discussions include HIV strength, HCV stabilization, Yescarta's longer-term upside, and potential outcomes from upcoming readouts for filgotinib and NASH trials

Does GSK’s ATLAS Present a Legitimate Threat to the HIV Franchise?

ViiV/GSK has more recently pursued several 2-drug regimens, arguing in favor of its limited toxicity and reduced cost burdens compared to the more frequent 3-drug and 4-drug regimens. With each successive trial, two-drug regimens come closer to posing a threat to GILD’s three-drug oral regimens.

GILD stock has declined by 6% over the last week on the latest positive trial - ViiV/GSK’s ATLAS. ATLAS examined whether a monthly injectable two-drug combo of cabotegravir and rilpivirine could show a similar rate of viral suppression to a standard three drug oral regimen of two NRTIs plus a third agent. On August 15th, ViiV/GSK announced that the study met its primary endpoint of non-inferiority, with similar efficacy at week 48. The results were not a huge surprise given the positive readout in phase 2, but was still an incrementally negative data point for Gilead, nonetheless.

While worth monitoring for further developments, many analysts are not concerned for several reasons. First, many physicians will need to see long-term resistance data before being comfortable with their patients switching over from a three-drug oral regimen. This is a significant concern that many key opinion leaders (KOLs) have expressed. Second, monthly injections are onerous, and physicians have expressed concerns over patient adherence. Monthly injections are not obviously more convenient than a daily pill (whereas a two-month or three-month dose might be considered more disruptive). Third, there are still questions around long-term efficacy of regimens with fewer drugs. Recently, monotherapies of HIV integrase strand transfer inhibitors have been unsuccessful in proving efficacy. Fourth, phase 2 results showed that patients experienced adverse events that could be another barrier. Patients received two intramuscular injections into the buttocks, which led to pain that lasted 3 days on average (median), and about 5% of patients experienced severe pain. Fifth, several KOLs have opined that the market could be limited to a niche audience with compliance issues or a dislike of the stigma associated with a daily pill. 

ViiV/GSK noted that they would present ATLAS data at an upcoming scientific conference. The company also has several other related readouts expected over the next year. Management expects phase 3 data in treatment-naive patients later this year, and a 4-week/8-week dosing study in mid 2019.

How Concerning are Management Departures?

Gilead has had a number of senior level executive departures recently that has generated investor concern. On July 25th, Gilead announced that its CEO John Milligan, and Chairman John Martin will be stepping down. More recently, on August 15th, Gilead announced that its CMO, Andrew Cheng, will also be stepping down. The slew of departures was unexpected, especially for Mr. Milligan, as he had been at the company for 28 years and held the role of CEO for just two years.

Investor chatter was focused entirely on the recent management changes, and concerns were concentrated in two areas. The first concern was around the potential for an unknown structural issue at the company that can sometimes lead to an exodus of executives. The second concern was around a delay in the company’s strategic progress. It would be difficult for investors and for the company to progress on its turnaround plan without a CEO for the next several quarters. Major strategic moves will likely be delayed for another year, at least, if not longer.

Analysts have had a couple counterpoints to these concerns. Management noted that the CMO departure was unrelated to the CEO/Chairman departure, and that he is leaving for another opportunity. This suggests that perhaps the departure was unrelated to any structural issue. This is further supported by the fact that we know that several key drugs (such as Biktarvy) have launched and that initial data points have been positive.

Additionally, the next hires could be seen as catalysts for the stock. Management has been in the midst of a key turnaround for the company. It’s true that the strategic direction of the company is on hold, and that the stock could be limited in upside while they search for the next team. However, the next team could prove to be a breath of fresh air to the company. For example, Mr. Cheng was a significant reason for the success of the HIV franchise given his expertise in the area. However, with the company potentially shifting focus to other therapeutic areas, it may be crucial to bring in a fresh perspective and a different knowledge base.

Other Tidbits

A few quick bullets on other areas of discussion around the company:

• HIV continues to be driven by Biktarvy and PrEP, which are performing above expectations and should drive continued overall growth for Gilead. Worth watching competitive environment with 2-drug regimens from ViiV/GSK (detailed above) and JNJ’s Symtuza (a four-drug combo) that could impact the HIV franchise’s growth trajectory

• General perception around HCV franchise is that the worst is behind them and that the company is beginning to see stabilization in the back half of the year. Guidance of $3.5B - $4B seems achievable as competitive threat from Mavyret appears to have plateaued

• Filgotinib FINCH2 (rheumatoid arthritis) expected soon in 3Q18. FINCH1 and FINCH3 readouts in 1H19. Recent management commentary was noncommittal and was interpreted by some investors as a delayed potential filing. Sell-side has been largely supportive of the asset and see high likelihood of positive readout for FINCH2. Some investor concern that risk/reward does not look attractive going into the readout given the high expectations for an approval

• Yescarta has had a well-executed launch and recently saw stronger-than-expected 2Q sales. Investors see this as a key long-term growth driver with intriguing upside

• Selonsertib will have pivotal phase 3 data in 1H19, which, if positive, could put GILD in a position to be first to market for NASH. Consensus here appears to be lukewarm with several analysts forecasting low probabilities of success (<50%).