Deutsche Bank analyst Robyn Karnauskas commented on Gilead Sciences (NASDAQ: GILD) in a research note Monday. The stock dropped 11% after Express Scripts (NASDAQ: ESRX) said AbbVie's (NYSE: ABBV) Viekira Pak will be the exclusive option for genotype 1 Hepatitis C patients covered by the express scripts national preferred formulary.
"ESRX covers 85-90M lives in the US and this decision applies to 25M lives which are covered under commercial program. ESRX noted that other customers could also follow suit though they generally have their own formulary. ESRX says that ESRX will not pay for Harvoni in GT-1 patients unless there is a medical necessity. If the doctor prescribes it, the pharmacist will have to call the doctor to write a Viekira prescription to get reimbursed," noted Karnauskas.
"While ESRX did not disclose the discount offered by AbbVie they noted that the formulary decision was taken after negotiating with both AbbVie and Gilead. They noted that AbbVie was a more willing partner. We are yet to speak to Gilead regarding this," she continued. "On discounts, ESRX noted that they can now treat all F1/F2/F3/F4 patients for the same Dollar amount they could earlier treat only F3/F4 with Harvoni. ESRX noted that discounts were sufficient enough to exclude Harvoni from formulary."
"We are modeling 18% discount for both AbbVie and Gilead in our model in the US. However this is mostly driven by government discounts such as Medicare. It seems Abbvie is offering a greater discount to commercial channels as well. If we model 5% greater discount for GILD we see $3/sh impact on DCF. A 5% lower market share would impact DCF by $4/sh," added the analyst. "We model 20% market share for Abbvie in 2015 and 15% in longer term as more competitors come along. For GILD, we model 55% market share in long term."
Importantly Deutsche Bank's PBM analyst George Hill said that CVS Caremark (NYSE: CVS) could be next in line to take a decision here. It could either follow Express Scripts or take Gilead's side. CVS has 25-27% market share in the US.
Disclosure: The author is long GILD.