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Gilead Sciences Harvoni Has A Better-Than-Expected Launch
Latest prescription data for Harvoni shows that the hepatitis C drug has been well-received by the market. The recent European approval of the drug is expected to further add to the company‘s overall revenue
Gilead Sciences, Inc. (NASDAQ:GILD) got some good news for its hepatitis C portfolio last week when the European Commission gave the green light to its latest single-regimen hepatitis C tablet, Harvoni. The drug, which was approved in the US October 10, has had a strong launch, with US prescription data indicating that Harvoni sales will surpass expectations for the quarter as well as break the drug’s predecessor Sovaldi’s records.
The European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) issued a positive recommendation for Harvoni in late September. It typically takes three months after CHMP’s opinion for the Commission to make a decision regarding a drug. However, in Harvoni’s case, the approval came in earlier than expected, which will only add to the already high sales of the drug from the US.
Gilead stock rose nearly 4% November 18 after the EMA approval. Harvoni is an extremely positive development for Gilead and will help the biotech guard its dominant position in the fast-evolving hepatitis C space.
However, the company saw its shares drop Thursday on the back of rumors that Carl Icahn had accumulated a sizeable stake in the company. This had shareholders worried that the activist investor might soon launch an agenda, asking the company to look into further acquisitions. In any case, Mr. Icahn’s interest in the company does reflect significant potential, mainly based on the company’s Harvoni and Sovaldi franchise.
Harvoni is expected to overshadow blockbuster Sovaldi’s performance, as was reflected in the 20% quarter-over-quarter decline in Sovaldi’s third-quarter FY14 sales. However, Gilead doesn’t have much to worry about as it only stands to benefit from Harvoni’s launch even after the cannibalization. According to data from Bloomberg, Harvoni’s prescriptions in the first week were recorded at 503. This was more than double the first-week number for Sovaldi at 248 prescriptions.
Moreover, for the fifth week of Harvoni’s launch, prescriptions were tracked at 3,606; of these, 3,004 were New Written Prescriptions (NWP). This reflects week-over-week growth in prescriptions of 37%. Citigroup Inc (NYSE:C) forecasts annual revenue for the drug to come in at $5.3 billion, based on $102 million sales last week. For the fourth quarter, Harvoni sales consensus stands at $1.4 billion, while Citigroup expects $1.9 billion.
Shorter Duration – Volume Game
Beating sales of Sovaldi and other competitor drugs will be a volume game for Harvoni. Sovaldi is priced at $1,000 per pill and is generally administered for a period of 12 weeks. It is generally prescribed with another interferon, taking the price up to $94,000. Harvoni has been priced higher at $1,125 per pill, and the cost for a 12-week treatment comes in at $94,500.
However, as Harvoni is more effective, it only has to be administered for eight weeks to patients with genotype 1 of the virus. Genotype 1 is the most common virus, estimated to make up over 45% of the cases. Hence, an eight-week treatment means that the cost comes down to $63,000, lower than that of any other rival drugs such as Johnson & Johnson’s (NYSE:JNJ) Olysio, which costs $130,000 for a combo treatment with Sovaldi. So while Harvoni is cheap and more affordable for patients, it also translates into a bigger target market for Gilead.
Revenue Dependency – Price Threat
Investors may have reacted negatively to rumors of Mr. Icahn acquiring a stake in the company, but it does direct attention to Gilead’s high dependence on its hepatitis C franchise, which makes up 83% of the company’s total sales. When Sovaldi was launched in 2013, it changed the dynamics of the hepatitis C market, making it difficult for other pharmaceuticals to compete with Gilead despite the drug’s high price tag.
AbbVie Inc (NYSE:ABBV) is working on a hepatitis C combo regimen (ABT-450, ritonavir, ombitasvir, and dasabuvir), which will be similar to Harvoni and will be an all-oral treatment spanning over 12 weeks. AbbVie’s treatment, which expects approval this quarter, could have an advantage over Harvoni if it is priced lower. Patients and healthcare providers, who have been burdened with high bills from Sovaldi, would most likely be willing to switch to a cheaper treatment if it is equally effective. Express Scripts Holding Company (NASDAQ:ESRX) is reported to have said that it will favor the new drug if it has similar efficacy as Sovaldi with a lower price tag.
For now, sell-side analysts remain optimistic about Gilead. Citigroup and FBR Capital recently reiterated their bullish stance on the company. Of the 32 analysts following the stock, 27 have rated it a Buy, while five have suggested a Hold. The 12-month price target on the stock is $124, compared to Friday’s closing price of $100.58.
