Gilead Case Study

Gilead Sciences stands out to be one of the top biopharmaceutical

companies in USA with the revenue of 11.2 billion dollars and revenue
growth of 15.5% (2012-2013). Financial point of view, Gilead is a strong
performing company with net margin of 3 billion dollar and cagr of 10%
in 5 years. It is high valued company as can be seen from PE ratio. The
Return on Equity is 26% and Return on Assets is 10%, which ensures
profit conversion with money invested by shareholders. The company
concentrates primarily on antiviral drugs with product sales of 10
billion dollars out of which 73% of total revenue accounts for anti HIV
drugs. AIDS is one of the worlds most health challenges where 30
million people have died and more than 35million people are living
with it. Out of these, 90% people reside in developing countries where
resources are limited and economy is not strong to afford prices of
ARVs. Gilead, with 6 commercially available ARVs, recognized the need
to extend ARVs accessibility to least developed and developing
countries whereby it introduced access programs in 2003. Gilead uses
the strategy of partnership and collaboration along with the concept of
tiered pricing for increasing drug access. Viread and Truvada , which
are preferred components of HIV treatment guidelines are now
available at discounted rates in 125 developing countries, that account
for 95% of people having HIV in developing world. In the process,

Gilead has been able to provide treatment to 6million people in 2013,

which has increased by 200 times since 2006 with only 30000 people.
The strategy used by Gilead for its access program and the benefits to
the company can be analyzed as follows:
1. Gilead has developed regional partners to distribute its product
in developing countries with discounted prices of ARVs and in
alignment of regulatory authority requirements. The pricing is
divided into two tiers: low income (no profit) and middle low
income

(some profit) groups. Regional partners

serve as

interface between local government, medical organization and

stakeholders.

Gilead

also

provides

technical

and

medical

assistance.
2. Gilead made voluntary license agreements with 16 Indian
companies where they can produce low cost generic versions of
HIV drugs and sell to 112 countries. Partners are given full
technology transfer and can set their own prices. Gilead also
signed an agreement with MPP to share patent and hence
partners can now produce and sell Gileads marketed medicines
n 112 countries. To support license program Gilead receives 3%
royalty on finished products. Over the past eight years, licensing
partners have lowered prices by 80 percent, and the lowest price
of generic Viread is currently US $4.00 per patient per month.
These price reductions have translated into cost savings for HIV
treatment programs.

3. US patient access program works to give assistance to people

with no insurance or money to pay for HIV products.

All these measures taken by Gilead shows, how effectively it has been
able to provide medication to as many HIV patients as possible across
the globe, while also ensuring that the interests of shareholder are not
affected. Gilead has tried to maximize revenues from a market, which
is effectively non-existent when the drugs are sold at full price, as
majority of the patients are from the poorer sections of the society.
This also provides a competitive edge for Gilead in the market as it has
now established a strong network with local manufacturers of various
countries along with the local governments. This advantage helps them
to have better supply chain management for subsequent products that
they may launch in those highly developing markets. By helping HIV
patients across the globe Gilead has increased its brand value and is
seen as a socially responsible company in the market. May be the
returns would have been higher to shareholders if it just concentrated
on maximizing revenues and earn profit but Gilead has done more than
just maximizing shareholder value by ensuring long term health of
business and balancing both shareholders interest and good market
value.

However, there are risk factors involved in the business of Gilead that
should be taken into account. Gilead is dependent currently upon its
sales on HIV products. The sales of HIV products in turn depend on
reimbursement of Government agencies (USA) and third parties
(developing countries). In USA, state ADAPs which purchase significant
portion of HIV products, depend on federal government grants and
economic downfall will severally affects revenues of Gilead. Outside
USA, revenues can/are affected by government regulations, generic
drug competitions

and product registrations and patent filling.

Patenting plays a pivotal role in pricing of ARVs. Drug and technology

should be patented and then shared to partners in India and China,
which will keep price at an optimum level to ensure profitability to the
company. Absence of patents or patent expiration in the developing
countries as well as in US will lead to significant loss in sales as generic
drug companies will reduce prices as low as possible to capture
market. Litigation expenses with generic companies for claiming
patents have decreased earnings.

Hence due to the complexities in the market Gilead has to maintain the
balance between profitability and subsidized sales of HIV drugs.