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Gilead's Galapagos deal leads to Q3 profit loss, but pipeline fortification

Gilead Sciences Inc. suffered a loss to profits in the third quarter, but this was mainly the result of closing a $5 billion research and development deal with Galapagos NV that could open the door to more opportunities down the road, executives said during an Oct. 24 earnings call.

For a company that has focused primarily on HIV and hepatitis drugs in the past as well as more recently on cell therapy Gilead CEO Daniel O'Day signaled to investors that the company is looking to stretch more and more into new areas, with "more to come" in partnerships and M&A.

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Gilead CEO Daniel O'Day

Source: Gilead

"The team here and I have the pipeline as our number one priority," O'Day said. "In terms of therapeutic, I would say our approach to external partnerships and M&A will be very much the same as what you saw in the past first and foremost, it will be driven by science, driven by where we think the most unique opportunities are."

Gilead and Galapagos are preparing to launch their rheumatoid arthritis drug filgotinib, planning to file in the U.S. before the end of the year. They have already filed in the EU and Japan. However, the space is highly competitive, with AbbVie Inc.'s Humira the top-selling drug in the world in 2018 and with many biosimilars in waiting, and a new one for Gilead.

Analysts have seen Gilead as a potential for further M&A, particularly with a changing of the guard at the executive level outgoing CFO Robin Washington is set to be replaced by dealmaker Andy Dickinson.

"With Andy Dickinson, an architect of Gilead's Kite and Galapagos deals and also former M&A investment banker, in the CFO seat, the dominant Gilead topic has been all things M&A," Mizuho analyst Salim Sayed said in an Oct. 24 note.

Core businesses falter

In the beginning of October, Gilead gained U.S. Food and Drug Administration approval for its HIV drug Descovy to be used as a pre-exposure prophylaxis, which prevents at-risk people from contracting the virus. Behind Gilead's other drug Truvada, it is only the second approval for that use.

HIV sales continued to gain, reaching $4.2 billion, up 13% year over year. HIV treatment Biktarvy led the growth as the most prescribed regimen in the U.S.

But product sales overall at Gilead were $5.5 billion for the quarter, down 2% from the last quarter and up only 1% year over year.

Even sales of the company's cell therapy Yescarta, which were up 57% year over year, fell by 2% from the previous quarter. The company is focused on educating the public about the use of the therapy in cancer.

"We anticipate further sales variations but remain very confident in the future trajectory of Yescarta," Washington said on the call.

Washington said at Gilead, investing in new therapies can often lead to short-term losses but eventually result in long-term profits.

"It's not by quarter or by year," Washington said. "It's really ensuring that when we make investments, that the necessary actions in the short term ensure the return on those investments."