Replies to post #170238 on Biotech Values

[marthambles]

This probably has something to do with it.


The HCV Revolution - Edition 1 - The Price Of Sofosbuvir Likely >$100K; Raising Estimates and Target Price for GILD
? This is the first note in our "The HCV Revolution" series (umm...we wonder what inspired that title, it's sort of evolutionary). The rapidly and massively changing dynamics of the potentially >$15B/year HCV market is clearly a major topic for both the Biotech and Pharma sectors for the remainder of 2013 and 2014. In this "The HCV Revolution" series of notes, we will discuss/analyze specific parts of the jigsaw puzzle in order to gain a holistic view of the market (we may even eventually introduce "buckets" into our thesis). In this first note, we look at the likely price of GILD's Sofosbuvir (PDUFA on Dec 8th), which will clearly have strong read-throughs to "mainstay all-oral, IFN-free pricing" for all "next-gens" including those from GILD (Q1'15), ABBV/ENTA (Q1'15), BMY (2016), and MRK (2017). Our key take-home points are:
? We think Sofosbuvir is likely to be priced at around $10K/week on launch - Increasing 2014 Sofosbuvir estimate's to $3B. Raising GILD TP to $90 (from $80). We gauge that consensus "GILD HCV" (i.e. 2015 launched "all-oral, IFN-free") will be priced at $70-80K/patient and that consensus for Sofosbuvir (only) 1st revenues are ca$2.1B in 2014. In our view, Sofosbuvir (only) is likely to be priced around gross $10K/week for the immediate G2/3 with RBV / G1/4 with IFN&RBV indication (12 weeks) and that GILD with use the "single tablet with Ledipasvir flexibility" to net price the 2015 launched G1 all-oral mainstay treatment at >$100K (with either 8 or 12 week dosing). We are raising 2014 Sofosbuvir franchise revenues above consensus to $3B. These changes have led to '14, and '15 EPS of $3.44 (previously $2.95) and $5.34 (previously $4.75) respectively.
? Sofosbuvir will likely be priced for the G1 market. The current standard-of-care (SOC), PI + IFN + RBV, for a G1 patient costs ca$100K per course. G1 represents a majority of chronic HCV patients in the US (ca76%) and Big EU5 (ca59%). In our view, GILD will likely price Sofosbuvir/Ledipasvir for G1 at least at a net price of >$100K per course per patient - this will still allow strong pharmacoeconomic arguments that "price per patient and/or cure" is lower than current SOC.
? Near-term G2/3 with RBV and G1/4 with IFN + RBV allows for pricing "exploration". Assuming a ca$10K/week price for Sofosbuvir alone, the putative FDA PDUFA on Dec 8th allows for "beta-testing" of the above mentioned mainstay pharmacoeconomic arguments for G1,2,4 populations. Interestingly, the G3 population (24W treatment duration) allows for "stretch goal" pharmacoeconomic arguments (Exhibit 6 and Exhibit 7).
? Back-of-the-envelope calculations suggest a ballpark $4B US HCV market size in 2014. To put this estimate into context, for the overall HCV market, we note that ballpark 60K patients are currently treated even in anticipation of all-oral, IFN-free regimens.
? We assume the 60K is made up predominantly of G1/2/3 patients who need liver transplants or have decompensated cirrhosis. Using ca$100K per 12 week course of Sofosbuvir, an initial gross-to-net adjustment of 10%, and 75%-80% compliance rate leads to $4.0B-$4.5B, which implies a 50% market share is only needed to meet 2014 consensus Sofosbuvir sales estimates of ca$2.1B. We flag that the only near-term competition for Sofosbuvir is JNJ's/MVIR's Simeprevir.