Gilead Sciences: How Serious is the Pricing Problem?

 Investment Commentary

Related: Reducing the cost of new hepatitis C drugs 
Story @ Bloomberg and FiercePharma

U.S. Spending on Hepatitis C Medications to Skyrocket 1,800 Percent by 2016 
The leading driver of the steep spending forecast for specialty medications is hepatitis C, a disease affecting more than 2.7 million Americans.   

Seeking Alpha - A Physician-Businessman's Views Of Gilead, With Emphasis On Sovaldi
"Because a game-changer like Gilead Sciences (GILD) Sovaldi comes along infrequently, some historical examples are in order. I have seen several breakthrough drug products in my roles as physician as well as via multi-year involvement in the pharmaceutical industry in various capacities"

Gilead Sciences: How Serious is the Pricing Problem?
By Ben Levisohn

It’s not just the government asking Gilead Sciences (GILD) to lower the price of Sovaldi, its hepatitis C drug. 

Bloomberg is reporting that Express Scripts (ESRX) is trying to force Gilead to lower the price as well:

Express Scripts plans to ask its clients, composed of national employers, health insurance plans and government agencies, to join a coalition that would stop using Sovaldi once a rival medicine is approved for the U.S., expected next year, said Steven Miller, chief medical officer of the St. Louis-based company. Express Scripts said in December it may block reimbursement for Foster City, California-based Gilead’s pill once other new hepatitis C therapies are on the market…

AbbVie Inc. (ABBV) said it will file for FDA approval of its hepatitis C combination therapy in the second quarter after a study found it cured 99 percent of patients after 12 weeks. Miller said he hopes companies selling hepatitis C drugs in the future will talk to payers before setting a price.

ISI Group’s Mark Schoenebaum doesn’t think it will be that easy:

Here’s the thing though:  this plan by the PBMs requires that the drug companies “play ball.”

That is, it requires that [AbbVie (and Bristol-Myers Squibb (BMY), Merck (MRK), etc)] offer truly meaningful price discounts to [Gilead Sciences'] regimen. Thus, the future of Hep C pricing still appears to be largely in the hands of the branded drug industry. And there really isn’t much precedent at all for branded companies competing on price in a MAJOR (~double digit) way. Plenty of companies play around with rebates and discounts, but it’s rare that the net price difference between major brands is more than a few percentage points.

Now, I know what you’re thinking:  “Hep C is different, Mark! The market could evaporate in a few years, so there’s a race to get patients NOW, NOW NOW! This could cause irrational (or rationale, depending on one’s viewpoint) behavior on the part of the branded companies.”

However, all the rhetoric that I’ve heard coming from [Gilead, AbbVie, Bristol-Myers Squibb, Merck,] etc is that they do NOT believe the hep C market will behave this way. They view it as a market that has long term potential.

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