ABBV HCV Regimen Approved; Further Upward Revisions to Consensus Likely

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Richard Evans / Scott Hinds / Ryan Baum

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@SSRHealth

December 22, 2014

ABBV HCV Regimen Approved; Further Upward Revisions to Consensus Likely

  • ABBV’s HCV regimen was approved Friday with a clean label reflecting the safety and efficacy characteristics that would be expected based on published clinical trials
  • List pricing of $83,319 is 12% below Harvoni; however we believe Harvoni sells at roughly 15% below list and that the ABBV regimen (‘Viekira Pak’) will have to sell at 15% below Harvoni, for a net price of roughly $68,276
  • Consensus gives ABBV 17% share of the 2015 market; we suspect this is less than ABBV will achieve. We see 20% as a worst-case, and believe significantly more (up to one-third) is feasible
  • We also believe 2015 consensus may be too low. In 2014 payors slow-walked HCV patients in hopes of treating them after premiums (or in the case of government payors, budgets) could be raised to reflect regimen costs, and after a second option was available that might offer lower net pricing. With these conditions met, payors are less able to delay treatment, thus our belief that 2015 estimates may be too low
  • We conclude that consensus for ABBV and ENTA is likely to rise further, and that both stocks are likely to see continued outperformance both in the absolute, and relative to GILD

Where we’re BULLISH (changes highlighted): Biopharma companies with undervalued pipelines (e.g. VRTX, BMY, SNY, GSK); Biopharma companies with pending major product approvals (e.g. TSRO, ALKS, HLUY, EBS, BMY, BCRX, CBST); ABBV and ENTA on sales prospects in Hep C; CFN, BCR, CNMD and TFX on rising hospital patient volumes; XRAY and PDCO on rising dental patient volumes and rising average dollar values of dental products and services consumed per visit; CNC, MOH and WCG on bullish prospects for Medicaid HMOs; and, DVA and FMS for the likely gross margin effects of generic forms of Epogen

Where we’re BEARISH: Biopharma companies with overvalued pipelines (e.g. GILD, ALXN, SHPG, REGN, CELG, NVO, BIIB); PBMs facing loss of generic dispensing margin as the AWP pricing benchmark is replaced (e.g. ESRX, CTRX); Drug Retail as dispensing margins are pressured by narrowing retail networks and replacement of AWP (e.g. WAG, CVS, RAD); and, suppliers of capital equipment to hospitals on the likelihood hospitals over-invested in capital equipment before the roll-out of the Affordable Care Act (e.g. ISRG, EKTAY, HAE, VOLC)

ABBV’s HCV regimen ‘Viekira Pak’ was approved by the US FDA on Friday December 20, with a clean label reflecting the efficacy and safety assumptions we based on clinical trial results in our August 7, 2014 and September 2, 2014 research notes

Viekira Pak is list-priced at $83,319 per 12-week regimen, 12% below the $94,500 list price for a 12-week course of GILD’s Harvoni. By examining the difference between 3rd party audited sales and reported sales for Sovaldi, we believe GILD sold Sovaldi (and presumably is selling Harvoni) to commercial (i.e. non-Medicaid) payors at a 15% discount to list. This implies net Harvoni pricing to commercial payors of approximately $80,325 per 12-week regimen. We believe Viekira Pak will have to carry a net commercial price roughly 15% below Harvoni’s; this implies Viekira Pak will be sold for a net commercial price of roughly $68,276 per 12-week regimen

Consensus sales expectations have risen sharply for Viekira Pak since late October (Exhibit 1), where expectations for Harvoni have remained roughly constant (Exhibit 2). Nevertheless consensus still only allows ABBV a 17% dollar market share for 2015, which we suspect is still too low

Additionally, we believe that total HCV demand may accelerate more rapidly in 2015 than consensus expects. Demand was very much ‘slow walked’ in 2014 as payors waited for: 1) the opportunity to either revise premiums (commercial payors) or increase budgets (public payors) to reflect HCV regimen costs; and 2) a second entrant that would presumably offer a lower net cost. Now that both of these conditions are met, we believe payors are less able to slow-walk HCV demand in 2015 than in 2014. Thus on net, we feel very strongly that ABBV will take more than 17% share of the 2015 dollar market, and see every chance that the 2015 dollar market may be larger than expected. The current five-year total consensus estimate (2014 – 2018) is roughly $79B, slightly lower than our five-year estimate of roughly $86B

Thus despite significant outperformance by ABBV (and ENTA) over the last several months, we believe further upward revisions on 2015 prescription and reported sales trends are likely; accordingly we still believe ABBV and ENTA are likely to continue to outperform, both in absolute terms and relative to GILD.

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