Gilead Set To Trounce AbbVie's HCV Combo

| About: Gilead Sciences, (GILD)
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Summary

Gilead and AbbVie are not the only players in HCV space.

AbbVie's pending HCV combo is no threat to Gilead's Harvoni.

Harvoni scripts are and will continue to accelerate.

The stock price for Gilead Sciences (NASDAQ:GILD) has fallen precipitously in the last four weeks. The sell-off is due in large part to concerns over Gilead's continued growth prospect in the HCV space. These concerns arose due to speculation of AbbVie's (NYSE:ABBV) HCV combo, which is pending FDA approval. This speculation is overblown and unfounded. I will detail why I think this speculation is unfounded and why Gilead is still a strong buy.

To begin, let me point out a few companies along with their related pharmaceuticals in the HCV space:

  1. Gilead -- Harvoni and Sovaldi
  2. Johnson & Johnson (NYSE:JNJ) -- Olysio
  3. Merck & Co (NYSE:MRK) -- Victrelis
  4. Genentech (subsidiary of the Roche Group) -- Incivek
  5. Bristol-Myers Squibb (NYSE:BMY) -- Sunvepra

If an uninformed observer were to examine the chatter over the last four weeks, hearing that the reason for Gilead's stock price falling was due to the pending AbbVie drug combo, the observer would come away thinking that there were only two pharmaceuticals in the space for HCV. That is preposterous, but that's how the market has responded in as many weeks to Gilead's stock. The price of Gilead stock has gone from an intra-day high of $116.83 on Oct. 31, 2014, to close at $100.32 on Friday, Nov. 28, 2014. The decline is a result of speculation doubting the continued revenue generation of Gilead's HCV franchise in light of AbbVie's pending FDA approval of its HCV combo.

As I stated in the introduction, I think this speculation is unfounded. Recall that the same speculation arose on Oct. 14, 2014, where during the Johnson & Johnson Q3 conference call there was some suggestion that JNJ would initiate a price war in order to maintain the viability of Olsyio, the drug that was attached to Sovaldi. However, what has the market place seen in the last six weeks, with respect to Harvoni/Sovaldi scripts since the approval of Harvoni on Oct. 10, 2014? The results of Harvoni/Sovaldi scripts are presented below.

Weekly Harvoni and Sovaldi Prescriptions from Oct. 10 to Nov. 21, 2014

Table 1 -- Harvoni and Sovaldi Harvoni

Week 1

2,127

Week 1

441

Week 2

5,225

Week 2

1,111

Week 3

6,286

Week 3

1,984

Week 4

6,547

Week 4

2,865

Week 5

7,424

Week 5

3,606

Week 6

7,813

Week 6

4,366

Total

35,422

Total

14,373

Source: Table is compiled from data provided by The Street Insider.

As an investor in Gilead, I have had to examine the prospect of AbbVie's threat in its pending HCV combo as I am sure every other diligent investor of Gilead has had to do in the last several weeks. To fully examine the AbbVie threat, I asked several questions, which are presented below:

  • Why would a physician prescribe AbbVie's combo, Viekirax, which is a combo of Ombitasvir, Paritaprevir and Ritonavir along with Dasabuvir and Ribavirin to treat patients with HCV genotype 1 when the physician can prescribe a one pill regimen, Harvoni, which has superior efficacy for genotype 1 patients? I do not believe the vast majority of physicians would prescribe Viekirax in this circumstance instead of Harvoni.
  • Why would a patient opt for a regimen that requires them to take five different medications when they can have the same, if not better efficacy, by taking a one pill regimen, Harvoni? I do not believe the vast majority of patients would make such a choice.
  • Why a physician prescribe a regimen that carries statistically significant side effects of vomiting, nausea, headache, fatigue and diarrhea among the patient population during the clinical trials when the alternative, Harvoni, did not have statistically significant side effects among the patient population during the testing phases?

To answer this last question, let's examine data in Tables 2 and 3 below showing side effects of the Viekirax and Harvoni as reported from their respective clinical trials. Table 2 and Table 3 contain clinical trial data for Viekirax and Harvoni, respectively, for previously untreated HCV genotype 1 patients after 12 weeks of treatment.

Table 2 -- Viekirax Participant %

Fatigue

47%

Headache

26.2%

Nausea

21.1%

Vomiting

5.3%

Diarrhea

10.5%

Source: Table is compiled from data provided by New England Journal of Medicine.

Table 3 -- Harvoni Participant %

Fatigue

5.26%

Headache

0.00%

Nausea

5.26%

Vomiting

0.00%

Diarrhea

0.00%

Source: Table is compiled from data provided by Clinicaltrials.gov.

Per the above data in the Table 2 and 3, why would a physician prescribe Viekirax over Harvoni? Given that Hepatitis C is a debilitating condition where maintaining key nutrients and minerals are keys to successful treatment, I do not see how diarrhea and vomiting is not counterproductive to that treatment. Given the adverse events of Viekirax in the clinical trial, I think that the likelihood of a physician knowledgeable about the adverse events prescribing Viekirax over Harvoni diminishes greatly.

Finally, why would a patient opt for a regimen that will make them sick further depleting your already weaken condition as a result of HCV when a one-pill regimen, Harvoni, has little chance of making them sick? In my opinion, the vast majority of patients would not make such a choice.

On an even more practical note, let's see if history can provide some indication of what is to come. As a mainly fundamental analyst, I rely on historical performance and or events to provide an indication of future expectation with greater reliance placed on the most recent historical event. So, what did we see in Q3 Sovaldi scripts? The market saw that scripts for Sovaldi declined relative to Q2 levels as a result of doctors warehousing scripts due to the pending approval for Harvoni. Why did doctors warehouse Sovaldi scripts in Q3? Was it because Harvoni is simpler than a multi-pill regimen and has minimal side effects relative to the Sovaldi combo? I think this is a good bet.

So, the question then becomes: Are doctors warehousing Harvoni and Sovaldi scripts in lieu of the pending Viekirax approval? Based on data reflected in Table 1, the answer is no. In fact, quite the opposite is taking place. As per Table 1, scripts data for Harvoni/Sovaldi, obtained from IMS and reported by RBC Capital, show scripts for Harvoni accelerating every week since its approval on Oct. 10, 2014.

As I mentioned at the beginning of this article, the market is behaving as though the only players in the HCV space are Gilead and AbbVie. There are 3 million HCV sufferers in the United States and if Gilead reaches 150,000 of them in 2015 the result would yield a great year for Gilead. However, that's still only 5% of the U.S. market, not to mention there are approximately 150 million HCV sufferers worldwide.

Conclusion

The expectation that AbbVie's pending drug combo, once approved, will take significant market share from Gilead is unfounded. It is unfounded based on the growth in scripts for Harvoni and Sovaldi for the six-week period ending Nov. 21, 2014, in addition to significant safety issues. It is reasonable to expect that AbbVie drug combo will generate a respectable amount of sales, but based on the efficacy and safety of AbbVie's drug combo simply is not in the same class of Harvoni.

In terms of efficacy and safety in HCV treatment, Gilead has raised the bar and set the standard with Harvoni and Sovaldi. Competitors for AbbVie's HCV combo are likely to be the HCV franchise of JNJ, Merck, Bristol-Myers Squibb and others. The U.S. and global market for HCV is large and no one has the capacity to service the global demand of 150 million HCV sufferers. Gilead has a growing piece of the pie to treat HCV and not AbbVie or any other company is going to shrink its slice.

Disclosure: The author is long GILD.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.