As hep C proves a 'flash in the pan' once again, Gilead's sales will 'erode massively': Analyst

When Gilead Sciences rolled out its next-gen hepatitis C combo Harvoni, a previously hot antiviral from Johnson & Johnson, Olysio, took a big tumble. And that came after Merck & Co. and Vertex Pharmaceuticals saw their booming hep C meds Victrelis and Incivek plummet.

Now, it’s time for another sinkhole, one analyst figures.

Gilead’s high-flying franchise has seen sales drop to the point where investors are demanding a fix via M&A. On Tuesday, Leerink Partners cut its revenue forecast for the company’s hep C drugs--Sovaldi, Harvoni, and now, Epclusa--by a hefty $2 billion to $2.5 billion per year after 2017.

“Put simply HCV is turning out to be a ‘flash-in-the-pan’ market, just as it has been in past cycles,” analyst Geoffrey Porges said in a Tuesday note.

That’s a big cut, and to estimates that were already lower than other analysts’ forecasts, but the firm has turned from “cautious” to “outright bearish” on Gilead’s hepatitis C business, Porges said.

“Our existing HCV estimates were already materially below consensus, and we now think that HCV revenues will decline faster, and farther, than we had previously estimated,” he said.

In fact, he sees Gilead’s hep C revenue “being eroded massively” over the coming years--a full 90% drop by 2020, with sales ringing in that year at $1.7 billion.

Gilead won’t be alone: The pain will be shared across the whole next-gen hep C category. The market in the U.S. is on the wane, because so many patients have already been treated, and those remaining aren’t seeking the drugs. Or, with some payers maintaining prior authorization hurdles, prospective patients aren’t sick enough to persuade their insurers to cover them.

Gilead acknowledged the shrinking patient pool during the Q2 earnings call; executives said they didn’t see the decline in hep C sales stopping anytime soon, given that waning base of patients in the U.S. and aggressive discounting by its competitors.

Leerink sees the patient volume declining by about 15% per year in the U.S. Outside the U.S., the erosion won’t be as sharp, Porges said in his note. The company recently hired a Roche executive in China to put some steam behind its hep C launches there.

Part of that decline makes Gilead a victim of its own success. Its drugs have proven effective in shorter courses of treatment, meaning that patients who fit the right profile don’t have to pay for a full 12 weeks of treatment.

The dramatic decline in fortunes at Gilead is also a pitfall of its success. Gilead’s sales will fall farthest among the makers of the latest hep C drugs, simply because their high point was practically stratospheric.

For 2016, Gilead has already lowered its own forecasts, after the franchise’s sales dropped by one-third last quarter. The drugs’ sales came in at $2.3 billion in the U.S. and $775 million in Europe. That unexpected result prompted Gilead to cut 2016 sales guidance to between $29.5 billion and $30.5 billion, down from previous expectations of $30 billion to $31 billion.

Merck and Vertex eventually pulled their older hep C drugs off the market--after Incivek was briefly hailed as the fastest drug launch ever. Merck now has a next-gen product, Zepatier, competing with Gilead.

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