To live is to choose. But to choose well, you must know who you are and what you stand for, where you want to go and why you want to get there-Kofi Annan
Investment Thesis
Since its establishment in 1987, Gilead Sciences Inc. (GILD) has marketed itself as an innovator of HIV, HCV and HBV therapeutics, dominating and capturing a sizable share (estimated at $14.2 billion for the FY/2017) of the addressable market for HIV therapies. In the last 3 years, Gilead has been faced with declining annual sales revenue from its long time key growth drivers, HIV, HBV and HCV franchise, of $23.3 billion, $27.7 billion and $30.2 billion in 2017, 2016 and 2015, respectively. The decline has been attributed to competition from generics, new products and anticipated products as well as pricing pressure and pending loss of patent exclusivity.
In parallel, the stock price has depreciated from its peak of $120 in 2015 to current price of < $77. The acquisition of Kite Pharma could help establish Gilead as a prospective leader in cellular therapy (CAR-T). Furthermore, the forthcoming top-line data readout from its NASH franchise (the focus of this article) is an indication that new heydays coupled with new organic growth are in the future for this multi-billion company.
NASH is an asymptomatic complex chronic progressive liver disease that is triggered by a plethora of ever growing lists of causal pathophysiological pathways. Correspondingly, the list of anti-NASH drug candidates in clinical trials is unending. Gilead has shown significant differentiation from other contenders by an early and aggressive approach of clinically developing three in-house anti-NASH drug candidates, Phase 3 Apoptosis Signal-Regulating Kinase (ASK)-1 inhibitor selonsertib (GS-4997), Phase 2 Acetyl-CoA carboxylase (ACC) inhibitor GS-0976 and Phase 2 Farnesoid X receptor (FXR) agonist GS-9674. Furthermore, by conducting both monotherapy and combination therapies trials concurrently, Gilead has truly distinguished itself from other competitors and reinforced its ambition of becoming a or the major and leading player in anti-NASH therapeutics.
Selonsertib is one of two dual anti-apoptotic and anti-inflammatory drug candidates in clinical trials for NASH fibrosis and NASH compensated cirrhosis. Gilead’s first hypothesis is that Selonsertib inhibits apoptotic, oxidative stress and inflammation-dependent pathways in NASH to exert anti-fibrotic responses that is associated with improvement in NASH fibrosis without worsening of NASH resolution.
For the second hypothesis Gilead proposes that combining selonsertib with GS-0976 (an inhibitor of de novo lipogenesis and inflammation) and/or FXR agonist GS-9674 (inhibitor of metabolic and inflammatory pathways) induces a synergistic anti-NASH benefits that is reflected in improvements in both NASH fibrosis and NASH resolution. A third hypothesis is that combining GS-0976 (an inhibitor of de novo lipogenesis and inflammation) with Fenofibrate, a PPAR-α agonist widely used to positively regulate dyslipidemia, NASH resolution is improved and ensuing fibrosis is possibly halted.
Gilead pending catalyst is the 2 monotherapy Phase 3 trials top-line data readout for NASH fibrosis (STELLAR-3) and NASH cirrhosis (STELLAR-4) in H1/2019. Selonsertib has been partially clinically de-risked based on its promising preliminary Phase 2b data. My outlook is that selonsertib will likely be clinically successful in NASH.
It is my perception that Gilead’s NASH franchise is being developed as an enormous source of new organic growth for the company. NASH is a disease in search and in need of therapeutic options and has an addressable market estimated at >$35B based on the global statistics.
Gilead is known for dominating and not being second best or playing second fiddle. For this reason, the aggressive pursuit of combination trials in conjunction with monotherapy trials is a well thought out plan in its quest to control and acquire a substantial share of the NASH market; a déjà vu of HIV and HCV markets.
The word gilead is a hebrew name from the Old testament translated as “heap of stones of testimony”. For lack of a better word, Gilead prophetically spoke its greatness into existence on its formation 30 years ago and there is no turning back since genie is out of the bottle!
Background
Gilead Sciences Inc. was founded on the principle of being revolutionary in the quest for new therapeutics. Gilead is a multi-billion ($98B market cap) innovator of viral therapeutics and more recently cellular therapeutics through acquisition of Kite Pharma’s CAR-T pipeline. Gilead is also making inroad in liver therapeutics with ongoing development of anti-NASH and anti-PBC drug candidates.
Market Assessment & Risks
Gilead’s lead anti-NASH drug candidate, Selonsertib is being evaluated for clinical efficacy in multiple clinical trials for liver diseases as alluded to previously. Gilead has multiple shots on goal with different drug candidates at different stages of clinical trials for several diseases states encompassing virology, hematology, gastroenterology, oncology and cellular immunology. Cash, cash equivalents and marketable securities were $31.7B at June 30, 2018. Gilead generated $1.6B in operating cash flow, including tax-related payments of $1.5B, and also paid cash dividends of $740 million and utilized $450 million on stock repurchases.
Total revenues were $5.6B in 2018 compared to $7.1B in 2017. Net income was $1.8B or $1.39 per diluted share in 2018 compared to $3.1B or $2.33 per diluted share in 2017. The decline in total revenue has been attributed to dwindling sales revenue in the HIV, HBV and HCV franchise due to competition from generics, new products and anticipated products as well as pricing pressure and pending loss of patent exclusivity. Generally, Gilead has been faced with declining annual sales revenue from its long time key growth drivers, HIV, HBV and HCV franchise, of $23.3 billion, $27.7 billion and $30.2 billion in 2017, 2016 and 2015, respectively.
Risks for the company include setbacks in clinical trials including delays, serious adverse events, negative clinical outcomes constitute the most significant downside risk as this could lead to downward pressure, possible sells off and also uncertainty with regards to the scientific integrity/validity of the anti-NASH pipeline. Current price represents a good buying opportunity.
NASH Hypotheses
The clinical misconception that NASH was a complication of diabetes that could be curbed by anti-diabetic therapeutics hindered initial advancement in NASH research and drug development. This clarifies the 30 year passivity in NASH research after the initial diagnosis 40 years ago. NASH is an asymptomatic complex chronic progressive multi-faceted liver disease that is triggered by a multitude of endless causal pathophysiological pathways (including metabolic, de novo lipogenesis, oxidative stress, inflammation, apoptosis and fibrosis). The three hypothesis outlined below have been proposed to explain the pathophysiology of NASH.
The Two-Hit hypothesis by Drs. Day and James (Day & James, Gastroenterology, 1998) that associates hepatic triglyceride accumulation with the development of hepatocellular injury in NASH has been the norm when describing NASH pathogenesis. The Non-Triglyceride Lipotoxicity Hypothesis proposes that free fatty acids and its metabolites are the real initiators/mediators of NASH and this hypothesis is perceived as being more reflective of NASH pathophysiology and pathogenesis (described in detail in a previous article).
The Multiple-Hit Hypothesis which stipulates that inflammation precedes steatosis (fatty liver) in environmentally and genetically predisposed subjects. According to the multiple-hit theory, numerous insults (including insulin resistance, adipose tissue hormones, nutritional factors, endotoxins, oxidative stress damage, genetic and epigenetic factors) all act on hepatocytes via toll-like receptors to drive the progression of NASH.
First Genesis personal opinion: NASH patients with liver fibrosis that are able to effectively combine/integrate nutritional changes as well as physical activities as part of their NASH therapy should respond to anti-NASH therapies that could lead to regression of liver fibrosis and NASH resolution. Fig.1 below depicts the different anti-NASH drug candidates and proposed pharmacological target((s)) that are perceived to be the driving forces in the pathophysiology of NASH, possibly at different stages of the disease (Konerman et. al. J. Hepatol. 2018).
Fig.1 Anti-NASH drug candidates and Pharmacological targets (Konerman et. al. J. Hepatol. 2018)
Gilead’s Anti-NASH Drug Candidates
Selonsertib (GS-4997): Selonsertib is an investigational small molecule that selectively inhibits the downstream effector responses of activated ASK1 in response to oxidative stress. ASK1 promotes inflammation, apoptosis and fibrosis in settings of increased oxidative stress, which is characteristic of NASH and its pathogenesis. Apoptosis is a highly coordinated programmed cell death that maintains normal liver health by the swift removal of unwanted cells comparable to the amount of cells generated. In pathophysiological settings, variation/change in the balance between cell increase and apoptotic cell death results in loss of liver tissue homeostasis and normal liver health triggering several liver diseases including NASH.
GS-9674: A selective, non-steroidal agonist of the FXR, a nuclear hormone receptor that is highly expressed in metabolically active tissues including kidney, adipose tissue and liver. FXR is the primary regulator of bile acid synthesis and plays important roles in glucose and lipid metabolism.
GS-0976: A small-molecule inhibitor of ACC, an enzyme that is involved in de novo lipogenesis, which is the synthesis of lipids, including mediators of inflammation and fibrosis. ACC also enhances the burning of fat in the liver through beta oxidation.
Fenofibrate: a PPAR-α agonist widely used to positively regulate dyslipidemia
Rationale For Clinical Trials
Selonsertib Monotherapy: Selonsertib treatment was associated with reduced fibrosis after 24 weeks of treatment with the proportion of NASH patients with a one or more stage reduction in fibrosis in the 18-mg selonsertib group was 13 of 30 (43%); in the 6-mg selonsertib group, 8 of 27 (30%). Improved fibrosis was associated with reduced liver stiffness, collagen content and lobular inflammation on liver biopsy in addition to improvements in serum biomarkers of apoptosis and necrosis (discussed extensively in a previous article).
NASH Fibrosis Phase 3 (STELLAR-3) and NASH Compensated Cirrhosis Phase 3 (STELLAR-4) are ongoing with topline data readout anticipated in H1/2019.
Combination: Gilead’s concept for initiating combination trials for NASH is based on the scientific evidence NASH is not a single factor disease but a constellation of different multi-factorial pathogenic pathways in search and in need of therapeutic option((s)). A Phase 2b trial of 70 patients with biposy-proven NASH involving investigational combination therapies of selonsertib with either the ACC inhibitor GS-0976 and/or FXR agonist GS-9674 was well tolerated and demonstrated reduced liver fat content, liver cell injury and fibrosis at 12 weeks.
Gilead has initiated a larger 350-patient Phase 2b (ATLAS) study of combinations of selonsertib, GS-0976 or GS-9674 in patients with advanced fibrosis due to NASH with anticipated top-line data readout in H1/2020.
Gilead has also initiated a Phase 2 safety and tolerability open label trial involving the PPAR-α agonist fenofibrate, widely used to positively regulate dyslipidemia, and the ACC inhibitor GS-0976.
A previous study has demonstrated that Fenofibrate has limited clinical benefits in NASH patients since fenofibrate 200 mg/day for 48-weeks reduced serum glucose and insulin levels as well as decreasing hepatocellular ballooning degeneration without improving steatosis, lobular inflammation or fibrosis (Fernández-Miranda, 2008, Diges. Liver. Dis). My personal reasoning is that Gilead believes that combining therapies of GS-0976 and fenofibrate should improve NASH resolution and possibly halt fibrosis progression.
FDA Guideline For Selonsertib’s Phase 3 Clinical Validation in NASH Fibrosis
The top-line data readout for NASH fibrosis and NASH cirrhosis are expected in H1/2019. Gilead and FDA have both agreed on a developmental goal that will establish the clinical success of selonsertib in these diseases. The developmental goal of Gilead is that it focuses on NASH fibrosis as a measure of progression to cirrhosis. This means that NASH fibrosis clinical outcome and endpoints data in H1/2019 has to demonstrate histological fibrosis improvement without worsening of NASH. The reasoning is that by improving NASH fibrosis, progression of the disease to cirrhosis is halted or suppressed.
Epilogue
The following quotes below from General Colin Powell reflect my outlook on Gilead and clinical success in NASH.
So like any football or basketball coach, you always always believe you’re going to win-Colin Powell
Success is the result of perfection, hard work, learning from failure, loyalty, and persistence-Colin Powell.
Don’t be afraid to challenge the pros, even in their own backyard-Colin Powell
Most NASH clinical trials are being conducted with single agent therapies. NASH is a complex disease involving steatosis, inflammation, and fibrosis with likely multiple redundant pathways. NASH patients have diverse pathophysiology which makes Gilead’s tactic of combining therapies that involve different pharmacological targets an aggressive and well thought out scientific approach that may provide synergistic histopathologic benefits.
I have reiterated multiple times in most or all of my articles on NASH that the one drug benefits all is not feasible for NASH because of the heterogeneity of NASH patients and multi-factorial pathophysiological pathways.
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Disclosure: I am/we are long GILD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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