What a difference a weekend makes.
On Friday, when the Food and Drug Administration approved AbbVie's (NYSE:ABBV) Viekira Pak, it looked as if AbbVie had done Gilead Sciences (NASDAQ: GILD) a huge favor pricing its new hepatitis C drug on par with Gilead's Harvoni.
"So much for the potential price war in the hepatitis C market. For now, at least," I wrote.
Turns out AbbVie already had plans to launch an offensive attack. "For now" lasted only a couple of days.
As mentioned in the article, insurers often negotiate discounts off the list price for drugs, so AbbVie still had the opportunity to take some market share from Gilead even if the list prices were comparable.
On Monday, the company announced a deal with Express Scripts (NASDAQ:ESRX) making Viekira Pak the exclusive hepatitis C drug covered by the pharmacy benefits manager for patients infected with the genotype 1 virus, the most common type in the United States. Gilead's Sovaldi will still be available for other genotypes since Viekira Pak isn't approved to treat patients infected with those viruses.
Unfortunately for investors, there's no transparency here. Neither Express Scripts nor AbbVie is disclosing how much of a discount AbbVie had to give to get the exclusivity. You can't blame them; it's not to either company's advantage to disclose the discount, tipping off their respective competitors, but it will make life a little harder on investors trying to figure out how beneficial the deal is for AbbVie.
This is a multi-year deal -- again, no disclosure on the number of years -- so Gilead could be locked out of Express Scripts' customers for quite a while.
Obviously it depends on the discount and how much market share AbbVie could have gotten if it had priced on par with Gilead, but it looks like a good move to me.
Enanta Pharmaceuticals' (NASDAQ:ENTA) shareholders seem to agree. The biotech, which gets a royalty on sales of Viekira Pak since it helped develop one of the drugs in the cocktail, rose 10% on Monday. Interestingly, AbbVie was flat on the day, but the hepatitis C drug isn't as important to the larger drugmaker.
Without a price war, it looked like Gilead had the upper hand. Harvoni and Viekira Pak have comparable efficacy and both drugs are fairly safe, although many patients that take Viekira Pak also have to take a generic drug called ribavirin, which adds additional safety issues. Harvoni's advantage comes down to convenience, since Harvoni is one pill a day, compared with four to six pills for Viekira Pak split into two different times of the day.
If you assume AbbVie was only going to be able to get 10%-20% of Express Scripts patients with on-par pricing, AbbVie can come out ahead getting 100% of Express Scripts patients even with a 40% discount.
More to come?
Gilead was down 14% on Monday, but I don't think all of that was because of the loss of Express Scripts' patients.
More likely, investors are worried about the potential for Gilead to be knocked out of other markets or have to give steep discounts to stay in them. The discount problem is compounded because the price that government programs -- Medicare and Medicaid -- pay for drugs are set based on the price drugmakers give to private insurers.
Give it a few more days, and we could be in a full-blown price war.
Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Express Scripts and Gilead Sciences and owns shares of both companies. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.