Trouble Ahead for Gilead and Sovaldi?

Atop ever-inflating sales estimates for Gilead Science's (NASDAQ: GILD  ) blockbuster Sovaldi, patent battles also continue to crop up. Late last week Idenix Pharmaceuticals (NASDAQ: IDIX  ) added three more suits to the pile, filing in France, Germany and the UK for patent infringement on nucleosides, a precursor to the compound in Sovaldi. This is in addition to two lawsuits it has pending against Gilead stateside since late last year – one where Idenix claimed patent infringement over a nucleoside precursor to Sovaldi and another that attacked a patent tied to Pharmasset, the company Gilead acquired in 2011 for $11 billion to gain rights to Sovaldi in the first place.

A long line
Besides Idenix, Gilead had been fielding lawsuits from several other pharmaceuticals. Roche claimed that a 2004 partnership with Pharmasset gave it rights to Sovaldi, with Gilead responding that the partnership they cite expired well before Gilead's purchase of Pharmasset. Gilead also filed suit of its own, pre-emptively striking against Merck when it claimed 10% of Sovaldi's future sales through sublicensing.

Idenix itself made prior attempts in 2012 to claim rights to an entire class of nucleosides that would include Sovaldi, but a January 2014  ruling favored Gilead. Idenix is currently challenging the ruling. In August of 2013, it also requested China's Patent Office invalidate Gilead's patent. In response, Gilead sued Idenix in Canada, Norway and Australia to invalidate Idenix's patents on certain nucleosides used to treat hepatitis C.

Gilead barely seemed to bat an eye at the new suits, likely just grouping them with the pile of other claims they've said are "baseless."

What's at stake?
Between competing pipeline drugs and flying lawsuits, Gilead is defending a pretty huge treasure. Sovaldi looks like it may dethrone Pfizer's Lipitor as the best selling drug ever, with forecasts for Gilead's hepatitis C treatment upwards of $9 billion.

At the end of February, Sovaldi prescriptions were up 20% week-over-week; based on these numbers along, if prescriptions were to stay constant, ISI analyst Mark Schoenebaum suggested sales would hit $8 billion just this year. If prescriptions continue to grow, sales could hit $11 billion this year.

Compared to Incivek, Vertex Pharmaceuticals' hepatitis C drug known for being the fastest drug launch ever with $1.56 billion in four quarters, Sovaldi prescriptions are 114% higher. Given its high price tag of $84,000 per treatment course, it could mean $1.27 billion in just this quarter.

Consensus estimates have 2014 sales projected at $4.8 billion and quarterly sales at $550 million. These numbers are pretty incredibly given that the drug has been on the market only since last December and physicians and insurers alike are just now coming around to the drug. As of this month, only 20% of targeted doctors have prescribed Sovaldi, per RBC analyst Michael Yee.

Who's footing the bill?
While investors cheer every new sales estimate, insurers are singing a different tune. While Gilead execs have been stumping positive reception from payers to cover the pricey drug, insurers and Medicaid may still be struggling to come around.

Several insurers that manage Medicaid plans, like Molina Healthcare (NYSE: MOH  ) , Healthnet, WellPoint (NYSE: WLP  ) and Aetna (NYSE: AET  ) , are requesting states to assist in covering these new hepatitis C agents. This comes at an unfortunate time as Medicaid remains stretched from budget cuts, higher costs, and a generally slowed economy.

$84,000 is already a difficult number to swallow, but realistically, it could be over $84,000 if a patient requires either a longer course of treatment or adjunct medications. The prescribed combination of Sovaldi and Johnson & Johnson's Olysio runs $150,000 .

Experts estimate that if just two-thirds of American hepatitis C patients were treated at an average of $100,000 each, it would cost the country $200 billion . However, more and more patients are entering the pool as screening for hepatitis C increases, making estimates difficult for a population that seems to continue growing. In addition, it takes decades for hepatitis C to cause cirrhosis or liver cancer, and many patients with chronic hepatitis C never end up developing those seious health issues. All these make estimates for societal value versus cost a difficult one for Medicaid and insurers to figure out.

What makes this year particularly difficult was the late 2013 approval of Sovaldi, which meant no insurers factored the potential cost into their rates for this year. Molina has requested direct government reimbursement to help cover this cost. Other Medicaid programs are waiting for the dust to settle as insurers build in additional payments or renegotiate contracts.

WellPoint is currently covering Sovaldi and Olysio for advanced liver disease, while Aetna is currently covering Sovaldi with plans to adjust that as new drugs enter the market.

Bottom line
Idenix is grasping at straws if it truly believes its new suits against Gilead for patent infringement will yield much for them. It is, however, another legal battle that Gilead will have to address and expend resources toward at a time when it needs to focus on getting coverage for its drug. Analysts' inflating sales estimates are exciting to investors and to Gilead's share price, but all will be moot if there's no payment model to come up with those billions in projected sales. While private insurers seem to be footing the bill for now, if Gilead fails to work out a way to cement Medicaid coverage, it will be significantly short-changing the lifespan of Sovaldi, as many hepatitis C patients in need of treatment will fall under Medicaid benefits.

The high price tag continues to be a point of weakness for Gilead as competitors begin to gain approvals for their own oral hepatitis C treatments. Insurers are clearly already vying to change coverage if a more affordable alternative to Sovaldi (here's looking at you, Bristol Myers Squibb and AbbVie) comes out that could significantly derail the optimistic sales estimates analysts have right now.

If competitors want a piece of the $9 billion pie, I think their best strategy is courting insurers, not running to the courts.

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Comments from our Foolish Readers

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  • Report this Comment On March 18, 2014, at 10:45 PM, fg3416 wrote:

    All this news has already been out there. Is this an attempt to have those less informed sell off their shares and drop the share price?

  • Report this Comment On March 19, 2014, at 2:22 AM, badeconomy wrote:

    The law suites , high price, insurers , competition and other MOOT points about Sovaldi have been dealt with and would hardly put a dent in the over all success of Sovaldi and other drugs by Gilead. The writer has not done his research or just trying to get attention by contradicting the facts. Fortunately the investors in Gild are well informed and they would not get scared away by statement like" another legal battle that Gilead has to address .....at a time when it needs to focus getting coverage for its drugs." REALLY !

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