Gilead Sciences has heard it all before—it has an awesome cash machine going in the HIV drug business, but it won’t last forever, and it has never really diversified well into other disease categories. Now, through its acquisition of Seattle-based Calistoga Pharmaceuticals for as much as $600 million, Gilead is making clear that one of its big bets for the future will be in two huge related markets—cancer and inflammatory diseases.
Foster City, CA-based Gilead (NASDAQ: GILD) has grown into the world’s second-biggest biotech company by market valuation, at about $31 billion, through selling anti-viral drugs that account for about 82 percent of its $7.95 billion in total revenue last year. One of the key patents on a linchpin of its HIV franchise, tenofovir (Viread), expires in 2018, so the clock is ticking in a business like biotech with long product development cycles.
Gilead has shelled out big bucks in the past to acquire drugs that have provided little returns. It paid $2.5 billion in 2006 for Myogen, the developer of ambrisentan (Letairis), and then plunked down $1.4 billion in 2009 for CV Therapeutics and its lead asset, ranolazine (Ranexa). Each drug generated about $240 million in sales in the past year, Gilead has said.
While shareholders may think they’ve seen this movie before, the acquisition of Calistoga is different in that it represents Gilead’s first major foray into the cancer drug business—a vast market thought to be worth as much as $84 billion by 2012, according to Cowen & Co. Gilead’s essential bet, which is discussed in more detail in this related story about Calistoga, is that cancer will become a chronic, manageable disease in the future, much like HIV has become today.
Norbert Bischofberger, Gilead’s chief scientist throughout its long rise to the top of the anti-viral HIV business, says he’s been particularly intrigued by recent examples like the one at Berkeley, CA-based Plexxikon, in which scientists crafted a specific drug against a specific target. The result looks like a big leap ahead in the treatment of melanoma, when compared with more generalized cell-killing chemotherapies of the past.
“If you have a compound that specifically works against a mutation, something very specific, it should be safe, and very effective. That’s what they are seeing now,” Bischofberger says. “We believe that’s where the whole field is evolving. It’s moving in that direction, because for the first time, we have the tools to sequence quickly and cheaply a lot of clinic samples, and find out the drivers, the mutations at work in certain cancers.”
Bischofberger certainly isn’t the first to observe that cancer R&D is moving away from pathology-based understanding (breast cancer) to more molecular-based understanding (breast cancer that overexpresses a certain mutant protein like HER2). But it is the first time Gilead has put major resources behind a cancer program—although it has been leaning in this direction since its acquisition of CGI Pharmaceuticals last year. Branford, CT-based CGI Pharmaceuticals has a specific drug in animal testing made to hit a target called Syk, which could be complementary with the specific PI3 kinase blockers in the works at Calistoga.
“I’d view this as the foundation upon which we’ll build,” Bischofberger says.
Wall Street didn’t quite see it that way. Shares fell 2 percent to $38.51.
For folks looking for something short-term to boost the Gilead share price, this certainly isn’t it. Calistoga has no marketed products, and its lead drug is just now entering the pivotal phase of clinical testing required for FDA approval. It’s still too early to really assess how much … Next Page »
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