GILD: Gilead Sciences Analysis and Research Report

2018-03-04 - by Asif , Contributing Analyst - 290 views

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Overview

Gilead Sciences, Inc. (Gilead, we, its or us), incorporated in Delaware on June 22, 1987, is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. With each new discovery and investigational drug candidate, the company strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead Sciences has operations in more than 35 countries worldwide, with headquarters in Foster City, California. Gilead’s primary areas of focus include HIV/AIDS, liver diseases, hematology/oncology and inflammation/respiratory diseases. The company seek to add to its existing portfolio of products through its internal discovery and clinical development programs and through product acquisition and in-licensing strategies.

2017 Highlights

Over the past year, the company continued to bring best-in-class drugs to market that advance the standard of care by offering enhanced modes of delivery, more convenient treatment regimens, improved resistance profiles, reduced side effects and greater efficacy. In HIV, the company submitted a new drug application (NDA) with U.S. Food and Drug Administration (FDA) and a marketing authorization application (MAA) with the European Medicines Agency (EMA) for Biktarvy®, a once-daily single tablet regimen containing bictegravir, a novel investigational integrase strand transfer inhibitor, emtricitabine and tenofovir alafenamide (TAF) for the treatment of HIV infection in adults. In February 2018, the company received approval for Biktarvy in the United States. In oncology, the company acquired Kite Pharma, Inc. (Kite) in October 2017 and shortly thereafter received FDA approval for Yescarta™ (axicabtagene ciloleucel), the first chimeric antigen receptor (CAR) T cell therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy. The acquisition of Kite helps establish its foundation for improving the treatment of hematological malignancies and solid tumors. In liver diseases, the company continued to advance the treatment of chronic hepatitis C virus (HCV) infection with the approval of Vosevi® (sofosbuvir/velpatasvir/voxilaprevir), a single tablet regimen for the re-treatment of adults with chronic HCV infection. In 2017, Sovaldi® (sofosbuvir) for the treatment of chronic HCV infection received approval in China and is the first product the company launched directly in China. The company also received European Commission approval of Vemlidy® (TAF), a once-daily treatment for adults with chronic hepatitis B virus (HBV) infection with compensated liver disease. In addition, the company continued to advance its multiple ongoing clinical studies for the treatment of nonalcoholic steatohepatitis (NASH), which include the evaluation of selonsertib in two ongoing Phase 3 studies. In the area of inflammation/respiratory diseases, the company continued to advance filgotinib, a JAK1 inhibitor Gilead Sciences is developing with Galapagos NV (Galapagos), in five ongoing Phase 3 clinical trials for the potential treatment of rheumatoid arthritis, Crohn’s disease and ulcerative colitis. At the end of 2017, its research and development pipeline included 138 active clinical studies, of which 49 were Phase 3 clinical trials.

In addition to advancing treatment options across therapeutic areas, the company enabled access to its medications for people who need them around the world. The company continued to expand access to its medicines in low- and middle-income countries by pursuing multiple strategies, including entering into collaborations with governments, generic manufacturers, regional business partners, policy makers, healthcare providers, patient groups and public health entities. Today, more than 10 million people are receiving its HIV medicines in low- and middle-income countries. In 2017, the company entered into a new licensing agreement with the Medicines Patent Pool (MPP), a United Nations-backed public health organization, to expand access to bictegravir. The company also launched the Gilead COMPASS Initiative™, a 10-year, $100 million commitment to support organizations working to address the HIV/AIDS epidemic in the Southern United States.

HIV/AIDS

The company's goal is to ensure that all HIV patients can choose a single tablet regimen that is right for them. Single tablet regimens allow patients to adhere to a fully suppressive course of therapy more easily and consistently, which is critical for the successful management of the disease. HIV patients are living longer, thus facing additional health challenges to those experienced by newly diagnosed patients. Gilead Sciences is motivated to continue improving on existing treatment options. The need for efficacy together with improved long-term safety has driven its development programs and the design of the studies Gilead Sciences has completed and those that are planned.

The company's TAF single tablet regimens seek to address the diverse needs of HIV patients worldwide. TAF is a novel targeted prodrug of tenofovir that has demonstrated high antiviral efficacy similar to, and at a dose less than one-tenth that of, Viread® (tenofovir disoproxil fumarate, TDF), as well as improvement in surrogate laboratory markers of renal and bone safety as compared to TDF in clinical trials in combination with other antiretroviral agents. With the recent approval and launch of Biktarvy in the United States in February 2018, the company now have six single tablet regimens available for the treatment of HIV, which include three TAF-based single tablet regimens, Biktarvy, Genvoya® (elvitegravir/cobicistat/emtricitabine/TAF) and Odefsey® (emtricitabine/rilpivirine/TAF).

The company expect approval for Biktarvy in the European Union towards the middle of 2018. Data from four Phase 3 studies evaluating Biktarvy among treatment-naïve patients and virologically suppressed patients found Biktarvy to be statistically non-inferior to regimens containing dolutegravir in combination with a dual-NRTI backbone in treatment-naïve patients and virologically suppressed patients. Biktarvy was also found to be statistically non-inferior to regimens containing a boosted protease inhibitor in virologically suppressed adult patients with HIV and demonstrated no treatment-emergent resistance at 48 weeks.

In 2017, the company continued to see strong use of Truvada® for a pre-exposure prophylaxis (PrEP) indication for HIV prevention. Gilead Sciences is working with the healthcare community to ensure that patients and providers have accurate information about the appropriate use of Truvada for PrEP. Gilead Sciences has launched targeted media campaigns and provided grants to community organizations to raise awareness about PrEP among at-risk populations through education and training, and the company support demonstration projects and research efforts that are seeking to identify optimal implementation strategies for PrEP as an HIV prevention tool. Descovy is currently being evaluated in Phase 3 clinical trials for potential use in PrEP.

Looking ahead, its innovation efforts in HIV continue with research directed to new treatment modalities and the pursuit of its ultimate goal - a cure.

Liver Diseases

Gilead Sciences has advanced the treatment options and standard of care for the HCV market, including providing products to meet the needs of almost all HCV patients regardless of disease severity, genotype or prior treatment. With FDA’s approval of Sovaldi in December 2013, compared to the prior standard of care of up to 48 weeks, the duration of treatment was shortened to as few as 12 weeks and the need for peg-interferon injections in certain viral genotype populations was reduced or eliminated completely. In 2014, Harvoni® (ledipasvir/sofosbuvir) was approved as the first once-daily single tablet regimen for the treatment of HCV genotype 1-infected patients, the most prevalent genotype in the United States. In April 2017, FDA approved supplemental indications for Sovaldi and Harvoni for the treatment of HCV in certain pediatric patients. In 2016, Epclusa® (sofosbuvir/velpatasvir) was approved as its first all-oral, pan-genotypic, single tablet regimen for the treatment of adults with genotype 1-6 chronic HCV infection. Epclusa was also the first single tablet regimen approved for the treatment of patients with HCV genotype 2 and 3, without the need for ribavirin, and in August 2017, FDA approved expanded labeling for Epclusa to include use in patients co-infected with HIV. In July 2017, FDA and European Commission approved Vosevi, its once-daily, single tablet regimen for the re-treatment of adults with HCV, which offers an effective cure for patients who have failed prior therapy with other highly effective regimens.

In September 2017, the company received regulatory approval of Sovaldi in China, where an estimated 10 million people are estimated to be living with HCV. Gilead Sciences has also filed a marketing application for Vemlidy for the treatment of HBV infection in China.

In January 2017, the company received European Commission approval of Vemlidy, a once-daily treatment for adults with HBV infection with compensated liver disease. Vemlidy was approved in the United States in November 2016.

The company continued to advance two ongoing Phase 3 studies evaluating selonsertib, its apoptosis signal-regulating kinase 1, or ASK-1, inhibitor, for the treatment of NASH. The company expect data will be available in 2019 and, if positive, will form the basis of its regulatory filing. In October 2017, the company announced Phase 2 data results for GS-0976, an acetyl-CoA carboxylase (ACC) inhibitor, in patients with NASH. The data demonstrated that GS-0976 led to significant reductions in measures of liver fat and certain biomarkers of liver fibrosis compared to placebo. This is the first randomized placebo-controlled Phase 2 study of an ACC inhibitor in NASH. The study suggests that GS-0976 has a potential to play an important role in treating patients with the disease. Gilead Sciences is also conducting Phase 2 combination studies of GS-0976 with selonsertib and the selective non-steroidal FXR agonist, GS-9674 in patients with NASH.

Hematology/Oncology

In October 2017, the company completed its acquisition of Kite, which helped establish it as a leader in cellular therapy and provides a foundation from which the company will drive continued innovation for people with advanced cancers. Kite’s cell therapies express either a CAR or an engineered T cell receptor, depending on the type of cancer. In October 2017, Yescarta, a CAR T cell therapy, was approved by FDA, making it the first CAR T cell therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy, which includes diffuse large B-cell lymphoma (DLBCL) not otherwise specified, primary mediastinal B-cell lymphoma (PMBCL), high-grade B-cell lymphoma, and DLBCL arising from follicular lymphoma (transformed follicular lymphoma or TFL). The company expect European Commission approval of Yescarta during the first half of 2018. Additional studies of Yescarta for other indications are underway. Kite has additional candidates in clinical trials in both hematologic cancers and solid tumors, including KITE-585, a CAR T cell therapy candidate that targets B-cell maturation antigen in patients with relapsed/refractory multiple myeloma.

In December 2017, the company acquired Cell Design Labs, Inc. (Cell Design Labs), a pre-clinical stage company with significant expertise in custom cell engineering. The company is developing two proprietary technology platforms: synNotch™, a synthetic gene expression system that responds to external cues which, among other applications, can be deployed to engineer CAR T cells that require dual antigen recognition for activation, and Throttle ™, an “on switch” that modulates CAR T cell activity using small molecules. The addition of these technologies to existing Kite research and development programs could lead to the treatment of a broader range of hematological malignancies and solid tumors and potentially offer improved selectivity and safety of future treatments.

In 2017, the company continued to advance the ongoing Phase 3 study of andecaliximab, a MMP9 mAb inhibitor, in combination with mFOLFOX6, for the treatment of gastric cancer. Gilead Sciences is also conducting a Phase 2 study of andecaliximab in combination with nivolumab versus nivolumab alone. This study is expected to be completed in the first quarter of 2018.

Inflammation/Respiratory Diseases

In 2017, the company continued to advance five ongoing Phase 3 clinical trials of filgotinib, a JAK1 inhibitor Gilead Sciences is developing with Galapagos, for the potential treatment of rheumatoid arthritis, Crohn’s disease and ulcerative colitis. Filgotinib is also being investigated in five Phase 2 studies for the treatment of other inflammatory diseases, including psoriatic arthritis, ankylosing spondylitis, lupus, Sjogren’s syndrome and uveitis.

The company's Products

HIV/AIDS

  • Biktarvy is an oral formulation dosed once a day for the treatment of HIV-1 infection in certain patients. Biktarvy is a fixed-dose combination of its antiretroviral medications, bictegravir, emtricitabine and TAF.
  • Descovy is an oral formulation indicated in combination with other antiretroviral agents for the treatment of HIV-1 infection in adults and pediatric patients 12 years of age or older. Descovy is a fixed-dose combination of its antiretroviral medications, emtricitabine and TAF.
  • Odefsey is an oral formulation dosed once a day for the treatment of HIV-1 infection in certain patients. Odefsey is a fixed-dose combination of its antiretroviral medications, emtricitabine and TAF, and rilpivirine hydrochloride marketed by Janssen Sciences Ireland UC (Janssen), one of the Janssen Pharmaceutical Companies of Johnson & Johnson.
  • Genvoya is an oral formulation dosed once a day for the treatment of HIV-1 infection in adults. Genvoya is a single tablet regimen for the treatment of HIV and is a fixed-dose combination of its antiretroviral medicines, elvitegravir, cobicistat, emtricitabine and TAF.
  • Stribild® (elvitegravir/cobicistat/emtricitabine/TDF) is an oral formulation dosed once a day for the treatment of HIV-1 infection in treatment-naïve adults. Stribild is a single tablet regimen for the treatment of HIV and is a fixed-dose combination of its antiretroviral medications, elvitegravir, cobicistat, TDF and emtricitabine.
  • Complera®/Eviplera® (emtricitabine/rilpivirine/TDF) is an oral formulation dosed once a day for the treatment of HIV-1 infection in adults. The product, marketed in the United States as Complera and in Europe as Eviplera, is a single tablet regimen for the treatment of HIV and is a fixed-dose combination of its antiretroviral medications, TDF and emtricitabine, and Janssen’s rilpivirine.
  • Atripla® (efavirenz/emtricitabine/TDF) is an oral formulation dosed once a day for the treatment of HIV infection in adults. Atripla is a single tablet regimen for HIV intended as a stand-alone therapy or in combination with other antiretrovirals. It is a fixed-dose combination of its antiretroviral medications, TDF and emtricitabine, and Bristol-Myers Squibb Company’s (BMS’s) efavirenz.
  • Truvada (emtricitabine/TDF) is an oral formulation dosed once a day as part of combination therapy to treat HIV infection in adults. It is a fixed-dose combination of its antiretroviral medications, TDF and emtricitabine. FDA also approved Truvada for a PrEP indication, in combination with safer sex practices, to reduce the risk of sexually acquired HIV-1 infection in adults at high risk.
  • Viread is an oral formulation of a nucleotide analog reverse transcriptase inhibitor, dosed once a day as part of combination therapy to treat HIV infection in patients two years of age and older. The European Commission also approved the use of Viread in combination with other antiretroviral agents for the treatment of HIV-1-infected adolescent patients aged two to less than 18 years with nucleoside reverse transcriptase inhibitor resistance or toxicities precluding the use of first-line pediatric agents. Viread is also approved for the treatment of HBV.
  • Emtriva® is an oral formulation of a nucleoside analog reverse transcriptase inhibitor, dosed once a day as part of combination therapy to treat HIV infection in adults. In the United States and Europe, Emtriva is also available as an oral solution approved as part of combination therapy to treat HIV infection in children.
  • Tybost® is a pharmacokinetic enhancer dosed once a day that boosts blood levels of certain HIV medicines. Tybost is indicated as a boosting agent for the HIV protease inhibitors atazanavir and darunavir as part of antiretroviral combination therapy in adults with HIV-1 infection.

Liver Diseases

  • Vosevi is an oral formulation of a once-daily, single tablet regimen of sofosbuvir, velpatasvir and voxilaprevir for the re-treatment of HCV infection in adults with genotype 1, 2, 3, 4, 5 or 6 previously treated with an NS5A inhibitor-containing regimen, or with genotype 1a or 3 previously treated with a sofosbuvir-containing regimen without an NS5A inhibitor.
  • Vemlidy is an oral formulation of a once-daily treatment of TAF for adults with HBV infection with compensated liver disease.
  • Epclusa is an oral formulation of sofosbuvir and velpatasvir and the first pan-genotypic, single tablet regimen for the treatment of adults with genotype 1-6 chronic infection. Epclusa is also the first single tablet regimen approved for the treatment of patients with HCV genotype 2 and 3, without the need for ribavirin. Epclusa for 12 weeks was approved in patients without cirrhosis or with compensated cirrhosis (Child-Pugh A), and in combination with ribavirin for patients with decompensated cirrhosis (Child-Pugh B or C). In 2017, FDA approved expanded labeling for Epclusa to include use in patients co-infected with HIV.
  • Harvoni is an oral formulation of ledipasvir and sofosbuvir dosed once a day for the treatment of genotypes 1, 4, 5 and 6, HCV/HIV-1 co-infection, HCV genotype 1 and 4 liver transplant recipients, and genotype 1-infected patients with decompensated cirrhosis. In 2017, FDA approved supplemental indications for Harvoni for the treatment of genotype 1, 4, 5 or 6 chronic HCV infection in adolescents without cirrhosis or with compensated cirrhosis, 12 years of age or older, or at least 35kg. In Europe, Harvoni is also indicated for certain patients with HCV genotype 4 infection, HCV genotype 3 infection with cirrhosis and/or prior treatment failure and those with HCV/HIV-1 co-infection.
  • Sovaldi is an oral formulation of sofosbuvir dosed once a day for the treatment of HCV as a component of a combination antiviral treatment regimen. Sovaldi’s efficacy has been established in patients with HCV genotypes 1, 2, 3 or 4 infection (in the United States and Europe) and genotypes 5 and 6 infection (in Europe), including those with hepatocellular carcinoma meeting Milan criteria (awaiting liver transplantation) and those with HCV/HIV-1 co-infection. In 2017, FDA approved supplemental indications for Sovaldi, in combination with ribavirin, for the treatment of genotype 2 or 3 chronic HCV infection in adolescents without cirrhosis or with compensated cirrhosis, 12 years of age or older, or at least 35kg.
  • Viread is an oral formulation of a nucleotide analog reverse transcriptase inhibitor, dosed once a day for the treatment of HBV in adults with compensated and decompensated liver disease. The company licensed to GlaxoSmithKline Inc. (GSK) the rights to commercialize Viread for the treatment of HBV in China, Japan and Saudi Arabia. The European Commission approved the use of Viread for the treatment of HBV infection in adolescent patients aged 12 to less than 18 years with compensated liver disease and evidence of immune active disease. Viread is also approved for the treatment of HIV infection.
  • Hepsera® (adefovir dipivoxil) is an oral formulation of a nucleotide analog polymerase inhibitor, dosed once a day to treat HBV in patients 12 years of age and older. The company licensed to GSK the rights to commercialize Hepsera for the treatment of HBV in Asia Pacific, Latin America and certain other territories.

Hematology/Oncology

  • Yescarta (axicabtagene ciloleucel) is the first CAR T cell therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy, including DLBCL not otherwise specified, PMBCL, high-grade B-cell lymphoma and DLBCL arising from TFL. Yescarta is currently under review with EMA and potential approval is expected in the first half of 2018.
  • Zydelig® (idelalisib) is a first-in-class PI3K delta inhibitor for the treatment of certain blood cancers. In the United States, Zydelig is approved in combination with rituximab for patients with relapsed chronic lymphocytic leukemia (CLL) for whom rituximab alone would be considered appropriate therapy and as monotherapy for patients with relapsed follicular B-cell non-Hodgkin lymphoma (FL) and small lymphocytic lymphoma who have received at least two prior systemic therapies. In the European Union, Zydelig is approved for the treatment of CLL and FL.

Cardiovascular

  • Letairis® (ambrisentan) is an oral formulation of an endothelin receptor antagonist indicated for the treatment of pulmonary arterial hypertension (PAH) (WHO Group I) in patients with WHO Class II or III symptoms to improve exercise capacity and delay clinical worsening. The company sublicensed to GSK the rights to ambrisentan, marketed by GSK as Volibris® (ambrisentan), for PAH in territories outside of the United States.
  • Ranexa® (ranolazine) is an extended-release tablet for the treatment of chronic angina. The company licensed to Menarini International Operations Luxembourg SA the rights to Ranexa in territories outside of the United States.
  • Lexiscan® (regadenoson) injection is indicated for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging, a test that detects and characterizes coronary artery disease, in patients unable to undergo adequate exercise stress. Astellas US LLC (Astellas) has exclusive rights to manufacture and sell regadenoson under the name Lexiscan in the United States. Rapidscan Pharma Solutions, Inc. (RPS) holds the exclusive right to manufacture and sell regadenoson under the name Rapiscan® in Europe and certain territories outside the United States. The company receive royalties from Astellas and RPS for sales in these territories.

Inflammation/Respiratory

  • Cayston® (aztreonam for inhalation solution) is an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients seven years of age and older with Pseudomonas aeruginosa (P. aeruginosa).
  • Tamiflu® (oseltamivir phosphate) is an oral antiviral available in capsule form for the treatment and prevention of influenza A and B. Tamiflu is approved for the treatment of influenza in children and adults in more than 60 countries, including the United States, Japan and the European Union. Tamiflu is also approved for the prevention of influenza in children and adults in the United States, Japan and the European Union. The company developed Tamiflu with F. Hoffmann-La Roche Ltd (together with Hoffmann-La Roche Inc., Roche). Roche has the exclusive right to manufacture and sell Tamiflu worldwide, subject to its obligation to pay it royalties based on a percentage of the net sales of Tamiflu.

Other

  • AmBisome® (amphotericin B liposome for injection) is a proprietary liposomal formulation of amphotericin B, an antifungal agent to treat serious invasive fungal infections caused by various fungal species in adults. The company's corporate partner, Astellas Pharma US, Inc., promotes and sells AmBisome in the United States and Canada, and the company promote and sell AmBisome in Europe, Australia and New Zealand.
  • Macugen® (pegaptanib sodium injection) is an intravitreal injection of an anti-angiogenic oligonucleotide for the treatment of neovascular age-related macular degeneration. Macugen was developed by Eyetech Inc. (Eyetech) using technology licensed from it and is now promoted in the United States by Valeant Pharmaceuticals, Inc. (Valeant), which acquired Eyetech in 2012. Valeant holds the exclusive rights to manufacture and sell Macugen in the United States, and Pfizer Inc. (Pfizer) holds the exclusive rights to manufacture and sell Macugen in the rest of the world. The company receive royalties from Valeant and Pfizer based on worldwide sales of Macugen.

Antiviral product sales, which include sales of its HIV, HBV and HCV products, were $23.3 billion, $27.7 billion and $30.2 billion in 2017, 2016 and 2015, respectively, and represented 89% of its total revenues in 2017, 91% of its total revenues in 2016 and 93% of its total revenues in 2015. Sales of its other products were $2.3 billion, $2.2 billion and $1.9 billion in 2017, 2016 and 2015, respectively, and represented 9% of its total revenues in 2017, 7% of its total revenues in 2016 and 6% of its total revenues in 2015. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 and Note 16, Segment Information of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to sales by product.

Commercialization and Distribution

Gilead Sciences has U.S. and international commercial sales operations, with marketing subsidiaries in over 35 countries. The company's products are marketed through its commercial teams and/or in conjunction with third-party distributors and corporate partners. The company's commercial teams promote its products through direct field contact with physicians, hospitals, clinics and other healthcare providers. The company generally grant its third-party distributors the exclusive right to promote its product in a territory for a specified period of time. Most of its agreements with these distributors provide for collaborative efforts between the distributor and Gilead in obtaining and maintaining regulatory approval for the product in the specified territory.

The company sell and distribute most of its products in the United States exclusively through the wholesale channel. The company's product sales to three large wholesalers, McKesson Corporation, AmerisourceBergen Corporation and Cardinal Health, Inc. each accounted for more than 10% of total revenues for each of the years ended December 31, 2017, 2016 and 2015. On a combined basis, in 2017, these wholesalers accounted for approximately 89% of its product sales in the United States and approximately 62% of its total worldwide revenues. The company sell and distribute its products in Europe and countries outside the United States where the product is approved, either through its commercial teams, third-party distributors or corporate partners.

U.S. Patient Access

The company make it a priority to increase access to its medicines for people who can benefit from them, regardless of their ability to pay. In the United States, its patient support programs help patients and their families by providing information regarding insurance coverage, financial assistance and eligibility for free medication. The company make its therapies accessible for uninsured individuals and those who need financial assistance. The company also support programs for those unable to afford the co-payments associated with commercial health insurance programs. Half of all patients taking its HIV medicines in the United States already receive them through federal and state programs at substantially discounted prices. The company also have a long history of working with state AIDS Drug Assistance Programs (ADAPs) to provide lower pricing for its HIV medicines. The price freeze the company instituted for ADAPs in 2008 was extended in 2013 through the end of 2018, providing important support to these critical programs as they evolve in the changing U.S. healthcare environment.

The company's corporate giving program aims to reduce disparities, provide access, advance education programs and support local communities. For example, in 2017, the company launched the Gilead COMPASS Initiative, a 10-year, $100 million commitment to support organizations working to address the HIV/AIDS epidemic in the Southern United States.

Developing World Access

Under the Gilead Access Program, established in 2003, certain products for HIV/AIDS, viral hepatitis and visceral leishmaniasis are available at substantially reduced prices in the developing world. Today, more than 10 million people are receiving its HIV medicines in low- and middle-income countries. Gilead Sciences has entered into a number of collaborations related to access to its products in the developing world, which include:

  • Licenses with Generic Manufacturers. Gilead Sciences has entered into voluntary license agreements with generic manufacturers in India, South Africa and China, which allows them to manufacture generic versions of HIV and HBV products incorporating its licensed compounds, TAF, cobicistat, elvitegravir and bictegravir for distribution in certain low- and middle-income countries. Gilead Sciences has also entered into licensing agreements with generic manufacturers in India, Egypt and Pakistan to produce and distribute generic versions of its HCV products to certain low- and middle-income countries.
  • Medicines Patent Pool (MPP). Gilead Sciences has entered into a voluntary license agreement with the MPP, a United Nations-backed public health organization, to sub-license rights to generic manufacturers in India, China and South Africa to manufacture generic versions of HIV and HBV products incorporating its licensed compounds, TAF, cobicistat, elvitegravir and bictegravir for distribution in certain low- and middle-income countries.
  • Special Partnerships. The company work with national governments and local organizations to increase access to its HIV and HCV medicines and strengthen healthcare systems. Recent partnerships include:
  • The company partner with the Spouses of Carribean Leaders Action Network (SCLAN) to address the high incidence of HIV in the region and the elimination of mother-to-child transmission by raising awareness and supporting HIV prevention efforts. The company also partner with the Organization of Africa First Ladies Against HIV/AIDS (OAFLA) to eliminate mother-to-child transmission of HIV and help end the AIDS epidemic across the continent. Gilead Sciences is committed to helping the SCLAN and OAFLA leaders exchange and build collaborations maximizing the synergies across the regions.
  • The company supported an HCV elimination program in Arkhangai, Mongolia by donating enough Harvoni to treat the entire adult population, for which the HCV prevalence was 18%. The government of Arkhangai screened and treated these adults over the course of 12 months in 2017.
  • Since 2015, Gilead Sciences has partnered with the government of the Republic of Georgia and the U.S. Centers for Disease Control and Prevention to provide free HCV medicines to all those affected by the disease in the country and to collaborate with the government and healthcare professional across the country to expand its health systems infrastructure.

Competition

The company's marketed products target a number of areas, including HIV/AIDS, liver diseases, hematology/oncology, inflammation/respiratory, cardiovascular and other diseases. There are many commercially available products for the treatment of these diseases. The company face significant competition from large global pharmaceutical and biotechnology companies, specialized pharmaceutical firms and generic drug manufacturers. The company's products compete with other available products based primarily on efficacy, safety, tolerability, acceptance by doctors, ease of patient compliance, ease of use, price, insurance and other reimbursement coverage, distribution and marketing. As its products mature, private insurers and government payers often reduce the amount they will reimburse patients, which increases pressure on it to reduce prices. Further, as new branded or generic products are introduced into major markets, its ability to maintain pricing and market share may be affected.

HIV/AIDS Products

The HIV landscape is becoming more competitive and complex as treatment trends continue to evolve. A growing number of HIV drugs are currently in the market. Competition from current and expected competitors may erode the revenues the company receive from sales of its HIV products. The company's HIV products compete primarily with products from ViiV Healthcare Company (ViiV), which markets fixed-dose combination products that compete with Biktarvy, Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla and Truvada. For example, products marketed by ViiV, including Tivicay (dolutegravir), Triumeq (abacavir/dolutegravir/lamivudine) and Juluca (dolutegravir/rilpivirine), compete with its HIV products. In addition, ViiV’s lamivudine competes with emtricitabine, the active pharmaceutical ingredient of Emtriva and a component of Biktarvy, Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla and Truvada. For Tybost, the company compete with ritonavir, marketed by AbbVie Inc. (AbbVie). Most of its HIV products contain TAF, TDF and/or emtrictabine, which belong to the nucleoside class of antiviral therapeutics. If the treatment paradigm for HIV changes, its market share would likely decline.

The company also face competition from generic HIV products. Generic versions of lamivudine and Combivir (lamivudine and zidovudine) are available in the United States and certain other countries. Generic versions of efavirenz, a component of its Atripla, are now available in the United States, Canada and Europe. Gilead Sciences has observed some pricing pressure related to the efavirenz component of its Atripla sales. In addition, TDF, one of the active pharmaceutical ingredients in Stribild, Complera/Eviplera, Atripla and Truvada, and the main active pharmaceutical ingredient in Viread, faces generic competition in the European Union, the United States and certain other countries. In addition, because emtricitabine, the other active pharmaceutical ingredient of Truvada, faces generic competition in the European Union, Truvada also faces generic competition in the European Union and certain other countries outside of the United States.

Liver Diseases Products

The company continue to face competition in the HCV market. The company's HCV products, Vosevi, Epclusa, Harvoni and Sovaldi, compete primarily with Mavyret (glecaprevir/pibrentasvir) marketed by AbbVie and Zepatier (elbasvir and grazoprevir) marketed by Merck & Co. Inc. The company's HCV product revenues have declined and are expected to further decline as a result of increased competition from new HCV products, which has further eroded its net pricing and market share. The company expect pricing pressure in the HCV market to continue.

The company's HBV products, Vemlidy, Viread and Hepsera, face competition from existing therapies for treating patients with HBV. The company's HBV products face competition from generic versions of TDF. The company's HBV products also compete with Baraclude (entecavir), an oral nucleoside analog marketed by BMS, as well as generic entecavir, and Tyzeka/Sebivo (telbivudine), an oral nucleoside analog marketed by Novartis Pharmaceuticals Corporation (Novartis).

Hematology/Oncology Products

Yescarta is expected to compete with other companies developing advanced T cell therapies for the treatment of relapsed/refractory diffuse large B-cell lymphoma, including Novartis.

Other Products

Letairis competes with Tracleer (bosentan) and Opsumit (macitentan) marketed by Actelion Pharmaceuticals US, Inc. and also with Adcirca (tadalafil) marketed by United Therapeutics Corporation and Pfizer. Letairis is also expected to face generic competition in the United States starting in July 2018.

Ranexa competes predominantly with generic compounds from three distinct classes of drugs for the treatment of chronic angina in the United States, including generic and/or branded beta-blockers, calcium channel blockers and long-acting nitrates. Ranexa is also expected to face generic competition in the United States starting in 2019.

In addition, a number of companies are pursuing the development of technologies which are competitive with its existing products or research programs. These competing companies include specialized pharmaceutical firms and large pharmaceutical companies acting either independently or together with other pharmaceutical companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may seek patent protection and may establish collaborative arrangements for competitive products and programs. If any of these competitors gain market share as a result of new technologies, commercialization strategies or otherwise, it could adversely affect its results of operations and stock price.

Collaborative Relationships

As part of its business strategy, the company establish collaborations with other companies, universities and medical research institutions to assist in the clinical development and/or commercialization of certain of its products and product candidates and to provide support for its research programs. The company also evaluate opportunities for acquiring products or rights to products and technologies that are complementary to its business from other companies, universities and medical research institutions. For more information regarding certain of these relationships, including their ongoing financial and accounting impact on its business, see Note 10, Collaborative Arrangements of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Commercial Collaborations

Although the company currently have a number of collaborations with corporate partners for the manufacture, sale, distribution and/or marketing of its products in various territories worldwide, the following commercial collaborations are those that are most significant to it from a financial statement perspective and where significant ongoing collaboration activity exists.

**BMS **

North America

In 2004, the company entered into a collaboration arrangement with BMS to develop and commercialize a single tablet regimen containing its Truvada and BMS’s Sustiva (efavirenz) in the United States and Canada. This combination was approved for use in the United States in 2006 and is sold under the brand name Atripla. The company and BMS structured this collaboration as a joint venture that operated as a limited liability company, which the company consolidated. The company and BMS granted royalty-free sublicenses to the joint venture for the use of its respective company owned technologies and, in return, were granted certain licenses by the joint venture to use the intellectual property resulting from the collaboration. The economic interests of the joint venture held by it and BMS (including the sharing of revenues and out-of-pocket expenses) were based on the portion of the net selling price of Atripla attributable to Truvada and efavirenz. Since the net selling price for Truvada changed over time relative to the net selling price of efavirenz, both its and BMS’s respective economic interests in the joint venture varied annually over the course of the collaboration.

Under the agreement, either party could terminate the other party’s participation in the collaboration within 30 days after the launch of at least one generic version of such other party’s single agent products (or double agent products). The terminating party then had the right to continue to sell Atripla and become the continuing party, but was obligated to pay the terminated party certain royalties for a three-year period following the effective date of the termination.

In December 2017, a generic version of efavirenz was launched in the United States. Upon the generic version launch, the company terminated BMS’s participation in the collaboration and became the continuing party and the sole owner of the joint venture. December 31, 2017 was the last day of the collaboration. As a result of the termination and the transfer to Gilead of BMS’s ownership interest in the joint venture, the company consolidate the limited liability company as a wholly-owned subsidiary. BMS no longer has any ownership interest in the joint venture and is not permitted to commercialize Atripla in the United States and Canada, but is entitled to receive from it certain royalties on net sales of Atripla for the next three calendar years, on a declining annual scale. The company may continue to purchase efavirenz from BMS as needed to continue manufacturing Atripla for the United States and Canada markets.

Europe

In 2007, Gilead Sciences Ireland UC, its wholly-owned subsidiary, and BMS entered into a collaboration agreement which sets forth the terms and conditions under which the company and BMS commercialize and distribute Atripla in the European Union, Iceland, Liechtenstein, Norway and Switzerland (collectively, the European Territory). The parties formed a limited liability company which the company consolidate, to manufacture Atripla for distribution in the European Territory using efavirenz that it purchases from BMS at BMS’s estimated net selling price of efavirenz in the European Territory. Gilead Sciences is responsible for manufacturing, product distribution, inventory management and warehousing. Through its local subsidiaries, Gilead Sciences has primary responsibility for order fulfillment, collection of receivables, customer relations and handling of sales returns in all the territories where the company and BMS promote Atripla. In general, the parties share revenues and out-of-pocket expenses in proportion to the net selling prices of the components of Atripla, Truvada and efavirenz.

Starting in 2012, except for a limited number of activities that are jointly managed, the parties no longer coordinate detailing and promotional activities in the European Territory. Gilead Sciences is responsible for accounting, financial reporting and tax reporting for the collaboration. As of December 31, 2017 and 2016, efavirenz purchased from BMS at BMS’s estimated net selling price of efavirenz in the European Territory is included in Inventories on its Consolidated Balance Sheets.

The parties also formed a limited liability company to hold the marketing authorization for Atripla in the European Territory. Gilead Sciences has primary responsibility for regulatory activities. In the major market countries, both parties have agreed to independently continue to use commercially reasonable efforts to promote Atripla.

The agreement will terminate upon the expiration of the last-to-expire patent which affords market exclusivity to Atripla or one of its components in the European Territory. In addition, since December 31, 2013, either party may terminate the agreement for any reason and such termination will be effective two calendar quarters after notice of termination. The non-terminating party has the right to continue to sell Atripla and become the continuing party, but will be obligated to pay the terminating party certain royalties for a three-year period following the effective date of the termination. In the event the continuing party decides not to sell Atripla, the effective date of the termination will be the date Atripla is withdrawn in each country or the date on which a third party assumes distribution of Atripla, whichever is earlier.

Janssen

In 2009, the company entered into a license and collaboration agreement with Janssen Sciences Ireland UC (Janssen), formerly Tibotec Pharmaceuticals, to develop and commercialize a fixed-dose combination of its Truvada and Janssen’s non-nucleoside reverse transcriptase inhibitor rilpivirine. This combination was approved in the United States and European Union in 2011 and is sold under the brand name Complera in the United States and Eviplera in the European Union. Under this original agreement, Janssen granted it an exclusive license to Complera/Eviplera worldwide excluding certain middle income and developing world countries and Japan.

Gilead Sciences is responsible for manufacturing Complera/Eviplera and Odefsey and have the lead role in registration, distribution and commercialization of both products except in the countries where Janssen distributes. Janssen has exercised a right to co-detail the combination product in some of the countries where Gilead is the selling party.

Either party may terminate the collaboration agreement with respect to a product and a country if the product is withdrawn from the market in such country or with respect to a product in all countries if the other party materially breaches the agreement with respect to a product. The agreement and the parties’ obligation to share revenues will expire on a product-by-product and country-by-country basis as Janssen patents providing exclusivity for the product expire or, if later, on the tenth anniversary of commercial launch for such product. The company may terminate the agreement without cause with respect to the countries where the company sell the products in which case Janssen has the right to become the selling party for such country if the product has launched but has been on the market for fewer than 10 years.

Japan Tobacco

In 2005, Japan Tobacco Inc. (Japan Tobacco) granted it exclusive rights to develop and commercialize elvitegravir, a novel HIV integrase inhibitor, in all countries of the world, excluding Japan, where Japan Tobacco retained such rights. Under the agreement, Gilead Sciences is responsible for seeking regulatory approval in its territories and are required to use diligent efforts to commercialize elvitegravir for the treatment of HIV infection. The company bear all costs and expenses associated with such commercialization efforts.

The company received approval of Stribild (an elvitegravir-containing product) from FDA in August 2012 and from the European Commission in May 2013. The company received approval of Genvoya (an elvitegravir-containing product) from FDA and the European Commission in November 2015.

The agreement and its obligation to pay royalties to Japan Tobacco will terminate on a product-by-product basis as patents providing exclusivity for the product expire or, if later, on the tenth anniversary of commercial launch for such product. The company may terminate the agreement for any reason in which case the license granted by Japan Tobacco to it would terminate. Either party may terminate the agreement in response to a material breach by the other party.

Research Collaborations

Gilead Sciences has a number of collaborations with partners for the research and development (R&D) of certain compounds and drug candidates. None of its research collaborations are significant to it from a financial statement perspective.

Research and Development

The company's R&D philosophy and strategy are to develop best-in-class drugs that improve safety or efficacy for unmet medical needs. The company intend to continue committing significant resources to internal R&D opportunities and external business development activity.

The company's product development efforts cover a wide range of medical conditions, including HIV/AIDS, liver diseases, hematology/oncology, and inflammation/respiratory diseases. Gilead Sciences has research scientists primarily in Foster City and Santa Monica, California; Seattle, Washington; and Alberta, Canada engaged in the discovery and development of new molecules and technologies that the company hope will lead to the approval of new medicines that will advance the current standard of care and address unmet medical needs.

The development of its product candidates is subject to various risks and uncertainties. These risks and uncertainties include its ability to enroll patients in clinical trials, the possibility of unfavorable results of its clinical trials, the need to modify or delay its clinical trials or to perform additional trials and the risk of failing to obtain regulatory approvals. As a result, its product candidates may never be successfully commercialized. Drug development is inherently risky and many product candidates fail during the drug development process.

The development of its product candidates is subject to various risks and uncertainties. These risks and uncertainties include its ability to enroll patients in clinical trials, the possibility of unfavorable results of its clinical trials, the need to modify or delay its clinical trials or to perform additional trials and the risk of failing to obtain regulatory approvals. As a result, its product candidates may never be successfully commercialized. Drug development is inherently risky and many product candidates fail during the drug development process. Below is a summary of its key product candidates and their corresponding current stages of development.

Product Candidates for the Treatment of HIV/AIDS

Product CandidatesDescription
Product in Phase 3
DescovyDescovy is being evaluated for a PrEP indication.
Products in Phase 1
GS-9620GS-9620, a TLR-7 agonist, is being evaluated for the treatment of HIV infection.
GS-9722GS-9722, a broadly neutralizing antibody (bNab), is being evaluated for the treatment of HIV infection.

Product Candidates for the Treatment of Liver Diseases

Product CandidatesDescription
Product in Phase 3
SelonsertibSelonsertib, an ASK-1 inhibitor, is being evaluated for the treatment of NASH.
Products in Phase 2
SelonsertibSelonsertib is being evaluated for the treatment of alcoholic hepatitis.
GS-0976GS-0976, an ACC inhibitor, is being evaluated for the treatment of NASH.
GS-9674GS-9674, a FXR agonist, is being evaluated for the treatment of NASH, primary biliary cirrhosis and primary sclerosing cholangitis.
Product in Phase 1
GS-9688GS-9688, a TLR-8 agonist, is being evaluated for the treatment of HBV infection.

Product Candidates for the Treatment of Hematology/Oncology

Product CandidatesDescription
Products in Phase 3
AndecaliximabAndecaliximab, a MMP9 mAb inhibitor, is being evaluated for the treatment of gastric cancer.
Axicabtagene ciloleucelAxicabtagene ciloleucel is being evaluated for the treatment of second line diffuse large B-cell lymphoma.
IdelalisibIdelalisib, a PI3K delta inhibitor, is being evaluated for the treatment of relapsed refractory chronic lymphocytic leukemia.
Products in Phase 2
Axicabtagene ciloleucelAxicabtagene ciloleucel is being evaluated for the treatment of indolent non-Hodgkin lymphoma. Axicabtagene ciloleucel is also being evaluated for the treatment of diffuse large B-cell lymphoma in combination with anti-PD-L1 mAB.
EntospletinibEntospletinib, a Syk inhibitor, is being evaluated for the treatment of hematological malignancies.
TirabrutinibTirabrutinib, a BTK inhibitor, is being evaluated for the treatment of B-cell malignancies.
KTE-C19KTE-C19, a CAR T cell therapy, is being evaluated for the treatment of mantle cell lymphoma.
Products in Phase 1
AndecaliximabAndecaliximab is being evaluated for the treatment of solid tumors.
GS-5829GS-5829, a BET inhibitor, is being evaluated for the treatment of solid tumors.
KTE-C19KTE-C19 is being evaluated for the treatment of adult and pediatric acute lymphoblastic leukemia.
KITE-585KITE-585, an anti-BCMA, is being evaluated for the treatment of multiple myeloma.
KITE-718KITE-718, a MAGE A3/A6, is being evaluated for the treatment of solid tumors.

Product Candidates for the Treatment of Inflammation/Respiratory Diseases

Product CandidatesDescription
Product in Phase 3
FilgotinibFilgotinib, a JAK1 inhibitor, is being evaluated for the treatment of rheumatoid arthritis, Crohn’s disease and ulcerative colitis.
Products in Phase 2
FilgotinibFilgotinib is being evaluated for the treatment of various inflammatory diseases.
PresatovirPresatovir, a fusion inhibitor, is being evaluated for the treatment of respiratory syncytial virus.
GS-9876GS-9876, a Syk inhibitor, is being evaluated for the treatment of Sjogren’s syndrome and lupus.

Other Product Candidates

Product CandidatesDescription
Product in Phase 2
GS-5734GS-5734, a Nuc inhibitor, is being evaluated for the treatment of Ebola virus infection.

In total, our R&D expenses were $3.7 billion for 2017, $5.1 billion for 2016 and $3.0 billion for 2015. R&D expenses decreased 27% in 2017 compared to 2016, primarily due to the 2016 impacts of business development activities resulting in up-front collaboration expense related to our license and collaboration agreement with Galapagos and acquired in-process R&D (IPR&D) expense related to our purchase of Nimbus Apollo, Inc. (Nimbus), IPR&D impairment charges and ongoing milestone payments, partially offset by acquired IPR&D expense related to our purchase of Cell Design Labs in 2017.

In addition to our internal discovery and clinical development programs, we seek to add to our portfolio of products through product acquisitions, licenses and collaborations.

In 2017, we acquired Kite and shortly thereafter received FDA approval for axicabtagene ciloleucel, now known commercially as Yescarta, making it the first CAR T cell therapy for the treatment of adult patients with relapsed or refractory large B-cell lymphoma after two or more lines of systemic therapy, which includes DLBCL, TFL and PMBCL. We expect European Commission approval of Yescarta in the first half of 2018. Additional studies of Yescarta for other indications are underway. Kite has additional candidates in clinical trials in both hematologic cancers and solid tumors, including KITE-585, a CAR T cell therapy candidate that targets B-cell maturation antigen in patients with relapsed/refractory multiple myeloma.

In 2017, we also acquired Cell Design Labs, a pre-clinical stage company with significant expertise in custom cell engineering. The company is developing two proprietary technology platforms: synNotch, a synthetic gene expression system that responds to external cues which, among other applications, can be deployed to engineer CAR T cells that require dual antigen recognition for activation, and Throttle, an “on switch” that modulates CAR T cell activity using small molecules. The addition of these technologies to existing Kite research and development programs could lead to the treatment of a broader range of hematological malignancies and solid tumors and potentially offer improved selectivity and safety of future treatments.

Outlook 2018

In 2018, the company will continue to maintain its strong focus on operational excellence and financial discipline. From a R&D perspective, the company will continue to invest in new and ongoing clinical studies, which support both its existing products and its product candidates. The company expect to move forward on a number of clinical studies for new product candidates, including advancing its cell therapy pipeline and continuing the progression of its Phase 3 studies of selonsertib for nonalcoholic steatohepatitis (NASH) and filgotinib for rheumatoid arthritis and inflammatory bowel disease. In order to further develop its product pipeline, the company will focus on leveraging its balance sheet to pursue partnering and acquisition opportunities which fit into its long-term strategic plan. From a commercial perspective, the company will support the launch of Biktarvy and continue to promote the use of its existing TAF-containing regimens. In addition, the company believe Truvada for pre-exposure prophylaxis (PrEP) will continue to be an integral part of its growth in HIV in the United States as communities embrace the public health benefits of prevention. In HCV, the company expect a decline in product sales in all major markets as a result of increased competition. HCV revenues are driven by four variables: patient starts, net pricing, market share and treatment duration. Treatment duration has stabilized as a variable and pricing of all regimens has gravitated towards the 8-week regimen price. The company anticipate both pricing and market share to stabilize by mid-2018 with more predictable, but slightly declining, patient starts moving forward. In cell therapy, the company will continue to promote the use of Yescarta in the United States and prepare for anticipated approval in Europe. The company will continue to help ensure patient access to its products around the world, including through its Gilead Access Program, under which more than 10 million people receive its HIV medicines in low- and middle-income countries. The company's progress on all of these initiatives is subject to a number of uncertainties, including, but not limited to, the continuation of an uncertain global macroeconomic environment; additional pricing pressures from payers and competitors; slower than anticipated growth in its HIV products; an increase in discounts, chargebacks and rebates due to ongoing contracts and future negotiations with commercial and government payers; market share and price erosion caused by the introduction of generic versions of Truvada outside the United States and Viread and Letairis in the United States; inaccuracies in its HCV patient start estimates; potential amendments to the Affordable Care Act or other government action that could have the effect of lowering prices; a larger than anticipated shift in payer mix to more highly discounted payer segment; and volatility in foreign currency exchange rates.


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