The Economics Of Cures – Gilead At A Turning Point

Curing diseases is an unpopular business.

As a punishment for curing the world from Hepatitis C, Gilead suffered multi-year revenue and share price decline.

Despite this, curing Hep C still made money for investors focused on the very long-term.

Gilead’s revenue is now at a turning point.

We are being paid well while we wait for the next blockbuster cure.

Curing diseases is considered a poor business model by most investors. This is one of the open secrets of our capitalist system.

Most pharmaceutical companies would much rather keep providing treatment for chronic diseases, alleviating symptoms for incurable conditions, or supplementing habitually unhealthy individuals. This way they generate predictable, recurring revenue, thus satisfying their investors.

On this regard, Gilead Sciences (GILD) stands apart from the field, and virtually alone.

Cured Away All the Customers

Gilead has a history well chronicled by other authors on Seeking Alpha and elsewhere. In 2011, Gilead bought Pharmasset for $11 billion for its experimental Hepatitis C product – at the time criticized by many for overpaying.

Gilead turned the experiment into a massive blockbuster cure. Its HCV (Hep C Virus) revenue rose meteorically, and by 2015, it reached a peak of $19 billion per year.

Unfortunately from there, it declined precipitously until today:

	HCV Revenue ($M)	Total Revenue ($M)
2014	12,400	24,890
2015	19,100	32,639
2016	14,800	30,390
2017	9,100	26,107
2018*	3,500	21,050

*Estimated figures based on guidance from Q3 release

Sure, other competitors like Merck (MRK) and AbbVie (ABBV) entered into the Hep C market after Gilead, but their products were largely inferior or they came to market too late (vice versa). The main driver for Gilead’s revenue decline by far was the decline in number of patients. Those exiting treatment exceeded new patients, because more and more of them were cured for the rest of their lives.

This amazing humanitarian result was disastrous for Gilead’s subsequent valuation.

[MORE]

https://seekingalpha.com/article/4235554-economics-cures-gilead-turning-point