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Gilead Sciences moving in new direction
  By Steve Johnson
San Jose Mercury News
What does a once-fledgling Bay Area biotechnology company do after boosting its annual revenue from $132 million 10 years ago to $3 billion today, largely on the success of its market-dominating treatments for HIV?
Start shifting away from HIV drugs, of course.
Gilead Sciences of Foster City hopes to take a major step in that new direction on Monday, when the U.S. Food and Drug Administration is widely expected to approve its drug Ambrisentan for hypertension.
Gilead obtained the medicine and two other potential hypertension treatments through its $2.5 billion cash purchase of Colorado-based Myogen in November. Three months earlier, it spent $365 million for Corus Pharma of Seattle, which was developing drugs for respiratory and infectious diseases, including a treatment to help people with cystic fibrosis breathe. Gilead also hopes to expand its presence in the lucrative market for hepatitis medicines.
"We really want to broaden the basis for the company," said John Milligan, chief operating officer, adding, "we've got more interesting things going on than we've ever had before."
That strategy is endorsed by some analysts who track Gilead, which incorporated in 1987 and is the Bay Area's second-biggest biotech firm after Genentech of South San Francisco, which earned $9.3 billion in revenue last year.
"I like this a lot," said Shiv Kapoor, an analyst with investment bank Montgomery, who owns no Gilead stock. In a report last week, he noted that Gilead's line of drugs "has never been as strong in the past 20 years as it is now."
Sharon Seiler an analyst with investment bank Punk, Ziegel, who also owns no Gilead stock, agrees it's prudent for the company to refocus itself. Although Gilead dominates the HIV market now, she said, "at some point their growth is going to be capped in that area."
Yet the cost of Gilead's diversification - especially its purchase of Myogen - concerns Seiler. "I have to say, I think they paid a lot for this acquisition," she said, adding that the market for hypertension drugs is worrisomely crowded with competitors.
Gilead was founded with the idea of focusing on nucleotides, genetic material that can be modified to inhibit disease-causing proteins. The firm hoped to make treatments for cardiovascular disease, inflammatory disease, cancer and viral infections such as HIV, flu and hepatitis. And after laboring for years in the red, its efforts began to pay off in 1996.
That year the FDA approved its drug Vistide, developed for cytomegalovirus retinitis, a condition related to the herpes virus, which can cause eye damage. A year later, the FDA approved Gilead's AmBisome, for life-threatening fungal infections.
And in 1999, the FDA also gave its OK to Tamiflu, which Gilead has since licensed to the Swiss firm Roche in exchange for royalty payments. Tamiflu initially was aimed at treating people who get seasonal flu. But in recent years, many countries have stockpiled it as a possible antidote for a major bird-flu outbreak.
Gilead achieved its first profitable year in 2001. But the company primarily owes its commercial success to its HIV drugs - Viread, Emtriva, Truvada and Atripla - which won FDA approval respectively in 2001, 2003, 2004 and 2006.
Despite heavy competition from the likes of pharmaceutical giant GlaxoSmithKline of London, Gilead has become the market leader in HIV drugs. Four out of five newly-infected HIV patients today use Truvada or Atripla, and HIV drugs account for more than 80 percent of Gilead's product revenue. According to analyst Kapoor, Gilead's HIV treatments - which generated $2.1 billion in sales last year - are likely to bring in $4.8 billion by 2010.
But Gilead fears its HIV drugs eventually could become less profitable.
People with the virus can become resistant to their medications, rendering the drugs ineffective and prompting a switch in treatments. In addition, insurers sometimes pay less for drugs that have been on the market a while, which could force Gilead to lower its prices. And competitors one day might lure Gilead's customers away with cheaper generic versions.
So Gilead is looking to other types of drugs to insure its future.
Consider Ambrisentan, aimed at patients with pulmonary arterial hypertension. The disease constricts the lung's blood vessels and makes it hard to pump blood, causing heart failure. An analysis by investment bank CIBC World Markets said Ambrisentan could become the leading drug for pulmonary arterial hypertension, with $400 million in annual U.S. sales.
Darusentan, one of the other experimental hypertension treatments Gilead obtained from the Myogen purchase, is undergoing late-stage studies in people. If it wins FDA approval, the CIBC analysis estimated, it could generate $250 million by 2010.
Another intriguing drug candidate is Aztreonam lysine, which Gilead acquired from Corus Pharma. In May, Gilead said data from a late-stage study showed it helped cystic fibrosis patients breathe. If the drug wins FDA approval by next year, as Gilead executives hope, the CIBC estimated its sales could hit $200 million by 2010.
Gilead also has Macugen, approved in 2004 for an eye disease called wet age-related macular degeneration.
But the company's future might especially hinge on its hepatitis drugs, which Gilead's executives believe could become bigger money makers than their HIV treatments.
Gilead already sells Hepsera, approved in 2002 for chronic hepatitis B, which affects 1.25 million people in the U.S. Hepsera sales hit $230 million last year. But an analysis last week by investment bank Rodman & Renshaw said Viread, which Gilead is testing as a hepatitis B treatment, could win FDA approval for that purpose next year and outpace Hepsera's sales.
Gilead's executives also have great expectations for GS 9190, an experimental treatment for hepatitis C, which afflicts 4.1 million people in the U.S.
"Hepatitis C is clearly a huge opportunity for us," said Norbert Bischofberger, Gilead's executive vice president for research and development and chief scientific officer.
That's probably not all Gilead has up its sleeve, some analysts believe, noting that the firm has more than $1.8 billion in cash to obtain other drug candidates. Gilead executives rule out any such purchases this year. But beyond that, they remain coy.
"We're always looking for smart buys," said Kevin Young, the company's executive vice president for commercial operations. "We've got to keep our radar up."
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