Gilead Sciences: Innovation for growth
Gilead Sciences is one of the top-performing companies in the biotechnology industry with an operating model that combines R&D with M&A strategies.
Gilead Sciences is one of the top-performing companies in the biotechnology industry. In 2014 their revenues increased in more than 100% to $24.9 billion with the introduction of two blockbuster drugs for hepatitis C: Sovaldi and Harvoni. The stock price has experienced a tremendous growth of 440% in the last 4 years, from 20 $/share to 105 $/share, and today, Gilead Sciences is the most valuable company in the industry with a market capitalization of $150B. So, what are the key success factors that enabled Gilead to achieve those impressive results in the last 4 years? Is the operating model different from other companies in the industry?
Gilead Sciences’ stock price:
Source: Google Finance
Gilead was founded in 1987 in Foster City by Michael Riordan, a doctor from Johns Hopkins School of Medicine and alumni of Harvard Business School. The business model of the company consists in the release of new drugs into the market to capture the benefits of the patents that prevent other companies to compete. Since the beginning, the company focused its strategy on developing a growing pipeline of investigational drugs and therefore expanding its product portfolio. Gilead had been successful in introducing new drugs to the market as a consequence of solid operating model that consist on three main pillars.
Source: marketrealist.com
Drug innovation through high R&D investments
The main factor that explain the success of the company is the discovery of new drugs as a consequence of large R&D investments. Gilead invest 23% of its total revenue on R&D to ensure the sustainability of the business in the long term. Those investments enable Gilead to increase their drugs pipeline throughout the funnel, which leads to more frequent blockbuster drug discoveries that are released into market. In 2015, the company had 35 compounds in their pipeline through different stages of development. http://www.gilead.com/research/pipeline
In order to achieve strong R&D results it’s necessary to have highly motivated scientists that are able to innovate and create new drugs. It’s the leadership of their talented scientists that enable Gilead to deliver innovative products to the market. One unique feature is that Gilead is strategically focus on developing therapies for HIV/AIDS, liver diseases and oncology (cancer). Those fields of study enable their scientist to find cures to the deadliest diseases in the world. Some estimations calculate that cancer and HIV killed more than 3 million people in 2012. “I’ve always felt lucky that I am able to do a job like this, were I can get to think about a problem, come up with an idea, and go into the lab to try it. It’s not a standardized process for discovery. It’s research. It may not work. Everybody need to come up with new ideas because we are trying to find something new.” Said Scott Lazerwith, who works in medicinal chemistry.
Strategically acquisitions of other biotech companies
They also put into practice a special focus on acquiring other biotech companies with technologies that would perfectly complement with their own R&D. Those acquired technologies enable Gilead to increase their drug pipeline and therefore their products in the market. For example, in 2012 Gilead acquired Pharmasset and used the compound sofosbuvir in the two blockbuster drugs launched in 2013. This is a perfect example of how the integration of two operating models generate the necessary synergies to create value for the company.
List of M&As in the last 15 years:
Source: Wikipedia
Entering new markets
To complement their operating model that focus in releasing new drugs into the market, Gilead has also implemented a market expansion strategy. The company is also offering those innovative products into new markets and a substantial percentage of their growth is coming from outside the United States and Europe. For example, in 2015 a substantial part of their share in the HCV (hepatitis) market was coming from Japan and emerging markets when Gilead introduced Sovaldi and Harvoni.
Source: marketrealist.com
Sources
http://www.gilead.com/research/pipeline
An Overview of Gilead Sciences’ Business Model. http://marketrealist.com/2015/08/overview-gilead-sciences-business-model/
https://www.google.com/finance?q=NASDAQ%3AGILD&ei=T-JkVtmsLYuMmQGg-rTIBg
https://en.wikipedia.org/wiki/Gilead_Sciences
How do you think they’ll respond to increasing pressure from regulators and the public regarding the high price of drugs? How can they communicate the value they claim to create?
This is a challenge the pharmaceutical industry faces as a whole and it will play out as a policy debate between payers and manufacturers. Because of this I believe that companies like Gilead will eventually have to drive their prices in order to comply with demands from the public and also to prevent bankruptcies of national health services.
It’s a fascinating post on a fascinating company. I wonder what you would say is the most decisive reason Gilead is ahead of the old-school behemoth pharmaceutical companies for some diseases — is it the acquisitions, the R&D, the focus on the three segments you listed (HIV, liver and oncology), etc? Anyway, this really gets at the point of why a young Silicon Valley company like Gilead is surpassing some of the oldest players in this convoluted industry. It would also be cool to look at similarities between what Gilead did to the pharma industry and what Tesla did to the automotive industry, AirBnB to the hotel industry, Uber to taxis, etc. In many ways it almost looks like the classic Silicon Valley story, except this time it’s in a seemingly undisruptable industry!