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Leonard Yaffe
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I am an MD by background who runs a healthcare hedge fund. I worked as a sell-side medical analyst for 20 years, covering pharmaceuticals, medical devices, PBMs and drug distributors.
  • Hepatitis C: Objections To Significant Market Opportunity Are Falling By The Wayside 8 comments
    Mar 5, 2014 12:19 PM | about stocks: OSUR, GILD

    I have been very focused on the opportunity for investment in Hepatitis C, with OSUR my recommendation in diagnostics and GILD, in pharmacotherapy. The latter has met with some skepticism, as investors have questioned the initial size of the market (that debate is over), the possibility of a price war in 2015 (that debate is subsiding, and I mention AbbVie management's comment today that the certainty of a cure can justify a HIGHER price), the concern that payers would resist (initial signs are that prescriptions are largely being approved, even by Medicaid) and the "tail" (AbbVie management stated today that there are currently capacity constraints and the market is sustainable for 5-7 years). As these objections subside, and investors focus on the earnings power that GILD has from Sovaldi AND (of lesser importance until 2017) its promising pipeline, I am suggesting that the stock should soon trade at a new high.


    Disclosure: I am long OSUR, GILD.

    Stocks: OSUR, GILD
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Comments (8)
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  • JAC92651
    , contributor
    Comments (78) | Send Message
    Thank you for the excellent write up - using this short term weakness to add to position in GILD.
    6 Mar 2014, 05:10 PM Reply Like
  • Leonard Yaffe
    , contributor
    Comments (161) | Send Message
    Author’s reply » Today's weakness was apparently attributable to negative commentary regarding the necessity of AbbVie to significantly discount price as its only way to get market share. I disagree with this assessment, based on both AbbVie management public comments and the lack of precedent in the branded (not generic) pharmaceutical industry. As an aside, I use a $65000 course of therapy for US patients for Gilead, so I have already assumed some price concession to Medicaid and the VA. Tomorrow morning we shall get weekly prescription numbers, and as these results come in higher than Wall Street expectations, at some point upward estimate revisions should result. I have forecast for the past year that 2014 Hep C revenues for GILD would be at least $8 billion, and that this will soon be the largest drug category in history. Next week I shall be attending a symposium dealing with Hep C pharmacotherapy. Len
    6 Mar 2014, 08:56 PM Reply Like
  • manig
    , contributor
    Comments (7) | Send Message
    Sovaldi, for 12th week, TRx = 6398, and NRx = 4114. So even if TRx stays at 6400 at this level you get 6400x52x$22000=$7.3B.
    I have used discounted weekly price of $22k. All these numbers are very conservative--because I think this will go up once Europe, Japan, etc. kick in ( I don't know when and how much ), may be Len can comment ). So the question is why are the 27 of 30 or so analysts are being so conservative? May be the analysts expect
    a lot of competition from Abbvie and BMS or number of patients will start to go down ( not likely as this is very large ).
    7 Mar 2014, 01:43 PM Reply Like
  • Leonard Yaffe
    , contributor
    Comments (161) | Send Message
    Author’s reply » I totally agree. The analysts note that the prescription levels (in the US only, as you correctly mention) exceed their projections, yet they have yet to raise estimates. This is a foregone conclusion, and may not occur until shortly before Q1 2014 results are released. Separately, you have built in a second measure of conservatism into your projections (or have assumed that NRx will soon sequentially decline). AbbVie will not be on the US market until early 2015. I view Merck and Bristol-Myers as the most significant competition, independent of time of introduction. I continue to forecast Hep C revenues for Gilead to be $8 billion in 2014 (though this increasingly appears conservative) and that in 2015 Hep C pharmacotherapy will represent, in dollars, the largest drug category ever. By the way, Gilead has a pipeline!
    7 Mar 2014, 08:26 PM Reply Like
  • Theway123
    , contributor
    Comments (12) | Send Message
    Sovaldi 12th week trx=6398, nrx=4114,
    14th week trx=7313, nrx=4118


    New prescription is not growing. Why?
    25 Mar 2014, 01:20 AM Reply Like
  • Leonard Yaffe
    , contributor
    Comments (161) | Send Message
    Author’s reply » Nrx declined in week 13, and then grew sequentially 4% in week 14. Several reasons could explain the two week flattening, but the most important factor is to not focus on weekly scripts! I think investors are better served to look at monthly data trends. That being said, one has to consider (without knowing the absolute significance) weather and vacation schedules. Secondly, the initial uptake of Sovaldi has been greater than even my "way above consensus forecast", so even if there is a relative flattening out, overall revenues would be very impressive. Finally, at some point, there will be a second wave of patient warehousing ahead of the introduction of Gilead's FDC. There are an estimated 4 million people in the US with Hepatitis C; from the new prescription data, you can see that we have hardly scratched the surface. Len
    25 Mar 2014, 01:11 PM Reply Like
  • Theway123
    , contributor
    Comments (12) | Send Message
    Thank you for your reply. Of the estimated 4 million with Hepatitis C, how many would need to be treated now or soon? For myself, if I have Hep C and symptom free, I would choose to monitor my condition if I could not afford treatment. Of the estimated 4 million, how many will simply wait due to cost. Also, I would definitely consider going out of the country for treatment due to cost saving. Others would do the same - medical tourism.


    Also, I have concerns about PE compression for this sector. What are your thoughts?
    26 Mar 2014, 01:40 AM Reply Like
  • Leonard Yaffe
    , contributor
    Comments (161) | Send Message
    Author’s reply » Hi---Regarding P/E compression, Gilead , based on my estimates, is trading at 10.5x 2015 EPS, so I would expect P/E expansion if I am correct. Regarding cost, given the co-pays and deductibles, the cost to the patient for nearly everyone with insurance is not that high. I do not know the logistics of going to India or Egypt and getting a prescription filled.
    Of the estimated 4 million US people, probably 350000 will require therapy in the next 2 years. As Hepatitis C is largely asymptomatic, there is a considerable group of patients who could wait--in fact, several insurance companies are establishing prior authorization guidelines with this in mind. However, the question becomes at what point along the continuum of illness does one want to be treated with a 3 month regimen that is highly effective and without significant side effects? I would argue that, from the patient/doctor perspective, it is earlier, and definitely before signs of cirrhosis. The new Gilead FDC regimen, in my opinion, will be at a lesser cost (shorter therapy duration), and should make the pharmacoeconomics more favorable. Len
    26 Mar 2014, 10:59 AM Reply Like
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