An HCV price war between Gilead (GILD) and AbbVie (ABBV) could heat up. AbbVie recently received FDA approval for Mavyret, its new HCV drug. Mavyret has a cure rate that rivals Gilead’s Harvoni, and only requires an eight week regimen versus Gilead’s 12 week duration. Market chatter also suggests AbbVie might bring Mavyret to market at a significant discount to Harvoni:
But even within that context, a series of blockbuster medicines for Hepatitis C (HCV) have made for a roller-coaster ride for companies and investors. AbbVie Inc. last week threw another big curve at this market by pricing its newly FDA-approved drug Mavyret — which might be the most effective HCV medicine approved yet — at a massive discount …
AbbVie’s $13,200 monthly price for Mavyret looks like a stunning discount to the roughly $31,500 per month Gilead charges for its best-selling Harvoni. But list prices bear little resemblance to actual drug costs. After offering behind-the-scene discounts to insurance companies, pharmacy benefit managers (PBMs) and other payers, Mavyret’s price is actually not far from Harvoni’s, according to Bloomberg Intelligence.
HCV revenue is in decline, yet it still makes up over 40% of Gilead’s net product sales. Profit margins are robust so the company is still highly-dependent upon HCV for profits and cash flow. Mavyret could hasten the decline in HCV.
Gilead Might Have To Cut Prices For Harvoni
With cure rates of up to 99% Harvoni is the Rolls Royce of HCV drugs. It also has fewer side effects than current competitors. Harvoni has dominated the HCV market for so long that its brand is synonymous with saving lives. I do not envision customers switching from Harvoni to Mavyet simply based on performance. Mavyet has cure rates ranging from 92% – 100%, yet comes with side effects like headaches, fatique and nausea. To the extent Mavyet can prove a better HCV stalking horse than AbbVie’s Viekera Pak, Gilead might have to reduce the price of Harvoni in order to keep market share from eroding.
In Q2 Harvoni/Sovaldi generated $1.7 billion in product sales, practically flat versus those of Q1. Its sales have been cannibalized by Gilead’s Epclusa, which has been highly-successful. Gilead’s price/start in the U.S. increased from around $38,000 in Q1 to $45,000 in Q2. Given Mavyet’s lower price and shorter duration (8 weeks versus 12 weeks), I expect that metric to fall sharply in the second half of 2017 in order beat back a perceived Mavyet threat.
Gilead Might Have To Cede Cost-Conscious Buyers
Large buyers who need to save money is a market that Mavyet could potentially have success in. I have long-held the suspicion that Gilead could jumpstart HCV sales if it marketed to the prison population. HCV can be spread via [i] contact with HCV-infected blood, [ii] sharing needles used to inject drugs, [iii] sharing needles and equipment used for tattoos, piercings and body art and [iv] via sex. That said, the prison population could be more likely to contract HCV than the general population.
I previously estimated that of the nation’s 1.3 million prisoners, over 300,000 could potentially have HCV. States are required to provide medically necessary healthcare to incarcerated people; purchasing Harvoni at its full-freight could challenge the budgets of state governments. Last year Gilead cut a deal with Massachusetts Attorney General Maura Healey to provide Harvoni to some of its residents at a discount.
AbbVie could potentially find success in marketing aggressively to the prison market. As a matter of context, my estimate of 300,000 prisoners exceeds Gilead’s 185,000 U.S. starts for the trailing 12 months through Q2 2017. States need to provide effective HCV regimens at discounted prices and Mavyet could be the answer.
Europe is another potential market for Mavyet. In the past Europe’s single-payer system has been able to garner steep discounts for Harvoni/Sovaldi. At Q2 the average price/start of Gilead’s HCV drugs in Europe was $26,000 – over 40% less than that of the U.S. In Q3 2016 Gilead faced pricing headwinds in Germany, France, Italy and Spain – four of the top five largest European markets. Several European countries face more budget constraints than the U.S. A competitive Mavyet could potentially give Europe’s single payers even more bargaining power pursuant to HCV pricing.
Mavyet Could Potentially Hit Epclusa Sales
Gilead’s Epclusa was a major stalwart in last quarter. Its grew revenue 31% sequentially and now represents 41% of total HCV sales, up from 35% last quarter.
On a dollar basis Gilead grew HCV revenue from Q1 to Q2 by $292 million. Epclusa accounted for over 95% of that sales increase. Epclusa treats genotypes 1-6 and experienced a rapid uptake in Europe in Q2
Mavyret is indicated for adults with chronic HCV genotypes 1 through 6 without cirrhosis, or with mild cirrhosis. In my opinion, Mavyret’s biggest threat is in the genotype 2 through 6 space – a space that Epclusa currently dominates and Gilead could be most vulnerable.
Potential Impact On AbbVie
Nearly 68% of AbbVie’s Q2 revenue came from Humira, up from 64% in the year earlier period. Humira is a TNF blocker medicine that can lower the immune system’s ability to fight infections. Certain of Humira’s patents expired in late 2016, but AbbVie is fighting to keep biosimilars off the market. The company’s Q2 revenue of $6.9 billion was up 7.6% Y/Y. Practically all of the company’s growth came from Humira and Imbruvica, a drug used to treat B cell cancers like mantle cell lymphoma.
Sales of Viekira were $225 million, down 46% Y/Y. Viekira made a splash in 2015 as a potential alternative to Sovaldi; however, the drug has not lived up to initial expectations. It would not take much for Mavyret to jumpstart AbbVie’s HCV ambitions. By garnering just about 19% of Epclusa’s Q2 sales of $1.2 billion it could double its current HCV sales. It could bear fruit if Mayvyret attempts to compete head-to-head with Epclusa in Europe.
Takeaway
Gilead is hopeless. HCV represents over 40% of total product sales. In the second half of 2017 HCV sales are expected to be down 24% vis-à-vis the first half. Mavyret will could amplify that decline. GILD remains a strong sell.
On Shock Exchange
Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead explains the stock market and U.S. economy through the eyes of the New York Shock Exchange, a financial literacy program Ralph Baker started in 2006 to share his passion for investing and basketball with his 11-year-old son and other boys his age. The book predicts the “pain ahead” for the U.S. economy, the demise of China, the pending stock market crash and social unrest.
The book’s recommendations on infrastructure investing and how to tamp down the rising cost of college have been trumpeted by President Obama, the Senate Finance Committee and House Ways and Means Committee. However, they conveniently forgot to cite the source. Critics try to make and unmake authors, but the market always decides. President Obama, Senator Orrin Hatch, Congressman Kevin Brady, et al. have spoken. Shock Exchange is the best book on Wall Street in the past 20 years, and on economics, it may be the most important book since the Great Depression. Shock Exchange is also a must read for African Americans.
