When California-based pharmaceutical company Gilead Sciences (GILD, Financial) reported its fourth-quarter earnings early this week, it left the analysts wondering how it was able to achieve its set targets and surpass their expectations. The company well renowned for its HIV/AIDS treatment, saw a new growth phase backed by the sales graph of its two liver-disease drugs, Sovaldi and Harvoni, which led to revenue doubling to $7.31 billion for the quarter and $24.9 million for the full year. In fact, these two new drugs sales leaped to $3.84 billion in the final quarter, improving Gilead’s position in the pharmaceutical world in terms of drug sales. However, Gilead continues to face intense competition with AbbVie (ABBV, Financial) offering a cheaper drug called Viekira Pak for the similar treatment and this price war is expected to intensify further in the near future.
How Gilead Sciences is strategizing to stay ahead of its immediate rival is something worth discussing and therefore, let’s find out what the company has projected regarding the measures being taken to tackle such price wars that could impede its growth curve considerably if patients begin preferring Viekira Pak over Harvoni and Sovaldi of Gilead Sciences.
Dropping a sudden bomb at the earnings call
As the pricing war between AbbVie and Gilead continues in the HCV treatment market, Gilead is trying to get back to the lead position by reducing the price further for its two drugs and has announced a 46% discount on the company’s hepatitis C drugs, way more than what analysts and investors across the globe were waiting to hear from the horse’s mouth.
Soon after the discount percentage was declared on Feb 4 during the earnings presentation, analysts remarked that the discount on the drugs was over and above their expectations of 25%-30%. Hence, with such huge discounts, the company has projected these drugs to generate sales between $26-$27 billion, lower than analysts’ expectations of $28 billion.
Gilead President John Milligan remains optimistic on this move taken by the company for improving patients access to the drugs and thus there would be a rise in the number of prescriptions filled. During the earnings call, Gilead’s executive vice president of commercial operations, Paul Carter, stated, “The higher levels of rebates are tied directly to opening up access and streamlining the process of starting patients on therapy…”
Gilead expects that with this new arrangement in place, it would be able to treat at least 250,000 patients in the U.S. in 2015 and analysts have estimated that if the discounts are increased to a high of 46% this year, it would mean selling Harvoni with a price tag of $45,000 per patient on average this year compared to the listed price of $94,500 for 12 weeks of treatment. Such a massive discounting program would drive Sovaldi’s price down to $54,000, from $84,000 for the 12 weeks of treatment. This would obviously make these two drugs attractive when compared to AbbVie’s Viekira Pak which has a price tag of $83,319 for a 12-week treatment.
Deal with Catamaran adds a new ace up the sleeve
AbbVie further intensified the competition against Gilead by signing exclusive rights for Viekira Pak with the largest pharmacy benefit in the U.S., Express Scripts (ESRX, Financial) last year which meant that the eligible patients among the 90 million covered by Express Scripts would be prescribed AbbVie’s new drug instead of Gilead’s Harvoni.
Gilead immediately fought back by striking several such deals with other pharmacy benefit managers and a recent Reuters report has indicated that on February 3, the company has successfully won an exclusive deal for its Hepatitis C drug when it signed a deal with Catamaran Corporation (CTRX, Financial) to cover Sovaldi and Harvoni on its exclusive drug coverage lists.
This agreement places Catamaran in the list of payers who have announced deals for preferred or exclusive status for the Gilead drugs in order to fight the competition which just started last December when the FDA approved the Viekira Pak drug of AbbVie which offers similar high cure rates for hepatitis C. Among other reputed pharmacy benefit managers who have signed such discount deals with Gilead are CVS Health Corp. (CVS, Financial), Aetna Inc. (AET, Financial), UnitedHealth Group Inc. (UNH, Financial), and Anthem Inc. (WLP, Financial).
Final thoughts
With such new agreements in place and by offering widespread discounts, Gilead hopes to beat AbbVie’s hepatitis C drug sales which could create ripples in the HCV treatment market by raging an intense price war. Let’s keep watching how these discounts aid in improving the consumer base for Gilead’s HCV drugs in the long run and how such deals with pharmacy benefit managers help in shaping a better future in the coming quarters.
