Will High Price Hurt Gilead Sciences’ New Hep-C Drug?

Last week, Gilead Sciences (GILD) finally got the go-ahead on Hepatitis-C treatment Harvoni, which combines Solvaldi with Ledipsavir, and is supposed to cure from 94% to 99% of patients. And as with Sovaldi, critics are finding reasons to downplay the news, as issues around use and cost are making headlines.

RBC Capital Markets’ Michael Yee and team assess the headwinds to Harvoni’s uptake and find them wanting:

We’ve looked at new Harvoni patient authorization forms from Anthem (Express Scripts (ESRX) is the pharmacy benefit provider) and UnitedHealth (UNH) that just came out… We note they have headline language “approval criteria” that reads and attempts to limit/restrict coverage to only the sicker highest risk F3-4 patients. The forms do support 8-12 weeks of Harvoni therapy. Separately, (2) Senator Bernard Sanders is planning a hearing before year end to examine HCV costs to the Dept of Veterans Affairs (VA=10% max HCV volume) which could add some headline risk to be aware of that reminds us of Waxman…

7 key points: (1) this is expected and nearly reads identical to the Sovaldi forms last year…(2) AASLD guidelines do suggest to prioritize but don’t say don’t treat – guideline committee spoke publicly on this in Sep and recently issued a written public statement adamantly disagreeing with denying coverage and recognizing a need to treat all.., (3) this is one way payors will try to limit approvals (United Health doesn’t want to cover new drugs for 6 months like Biogen Idec’s (BIIB) Eloctate) — and docs typically use a written request letter then it gets approved (docs told us that many times), (4) payors were paying $130k for Sovaldi + Olysio — for $94k they can treat patients and by our math, treat 30% more for the same dollars, (5) payors would want to pay $64k for the 8-week because this is even cheaper….., (6) Q2 earnings calls for managed care all suggested they were better budgeted for ’15 and took the brunt in ’14 and weren’t prepared, (7) we think limiting prescriptions would be a short-term negative if it impedes hitting consensus – but most investors understand this just makes the market more “sustainable” and the HCV tail better.

Of course, concerns around Sovaldi’s costs did little keep Gilead’s stock from going higher–it’s gained 36% so far this yeat–and Yee doesn’t think concerns about Harvoni will derail Gilead. “…we think Gilead goes higher because consensus still needs to rise and investors already expect flattening of sales into 2016 and competition,” Yee says.

Shares of Gilead Sciences have gained 1.3% to $102.06 at 2:45 p.m., while Biogen Idec has risen 1.4% to $311.12, Express Scripts has advanced 0.7% to $71.21 and United Health is up 0.3% at $88.46.

Corrections & Amplifications: This post originally misspelled the name of Gilead’s new drug. It’s Harvoni, not Horvani.