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Gilead's Hepatitis C Dominance Unchecked By AbbVie

By Todd Campbell - Jul 30, 2015 at 7:04AM

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Gilead Sciences blockbuster second-quarter results show that it's been little dented by the rollout of AbbVie's Viekira Pak.

Source: Gilead Sciences via Google Maps.

Worries that Gilead Sciences (GILD -1.27%) market dominance in treating hepatitis C would falter following the launch of AbbVie's (ABBV -0.11%) Viekira Pak this year have been mostly curbed after Gilead Sciences' stellar second quarter.

Despite Viekira Pak landing an exclusivity deal with pharmacy benefit manager Express Scripts and various Medicaid programs that led to Viekira Pak delivering sales of $385 million in Q2, Gilead Sciences hepatitis C sales soared 40.7% year over year to $4.9 billion last quarter.

A bigger pie
The common refrain heading into this year was that Viekira Pak's approval would lead to a price war that would cause Gilead Sciences' sales and profit to waver. Instead, price cuts have broadly expanded access to hepatitis C drugs, resulting in script volume growth that has more than offset headwinds tied to lower net prices.

Gilead Sciences reports that 60,000 patients initiated treatment with either Sovaldi, which is primarily used to treat non-genotype 1 HCV patients, or Harvoni, which is used mainly to treat genotye 1 HCV patients, in the second quarter alone, up from 45,000 patients in the fourth quarter. That's led to Gilead Sciences treating 130,000 HCV patients in the first six months of this year -- almost the same number of patients as were treated in all of 2014.

Keeping its lead
Gilead Sciences warns that budgetary hurdles at the Veteran's Administration could lead to fewer patients starting treatment in the third quarter than in the first half, but the company still thinks that as new Medicaid contracts kick in, an annualized run rate of 300,000 patients treated across all genotypes and all competitors is reasonable.

If so, then it's hard to believe that Gilead Sciences' second-half results will fall dramatically from the first half, even if AbbVie's Viekira Pak picks up the pace. Consider this point: AbbVie's Viekira Pak grew 67% sequentially in the second quarter, yet Gilead Sciences hepatitis C market share still stands at 90% of all HCV patients.

That makes for a pretty compelling argument to own Gilead Sciences shares, especially considering that the latter's second-quarter sales annualize out to nearly $20 billion.

Looking forward
In the U.S., there are a lot of moving pieces that could prove to have a larger impact on Gilead Sciences hepatitis C sales than AbbVie's Viekira Pak down the road, including the potential approval of Merck & Co.'s competing combination drug and other competitors ongoing research efforts. Outside the U.S., the landscape is also getting increasingly competitive as Gilead Sciences and AbbVie secure pricing deals with various countries.

Certainly, investors shouldn't ignore the potential for those threats to weigh on Gilead Sciences share price, but it may be more profit friendly to give Gilead Sciences the benefit of the doubt that it can overcome these obstacles.

After all, the company has a long track record of keeping competitors at bay in HIV treatment, and it's possible that Gilead Sciences can apply those lessons learned to maintain its dominance in HCV, too. Aggressive price deals, shorter treatment duration, easier dosing, and enviable cure rates could all help Gilead Sciences relegate AbbVie and others to second-tier status. If so, then Gilead Sciences could continue reaping billions of dollars in hepatitis C sales for the foreseeable future.

Todd Campbell owns shares of Gilead Sciences. Todd owns the equity research firm E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.The Motley Fool recommends and 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.

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