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Gilead Sciences Faces a Unique Combination of Risks

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Key risks

Gilead Sciences (GILD) faces a unique combination of business-specific risks as well as risks related to the biotechnology industry in general. The company-specific risks indicate the long-term sustainability of the company’s profits.

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HIV patent expiry risk

Gilead Sciences is a global leader in the HIV market, with HIV drugs accounting for about 42% of the company’s total revenues. Gilead’s HIV drugs contain a drug called tenofovir disoproxil fumarate, or TDF, brand name Viread. Viread is expected to lose its patent protection in 2018.

To protect its market share from generic erosion, the company has been actively researching HIV drugs based on another compound called tenofovir alafenamide, or TAF. The clinical trials have proved that TAF-based drugs have a better safety profile than that of TDF-based drugs. However, these drugs are still in the FDA review process. If these drugs aren’t approved or if patients don’t switch to the new TAF-based drugs, Gilead Sciences may lose revenue. Additionally, drugs such as Tivicay and Triumeq from ViiV Healthcare, a joint venture between GlaxoSmithKline (GSK) and Pfizer (PFE), have proven to be tough competition for Gilead’s HIV portfolio.

Pricing risk

Initially priced at more than $1,000 per pill per day, Gilead’s HCV (hepatitis C virus) drugs, Sovaldi and Harvoni, proved to be major successes in the US market. However, competition from AbbVie’s (ABBV) VIEKIRA PAK and Bristol-Myers Squibb’s Daklinza has forced Gilead Sciences to offer price discounts of up to 46% to health insurers. Though the company has gained in patient volume, additional competition and subsequent pricing pressures can quickly erode Gilead’s profitability.

Expansion failure risk

Gilead Sciences has been actively involved in developing drugs in the oncology, pulmonology, and cardiology fields. Zydelig, based on the compound idelalisib and launched in US markets in 2014, is a major drug targeted at chronic lymphocytic leukemia, or CLL. However, the drug has failed to attract substantial patient volume. A muted patient response to other innovative drugs in new therapeutic areas could lead to loss of investment for Gilead Sciences.

Investors can benefit from Gilead Sciences’ potential while reducing exposure to its unique risks by investing in the iShares NASDAQ Biotechnology ETF (IBB). IBB holds 7.89% of its total holdings in Gilead Sciences.

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