Can Gilead Beat AbbVie At Its Own Game?

Summary

• AbbVie kicked off a price war with Gilead by signing a deal with Express Scripts.
• Gilead, however, has countered the move with deals of its own.
• Latest prescription data also shows that the AbbVie/Express Scripts deal is not having a major impact on Harvoni sales.

It has been just a little over a month since AbbVie (ABBV) took Gilead (NASDAQ:GILD) by surprise by cutting a deal with the U.S.'s largest pharmacy benefit manager Express Scripts (ESRX). The deal gave exclusive status to AbbVie's newly approved hepatitis C drug in exchange for a significant discount. The surprise move from AbbVie had an immediate impact on Gilead's shares, even though they still managed to finish sharply higher for the year.

Anyone who has followed Gilead in the past year or so would know that much of the company's strong financial performance has been driven by the success of first Sovaldi and then Harvoni. While the deal between AbbVie and Express Scripts took me by surprise, it has not changed my bullish stance on Gilead. Shortly after the deal was announced, I had argued that Harvoni's easier compliance and better safety profile gives it an edge over Viekira Pak. And within a month since the deal, there is now some data, although still limited, to assess whether Viekira Pak is having any major impact on Harvoni sales. The data suggests that in this short period, AbbVie's drug has not had any major impact. This does not weaken the bullish case for Gilead. In addition, GILD has also taken some steps to counter AbbVie's moves, which is good.

Prescription Data Suggests No Major Impact

According to the Symphony Health data compiled by Bloomberg, Harvoni saw a drop of 1.8% in prescriptions for its hepatitis C drug on a week-over-week basis for the week ended January 16, 2015. At the same time, AbbVie's drug had a week-over-week increase of 55%. Offhand, this data might indicate that AbbVie's move has paid off. However, that is far from true. At best, AbbVie's deal has had a minimal impact on Harvoni sales.

Firstly, Harvoni's slight drop in prescriptions came after a weekly record of 1,680 prescriptions for the week ended January 9, 2015. Harvoni prescriptions are now at a point where it will be difficult to maintain double-digit growth week after week. Another thing to note is that Harvoni's performance since launch has been far better than that of Sovaldi's. Once again data from Symphony Health shows that 8 weeks after launch, Harvoni reached 5,000 average weekly filled prescriptions. Sovaldi at the same point averaged 3,500.

Coming to AbbVie, while the 55% increase in prescriptions for the week ended January 16 is impressive, the growth is coming from a low base. In the prior week, Viekira Pak received just 117 prescriptions. In the initial weeks of launch, Viekira Pak's week-over-week growth will be significantly better than Harvoni's. However, that does not suggest that AbbVie is winning the hepatitis C market share. And Gilead has cut some deal of its own in order to counter the Express Scripts/AbbVie deal.

Gilead Signs Its Own Deals

Earlier this week, Gilead signed a deal with pharmacy benefit manager EnvisionRx® that will place Sovaldi and Harvoni in an exclusive and preferred formulary position. This is the latest in a number of deals Gilead has announced recently. The company has also cut a deal with Aetna, Inc. (AET), that makes its hepatitis C treatment preferred choice for AET's almost 11 million customers. In addition, Gilead has entered into deals with Anthem (ANTM), Humana (HUM), Harvard Pilgrim and CVS Health (CVS).

The price war between AbbVie and Gilead has heated up and it seems Gilead is likely to win it. The company has signed multiple deals with PBMs compared to AbbVie's one deal. I do not favor price wars in the biotechnology sector as it hampers innovation but I back Gilead's moves. The multiple deals announced by Gilead has taken away AbbVie's only advantage; hefty discount. As I noted earlier, Harvoni's easier compliance and fewer side effects make it a better treatment option than Viekira Pak. The only way AbbVie could have won market share from Gilead was through pricing. While the company chose not fight a price war directly - Viekira Pak's treatment cost is $83,300 compared to Harvoni's $94,500 - it signed a deal that took many by surprise and gave the company the best chance to compete with Gilead. However, by cutting deals of its own, Gilead has negated the only advantage AbbVie had. In fact, I think the big loser among this price wars could be Express Scripts as it might lose some customers, who might sign up to PBMs that offer Harvoni, a better treatment option.

The discounts might have some impact on Gilead's top-line but more affordable pricing also means that the treatment will reach more people.

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.