For about two years, Gilead Sciences Inc. rode the glorious wave that was its paradigm-shattering – and profit-busting – hepatitis C virus (HCV) franchise to become a top Wall Street big biotech by market cap. But, with sales declining for the third quarter in a row, it seems the ride is over, at least for now.

After a remarkable 2015, the company has lost its coveted top spot in the biotech $100 million market cap club, and has watched its shares (NASDAQ:GILD) slide by nearly 28 percent since the start of the year. The stock closed Wednesday at $72.51, down $1.56. (See BioWorld Insight, May 31, 2016.)

Investors will have to wait and see whether the Foster City, Calif.-based firm's pipeline bets in the popular nonalcoholic steatohepatitis (NASH) field turn out to be winners and whether its "disciplined" approach to M&A could yield the kind of success it saw with the acquisition of Pharmasset Inc., an eyebrow-raising buy at the time that ended up bringing to Gilead the backbone of what would become HCV blockbusters Sovaldi (sofosbuvir) and Harvoni (sofosbuvir/ledipasvir).

In a way, Gilead is a victim of its own success in HCV. As Chief Operating Officer Kevin Young noted during the earnings call, "We will soon have treated 1.2 million HCV-infected individuals around the world, most of whom are now cured." While treatment levels have flattened – Gilead reported about 50,000 to 60,000 new patient starts for the past four quarters – Young said he considers the current numbers "very positive. Let's not forget that we're at treatment levels that are about two and half times the treatment levels that were there before the Gilead regimens came to the market."

He added that the "vast proportion" of treated HCV patients are receiving Gilead's drugs – Sovaldi, Harvoni and Epclusa, a fixed-dose combination of sofosbuvir and NS5A inhibitor velpatasvir, approved in June for pan-genotypic HCV. (See BioWorld Today, June 29, 2016.)

"Epclusa had a very big effect this quarter, so it goes to show that there's still room for new patients," Young said, "albeit that we're entering a high level of satisfaction." Epclusa generated $593 million in the third quarter, its first full quarter of U.S. sales. Worldwide sales were $640 million.

Total HCV sales for the quarter were $3.3 billion, compared to $4.8 billion for the same period in 2015, with Epclusa sales partially offsetting declines in Harvoni and Sovaldi revenue. U.S. HCV sales, in particular, were down 37 percent year over year, coming in at about $2 billion. Gilead attributed that drop largely to lower patient starts for Harvoni and lower revenue per patient due to steeper discounts.

The other side of its antiviral franchise, HIV, is faring better, thanks primarily to the uptake of Gilead's tenofovir alafenamide (TAF)-based regimens. In the U.S., "the launch of the TAF regimens has reinvigorated HIV franchise growth," wrote Cowen and Co. analyst Phil Nadeau.

Sales of Genvoya, which gained approval late last year and combines TAF with elvitegravir, cobicistat and emtricitabine, totaled $461 million for the third quarter. Descovy, a TAF/emtricitabine combo approved in April, generated sales of $88 million, while sales of Odefsey, a TAF/emtricitabine combo that adds rilpivirine and was approved by the FDA in March, totaled $105 million.

All told, HIV drug sales for the third quarter were $3.5 billion, compared to $2.9 billion for the same three months of 2015, and further growth is expected as uptake for the TAF regimens continues in Europe. "Genvoya is expected to soon secure reimbursement in France and Italy, two of the EU's largest markets," noted Cowen's Nadeau, whose firm increased the 2017 and 2018 HIV sales estimates to $13.8 billion and $12.3 billion, respectively.

Gilead's total product sales were $7.4 billion for the quarter, and revenues of $7.5 billion came in slightly ahead of consensus estimates. Non-GAAP earnings per share (EPS), based on net income of $3.7 billion, were $2.75, falling short of consensus EPS of $2.84.

The company reiterated its guidance for the year, expecting net product sales in the range of $29.5 billion to $30.5 billion. As of Sept. 30, it had about $31.6 billion on its balance sheet, a figure that is making investors antsy to see dealmaking activity. Company execs, however, are not in a hurry to pull the trigger on acquisitions or partnerships.

"We're actively evaluating a series of different partnerships," CEO John Milligan said in a response to an analyst question on Tuesday afternoon's call, reiterating that "we're going to remain disciplined, and we're going to keep the bar high.

"You don't want the sense of urgency to overwhelm your discipline because then you'll do things that don't make long-term sense," he added.

Still, Wall Street's patience for Gilead's discipline will only extend so far. Piper Jaffray's Joshua Schimmer conceded that "we can't fault them for being 'disciplined' with regard to M&A opportunities, but we can fault them for not having the same discipline when it comes to allocating resources to its own pipeline. But as pipeline programs fail, we expect [Gilead] to realize it's time to start making a different set of capital allocation choices, and believe we will see activity soon."

PIPELINE: HITS AND (MORE) MISSES

Looking ahead, Gilead awaits an FDA decision for its TAF product in hepatitis B. The PDUFA date is Nov. 11. Regulatory applications also are pending in Europe and Japan.

A number of late-stage trials testing other TAF-based regimens in HIV are underway, including a single-tablet regimen combining TAF, emtricitabine and bictegravir (GS-9883), an integrase strand inhibitor.

In HCV, the company has a pan-genotypic, single-tablet regimen combining sofosbuvir and velpatasvir with NS3 protease inhibitor voxilaprevir, which produced sustained viral response rates of 96 percent and 97 percent in patients who had previously failed a direct-acting antiviral, including patients with cirrhosis. If approved, it would be the first once-daily treatment for salvage patients. Gilead plans to submit an NDA this quarter.

Beyond that, however, investment in HCV is not a priority. If approved, sofosbuvir/velpatasvir/voxilaprevir would be a fourth-generation HCV product from Gilead, after which "there really isn't much left in terms of unmet medical need," Milligan said. "And so from a pipeline perspective, this is really the end of what we'll be developing in terms of HCV molecules, and that will allow us to turn our attention to the important aspects in our fibrosis and NASH franchises and our oncology franchises."

Those products include GS-4997, a small-molecule inhibitor of apoptosis signal regulating kinase 1, or ASK1, which has been shown to inhibit inflammation apoptosis and fibrosis in settings of increased oxidative stress associated with NASH in preclinical models. A 72-patient phase II study indicated evidence of fibrosis reversal and decreased fibrosis progression after 24 weeks, with data promising enough to prompt Gilead to move into phase III development in NASH. The firm plans to meet with regulatory authorities, with the aim of testing GS-4997 in patients with F3 and F4 stages of fibrosis.

Earlier in development, two other NASH/fibrosis programs are in phase II: GS-9674, an FXR agonist, and GS-0976, an allosteric acetyl-CoA carboxylase, or ACC, inhibitor. The latter came to Gilead through its April acquisition of Nimbus Therapeutics Inc.'s subsidiary, Nimbus Apollo, in a potential $1.2 billion deal that included $400 million up front and up to $800 million in milestones. Nimbus earned $200 million of those milestone payments this week, relating to the GS-0976 program. (See BioWorld Today, April 5, 2016.)

In oncology, the company is advancing PI3K inhibitor idelalisib in combination with BTK inhibitor GS-4059, which has completed phase I as has SYK inhibitor entospletinib in combination with GS-4059. The PI3K/BTK combo is set to be tested in relapsed/refractory chronic lymphocytic leukemia patients, with and without anti-CD20 therapy.

Phase Ib/II data on entospletinib in acute myeloid leukemia, meanwhile, are due at this year's American Society of Hematology meeting in San Diego.

Also continuing phase III development are momelotinib for myelofibrosis and filgotinib, a JAK1 candidate, being development for multiple indications such as rheumatoid arthritis, ulcerative colitis and Crohn's disease. Gilead picked up rights to filgotinib from Galapagos NV for $725 million up front last year, after the Belgian firm's former partner, Abbvie Inc., passed on the compound in favor of its in-house programs. (See BioWorld Today, Dec. 18, 2015.)

But not everything is progressing smoothly. Final analysis from three 96-week studies of anti-LOXL2 monoclonal antibody simtuzumab failed to show evidence of efficacy in two studies in NASH and one study in primary sclerosing cholangitis, and Gilead will discontinue development of that program.

Also stopped due a lack of efficacy was a phase II/III study testing anti-MMP-9 antibody GS-5745 in ulcerative colitis. A phase II study testing the compound in Crohn's disease also failed to turn up evidence of benefit, though the drug was safe and well-tolerated.

And eleclazine, or GS-6615, a late sodium current inhibitor missed its endpoint in late-stage testing in patients with ventricular tachycardia, ventricular fibrillation and implanted cardioverter-defibrillators. Gilead said it will drop development in that indication but continue pursuing eleclazine in long QT-3 syndrome and hypertrophic cardiomyopathy.

With those disappointments still echoing and the new potential growth drivers still in the wings, Gilead's market status is unlikely to change any time soon.

"In the end," wrote J.P. Morgan analyst Cory Kasimov in a research note, "we still believe the [Gilead] story really boils down to 1) finding a bottom for HCV; 2) what happens on the M&A front; and 3) if there are any pipeline surprises looming."

Fortunately, he added, the firm's balance sheet is "exceptionally strong [$32B in cash]; hopefully, they find something to do with it."