Gilead is kicking more ass

Call it Gilead Sciences' (NASDAQ: GILD ) stealth play.

Gilead is the king of the HIV business. Its wildly successful Sovaldi launch is without a doubt the biggest biotech event of the year. But the company's experimental cancer drug pipeline is a different story, one that has encountered numerous setbacks.

Perhaps that's why the EU's recent approval of Gilead's targeted P13K inhibitor, Zydelig, flew mostly under the radar. Despite treatment for leukemia and other blood cancers being one of the fastest growing markets for cancer drugs, the event received little analyst attention. I believe that could be a mistake, because Gilead has been laying a foundation for oncology since 2011, with a savvy string of deals that set the stage for success even greater than Sovaldi and HIV drugs. Targeted oncology is entering an era where significant advances are being made, and while a ton of things could go wrong, Zydelig's approval is more than just an isolated stroke of luck. It's the first step in building a solid franchise.

The European Commission approved Zydelig (idelalisib) in mid-September; two months after the FDA approved the first-in-class oral treatment for several incurable blood cancers, including relapsed chronic lymphocytic leukemia (CLL). CLL is a slow-moving disease that can require treatment over years, opening up a chance for billions of dollars in revenue.

According to EvaluatePharma estimates, the drug could generate $1.2 billion in peak sales by 2020. Stanford Bernstein analyst Geoff Porges sees a higher and faster growth curve, based on Zydelig's potential for non-Hodgkin's lymphoma. He predicts $1.5 billion in Zydelig sales by 2017.

In the United States, the FDA's green lighting of Zydelig extends beyond relapsed CLL to follicular lymphoma (FL), and relapsed small lymphocytic lymphoma (SLL). Coming out of the gate with three indications in the U.S. and two in Europe (FL and CLL) could put the giant biotech on track to become a cancer powerhouse.

The real victory, however, goes beyond the numbers.

Fantastic results
Zydelig works by blocking overactive PI3K-delta signaling, cutting off a key contributor to cancer growth in B-cell leukemias and lymphomas. The drug's approval in the EU came from a placebo-controlled trial in 220 patients that stopped early, after the drug showed significantly longer progression-free survival.

Some of the responses seen with Zydelig were "incredible" and came within a week, according to Richard Furman, MD, from the Weil Cornell Medical College in New York City. Dr. Furman, author of the results for The New England Journal of Medicine, commented, "It is remarkable how quickly idelalisib (Zydelig) worked in this heavily treated group of patients, many of whom were resistant to chemotherapy... Their cancer quickly melted away."

The push into blood-cancer research has helped redefine the lives of people who have these diseases, said Hildy Dillon, senior vice president of patient services at the Leukemia & Lymphoma Society. "I've been in oncology for over 30 years, and people did not survive these diseases," Dillon said. "And now, as we develop newer therapies, we are extending the lives of these patients."

The results in blood cancer are heartening, but they're also in stark contrast to another Gilead oncology candidate, simtuzumab, which failed its Phase 2 study for advanced pancreatic cancer this month. Simtuzumab is still in clinical trials for other areas of unmet medical needs, including idiopathic pulmonary fibrosis, but it has a lot to prove.

In fact, simtuzumab's failure with pancreatic cancer has left the company open to the criticism that it will end up being successfully cutting edge in everything except oncology.

Side effects and competition
In terms of Zydelig, targeted or not, patients could encounter numerous serious side effects. In the U.S., a black-box warning on the product that highlights the possibility of colitis, lung inflammation, and potentially fatal liver problems could slow acceptance.

Zydelig has formidable competition from Johnson & Johnson's (NYSE: JNJ ) and Pharmacyclics' (NASDAQ: PCYC ) Imbruvica (ibrutinib). Imbruvica doesn't have a black box warning. And there's more competition coming from AbbVie with ABT-199, which is in late-stage development.

Recognizing the challenge, Gilead has priced Zydelig slightly lower than Imbruvica, at $7,200 compared with $8,200. Another point in Zydelig's favor is that while the European Commission approved Zydelig quickly, Imbruvica has yet to receive EU approval.

With Sovaldi sales trouncing estimates, potentially reaching $10 billion this year, Gilead could easily achieve its goal of doubling its 2013 revenue. But having such a huge single contributor makes Gilead more vulnerable, especially given the pushback on the drug's $1,000-a-pill price tag. Despite the striking guidance and quarter numbers, it's wise not to lose sight of the rest of the company's pipeline.