Gilead faces Q3 slowdown for hep C superstars

Gilead Sciences ($GILD) has been dealing with a slowdown for its hep C superstars Sovaldi and combo drug Harvoni, with prescriptions for the drugs petering off during the second quarter and analysts expecting things to continue in the same vein. As predicted, the company's lagging momentum continued into Q3, with sales growth for its hep C treatments staying flat despite beats on earnings.

Gilead's revenue for the quarter increased 37% to $8.3 billion, beating the Street's estimates of $7.79 billion. But "hep C revenues actually declined sequentially" during Q3, Evercore ISI analyst Mark Schoenebaum said in a note to investors. Sovaldi brought in $1.47 billion in sales, beating analysts' estimates of $1.16 billion. Harvoni tallied $3.33 billion in sales, just ahead of the Street's projection of $3.31 billion. All in all, hep C sales for the quarter totaled $4.8 billion, surpassing estimates of $4.47 billion. Still, that number falls short of the $4.9 billion in total reported revenue for Harvoni and Sovaldi during Q2.

Part of the problem could be pricing pressures. Gilead is "doing a lot of work to encourage earlier treatment, more screening and so on," COO John Milligan said on the Foster City, CA-based company's Q3 earnings call. But U.S. insurers are still cherry-picking authorizations, casting aside certain treatments based on price. Sovaldi runs at $85,000 per treatment course and Harvoni rings in at $94,500 for a 12-week course, numbers that have already sparked the ire of payers and set off a pricing war between Gilead and archrival AbbVie ($ABBV).

Plus, fewer patients are starting on the company's hep C meds. About 70,000 individuals started on Sovaldi and Harvoni during the first quarter, but that number dropped to 62,000 in Q2. Patient starts stayed about the same in the third quarter, Milligan said during the company's earnings call, "flattening when you add the retail and the non-retail together."

Another future drag on sales could be increased competition in the HIV market. "Gilead HIV drugs are still losing share" to GlaxoSmithKline's ($GSK) rival products, Schoenebaum said in his note to investors. Glaxo's ViiV Healthcare is working hard to catch up to Gilead with drugs that simplify treatment regimens, and its efforts could soon pay off. Glaxo's new products could boost ViiV's sales to $6.1 billion by 2020, inching up on Gilead's $10.3 billion in AIDS drugs sales.

Gilead Chief Operating Officer John Milligan

Still, things could improve for Gilead in the months ahead. The company expected to have fewer patients added to hep C treatments during the second half of the year, CEO John Martin said during Gilead's Q2 earnings call. And the company has only "touched the tip of the iceberg" of available patients, he said.

Even though Gilead faces competition from AbbVie's Viekira Pak in the hep C sphere, the company had some cards dealt in its favor last week after the FDA warned that AbbVie's treatment could cause serious liver injury or death in patients with advanced forms of the disease and demanded that the company change the drug's label. "Gilead may get away with offering a lower rebate, meaning net U.S. sales will benefit," Bloomberg Intelligence analyst Asthika Goonewardene wrote in a note to clients, as quoted by Bloomberg.

And the FDA's move "may also allow Gilead to persuade payers to pick Harvoni and Sovaldi as preferred drugs, eating into AbbVie's volumes," Goonewardene said. Express Scripts ($ESRX), which cut an exclusive deal with AbbVie last year to cover Viekira Pak, said earlier this week that it would hold a meeting to discuss Viekira Pak's label changes.

Meanwhile, Gilead is proceeding with cautious optimism, raising products sales for the year to between $30 billion and $31 billion from its previously announced $29 billion to $30 billion range. "2016 I think will be a more stable year in the U.S.," Milligan said on the earnings call.

- here's Gilead's earning statement
- read a transcript from Seeking Alpha (reg. req.)
- get the Bloomberg story

Special Reports: The top 15 pharma companies by 2014 revenue - Gilead Sciences | New drug approvals of 2014 - Harvoni

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