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Short-Term Hep C Sluggishness No Big Problem for Gilead Sciences, Inc.

By Keith Speights - Sep 24, 2015 at 4:12PM

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Weekly numbers show fewer prescriptions for Harvoni and Sovalid -- but no need for alarm.

Source: Gilead Sciences.

Hepatitis C drugs Sovaldi and Harvoni have become two of the biggest blockbusters on the market. In the process, they helped drive shares of biotech Gilead Sciences (GILD 0.49%) up by almost 200% since the beginning of 2013. Now, though, some reports suggest that both hep C drugs may be losing steam. Here's why this short-term issue isn't a cause for major concern for Gilead.

Keeping things in perspective
Let's first take a look at those reports. According to IMS Health, for the week ending Sept. 4, Harvoni prescriptions declined 2% from the previous week, while new prescriptions decreased 3%. Including Sovaldi in the mix, Gilead's combined hep C prescriptions dropped 2%, while new prescriptions fell by 1%. 

Horror or horrors! The number of prescriptions for these two drugs went down by 2% from one week to the next week. Is that the kind of drop that should cause alarms to go off? Of course not. After all, back in May the IMS data looked even more troubling, with Harvoni prescriptions down nearly 11% compared to the prior week. Nonetheless, Gilead went on to report a blowout second quarter, thanks to soaring European sales for the hep C drug.

It is true, though, that the data from IMS appears to point to more than a one-week blip in slowing prescriptions for Harvoni and Sovaldi. Similar sluggishness was found in the August numbers reported by IMS. The trend, while not panic-worthy, isn't encouraging, either.

The big picture
Can sales for Gilead's hep C drugs keep growing? Sure they can.

The Japanese market is just opening up for Harvoni. There are many patients across the world with hep C that are yet to be identified. In the U.S., for example, the Centers for Disease Control estimates that the actual number of acute hepatitis C cases is more than 13 times the number of cases reported. The company also hopes to win FDA approval for three expanded indications for Harvoni. Decisions on these additional indications are expected by Nov. 15. I think the outlook looks pretty good for Gilead on this front. 

Perhaps the most significant near-term opportunity, however, is the potential for payers to become more amenable to opening their purse strings. The reimbursement situation in Europe is better now than it was just a few months ago now that Harvoni is reimbursed in all five major European Union markets. Completion of pricing negotiations in France this summer opens up access to all patients with significant fibrosis as well as all patients with both HIV and hepatitis C infections. .

Gilead is seeing a pattern of shorter average treatment durations in both the U.S. and Europe. This is good news, because the trend could help the biotech convince payers to make the drugs more accessible to patients. 

And what about competition from AbbVie's Viekira Pak? Gilead seems to have largely won that battle: During the second quarter, Gilead claimed a hep C market share of 90%.

More important numbers
While the recent weekly prescription data for Harvoni and Sovaldi isn't great, I think two other numbers are much more important for investors to consider. The first is Gilead's forward price-to-earnings ratio of just over nine. That's well below nearly every biotech on the market and shows how attractively valued Gilead's stock is right now.

The second important number is $8.6 billion. That's how much Gilead has stockpiled in cash, cash equivalents, and short-term investments. Expect the big biotech to make use of some of that money relatively soon. Gilead can claim a pretty good track record of investing in ways that reward its shareholders well.

Long-term prospects for the company still appear to be quite good. I think the catchy '80s tune by Bobby McFerrin provides great advice for Gilead shareholders: Don't worry, be happy.

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