Tuesday, July 12, 2016

Gilead Sciences: HCV Dominance Set To Rise On Epclusa’s Success

Gilead Sciences, Inc. (NASDAQ:GILD)'s novel Hepatitis C treatment Epclusa was approved by the European Commission (EC) as the first ever pan-genotypic HCV treatment on Friday July 8, 2016. The approval was followed by a green signal from the Food and Drug Administration (FDA) on June 28. Both approvals are bound to help tackle the recent sales decline in the HCV franchise.

Epclusa is also the first drug to be approved for all genotypes of HCV (1-6), and be given the go-ahead for use with genotypes 2 and 3, without the need to be used with Ribavarin.

Ribavarin has long been used as a standard HCV therapy, but holds serious side effects; by eliminating its use, Epclusa offers a breakthrough HCV treatment to the market. It has been approved for use as a single tablet for HCV patients with and without cirrhosis. The countless advantages it offers mean it will be able to cater to an HCV patient population much greater than by a single HCV drug in the past.

Gilead stock had lost 22.67% since the beginning of the year. The FDA's approval for Epclusa saw the company's stock gain 10.61%. The stock is heavily outperforming the market. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) has fallen by 20.46% year-to-date (YTD).

Gilead will now be able to cater to HCV patients in all EU countries. Gilead CEO John Milligan said: "The burden of hepatitis C across Europe is substantial and growing rapidly with approximately 15 million people chronically infected. The European approval of SOF/VEL reflects our continued focus to bring a cure to all infected patients across the region and we look forward to working with physicians, healthcare providers and governments to make it available as quickly as possible."
A Valuable Addition to Gilead’s HCV Franchise

Gilead’s HCV franchise comprises two blockbuster drugs, Sovaldi, which gained FDA approval in December 2013, while Harvoni, an advanced version of Sovaldi, was approved in October, 2014. These two drugs have been the top revenue generating products for the company since their launch, reaping combined sales of $12.4 billion and $19.1 billion in FY14 and FY15 respectively.

Gilead was criticized for charging hefty prices for the two breakthrough HCV treatments. Sovaldi was priced at $84,000 for a 12-week treatment course, while Harvoni cost $94,500 for the same duration. Several insurers and public health officials opposed the prices and forced the company to offer steep discounts.

The company has priced Epclusa at $74,500 for a 12-week course. Gilead has played smart, and the price will enable it to secure extensive coverage from insurers without the need to offer large discounts. Even small discounts will result in attracting a large HCV population, according to a recent analysis by Bloomberg Intelligence. Gilead will be in a powerful position to negotiate price cuts as it wishes against insurers and pharmacy benefit managers (PBMs).

Epluca’s introduction will give the company's HCV franchise, which has been nearing stagnation, the jump start it needs. In the recent quarter (1QFY16), for the first time ever, the two drugs reaped a decline in sales on a combined basis. Sovaldi sales stood at $1.28 billion, recording a fall of 17.5% on a quarter-over-quarter (QoQ) basis, while the same for Harvoni came in at $3.02 billion, with a decline of 9.8% QoQ.

Gilead’s HCV portfolio contributes nearly 60% to total sales. The company’s total revenues for the latest quarter stood at $7.79 billion, with a fall of 8.46% on QoQ basis.
Strong advantage over competitors

Gilead owned nearly 90% of the total HCV market with Sovaldi and Harvoni. With Epclusa holding the capability to treat all genotypes of HCV, definitely a much larger patient pool, the company’s market share is set to expand even further.

Gilead’s direct competitors, AbbVie and Merck are far from surpassing Gilead. AbbVie’s HCV drug Viekira Pak, launched in 2014, was meant as a treatment for genotype 1 patients, while Merck’s recently launched FDA-approved Zepatier was meant for genotype 1 and 4 patients.

Genotype 1 is the most commonly occurring, surfacing in 46.2% of all cases, while Genotype 3 is the second most commonly occurring genotype, at 30.1% of all cases. While AbbVie and Merck’s HCV treatments target 46.2% of the HCV population, they remain unavailable for 30.1% of HCV market. However, Gilead’s HCV franchise offers the most effective options for all genotypes of HCV patients.

In a recent research report by Maxim Group, the analysts stated: “The European approval for Epclusa further cements Gilead's status as the leader in the hepatitis-C market.”

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