How Curing Hepatitis C Killed Gilead Sciences Share Price

Drugmaker Gilead Sciences learned the hard way that curing a disease can cut off profits. The company admitted that sales of its revolutionary Hepatitis C drugs are expected to drop by 25 to 50 percent in 2017. Shares fell by almost 10 percent after the Q4 earnings report was released on Wednesday. Analysts blame the poor performance on the shrinking number of patients who need the medications. While the company is still profiting from HIV treatments, industry experts are watching to see if Gilead can come up with new sources of revenue before eating into its remaining store of reserves.

Gilead Sciences sees reduced profits due to Hepatitis C cure

Hepatitis C Devastates the Lives of Millions

Hepatitis C is a virus affecting somewhere between 130 and 150 million people around the world. When introduced into the body, it causes severe liver disease when left untreated, including cirrhosis (hardening of the liver) and liver cancer. Intravenous drug use, unprotected sexual activity, and blood contamination via transfusions or transplants without accurate screening remain major risk factors for infection. Because many of those infected with HepC are addicts or sex workers, it took several years before research turned to eradicating the disease.

Gilead Profited from Breakthrough Hepatitis Treatments

In June 2016, Epclusa, the FDA approved Gilead Sciences’ 12 week Hepatitis C treatment. The initial cost was an astounding $75,000, but the healthcare system was eager for the new treatment, as it represented a $10,000 to $20,000 reduction in costs from the next most effective alternatives. Gilead’s goal in creating the new medication was to provide solutions for the two most resistant forms of HepC, genotypes 2 and 3. Gilead has been in the HepC fight since 2013, and within two years, the company’s revenue tripled, with half of its earnings coming from HepC drugs.

Hepatitis Cure Means Fewer Sales

And then the bottom fell out of the Hepatitis market. Gilead worked harder to find new users, as existing patients became healthier. Many of the remaining targets stay on the edges of society, and either avoid contact with the social services system, or do not qualify for health insurance which can offset some of the costs of taking the medication. The company faces another blow as insurance companies tighten their belts, scaling back on contributions for expensive drugs. The repeal of Obamacare could signal the end for Epclusa. The current law forces insurance companies to shoulder most of the financial burden for covered prescriptions.

Gilead Still Leads in HIV Research

Luckily, Gilead Sciences has another ace in its hand. The company is the leader in developing drugs that suppress HIV. However, this is a different model than for HepC infections. HIV is no longer an automatic death sentence. But remaining healthy once infected with the immunodeficiency virus currently requires a complicated daily regimen of medication. This provides a steady stream of income as patients either have to choose between becoming ill, a more expensive competing medication, or waiting for the introduction of generics, which can take decades.

How Gilead Went from Boom to Bust

What went wrong for Gilead? Apparently the company did not plan ahead for when the flood of HepC patients would turn into a trickle. Last year, the company paid out dividends to investors in a failed attempt to shore up stock prices. Considering that shares fell another 10 percent after this move, analysts are saying that this was most likely a mistake. Gilead should have directed its reserves towards buying out other biotech companies. This would have given Gilead access to new patents, especially for drugs with multiple applications. However, this went against the company’s conservative position on acquisitions.

Will Gilead Bounce Back in 2017?

Gilead still has a favorable future. The company has agreed to try reaching out to potential HIV patients by running campaigns on social media sites like Facebook and Twitter. The CDC estimates that over 1 million Americans are at high risk for HIV infection. Still, only 90,000 people took Gilead’s Truvada as a preventative in 2016. This was despite the CDC recommending this standard of care for the past two years. The company fell victim to concerns about marketing Truvada. At first, some HIV/AIDS advocates blamed promotion of the medication for increased promiscuity, which ironically led to higher infection rates.

How Does the Gilead Quarterly Report Affect Trading

Gilead’s disappointing earnings outlook for 2017 provides a cautionary tale for biotech manufacturers. Conspiracy theories about cures for cancer being left to sit in drawers ring hollow. Nevertheless, drug companies must look past initial successes towards future profit sources for long-term benefits. Look for biotech stocks to fall in the near future as companies weigh the costs of marketing, and public concerns over pricing against potential gains.