Source: AbbVie

AbbVie (NYSE:ABBV) has issued its guidance for 2015, and that guidance suggests that its newly launched hepatitis C drug cocktail, Viekira Pak, could be a big driver of earnings growth this year.

The backstory
In December, Viekira Pak received FDA approval as a treatment for hepatitis C genotype 1 after delivering compelling functional cure rates in the mid-90% range during clinical trials.

That approval was highly anticipated by health care payers desperate for competition in this market, because hepatitis C market share leader Gilead Sciences' two hepatitis C drugs, Sovaldi and Harvoni, carry eye-popping price tags that are translating into billions of additional dollars in health care spending.

In the past, treating hepatitis C involved the use of peg interferon and ribavirin, two side-effect laden drugs that offered coin-flip cure rates and cost about $27,000 per treatment course. Then Vertex Pharmaceuticals launched Incivek, a game-changing therapy that cured 80% of patients and, thanks to a $50,000 price tag, went on to become the fastest drug to ever reach billion dollar blockbuster status. Last year, Incivek was displaced by Gilead Sciences' Sovaldi, which boasted a cure rate in the low 90% range and cost a whopping $84,000. Add in the costs of additional care and related medicine, and the cost of treating hepatitis C jumped from as little as $17,000 to $100,000 or more in 2014.

Given the significant run-up in costs and rising demand tied to improving efficacy, it's little wonder that health care payers have been eager to see a competitor like AbbVie win over regulators.

Carving slices
As payers have hoped, the approval of AbbVie's Viekira Pak is ushering in price competition in the indication. Although AbbVie set a price for Viekira Pak that is in line with Sovaldi, three exclusivity deals have been announced by both drugmakers that offer payers compelling price discounts.

Those price discounts will create a revenue headwind for both companies this year, but it appears that those headwinds are going to be significantly offset by an expanding patient pool.

In the case of AbbVie, shortly after winning the FDA nod for Viekira Pak, it announced a deal with Express Scripts, a pharmacy benefit manager that many health care plans rely on for drug fulfillment, that allows access to all hepatitis C patients covered by Express Scripts plans, instead of just the sickest patients.

Since 25 million people are covered by plans relying on the impacted Express Scripts' drug formulary, hepatitis C occurs in about 1% of the population, and the genotype 1 indication that Viekira Pak is approved for accounts for about 70% of all hepatitis C cases, the agreement likely represents a patient pool for AbbVie of about 175,000 people. That means that even if AbbVie gave Express Scripts a 50% discount to its $83,320 wholesale price, this deal is still a $7.3 billion dollar revenue opportunity for the company.

Guiding for growth
According to AbbVie's recent guidance, the company is expecting that the launch of Viekira Pak will help lift its earnings per share by around 30% in 2015.

The company expects to deliver adjusted EPS of between $4.25 and $4.45 per share, which would significantly outpace analysts' current full year 2014 estimate for EPS of $3.30.

Viekira Pak will be responsible for a lot of AbbVie's expected earnings growth, but it won't account for all of it. AbbVie also thinks that its top-selling autoimmune drug Humira will see sales climb too.

Humira, which is approved to treat indications including rheumatoid arthritis and psoriasis, posted sales of $9.2 billion through the first nine months of 2014, up 20.6% year-over-year.

More coming
The potential for Viekira Pak and Humira to move the profit needle at AbbVie this year is nice, but AbbVie investors need more insight into AbbVie's plans, given that Humira is set to lose patent protection at the end of 2016. AbbVie should offer additional information on its expected sales and financials during its fourth quarter earnings conference call, which is scheduled for January 30th, so investors won't have to wait long to get an even clearer outlook on the company.