The Future of Gilead Sciences
by Spencer Ho
Biotechnology is perhaps one of the most competitive industries. Companies race against each other to develop new drugs, secure patents, and reap profits while Adam Smith’s invisible hand weeds out those that collapse under the heavy costs of research and development.
Since late 2015, competition has only increased with the Trans Pacific Partnership, a pact between 12 countries that aims to not only limit trade barriers, but also shorten patent exclusivity from standard U.S. 12 years to 5–8 years. As a result, this has cut into companies’ profits, leading to increased drug prices, thereby straining the national health care budget.
In response to this added risk, biotechnology companies such as Turing and Valeant have adopted a morally questionable business plan of buying out older biotechnology companies that have exclusive drugs and proceed to increase prices exponentially. Although shareholders welcome increased revenue, political figures such as Hilary Clinton have blacklisted this business plan, damaging the integrity of the industry.
In the midst of these current events, Gilead Sciences, an American biotechnology company, has continued to enjoy positive revenue over the past few years. Its famous hepatitis C drugs, Solvaldi and Harvoni continue to dominate the market, raking in 4.89 billion dollars in sales for the company last quarter or 60% of the company’s total sales. Yet even this successful company is not above the fierce competition. Merck, another biotech company has developed its own Hepatitis C drug, Zepatier and being relatively cost friendly, has cut into Gilead Sciences’ profits.
Gilead Sciences has done well to cope with its new competition. In July, it plans on releasing Sovaldi/velpatasvir, a new drug that cures all 6 types of genotypes compared to Zepatier, which can only cure genotypes 1 and 4. Until recently, patients needed to be tested for genotype to determine which drug they should use. Therefore this new “super drug” could make the process of curing Hepatitis C more convenient and easier, giving Gilead Sciences a significant advantage.
Society places a premium on health. People are willing to pay higher prices for drugs that are most effective and convenient. The alternative to not taking Hepatitis C is eventually a liver transplant, costing three or four times more than the drug. This significant difference in prices will continue to provide Gilead Sciences with a market for their drug. Although Gilead Sciences does face competition from Merck’s new Zepatier drug, the convenience and simplicity of the Sovaldi/velpatasvir could provide a significant advantage for the company.
With all the current events surrounding the industry, many biotech companies are posting lower earnings this year. Gilead, however, continues to buyback shares, showing inside confidence. This combined with additional strength in the pipeline are signs of Gilead Sciences’ success in the future.
