GILD’s Generic Co-opetition: Little Impact on Global HCV Estimates, or to ABBV / ENTA Bull Case

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Richard Evans / Scott Hinds / Ryan Baum


203.901.1631 /.1632 / .1627 richard@ / hinds@ /


September 22, 2014

GILD’s Generic Co-opetition: Little Impact on Global HCV Estimates, or to ABBV / ENTA Bull Case

  • GILD’s decision to authorize HCV generics in 91 lower income countries arguably reflects multiple considerations, including that generics were likely to soon appear in these countries with or without GILD’s authorization
  • By granting generic licenses to a core group of cooperating manufacturers, GILD increases the odds that these manufacturers will stay within the licensed countries; i.e. at the very least the expansion of HCV generics into countries wealthier than these 91 is delayed
  • And, by giving cooperating generic manufacturers a head start, cooperating manufacturers’ generics are more likely to crowd out demand which might have gone to ‘non-cooperating’ manufacturers, meaning GILD has at least some influence over a larger percentage of generic supply for a longer period of time
  • Of the 91 countries in which GILD has authorized generic versions of its HCV products, only four (India, Egypt, Pakistan, Vietnam) were included in our global HCV forecast. These countries accounted for approximately 9 percent of our global HCV estimate, and we had already earmarked two of these (India and Pakistan) as markets that were relatively likely to either go generic or be muted by ongoing conflicts
  • On net, we see GILD’s decision to authorize generics as a rational strategy that does little to alter our overall expectations regarding branded sales of current-generation HCV agents
  • We continue to believe that global expectations for HCV brand sales are reasonable, but that consensus gives far too little credit to ABBV’s regimens. The ABBV (and by extension, ENTA) regimens are as effective as the GILD regimens, with only modest differences in convenience and/or tolerability. We expect ABBV to capture more than 20 percent of global demand for current generation HCV treatments

GILD’s decision to license Sovaldi and the upcoming Sovaldi/ledipasvir combination to 7 Indian generic manufacturers for sale in 91 countries does little to affect our global sales expectations for the current generation of HCV therapies

On August 7th we estimated that cumulative global sales potential for current generation HCV agents would range from $154B to $235B. We developed this estimate by first generating a detailed estimate for cumulative US sales ($48B to $67B); we then estimated ROW demand by assuming ex-US demand for HCV would reflect known relative relationships between US and ROW demand. Specifically, for each major country we considered the relative (v. US) incidence of disease, and assumed that relative (again v. US) per-capita drug spending reflected these countries’ relative rates of diagnosis and treatment, as well as these countries’ relative pricing. We reduced by half the resulting demand estimate for countries with major ongoing conflicts and/or worsening intellectual property conditions (China, India, Russia, Pakistan, Syria). We also argued that relative ROW pricing would not hold the normal / historic ROW:US relationship, because the +/- 60% US pricing premium Sovaldi represents over the immediately preceding HCV agents is unlikely to be repeated outside the US. The resulting August 7th estimate was that ROW demand for the current generation of HCV agents would be roughly 2.2x to 3.5x our US estimate (Exhibit 1a, red arrow)

Only four of the countries from our original estimate (India, Egypt, Pakistan, Vietnam) are included on the list of 91 countries in which GILD has authorized generics (see Appendix 1 for a list of these countries). Of these, we had already reduced the demand estimates for India and Pakistan by half. Taken together, before adjusting the India and Pakistan estimates, these countries’ demand is equal to roughly 0.38 to 0.61 times that of the US; after adjusting for India and Pakistan these countries’ demand is roughly 0.27 to 0.43 times that of the US (Exhibit 1b, upper red arrow). On net, after subtracting estimated ROW demand for the now generic countries that were included in our original forecast, we estimate that ROW demand will be roughly 2x to 3x that of the US (Exhibit 1b, lower red arrow)

Within the range of forecast error, this arguably is a negligible change. More importantly, we sense GILD granted generic licenses to these 91 countries largely because it expected its products to be launched in generic form whether it granted these licenses or not. At the very least, the licenses give GILD some control over the trade dress and geographic marketing boundaries of these global generics. And, by granting these specific ‘cooperating’ manufacturers a global generic head start, GILD can expect that generics from these cooperating manufacturers will crowd out potential generic demand for more aggressive generic manufacturers that might be unwilling to respect the geographic boundaries of the current agreement

We continue to believe the global HCV market is quite large, but that consensus errs in giving far too little share to ABBV (and by extension, to ABBV’s partner ENTA). ABBV’s HCV regimen is far closer to GILD’s regimens in terms of efficacy and tolerability than Schering-Plough’s Peg-Intron was to Roche’s Pegasys, nevertheless Peg-Intron succeeded in capturing a third of global HCV demand across the decade-plus period in which this class of drugs was the cornerstone of therapy. We believe the ABBV/ENTA regimens can achieve at least a 20 percent global share of current generation HCV agents. For a detailed comparison of the GILD and ABBV/ENTA regimens, please see our September 2, 2014 research note: “ABBV & ENTA – Corvettes to GILD’s Ferrari

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