Is This Gilead's Worst Nightmare?

It's not often that big name biotechs double their earnings year over year. Yet that's exactly what Gilead Sciences (NASDAQ: GILD  ) did in the first quarter of 2014 after posting record sales for its new hepatitis C drug Sovaldi. 

Sovaldi raked in a reported $2.27 billion in the first quarter, accounting for 46.6% of total product sales in the quarter. Despite these impressive numbers, however, Gilead's management has opted not to provide investors with an annual sales projections for its new cash cow.

With the company's stock price failing to break through its historical and recent highs after a stellar quarter, I think it's important to take a closer look at one issue that could be clouding management's foresight regarding Sovaldi.   

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AbbVie's new drug could be a major competitor to Sovaldi for genotype 1 patients
AbbVie (NYSE: ABBV  ) and its partner Enanta Pharmaceuticals (NASDAQ: ENTA  )  submitted their triple-therapy hepatitis C cocktail for approval in the U.S. last April and followed that up with a European submission in May. The therapy is indicated as a treatment primarily for genotype 1 patients -- the most common form of the disease, and reportedly has a similar clinical profile compared to Gilead's drug for this particular patient population.

Specifically, six clinical trials showed that AbbVie's therapy produces functional cure rates typically exceeding 90% and relatively few patients needed to discontinue using it due to serious adverse effects. In short, the two drugs are more or less a toss up clinically speaking for genotype 1 patients.

So the deciding factor may come down to price for payers, who have vigorously pushed back against Gilead's pricing for Sovaldi. If AbbVie decides to undercut Gilead's $84,000 price tag for Sovaldi for a 12-week course of treatment, I think the floodgates could open in terms of demand for the new drug, assuming approval. 

Signs Sovaldi's price may be its biggest weakness
There is no guarantee AbbVie will price its therapy significantly below Sovaldi, and in fact management has implied that they aren't interested in competing on price, but the company would be wise to do so. Without a substantial difference clinically for genotype 1 patients, insurers could begin denying the majority of Sovaldi prescriptions in favor of AbbVie's drug if the company priced it at a substantial discount.

Indeed, we learned last month that several private insurers and even Medicaid have already begun restricting access to Sovaldi to only the sickest patients over pricing concerns.  And this pricing debate could be one reason why prescription rates have reportedly started to slow in recent weeks, although doctors might be simply waiting for the new Sovaldi/ledipasvir combo or AbbVie's drug as well.   

Foolish wrap-up
AbbVie and Enanta's triple-therapy hepatitis C regimen looks like it will be approved later this year in the U.S. and will therefore compete head-to-head with Sovaldi. I think this is why Gilead's management decided it was best to avoid an annual forecast.

Although AbbVie hasn't announced its potential pricing structure, we have heard rumors that the company won't undercut Sovaldi's price significantly.  In my view, this would be a major mistake on AbbVie's part and would seriously limit the drug's commercial potential.

Gilead already enjoys first-mover advantage with Sovaldi and is in the process of bolstering its all-oral hepatitis C product line with the Sovaldi/ledipasvir combo. Moreover, AbbVie's drug can't claim to be any more effective or safer than Sovaldi. All told, AbbVie's therapy would likely run into the same roadblocks from payers that Sovaldi is now, instead of using this pricing debate to its advantage. 

Overall, I am skeptical that AbbVie really plans on pricing its therapy in Sovaldi's stratosphere, largely because it makes little business sense to do so. Regardless, this issue could play a major role in Gilead's fortunes moving forward. 

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  • Report this Comment On June 17, 2014, at 10:33 PM, santoshps wrote:

    "Specifically, six clinical trials showed that AbbVie's therapy produces functional cure rates typically exceeding 90% and relatively few patients needed to discontinue using it due to serious adverse effects. In short, the two drugs are more or less a toss up clinically speaking for genotype 1 patients."

    Please tell how many patients (percentage) stopped using it due to serious effects

    Abbvie is light years away from matching GILD.

    Toss-up? this is the most non technical juvenile comparison by the author without any understanding of the subject.....end of story

  • Report this Comment On June 18, 2014, at 11:43 AM, JSYC wrote:

    There is another and additional problem with this author. He does not seem to realize that no decent hepatologist/gastroenterologist will prescribe an inferior drug (due to safety) even with arguably comparable efficacy just because it's cheaper! These doctors are all already amazed by Sovaldi from what I hear and they will be blown away when SOF/LED combo is approved around October. AbbVie is already too late and will fall behind even further by then. Price cuts will be regarded as, yes, cheap and inferior strategy. Even the AbbVie management obviously understands that! Perhaps this author should focus more on TECH and not BIOTECH...

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