(GILD) Gilead Sciences /Johnson & Johnson to Make HIV Combo Drug

Gilead Sciences, Inc.’s (GILD) strong HIV franchise received yet another shot in the arm with the announcement of a license agreement with Tibotec Pharmaceuticals, a division of Johnson & Johnson (JNJ), to develop and commercialize a new fixed dose combination HIV drug. The combination drug will bring together Gilead’s pipeline candidate cobicistat and Tibotec’s protease inhibitor Prezista (darunavir).

Cobicistat is being developed by Gilead in late stage trials as a booster for protease inhibitors in the treatment of HIV. Gilead is developing cobicistat, both as a stand-alone product and for use in combination with other agents. Prezista is marketed in the US by Johnson & Johnson for the treatment of HIV in combination with ritonavir (standard of care) and other antiretroviral agents.

Under the agreement, Tibotec will be responsible for the formulation, manufacturing, registration, distribution and commercialization of the combination drug worldwide. Gilead will continue holding the rights to develop and commercialize cobicistat as a stand-alone product and for use in combination with other agents. The agreement to develop the cobicistat/Prezista combination drug is subject to the outcome of ongoing negotiations between the two companies for entering into a second collaboration. Under this collaboration Gilead would be responsible to develop and commercialize a future single-tablet regimen combining four drugs (Prezista, cobicistat, Gilead’s marketed HIV drug Emtriva, and its HIV candidate GS 7340).

Gilead’s strategy of creating fixed-dose combinations of existing HIV drugs has yielded enormous success. The introduction of combination drugs Truvada and Atripla has allowed the company to maintain robust growth in HIV product sales. Gilead is also working on strengthening its HIV franchise further with a fixed-dose combination of Truvada and Johnson & Johnson’s TMC278, and the much talked about Quad pill, which is a combination of elvitegravir, cobicistat and Truvada. The agreements with Johnson & Johnson, if finalized, would further strengthen Gilead’s ever expanding portfolio of fixed dose combination drugs for HIV treatment.

Our Recommendation

We currently have a Neutral recommendation on Gilead. The stock carries a Zacks #3 Rank (short-term “Hold” recommendation). We are optimistic on the growth potential of Gilead’s HIV franchise drugs, Truvada and Atripla. However, we are concerned about patent challenges to its key HIV drugs. Hence, we maintain a Neutral recommendation till the current pipeline proves its worth compensating for lost revenues from patent lapses.

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