Seeking Alpha
Registered investment advisor, CFA, long/short equity, bonds
Profile| Send Message|
( followers)  

Summary

  • Based on weekly prescriptions, Sovaldi Q2 revenue estimate $2.6B-$3.8B.
  • Gilead's Q2 total revenue estimate $5.2B-$6.4B.
  • Market consensus $5.0B-$5.5B.

The market consensus for Gilead's (NASDAQ:GILD) Q2 revenue appears too low at $5.0 to 5.5 billion. Based on weekly prescription data, Gilead's Q2 revenue should be in the $5.2-$6.4 billion range. Sovaldi revenue in Q4 2013 was $139 million on 2k prescriptions and $2.27 billion on 61k prescriptions in Q1. With 3 weeks remaining in Q2, total Sovaldi prescriptions will be in the 105k-110k range. The price per prescription in Q4 and Q1 was $63k and $37k respectively. Assuming a price per prescription in the $25k-$35k range, and constant revenue from Gilead's other products at $2.7 billion; revenue in Q2 will be in the $5.2-$6.4 billion range.

Gilead: Q1 (reported Apr 22) revenue of $5B (+97% Y/Y) beat by $1.2B and earnings of $1.48 beats by $0.58

Gilead's hepatitis C (HCV) drug, Sovaldi (sofosbuvir), was approved December 6 and posted Q1 sales of $2.27B (U.S. $2.1B, Germany & France $164M, street estimates $1.1B-$1.8B). In its first full quarter of sales, Sovaldi became the best ever drug launch as measured by the first year of sales. Sovaldi surpassed Incivek (HCV, VRTX, $1.56B first year 2011), the previous record drug launch, which surpassed Celebrex (arthritis, PFE, $1.55B first year).

A 12- week regimen of Sovaldi (genotype 1 or 4: sofosbuvir+peg-interferon alfa+ribavirin, genotype 2 or 3: sofosbuvir+ribavirin) cures 90%-100% of HCV infections with no side-effects attributable to Sovaldi. These amazing results have earned Sovaldi the 'miracle drug' title. Gilead plans to introduce a once daily pill of sofosbuvir+ledipasvir for HCV GT1. The PDUFA date of the sofosbuvir+ledipasvir drug combination is October 10. Beyond the sofosbuvir+ledipasvir combination, Gilead has a follow-on protein inhibitor to be used with sofosbuvir as the next generation of HCV treatment. Gilead has successfully used this creative destruction model in their HIV drug line to keep ahead of competitors and maintain top market share. Janssen (division of Johnson & Johnson (NYSE:JNJ)) submitted an sNDA to the FDA for the use of Olysio (simeprevir) with sofosbuvir for treatment of HCV GT1 in adult treatment-naive patients with advanced fibrosis and null responders with all stages of fibrotic disease. AbbVie's (NYSE:ABBV) HCV drug is expected to launch in 2015, but AbbVie has stated they do not plan to compete on price with Sovaldi.

Prior to Sovaldi, the most common treatment of HCV was a 6-month regimen of weekly interferon shots and a combination of medications ribavirin and a protease inhibitor. Side effects are a major drawback of interferon+ribavirin treatments. Side effects include flu-like symptoms: fatigue; fever, headache, muscle ache, joint ache; gastrointestinal symptoms: nausea, diarrhea, anorexia; psychiatric symptoms: anxiety, depression, irritability, insomnia; dermatological symptoms: skin rash, dermatitis, alopecia. Interferon+ribavirin treatments cure or control about 50% of HCV infections, but are so intolerable that many patients discontinue treatment. Sovaldi now offers a painless cure, and the utilization of older treatment regimens will rapidly drop off, as the uptake of Sovaldi has been dramatic.

Sovaldi highlights the debate about what a cure is worth. A 12-week regimen of Sovaldi costs $84,000 in the U.S., $66,000 in Germany, $57,000 in the U.K. and 55,000 CDN in Canada. Several public and private payers have balked at the price tag, although Sovaldi is cheaper than regimens of Olysio or Incivek (both priced at $97,000). Some insurers mentioned HCV costs hit Q1 earnings and the possibility of patient warehousing. Sovaldi might be made available only to F3 & F4 stage cirrhosis patients, null responders to less expensive treatments, and patients with liver scarring. HCV is a slow acting infection, which can take years to affect the liver. Since a patient can live for years before showing symptoms of cirrhosis, treatment of HCV is often delayed. Delaying treatment allows the patient to potentially infect others and incurs annual testing costs to monitor the progress of the infection. Treatment delays may have made sense when administering interferon+ribavirin treatments because of the detrimental side effects. Now Sovaldi offers a treatment without harsh side effects, so treatment delays don't make sense in the context of the patient's quality of life. The debate about when to administer HCV treatment was a trade-off between liver damage and heavy side effects of interferon+ribavirin treatment. Since Sovaldi has no side-effects, the debate about when to administer treatment is now about payment, and not the patient.

Gilead has been attacked in the press regarding the pricing of Sovaldi, but Sovaldi's value is clear and priced below Olysio and Incivek. The uptake of Sovaldi has been staggering and shows the unmet need for HCV treatment. If Sovaldi treatments are delayed, who decides when a patient is treated? Government? Healthcare provider? Insurer? Payers will complain about the price of Sovaldi, but will pay to cure their members because this is the business of an insurance company. Payers benefited in recent years from cheaper generic drugs as many drugs went off patent.

Gilead Valuation

At $80, Gilead is trading at 12x forward earnings. Consensus 2014 EPS is now $6.30, and $8.00 in 2015. Gilead's line of HIV/AIDS drugs had sales of $2.2B in Q1. Gilead has 10 drugs approved or in Phase 3 clinical trials. In addition, their pipeline has 12 more compounds in Phase 2 clinical trials. One particularly promising oncology drug, idelalisib, has 2 PDUFA dates (Aug 6 and Sep 11) for treatment of chronic lymphocytic leukemia (CLL) and non-Hodgkin's lymphoma (NHL). Gilead has multiple areas of expertise including liver, HIV/AIDS, cardiovascular, respiratory and inflammation. The upside for Gilead's stock seems obvious, and the Board of Directors approved a second $5B share repurchase program. The first share repurchase program has $2.8B remaining and will be completed by September. Gilead has been acquisitive in the past (Pharmasett $11B 2011), and the right acquisition could fill in their pipeline.

In the U.S., 1.7 million HCV infections have been diagnosed, and 400,000 are in treatment. Since the launch of Sovaldi through the end of Q1, approximately 30,000 patients have begun treatment with Sovaldi. The Centers for Disease Control and Prevention estimate 3.2 million are infected with HCV in the U.S. Worldwide estimates of HCV infection are 150-170 million. Sovaldi has been approved by the EU. Payer approvals are country by country in Europe. Germany, U.K. and France have approved Sovaldi pricing. Apart from Egypt, where 15%-22% of the population is believed to be infected, the highest incidence of HCV is in Asia (Japan and China). Sovaldi is planned to launch in Asia in 2015.

Source: Market Consensus For Gilead's Q2 Revenue At $5.3B Is $0.5B Light