Biotech Values

[Rocky3]

From Wells (not exactly from the same report - from three different ones):

**While IMS prescription data for Harvoni and Sovaldi for the week ended 11/14 may not be available until the afternoon
due to a delay, prescription data from other sources point to unsurprising trends for new and total prescriptions (see our WELLS FARGO SECURITIES, LLC
Equity Squawks
note 11/19, ''Projecting Harvoni and Sovaldi Prescription Scenarios'')-specifically, a further 9% increase in Harvoni new
prescriptions and an abating week-over-week decline (now 6%) in new Sovaldi prescriptions.
**Recall we had calculated that with a conservative 2.5% average week-over-week growth in Harvoni new patient starts
throughout the rest of the quarter and a 1.5% weekly decline in Sovaldi (as Sovaldi appears to be reaching a base with
GT-2/3's), worldwide HCV franchise sales (including net positive inventory build, as we assume Sovaldi inventory
drawdowns mostly occurred last quarter) would be tracking at $3.6B for Q4 2014, approximating consensus' $3.4-3.8B
estimate. Though we await actual IMS data to allow the best apples-to-apples projections, plugging the changes for this
week suggested by other prescription sources into our IMS-based tracker and maintaining the same growth/decline
estimates for the rest of the quarter, current trends would suggest Q4 worldwide sales tracking at $3.68B. Our
prescription-based sales projector is available upon request.
**BOTTOM LINE: Though 2015 is more difficult to predict given multiple variables, prescription sources indicate GILD's
total HCV franchise sales continue to track comfortably within consensus estimates for Q4 2014, and we believe should
continue to reduce this near-term overhang.

• Total prescriptions for Harvoni this week were 3,606, a change of +37.0%. New
Harvoni prescriptions this week were 3,004, a change of +18.2%. Total
prescriptions for Sovaldi this week were 3,818, a change of -2.5%. New Sovaldi
prescriptions this week were 1,079, a change of -2.9%. Based on this data, using
our proprietary calculator, Q4 2014 U.S./WW GILD combined HCV franchise
sales look to be tracking at $3.13B/$3.88B.
• Total prescriptions for JNJ’s Olysio were 1,167, a change of -19.2%. Total
prescriptions for Incivek and Victrelis were 73, a change of 46.00%. Total
prescriptions for pegylated-interferon were 2,296, a change of +113.6%.

• Summary: Now several weeks into Harvoni’s launch, we thought it would be
instructive to explore various scenarios for Harvoni/Sovaldi go-forward
prescription trends, and what each might imply for GILD’s 4Q14/2015 HCV
franchise sales. To that end, we have expanded our interactive IMS-based Sovaldi
Scenario Builder to incorporate Harvoni. Based on our analyses, we believe GILD
should easily achieve $3.5-4.0B WW HCV franchise sales in 4Q14 even with
substantial flattening to Harvoni’s run-rate, reducing risk to hitting near-term
consensus. 2015 HCV sales projections under several scenarios fall within a very
wide range ($12-18B) and are more difficult to predict, underscoring the many
key variables like patient flows, competition, reimbursement, and EU receptivity
likely to substantially influence global HCV adoption in 2015. Sustainability of
Harvoni new patient growth throughout end-‘14, steadiness of Sovaldi NRx, and
change in Harvoni new patient starts once ABBV’s cocktail is launched are three
key near-term metrics which appear to heavily influence where GILD’s franchise
will land in 2015. We remain bullish on GILD given the HCV opportunity and
discounted multiple. Our interactive HCV projector is available upon request.
• Our current GILD estimates for 4Q14 are combined HCV franchise sales of
$4.1B ($3.3B U.S./$0.7B ex-U.S.) and for 2015 are combined HCV franchise sales
of $14.5B ($12.7B U.S./1.9B ex-U.S.). In our revenue build, we currently assume
236K treated GT-1 patients in the U.S. in 2015, of which GILD’s regimens would
have 70% share, vs. ABBV 20% (and other/clinical trials/etc. 10%).
• In a “smoothening growth/decline” scenario, we assume throughout the
rest of 4Q, new patient starts on Harvoni grow modestly (avg. 2.5%) week over
week from the current ~2,600/week level, to reach ~3,000/week by year-end.
This may be conservative, as it took only 4 weeks into the launch for prescriptions
to reach the 2,600 level, but it allows for a blend of variables including potential
waning of initial pent-up demand, and expectations amongst physicians/ insurers
for a near-term competitive entrant end-2014. Also, it nears the average number
of new patients we believe started on Sovaldi each week during that drug’s peak
quarter, 2Q14 (and ~30% of Sovaldi use in in GT-2/3 where Harvoni is not
labeled in the U.S.), balancing different current reimbursement and patient flow
dynamics with the greater commercial attractiveness of Harvoni’s profile. We
then assume in 2015 prescriptions modestly decline with the ABBV’s market
entry, averaging ~2,500 new patient starts per week. For Sovaldi, the scenario
contemplates Sovaldi new patient starts slowly declining throughout end-2015
then leveling off in 2015 as a new GT-2/3 equilibrium is potentially reached.
o Under this scenario, projected U.S. Harvoni sales would be $1.6B for 4Q14
and $9.6B for 2015, and total U.S. HCV sales would be $2.9B for 4Q14 and
$13.0B for 2015. WW HCV sales would be $3.6B for 4Q14 (consensus $3.4-
3.8B) and $14.8B for 2015 (consensus $15-16B). • In a more bearish “flattening ahead of impactful competition” scenario, we assume new patient
starts on Harvoni remain flat at the current ~2,600/week level throughout year end then decline more
rapidly early next year assuming ABBV’s regimen is more heavily discounted and is favored by insurers, to
end 2015 at an average weekly run rate comparable to the average number of new patient starts on Sovaldi
this quarter. For Sovaldi, this scenario assumes that Sovaldi is not yet approaching a GT-2/3 equilibrium and
will continue to decline meaningfully throughout the rest of this quarter due to cannibalization in GT-1
before leveling off next year.
o Under this scenario, projected U.S. sales of Harvoni would be $1.5B for 4Q14 and $6.7B for 2015, and
total U.S. HCV franchise sales would be $2.8B for 4Q14 and $9.7B for 2015. Worldwide HCV sales would
be $3.5B for 4Q14 and $11.6B for 2015.
• In a bullish “maintaining growth momentum” scenario, we assume new patient starts on Harvoni
continue to grow during the rest of the quarter by an average of 5%/week (still lower than the initial few
weeks’ growth trajectory), then decline only modestly next year assuming insurer permissiveness (or
minimal ABBV discounting) and physician preference for Harvoni, and a continued pool of patients seeking
therapy and being diagnosed through screening. Harvoni TRx would level off around~7,000/week, slightly
below where Sovaldi was during its peak quarter. This scenario also assumes Sovaldi has already reached an
equilibrium, and that new patient starts on Sovaldi remain flat from here on in.
o Under this scenario, projected U.S. sales of Harvoni would be $1.7B for 4Q14 and $12.0B for 2015, and
total U.S. HCV franchise sales would be $3.0B for 4Q14 and $15.8B for 2015. Worldwide HCV sales
would be $3.7B for 4Q14 and $17.6B for 2015.
• Some of the assumptions embedded within our projector include several weeks of inventory build for
Harvoni this quarter, an increasing proportion of GT-2/3 patients on Sovaldi as more GT-1 patients shift to
Harvoni, growing use of the 8-week Harvoni regimen in 2015 as physicians become more experienced with
the cocktail, increased discounting of both drugs in 2015 with gross/net growing to 15-16%, and a similar
capture rate for Harvoni as with Sovaldi. However, we do note that each of these variables can have a
meaningful impact on projected sales – for instance, capture rates tend to be less predictable in a drug’s first
quarter of launch, and greater discounting and/or use of 8-week Harvoni would reduce sales relative to the
projection. Our projector continues to be based off of “new patient starts,” a metric that approximates (but
does not necessarily exactly track with) NRx; we approximate new patient starts by deducting estimated
refills (off of prior weeks’ new starts) from each week’s reported TRx number.

Since NRx for Harvoni already 3000+, and my estimate of OUS sales for '15 is far more than $1.8B, I think his numbers are still pretty conservative. I am thinking of buying more (probably May and/or 01/16 DITM options) if the stock gets below 100 on ABBV approval, both of which I think are likely.