So what: Gilead Sciences gets more than half of its revenue from the sale of hepatitis C drugs and as a result, investors reined in their exposure to the company ahead of the FDA approval of Merck & Co.'s (MRK -0.31%) Zepatier on Jan. 28.
Given Merck's therapy put up impressive cure rates and a solid safety profile in clinical trials, the FDA's decision isn't surprising.
However, Merck's decision to price its new drug at a list price of $54,600 may have shocked some investors. The price is a steep discount to the $84,000 and $94,500 that Gilead Sciences charges for its hep C drugs Sovaldi and Harvoni, respectively.
The pricing decision certainly turns up the heat on Gilead Sciences and competitor AbbVie (ABBV -0.59%), which markets the HCV drug Viekira Pak.
Now what: A price war isn't something that investors typically want, but it may not be as bad for Gilead Sciences as some fear.
The launch of Viekira Pak with a lower price in January 2015 led to Gilead Sciences matching prices to maintain market share, but revenue actually grew, rather than shrank, last year because lower prices resulted in more prescriptions being written.
Regardless, Gilead Sciences has an FDA decision coming up this June for its next-generation hepatitis C drug, and if approved, that drug could significantly limit any threat posed by Merck & Co.'s Zepatier because its efficacy and safety are arguably best in class.