Biotech Values

[Rocky3]

More from report re GILD estimates:

Based on the above analyses, we are raising our 2014 Sovaldi estimate to $8.1bn from
$3.0bn to reflect our survey results and IMS data. We are also increasing our estimates for
2014-2018 to reflect a faster-than-anticipated ramp, however this is offset in our DCF by
decreased sales estimates in the out years (Exhibit 5).

...


We are also adjusting our tax rate assumptions to reflect higher Sovaldi sales. GILD noted
on its 4Q13 earnings call that every $1bn in Sovaldi sales translates to a 0.75%-1%
improvement in gross margin and tax. As result of these changes our 2014/15/16/17 EPS
increases to $4.70/$6.23/$7.26/$8.22 from $3.17/$4.92/$6.33/$7.63.
We are also lowering our terminal growth rate to 0% from 1% in our DCF to reflect a
decline in our Sovaldi sales estimates in the outer years. As a result our GILD 12-month
price target decreases to $77 from $82. Our WACC remains unchanged at 7.5%.
Upside risks include faster sales/earnings growth and greater terminal value. Downside
risks include disappointing hepC sales, competition and pricing pressure.

ABBV: Survey reinforces our view that ABBV’s HepC regimen will
be competitive
We continue to believe that ABBV’s regimen has potential to be a real competitor to GILD.
Our physician survey reinforces our view. When provided with Phase 3 data for both
regimens, the majority of those surveyed viewed the ABBV’s regimen as comparable to
GILD’s Sovaldi/GS-5885 on efficacy and safety/tolerability. And while physicians did
acknowledge that ABBV’s regimen was less convenient than GILD’s (higher pill burden), we
expect SVR and price to play a greater factor in market share outcomes.
When asked if they would prescribe ABBV or GILD’s regimen, physician’s stated they
would prescribe ABBV’s regimen >30% of the time if priced on par. If ABBV offered a 10%
discount, physicians would prescribe ABBV’s regimen ~40% of the time and if ABBV
offered a 20% discount, physicians would choose ABBV’s ~50% of the time. In our view,
ABBV has a lower investment hurdle rate than GILD (i.e., ABBV has invested approximately
$500 million in development costs versus >$11 bn for GILD, accounting mainly for the
purchase of Pharmasset), and therefore may be more flexible with price.
We look at what these survey results would mean to our ABBV numbers. If we assume 150
k US patients are treated per year, and pricing is $81,000 ($95,000 with a 15% gross to net
adjustment), our survey indicates significant upside to our conservative hepC estimates.
Based on these assumptions, our survey would indicate that ABBV’s US market sales could
be $3.5-$5 bn. This compares to our current ABBV global hepC estimates of $2.7 bn by
2020. We note that for simplicity this market share analysis assumes ABBV and GILD are
the sole players – however there are companies pursuing next-gen hepC regimens.
We maintainour 12-month ABBV price target of $60, based on 19x 2014E EPS. Key risks:
competition to Humira and pipeline/launch execution.