Why is it costing 70 billion to buy a loss-making pharmaceutical company?

A company only launched its first drug Vistide (cidofovir injection) nine years after its establishment for the treatment of cytomegalovirus retinitis in AIDS patients
.

The sales of this drug in 1996 and 1997 were 8.
477 million U.
S.
dollars and 11.
735 million U.
S.
dollars respectively-not to mention bleak, even if it is a long way from recovering the cost of research and development
.

[1][2]

But at this time, the company raised a wave of capital through listing and financing, and started the road of "acquisition all the way, all the way".
It acquired 20 companies in 21 years and has since reached its peak
.

It is Gilead whose founder was dubbed the "successful version of Jia Yueting" by Chinese netizens
.

Save yourself, throw 11 billion US dollars

Save yourself, throw 11 billion US dollars

In 2010, Gilead’s annual revenue was 7.
949 billion U.
S.
dollars, an increase of 938 million U.
S.
dollars from the previous year.
However, the increase was the lowest in the past five years, and 75% of its sales came from two anti-AIDS drugs: Tienyi ( Atripla and Truvada
.

John Martin, the CEO of Gilead at the time, smelled a taste of crisis: the product line is single, the patent of the star product is about to expire-relying on an apple tree is the only solution.
Just a few kinds of apple trees
.

Since then, in addition to continuing to deploy tumor research, Gilead, which started as an antiviral drug, has also set its sights on another familiar but unfamiliar market
.

A year later, Gilead issued a statement that it would acquire Pharmasset at a sky-high price of 11 billion U.
S.
dollars: a little-known company that does not sell any products
.

[3]

This is the largest acquisition by Gilead in the 24 years since its establishment.
The purchase price was US$137 per share, which was 89% higher than the closing price of Pharmasset before the news was released, and 59% higher than its highest ever closing price
.

"Financial Times" quoted an analyst as saying: "This is Gilead's desperate move, which means that their R&D line may not be good
.

"[4]

The market is not optimistic about Gilead’s acquisition.
On the day the news was released, Gilead’s share price fell 9.
08% to US$36.
26
.

At this time, it’s better to take a look at this company that makes Gilead willing to spend a lot of money, and what kind of medicine is sold in the gourd—Pharmasset is holding the PSI (Pharmasset small inhibitor)-7977 in the third phase of clinical trials— -A very promising hepatitis C treatment drug
.

Gilead's mind is not hard to guess
.

AIDS drugs started to Gilead, is no stranger to hepatitis C, the same as blood-borne diseases, AIDS patients in the United States, while 25% had hepatitis C infection
.

At the same time, the market for hepatitis C seems to be even larger: as of the end of 2009, there were approximately 33.
3 million AIDS patients worldwide, while the number of hepatitis C patients in the same period reached 185 million
.

But before 2011, the standard treatment for hepatitis C was peginterferon and ribavirin, and Gilead’s patents for these drugs are really not at all
.

The shortcoming here is that the existing treatment plan does not satisfy doctors and patients: Pegylated interferon needs to be administered by injection, which is relatively inconvenient
.

In addition, the treatment effect of this program on different genotypes of hepatitis C virus is very different

The emergence of new drugs is imminent
.

Average sustained virological response rate of patients with different hepatitis C virus genotypes to peginterferon and ribavirin combination therapy (Source: Reference 5)

Prior to this, Gilead has not tried to do it alone
.

Since December 2006, Gilead has started the research and development of a new generation of anti-hepatitis C drugs, but it has not made satisfactory progress

At this time, Pharmasset, which appeared in Gilead’s vision, was like a special offer in the corner of a supermarket, beckoning silently
.

Because not long before the acquisition, Pharmasset provided convincing data from the second phase of the clinical trial, further describing the powerful efficacy and safety of PSI-7977 as a hepatitis C treatment drug

The only problem is that Pharmasset has not obtained the clinical data of patients with hepatitis C virus genotype 1, and this type of patients is the group with the largest proportion and the worst treatment effect-the risk of acquisition is full here
.

As of the end of October 2011, Gilead's market value was US$31.
29 billion
.

Using cash more than 1/3 of the company's market value to acquire a "potential stock" company with only 82 employees and an annual loss of US$91.

A big win

A big win

Two years later, December 6, 2013, this will be an important anniversary for Gilead
.

On this day, the FDA approved the marketing authorization of PSI-7977

Since then, PSI-7977 has been renamed Sofosbuvir and the trade name Sovaldi
.

Sovarti combined with interferon and ribavirin for patients with hepatitis C virus gene types 1, 4, and Sovarti plus ribavirin for patients with gene types 2, 3, in a 12-week treatment plan In, 90% of patients can achieve SVR
.

[7]

On October 10, 2014, the FDA approved the marketing authorization of "Jiji II" Harvoni (Xia Fanning), namely Sofosbuvir/Ledipasvir (Sofosbuvir/Ledipasvir)
.

SVR has been further improved, and no matter what genotype, it does not need to be combined with interferon

On June 28, 2016, the FDA approved the marketing authorization of Epclusa (Bingtongsha), namely Sofosbuvir/Velpatasvir (Sofosbuvir/Velpatasvir)
.

Such excellent drug efficacy and convenient way of administration make Gilead invincible in the hepatitis C market
.
Although Suovadi’s price is as high as US$1,000 per tablet and US$84,000 per course of treatment, the huge market still allows Gilead to return
.

In 2014, Suohuadi's sales reached 10.
283 billion U.
S.
dollars, and Xia Fanning, which was listed only for more than two months, had sales of 2.
127 billion U.
S.
dollars.
The two combined exceeded 50% of the total sales of all drugs in the same year
.
In the last year, the total sales of all Gilead's drugs was only 10.
803 billion US dollars
.

In 2015, Xia Fanning’s sales were 13.
864 billion U.
S.
dollars, and Suohuadi’s sales were 5.
276 billion U.
S.
dollars
.

Gilead’s net profit also rose sharply from US$3.
075 billion in 2013 to US$12.
101 billion in 2014 and US$18.
108 billion in 2015
.
[9][10][11]

As expected, even exceeding expectations
.

Some people say that it takes 3 years from seeding to fruiting for an apple tree
.
In the same three years, with only the net profit in 2014, Gilead has already made back the money it made when it acquired Pharmasset that year
.

Key financial data of Gilead from 2013 to 2015

Source: Gilead 2015 Annual Report

The company's earnings will be better reflected in the stock price in the hands of the public
.
In the same year, Gilead’s share price rose, and its market value rose from US$30.
74 billion at the end of 2011 to US$141.
29 billion at the end of 2014
.

Obviously, Gilead's "gambling" with all the belongings this time can be described as a complete victory
.

Looking back on this gamble, Gilead's keen sense of smell is fully displayed
.

John Martin said in 2011 that the biggest threat to human health in the next ten years is emerging infectious diseases
.
"For example, influenza is a virus that can infect different animal species and humans.
It reorganizes in a certain way and regularly causes serious global health problems
.
"

This is not the first time that Gilead has achieved success through acquisitions
.
John Martin once said: "Our scientific expertise is to find the best things in the world, and then try to introduce them to Gilead
.
"

1999 was the third year that John Martin took over the position of CEO from the company's founder Michael L.
Riordan
.
In March of that year, Gilead acquired NeXstar Pharmaceuticals, a company whose annual sales were three times that of Gilead
.

Through the acquisition, Gilead obtained two products, AmBisome (AmBisome, amphotericin B liposome) and DanuoXome (Danosi, a daunorubicin citrate liposome)
.

These two products have greatly increased Gilead’s annual sales.
Ambisol’s total sales in 1999 were US$129 million, and the total sales in 2000 were US$141 million, accounting for 76% and total revenue of the same year.
72%
.

In 2003, Gilead acquired Triangle Pharmaceuticals and obtained patent rights for anti-AIDS drugs
.
This allowed Gilead, which was originally only a GSK foundry, to defeat GSK in one fell swoop and become the new overlord of the anti-AIDS drug market
.

Obviously, it is these successful experiences that give Gilead the courage to let go in the hepatitis C drug market
.

Cusp

Cusp

Of course, success is accompanied by wind and rain
.
Since Suvarti’s listing, Gilead’s high price for Suvarti has caused many controversies
.

In July 2016, the British Medical Journal (The BMJ) published an article titled "Betting on Hepatitis C: How Financial Speculation in Drug Development Affects the Availability of Medicines", arguing that Gilead’s acquisition strategy has increased development Cost, let the public pay twice the cost-Gilead’s price for Suvarti is more than double the $36,000 originally expected by Pharmasset
.

After all, from preclinical research to FDA approval, Pharmasset spent only about 188 million U.
S.
dollars
.
[12]

In response, Gregg Alton, executive vice president of Gilead, retorted that Pharmasset's expected Sovardi price was between 36,000 and 72,000 US dollars
.

This interval is determined according to the follow-up effect: Pharmasset expects the total price of the hepatitis C treatment plan to be 72,000 US dollars.
If Sovarti accounts for only 50% of the effective ingredients in the treatment plan, the price is 36,000 US dollars.
If it is valid, the price is $72,000
.
[13]

In addition to pressure from public opinion, Gilead has greater pressure from governments of various countries
.
For example, the British Medical Journal’s data on Sovardi’s pricing actually comes from an 18-month investigation of Gilead by the US Senate
.
On December 1, 2015, the Senate announced the results of a 144-page investigation, which showed that:

1.
Gilead’s main goal is based on maximizing revenue, regardless of the human consequences (regardless of the human consequences)
.
Gilead knows that such pricing will make it impossible for millions of people to afford treatment and at the same time impose a heavy burden on medical insurance, but the company still follows suit
.
2.
Gilead uses the calculation of the average price of each cured patient (price-per-cure) instead of the average price of each plan (price-per-regimen) to justify the high price of Sovardi
.
3.
Gilead set a high price for Suohuadi, focusing on ensuring Xia Fanning's high price in the future
.
4.
Although the payer imposed strict access restrictions on Suohuadi, Gilead refused to significantly reduce the net price before competitors entered the market
.
[14]

Under "stress", Gilead also chose a compromise approach
.

On September 14, 2014, Gilead announced that it had reached a generic agreement (namely a voluntary patent license agreement) with seven generic drug manufacturers in India, allowing these companies to produce and provide generic drugs for the treatment of hepatitis C to 91 developing countries
.
(For details, please refer to the previous article of Dingxiangyuan: 24g gold for one medicine, 70 million patients are waiting for the medicine god)

In November 2017, in Gilead’s latest imitation agreement list, the authorized countries have officially increased to 105
.
[15][16]

Due to the emergence of generic drugs and the start of competition, drug prices in high- and middle-income countries have also declined to a certain extent.
In addition, the cure of hepatitis C patients has significantly reduced the market demand for drugs.
Gilead’s anti-hepatitis C drugs are sold.
The amount fell for the first time in 2016
.

In 2017, sales of anti-hepatitis C drugs have fallen to 9.
137 billion U.
S.
dollars, less than half of the 19.
140 billion U.
S.
dollars in 2015
.
On May 31, 2017, Gilead's market value fell to US$84.
79 billion, which was almost cut from the peak period
.
[17][18]

As a result, Gilead also had to switch to the unfamiliar field of oncology
.
In 2017, Gilead spent US$12 billion to acquire Kite Pharma
.

Although the acquisition amount was larger than last time, for Gilead at this time, the larger size gave them a greater ability to withstand risks.
Gilead also obtained the new drug CAR-T treatment product Yescarta in one fell swoop.
And priced it at 373,000 US dollars
.

In 2019, Yescarta achieved sales of 456 million U.
S.
dollars, an increase of 72.
7% compared to 2018, and a further increase of 33% to 607 million U.
S.
dollars in 2020
.
[19][20]

Although this is not in the same order of magnitude as the anti-hepatitis C drugs of the year, everyone's sensitivity to tumor treatment costs and the incidence of related diseases ensure that Yescarta's benefits can last longer
.

However, we are still curious, after Kite Pharma, who will Gilead’s next strategy target? This time, is it possible to have a unique insight and continue to be successful
?

Reference materials:

[1]https://investors.
gilead.
com/static-files/56a142f0-2d00-4777-8f94-916621d8da8b

[2]https://investors.
gilead.
com/static-files/a75219f0-0da1-48c9-a293-58497148feff

[3]https:// A, Hotta H.
Impact of hepatitis C virus heterogeneity on interferon sensitivity: an overview.
World J Gastroenterol.
2014 Jun 28;20(24):7555-69.
doi: 10.
3748/wjg.
v20.
i24 .
7555.
PMID: 24976696; PMCID: PMC4069287.

[6]https://companiesmarketcap.
com/gilead-sciences/marketcap/

[7]https://#s82263BA6B8828E140BD33BB82E9D4555

[10]https:// V, King L.
Betting on hepatitis C: how financial speculation in drug development influences access to medicines.
BMJ.
2016 Jul 27;354:i3718.
doi: 10.
1136/bmj.
i3718.
PMID: 27815237.

[13]https:// 20System%20(Full%20Report).
pdf

[15]https://~/media/Files/pdfs/other/HCV%20Generic%20Agreement%20Fast%20Facts%20102214.
pdf

[16]https://~/media/Files/pdfs/other/HCVGenericAgreementFactSheet.
pdf

[17]https://investors.
gilead.
com/static-files/ba96235a-8be4-436c-a727-c8f7bcbaac36

[18]https://investors.
gilead.
com/static-files/ffc9e021-3904-4e50-87fa-a9fa8120659a

[19]https://investors.
gilead.
com/static-files/1a607ba4-ee05-4dc5-9eeb-9509c6b8a3e4

[20]https://investors.
gilead.
com/static-files/53554664-ab61-43cb-aef0-2a8683c88ecd