Please ensure Javascript is enabled for purposes of website accessibility

The Dark Secret in the AbbVie-Gilead Sciences Hepatitis C Drug War

By Brian Orelli, PhD - Jan 10, 2015 at 7:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We don't know the true price of AbbVie's Viekira Pak and Gilead's Harvoni.

Figuring out the revenue AbbVie (ABBV 0.37%) and Gilead Sciences (GILD 0.82%) are going to make on their new hepatitis C drugs shouldn't be that hard. It's quite simply:

The number of prescriptions multiplied by the wholesale price of the drug.

Granted, there are changes in inventories that can move revenue off that calculated number, but they should average out over time.

Source: AbbVie

There are a couple of companies -- IMS Health and Symphony Health Solutions -- that track the number of prescriptions for drugs. While they can't capture all the prescriptions, if they're consistently missing the same percentage, it's easy to factor the missing prescriptions into the calculation.

It's the price that makes it hard for investors to predict sales. When Viekira Pak was approved by the Food and Drug Administration, AbbVie quickly announced the price of $83,319, which is pretty much in line with the price of Gilead Sciences' Harvoni.

Source:Gilead

But a few days later, pharmacy benefit manager Express Scripts (ESRX) said that it was making Viekira Pak the sole hepatitis C drug on its formulary for patients infected with the genotype 1 virus (the only genotype Viekira Pak is approved to treat).

And Monday, news outlets reported that Gilead's Harvoni and Sovaldi will be the preferred treatments on many of the plans for the other major pharmacy benefit manager, CVS Health (CVS 2.05%).

To get the exclusive contracts, AbbVie and Gilead had to offer discounts to the pharmacy benefit managers.

But how much?
That depends on who you talk to. And even then, you'll have to read between the lines.

The New York Times has this paraphrase from Steve Miller, the chief medical officer of Express Scripts:

"Dr. Miller would not disclose the discounts AbbVie is providing but said it would significantly narrow the gap between prices charged in the United States and Western Europe."

"Significantly narrow" could be a pretty large discount depending on how significant it really is and what Miller is using as a reference. In Europe, Gilead's drug sells for 17% to 29% lower than Viekira Pak's U.S. list price.

AbbVie reportedly told Evercore ISI analyst Mark Schoenebaum that it didn't give Express Scripts an "outsized discount."

I asked AbbVie's external PR guy about what "outsized" meant. He said he'd check, but never got back to me with an answer from AbbVie.

Not that I was expecting one. It's not in any of the companies' best interest for the public to know what the discount is. AbbVie and Gilead don't want each other to know what it would take to be outbid. And Express Scripts and CVS would just be helping out their competitor if they released the discount they were able to negotiate.

And so we wait ...
When AbbVie and Gilead release first quarter earnings in a few months, we'll be able to calculate the average price per prescription for the drugs. The two PBMs don't cover everyone with insurance, and some companies that use Express Scripts and CVS come up with their own formularies, but the average price will give us a good idea how much AbbVie and Gilead have to compete on price.

The big question is how much of the discount the companies can make up for with volume. Many insurance companies have limited the use of the next-generation hepatitis C drugs to only the most advanced patients. If the lower price allows more patients to receive treatment, the increased volume could make up for some of the revenue lost to discounting.

At least we can measure volume.

Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends CVS Health, Express Scripts, and Gilead Sciences. The Motley Fool owns shares of Express Scripts and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Express Scripts Holding Company Stock Quote
Express Scripts Holding Company
ESRX
CVS Health Corporation Stock Quote
CVS Health Corporation
CVS
$106.39 (2.05%) $2.14
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$62.96 (0.82%) $0.51
AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$142.60 (0.37%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.