Merck's 'aggressive' hep C pricing helps it steal share in Q1

Zepatier

Merck & Co. has yet to report first-quarter earnings, so industry watchers still don’t know exactly how much market share the company’s new hep C combo treatment, Zepatier, has scored since winning approval in late January. But so far, comments from its competitors suggest it’s doing pretty well for itself.

The pharma giant’s pricing strategy on its new cocktail has made it a thorn in the side for both Gilead Sciences ($GILD) and AbbVie ($ABBV), its main competitors--both of which reported lower-than-expected hep C sales for the period.

As AbbVie CEO Richard Gonzalez acknowledged on Thursday, Merck ($MRK) has been “more aggressive than we anticipated from a pricing standpoint”--a factor that’s led to both price and volume loss for AbbVie.

Merck’s list price on its med--$54,600--is well below the $83,319 charged by the Illinois pharma for its Viekira Pak before discounts, or the $94,500 charged by Gilead for its combo med Harvoni. And AbbVie interpreted Merck's pricing move “as a strategy that would go after medical exceptions,” since those “historically are in at more of a list price point.” On that front, Merck has been “somewhat successful” in picking up those medical exceptions, Gonzalez said.

That’s not all. Merck has also introduced steeper-than-expected discounts in public segments, particularly the Department of Veterans Affairs, AbbVie said. And in that arena, the company “ultimately made the decision that we were not going to compete with the lowest overall price in the VA,” adjusting its price downward but not matching Merck’s. The resulting price and volume losses hurt AbbVie, which previously “had a fairly significant share of VA.”

The result? Viekira sales that didn’t come close to hitting their mark. Globally, the drug generated $414 million, missing expectations by $111 million. And AbbVie had its U.S. struggles to thank for most of that miss; there, its $125 million in sales underperformed forecasts by nearly $70 million.

And it’s not just AbbVie that has felt Merck’s presence. Gilead had to “increase a little bit of discount to some payers” to keep Harvoni on formularies and with full access, commercial EVP Paul Carter told investors on the California biotech’s Q1 call. Harvoni revenues checked in at $3.02 billion compared with consensus estimates of $3.26 billion, and again, the U.S. was the problem: In that market, Harvoni raked in just $1.41 billion, well below the $1.88 billion analysts thought they’d see.

It’s a good sign for Merck, but perhaps no surprise for its execs, who talked a big game before their product launched.

"When you have what's perceived to be an inferior profile in the marketplace, as I think AbbVie's product was, you may have a different strategy [than] when you have a product that you think is competitive in the marketplace," Merck's president of global human health, Adam Schechter, said of its rival’s discounting on the company’s Q3 earnings call. "And we believe that we have a competitive profile to be able to be successful in the marketplace."

Some analysts aren't convinced that Merck will be able to wrestle any share away from leader Gilead, though. As Leerink Partners' Geoffrey Porges wrote in a note to clients in January, Gilead's competitors had posted only "modest share gains," and he predicted the stable of indications for Harvoni and component med Sovaldi would keep it that way.

But Express Scripts ($ESRX) CMO Steve Miller--who helped spark a pricing war between Gilead and AbbVie when his company inked an exclusive discounting deal on Viekira--sees things differently. 

"What you'll see is the Merck team doing a lot of negotiating this year, and you'll see the drug gain traction next year," he said soon after Zepatier's launch.

- read AbbVie's call transcript
- read Gilead's call transcript

Special Report: The top 15 pharma companies by 2014 revenue - Merck - AbbVie - Gilead Sciences

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