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Gilead (GILD) Target Lowered To $125 At Deutsche Bank On Price War Concerns

|Includes: ABBV, ESRX, Gilead Sciences, Inc. (GILD)

Gilead (GILD) Target Lowered to $125 at Deutsche Bank on Price War Concerns

Deutsche Bank maintained a Buy rating on Gilead Sciences (NASDAQ: GILD) and reduced its price target to $125.00 (from $142.00). Shares declined yesterday after Express Scripts (NASDAQ: ESRX) said they will only cover AbbVie''s (NYSE: ABBV) HCV therapy, Viekira Pak. Analyst Robyn Karnauskas said a price war changes dynamics in the HCV market.

"Express script's decision to block Harvoni in GT-1 pts completely has ignited a price war in the HCV market, in our view. We are lowering our HCV numbers for GILD & model higher discounts to compete with Abbvie pricing. We estimate GILD gross to net would now be ~30% (vs. 18% prev). We also assume 5% lower market share for GILD in 2015 & out-years. This lowers ourPE based TP to $125 (prev $142) & DCF based NPV to $90/sh (prev $108). New TP $125. We believe at current price of ~$95/sh, GILD is trading close to our DCF value which gives no credit to pipeline." said Karnauskas.

"GILD notes that the negotiations with ESRX are still going on. GILD noted that payer team is still working with ESRX. GILD highlighted that they have the best available drug and the real world cure rates will end up being the best. Also they noted that there are certain sub-pops where Viekira has not even been indicated such as 1) previous PI failures and 2) HIV-HCV co-infected. Another point to note is if compliance proves to be an issue in the real world with Viekira, we question if the exclusive arrangement could continue. The co expects to provide more color during Q4'2014 earning call. GILD is currently providing 40% discount to VA and 23% discount to Medicaid. They noted that if they provide any higher (>23%) discount to other payers, they will have to match Medicaid discount to that level," continued the analyst.

"Overall, we got the sense that the negotiations are still on and GILD may be able to maintain the dominant position, albeit at a lower price point," she added.

Disclosure: The author is long GILD.