Hello, hep C pricing war: Gilead hits back at AbbVie with exclusive CVS deal

Gilead's got a message for you, AbbVie: It's on.

Courtesy of Gilead

Just a couple of weeks after the Illinois drugmaker struck an exclusive hep C pact with Express Scripts ($ESRX), Gilead ($GILD) has come back with a deal of its own. It's joining up with CVS Health ($CVS), Express Scripts' biggest rival, to make its next-gen meds Sovaldi and Harvoni the only pills covered on the payer's main drug list--a move that will block AbbVie's ($ABBV) new treatment Viekira Pak.

Now, the AbbVie therapy will only be available to CVS patients with special approval, either from medical exceptions or prior authorization, CVS says. And Gilead's pills will also be exclusive on the PBM's Affordable Care Act exchange, Medicare Part D and Medicaid formularies. According to Evercore ISI estimates, the number of clients on CVS' standard formulary alone is at least 25 million lives--similar to the number of lives directly covered by Express Scripts, ISI Group analyst Mark Schoenebaum wrote in a note to clients.

CVS hasn't said how much Gilead cut its prices--actually, it hasn't specified whether the California-based drugmaker offered a discount at all. A CVS spokesperson told Bloomberg its goal was to "create the lowest net-cost solution for the entire population of patients with all genotypes of hepatitis C."

Bernstein analyst Geoff Porges thinks Gilead was "likely willing to offer more of a discount" than AbbVie in order to even the score. But Gilead's discount effectively covers all of CVS Health's HCV patients, while AbbVie's involves genotype 1 patients only, Porges wrote in an investor note. That means Gilead could deliver the same rebate value using a lower percentage discount, he said.

The agreement will help Gilead bounce back from news of the AbbVie arrangement, which lopped $20 billion off the company's market cap in a single day. AbbVie's exclusive deal cut Gilead off from 30% to 33% of the U.S. PBM market, Bloomberg reports, citing estimates from Deutsche Bank analyst Robyn Karnauskas. The CVS-Gilead deal takes a similar toll on AbbVie, with about 27% to 30% of patients now out of reach.

But Gilead's score doesn't change AbbVie's outlook much, RBC analyst Michael Yee told the news service: Analysts had already assumed the Illinois pharma would capture about 15% of the hep C market, and the Gilead deal won't affect that.

Still, the hep C pricing war has only just begun. Other payers aren't exactly clamoring to shell out the $83,319 price for 12 weeks of Viekira, let alone $84,000 for a Sovaldi treatment course or the $94,500 it costs for combo pill Harvoni.

And those payers are watching the big guns' every move: PBM Catamaran ($CTRX) has already said it would hold out to see how Gilead came back after the AbbVie deal, and last month Molina Healthcare CEO Dr. J. Mario Molina said his company would "be taking a very serious look at this."

Express Scripts CMO Steve Miller

Express Scripts CMO Steve Miller, a vocal critic of lofty drug prices, is all for fellow payers following his lead. "There would be no discounts if we hadn't done what we did," he told the Financial Times Monday. "We found a partner in AbbVie that changed the whole dynamic. Today's decision from CVS is a natural extension of the good work that we've done."

His company and CVS, which have already made serious waves with their formulary exclusions, may take their tactics to other disease fields, too, to combat sky-high drug prices. After introducing an exclusionary formulary for 2014 that left off 44 meds--including old go-to's like GlaxoSmithKline's ($GSK) respiratory behemoth Advair, as well as new up-and-comers like the company's Breo--Express Scripts upped that number to 66 for this year.

For 2016, Miller says he'll be "opportunistic" about scouting even more savings, with an eye on areas like diabetes, pulmonary hypertension and arthritis--markets where new-age drugs are shaking things up. "If there is a limited pool of money and a bunch of new drugs, the pressure on older drugs will increase," Bernstein analyst Ronny Gal told Reuters in December.

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