Staff Writer

Despite increased total revenues and product sales in the first quarter, Gilead Sciences Inc. saw its shares sink 9.6 percent Wednesday as the company reported that health care reform provisions negatively affected its HIV franchise.

The Foster City, Calif.-based firm had record total revenues of $2.09 billion, up 36 percent over the same period in 2009. Product sales were $1.79 billion in the first quarter, up 24 percent over first quarter 2009.

For the full year 2010, Gilead is projecting that product sales will range from $7.4 billion to $7.5 billion, down from its previous guidance of $7.6 billion to $7.7 billion.

The $200 million decreases are due to the impact of the U.S. health care reform legislation, which was excluded from Gilead's previous guidance because of the uncertainty about what would be in the package, Robin Washington, senior vice president and chief financial officer, said during a conference call. She indicated that the company's HIV business would feel the impact of the legislation.

As a result of the reform, Gilead is faced with having to offer additional rebates on top of the discounts it already is required to provide to federal payers like Medicaid for its HIV medicines.

Kevin Young, executive vice president of commercial operations, said during the call that "it's quite clear from the legislation that irrespective of the discount that you have in place to these federal payers, an additional 8 percent has to be added." He said the current discount is 15 percent and is moving to the 23 percent.

For the first quarter, Gilead's product sales increased 24 percent to $1.79 billion, compared to $1.45 billion in the first quarter of 2009. The increase in sales was driven primarily by the company's antiviral franchise, including strong growth in sales of HIV drugs Atripla (efavirenz 600 mg/emtricitabine 200 mg/tenofovir disoproxil fumarate 300 mg) and Truvada (emtricitabine/tenofovir disoproxil fumarate), as well as Ranexa (ranolazine) for chronic angina.

Sales of Atripla increased 36 percent to $692.9 million for the first quarter, up from $509.9 million during the same period last year. Truvada sales increased 11 percent to $657.8 million for the first quarter of 2010, up from $590.4 million in for the same three months in 2009.

Ranexa sales were $51.2 million for the first quarter of 2010. There were no Ranexa sales in the first quarter of 2009 as Gilead picked up the drug through the buyout of CV Therapeutics Inc. in April 2009.

Cowen & Co. analyst Phil Nadeau stated in a research note that the Gilead was caught by surprise by the magnitude of the health care reform impact, since the company previously had indicated that the an 8 percent increase in Medicaid rebates for its HIV medicines would have a "modest effect." But he took heart in the fact that "end-user demand" for HIV prescription medicines remains robust.

Jefferies & Co. analyst Thomas Wei wrote, "Several of these negative revenue factors are one-time in nature, and we believe that underlying demand for [Gilead's] HIV drugs remains robust."

John Martin, chairman and CEO of Gilead, said during the call that the first quarter was "productive on many fronts," and he noted he was pleased with the progress of the company's HIV pipeline.

Gilead's earnings results come on the heels of Phase II news this week that the company had stopped development of its hepatitis C drug program (a GS-9450 caspase inhibitor in patients with nonalcoholic steatohepatitis) due to laboratory abnormalities and adverse events in a number of clinical study participants. The company did not specify the nature of the events.

The halted hepatitis C program followed an announcement that Gilead partner Johnson & Johnson reported positive results from two pivotal Phase III studies evaluating TMC278 (rilpivirine) as a treatment for HIV in treatment-naive patients. (See BioWorld Today, April 21, 2010.)

The Phase III rilpivirine studies met the primary efficacy objective of noninferiority as compared to efavirenz (Sustiva, Bristol-Myers Squibb Co.) based on the proportion of patients achieving HIV RNA levels of less than 50 copies/mL at 48 weeks. Submission of TMC278 for regulatory review is on track for the third quarter.

Gilead is developing TMC278 with J&J subsidiary Tibotec Pharmaceuticals Inc. The two firms are collaborating to develop a new once-daily fixed-dose antiretroviral regimen containing Truvada and TMC278 for treatment-naive HIV-infected patients. The companies also are working toward an agreement to make the fixed-dose combination of Truvada and TMC278 available in the developing world. If approved, the new product would become the second complete antiretroviral treatment regimen for HIV available in a single tablet taken once daily.

The company's HIV franchise has become the market leader with four marketed drugs: Atripla, Emtriva, Truvada and Viread. But as Gilead's HIV molecules face patent expirations between 2017 and 2021, the company is working to develop a Quad pill regimen and other investigational antiretrovirals that could extend its HIV business.

Gilead recently announced that it dosed the first patient in a Phase III program evaluating its investigational Quad regimen of elvitegravir, the boosting agent cobicistat (formerly GS 9350), emtricitabine (Emtriva) and tenofovir disoproxil fumarate (Viread). In one of the Phase III studies, the quad pill regimen will be compared to Atripla while the other study compares elvitegravir-cobicistat vs. atazanavir-ritonavir. Elvitegravir (a component of the Quad) is currently being studied in a separate Phase III trial in treatment-experienced patients. Gilead also is examining cobicistat as a stand-alone boosting agent for other antiretrovirals, in particular protease inhibitors.

Later this quarter, Gilead plans to initiate a Phase III study of cobicistat-boosted atazanavir compared to ritonavir-boosted atazanavir, each in combination with Truvada (emtricitabine and tenofovir disoproxil fumarate).

"Given pricing pressures in Europe, we are growing more conservative on pricing assumptions for [Gilead's] HIV franchise, as well as next-generation products to claim sustainable share," Joshua Schimmer, analyst with Leerink Swann wrote in a research note. But, he said, "we still model meaningful contribution from the quad, TMC278/Truvada and a protease quad over the longer term."

At the end of March, Gilead had cash, cash equivalents and marketable securities of $4.62 billion compared to $3.90 billion at the end of 2009.

Shares in Gilead (NASDAQ:GILD) were down $4.31, closing at $40.76 Wednesday.