Actelion Preparing to Counter Gilead in PAH

Gilead Sciences' $GILD rival Actelion $ATLN gave full year results today and they were positively received.  As ever with biotech and pharmaceutical companies, investors will always want to focus on the pipeline in order to decide whether the stock is worth buying. Going forward the key event driver for Actelion will be Macitentan. Gilead was featured extensively in an in depth article on earnings view. Before going into more detail, it might be worthwhile to understand the background.


Tracleer vs. Letairis in Pulmonary Arterial Hypertension

Actelion is a rival to Gilead because they compete in Pulmonary Arterial Hypertension (PAH). Gilead's Letairis seems to be gaining market share on Actelion's blockbuster drug Tracleer. Interestingly, in an attempt to broaden their indications, both drugs were put into phase III trials for Idiopathic Pulmonary Fibrosis (IPF) and both failed last year!

The advantage of Letairis is that it is taken on a once a day regimen (as opposed to twice for Tracleer) and has a more flexible dosing regime. In addition, it has demonstrated a superior liver toxicity profile to Tracleer.

According to Trista Morrison in Bioworld, Letairis has demonstrated superior efficacy to Tracleer:

“ the 5mg dose of Letairis... ...increased the distance covered during a six-minute walk by a mean of 31m in one trial and 59m in the other." and "10mg dose... ... increase was 51m. In the Tracleer Phase III, the 125mg dose increased distance by a mean of 35m in one trial and 76 meters in the other. “

As noted in a previous article on Gilead, Letairis has been expanding sales strongly. Although Letairis does have some potential side effects. On the downside, Letairis (ambrisentan) has been linked to an increased risk of peripheral edema (or oedema) and the FDA approved safety labelling revisions according to Yael Waknine:

“Peripheral edema is a known class effect of endothelin receptor antagonists and is also a clinical consequence of (PAH) and worsening PAH. However, clinical study data have revealed an increased incidence of peripheral edema in patients receiving 5 or 10 mg/day of ambrisentan vs. placebo (17% vs. 11%)."

The article goes on to point out that the majority of the cases were mild /moderate in severity, and they occurred with greater frequency and severity in old patients.

So what is PAH and how do these drugs differ?

Pulmonary Arterial Hypertension

One of the problems with pulmonary arterial hypertension is that it is difficult to detect early on. Symptoms include things like chest pain, shortness of breath, palpitations, excessive fatigue and fainting. These symptoms are often mistaken for other conditions, particularly as PAH is not a widely held condition. The cause of PAH is unknown and, ultimately, the condition will cause death. Therefore, treatments are focused on improving survival rates via blocking either ETA receptors or ETA and ETB receptors.

 

Endothelin ETA and ETB Receptors

Endothelin is a powerful vasoconstrictor which has diverse actions that effect homeostatic actions in the body. According to Schneider et al the two receptor subtypes, ETA and ETB

"mediate the actions of endothelin. ETA receptors.. ..promote vasoconstriction, growth, and inflammation, whereas ETB receptors produce vasodilation, inhibit growth and inflammation. Potent and selective receptors... ...have shown promising results in the treatment of.. ..pulmonary arterial hypertension, acute and chronic heart failure, hypertension, renal failure, and atherosclerosis.”

ETA and ETB receptors have opposing actions and it is this contradiction which defines the competition between Actelion’s Tracleer (blocks ETA and ETB receptors) and Gilead’s Letairis (blocks ETA receptors only).


Actelion's Plans for Macitentan in PAH and IPF

Similarly, Actelion's Macitentan blocks ETA and ETB receptors. More light on Macitentan was shed by Iglarz et al:

“optimized for its potency and dual blockade of ETA and ETB receptors since both receptors mediate the deleterious effects of ET-1 in pathology” and “dual antagonism was superior to ETA-selective antagonism in terms of maximal efficacy. This ranking of efficacy between selective and dual antagonism in pathology is inverse in physiology, where in healthy subjects, ETA-selective antagonists induced greater vasodilation than dual"

Actelion has Macitentan in Phase III and it appears that this will be the focus of their efforts in order to retain leadership in PAH after Tracleer’s patent expiry in 2015. In common with Tracleer, It is a dual endothelin receptor antagonist. However, unlike Tracleer, it has shown good efficacy in idiopathic pulmonary fibrosis.

Macitentan Advantages and Timeline

Macitentan is well tolerated and seems to be free of many of the potential liver toxicity issues that are associated with Tracleer and Gilead’s Letairis. According to Martine Clozel,

"Macitentan is expected to protect tissues from the deleterious effect of elevated ET, via a comprehensive blockade of ET receptors in the tissue compartment.”

Unlike Tracleer (but in common with Letairis) it is a taken once a day and has demonstrated greater efficacy than both in pulmonary arterial hypertension. After the intended Phase III and FDA approval Actelion would hope for Macitentan to replace Tracleer and also to open up the IPF market for them.

 

Phase III results for Macitentan in PAH are expected in late 2011 or early 2012, whilst Phase II results for Macitentan in IPF are expected in the second half of 2011. There are exciting days ahead for Actelion!

 

 

 

 

Sources:

Clozel, Martine “Better by Design- Potential of Tissue Targeting”  Abstract from7th International Pulmonary Hypertension Forum, 2008
Iglarz M. et al. “Pharmacology of Macitentan, an orally active tissue targeting dual endothelin receptor antagonist.” J Pharmacol Exp Ther. 2008 Sep 9
Morrison, Trista “Gilead Gets Letairis Approval, Potential Best In Class For PAH”  Bioworld Today, 2007
Schneider, Markus P., Erika I. Boesen and David M. Pollock “Contrasting Actions of Endothelin ETA and ETB Receptors in Cardiovascular Disease” Pharmacology and Toxicology, Volume 47, 2007
Waknine,Yael “FDA Safety Changes: Serevent Diskus, Letairis, Antibiotics”  Medscape News,2008

 

Gilead Facing Challenges

It has been a difficult couple of years for investors in the stock of Gilead Sciences and, they could be forgiven for thinking that more headwinds are coming in 2011. A number of well documented issues have challenged the biotech and pharmaceutical industry. Firstly, US Health care reforms have hurt sales, put pricing under pressure and an increasing amount of the cost increases are becoming less tax deductible. Secondly, increasing patent expires are challenging the incumbent suppliers, Finally, European medical authorities are putting increasing pressure on prices.

Furthermore, Gilead has its own specific issues. One of the key drugs in its anti-HIV franchise (Viread) will see its patent run out in 2017. Viread made up 10% of product sales revenues in 2010. Gilead has been hit with pressure on HIV funding in the US and this could replicated worldwide.

However, as all good investors should ask themselves, is it already in the price?



Gilead Sciences Downside Priced in for 2011?

At the full year results Gilead reported product sales of $7.39bn and guided towards full year revenue of $7.9-8.1bn and as for the issues discussed above

This range includes the full-year impact of U.S. healthcare reform, which we estimate to be 5% to 6% of U.S. net product sales. It also includes the full-year impact of mandatory price decreases in several countries of the European Union, as a result of austerity measures

I've summarised some points from the guidance

• Product Sales of $7.9-8.1bn
• Non-GAAP product gross margin of 74-76%
• Non-GAAP R & D $950m-1bn
• Non-GAAP S G & A  $1-1.05bn

For Q4 revenues were actually down, but this is because of a reduction in royalties from Tamiflu as a result of a mild flu season in 09-10 causing de-stocking by customers. This is likely to correct itself in time, so is not an undue concern. It's time to look at individual product sales.

Consensus estimates

Estimates	2008	2009	2010	2011E	2012E	2013E
EPS ($)	2.1	3.06	3.69	4.09	4.58	5.23
growth		46%	21%	11%	12%	14%
PE ($38.21)	18.2	12.5	10.4	9.3	8.3	7.3

 It is clear that the market is discounting Gilead's growth potential, this is mainly to do with the expiry of patents for Viread in 2017. Viread is the reason why Gilead is so successful and this issue is critical to understanding this business. It will be discussed below. Turning to Gilead's marketed products.



Gilead Product Sales
.

A breakdown of yearly product sales

 

(thousands)	2005	2006	2007	2008	2009	2010
Atripla		206	903	1,572	2,382	2,927
growth			338%	74%	52%	23%
Truvada	568	1,194	1,589	2,107	2,490	2,650
growth		110%	33%	33%	18%	6%
Viread	779	689	613	621	668	732
growth		-12%	-11%	1%	8%	10%
Hepsera	187	231	303	341	272	201
growth		24%	31%	13%	-20%	-26%
Emtriva	47	36	31	31	28	28
growth		-23%	-14%	0%	-10%	0%
Ambisone	221	223	263	290	299	306
growth		1%	18%	10%	3%	2%
Leitaris				113	184	240
growth					63%	30%
Renaxa					131	239
growth						82%
Others/Royalty/Contract	227	447	527	261	557	627
growth		97%	18%	-50%	113%	12%

Gilead is very much an HIV based company and all of the drugs listed above-down to Emtriva- are Antiviral drugs. I'm going to focus on the HIV franchise first.

 HIV is primarily a sexually transmitted disease that infects CD4+ T cells, which causes the body to kill them. In turn, reduced CD4+ T cell levels causes the body to lose its immunisation capabilities and the body is vulnerable to infection.

HIV therapy usually consists of a various combinations of four different classes of drugs.

1. Nucleo-side/tide reverse transcriptase inhibitors (NRTI) are the first class of antiretroviral drugs and inhibit reverse transcription by incorporating into the growing viral DNA chain
2. Non-nucleoside reverse transcriptase inhibitors (NNRTI) inhibit reverse transcription by binding on a different site of the enzyme
3. Protease inhibitors (PI) prevent viral replication by inhibiting the activity of proteases
4. Integrase inhibitors (II) block the action of integrase which is a viral enzyme that integrates the viral genome into the host cell

Gilead's strategy is to protect its leadership in HIV by releasing new combination of these drugs in order to offer a multi-therapy approach. This strategy inevitable involves a certain amount of cannibalisation.


Gilead HIV Combination Drugs

HIV Franchise	Mode of Action	Status
Veriad	NRTI	Marketed
Truvada	NRTI*2	Marketed
Atripla	NRTI*2+NNRTI	Marketed
Truvada/TMC278	NRTI*2+NNRTI	NDA Filing
Elvitegravir	II	Phase III results 2011
Quad	NRTI*2+NNRTI+PK Enhancer	Phase III results 2011
Cobicistat		Phase III results 2011

Viread (tenofivir) is an NRTI and is Gilead's first major antiviral. Sales have peaked and the drug is in decline for HIV, however, Gilead has succeeded in establishing it as treatment for Hepatitis B.

Truvada is the first combination drug for Gilead and combines Viread (tenofivir) with another NRTI called Emtriva (emtricitabin). Truvada is priced lower than its successor Atripla and should still see good sales.

Atripla is the next in the sequence and combines Truvada (tenofivir+emtricitabin) with an NNRTI called Sustiva (efavirenz) from Bristol Myers Squibb.

Truvada/TMC278 is a combination of Truvada (tenofivir+emtricitabin) with a different NNRTI called TMC278 (rilpivirine) from a subsidiary of Johnson & Johnson (Tibotec). It was NDA filed in late 2010 but Gilead received a 'Refuse to File' letter from the FDA. According to Gilead this is due to some technical information which-although embarrassing-should be dealt with in a resubmission in a few months. It is intended to replace Atripla. This is useful as Sustiva will go off patent in 2013.

Elvitegravir is an II which is in late phase III trials. If approved, it will be the second II on the market after raltegravir, of which, it is being compared to in  the trial. It maybe combined with a PI in future.

Quad is the latest combination drug in Phase III trials and results are due later this year. It combines Truvada(tenofivir+emtricitabin) with elvitegravir and Cobicistat. A phase II trial has demonstrated that it is non-inferior to Atripla. Link here



Generic threats to Gilead in HIV Therapy

The patents for Sustiva (used in Atripla) will expire in 2013 and it is prudent to assume that generics will be on the market. This is a thread to Gilead because patients may be able to reduce costs by taking generic Sustiva plus Truvada instead of the more expensive Atripla. Indeed, this is partly why TMC278/Truvada and the Quad regimen are being developed. There is a danger that the cost savings will not be outweighed by the benefits of TMC278/Truvada. Quad is aimed at treatment experienced patients.

Furthermore, Viread will start to lose its patents in 2017 and there is already significant competition from a large Indian generic manufacturer Cipla. Viraday is a generic version of Atripla that Cipla sells worldwide for a fraction of the cost. Indeed, Cipla claims to be the worldwide leader in generic anti HIV therapy sales.

Moreover, if Cipla and others establish themselves in the US via selling generic Sustiva to be combined with Truvada than they could be establishing a foothold with which to launch much cheaper generic copies of Truvada when the Viread patents start to expire in 2017.

 I consider this is to be a significant threat.


Gilead Not Just About HIV

As outlined above Gilead has significant non HIV products, the most interesting being Letairis in pulmonary arterial hypertension (PAH) which is seeking to grab market share from industry leader Tracleer. Letairis has the benefit of being a once a day regimen, however Actelion have replied to the threat and have Macitentan in late stage development. This drug (once a day regimen) is demonstrating potency and doesn't have the liver toxicity issues of the other two. If successful in phase III, this drug could crimp Letairis sales growth.

Gilead also has a couple of drugs in development for Hepatitis C (HCV) including a polymerase inhibitor and a protease inhibitor. Gilead looks to be a little bit late to the party here. Both Vertex and Merck intend to start marketing their own protease inhibitors this year. In fact Vertex is interesting for other reasons too.



Vertex Pharmaceuticals a Good Fit for Gilead

If Vertex is successful in getting Telaprevir approved then it could become a target for a larger company. Immediate focus would shift towards its partner Johnson & Johnson, but I think that Gilead is an equally likely acquirer.

It appears that Gilead's existing strategy for Hepatitis C is similar to the multi therapy approach taken with HIV. However, Gilead may change tack. The company is generating billions in cash, has patent expiry issues and could generate significant synergies by adding the Vertex pipeline to its own. Johnson & Johnson is already partnering Gilead with TMC278/Truvada and in any case, is developing its own HCV drugs. Either one of the two is a potential acquirer of Vertex.






Is Gilead a Stock to Buy?

I'm going to take a pass here. I'm not convinced the evidence is exciting enough to get too excited by TMC278/Truvada and the prospect of it replacing Atripla. Gilead needs this to happen because Sustiva is coming off patent in 2013. I think Gilead could face competition from cheap generic Sustiva being taken in combination with Truvada. More on the subject of TMC278/Truvada here

Longer term, the patent expiry for Viread is hanging over Gilead. Similarly, Actelion's rival drug for PAH (Tracleer) is going off patent in 2015. This means that cheaper generics could threaten future Letairis sales, as well as a successful phase III for Macitentan

However, it is worth monitoring developments at Gilead. The company needs to make an acquisition.


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