Replies to post #174847 on Biotech Values

[DewDiligence]

GILD/ABBV/ENTA—Others thoughts?

First, GILD’s “See your doctor” DTC campaign to boost HCV awareness is clearly bullish for ABBV/ENTA, as noted in #msg-96800604.

Now, let’s talk about the more important question of valuation. My ENTA valuation model for 2015 (#msg-94993406) has $10.8B of overall GT1 sales in the US and ES, of which GILD would get $6.7B (62%) and ABBV/ENTA would get $4.1B (38%) if there were price parity between the two regimens. If GILD’s regimen has a higher price than ABBV/ENTA’s regimen, GILD’s dollar share of the GT1 market will exceed the 62% volume share, and GILD’s GT1 sales in 2015 would presumably be somewhat higher than the $6.7B figure above—likely in the range of $7.5-8B. Adding in GILD’s US/EU sales in GT2/GT3, where GILD will have a near-100% market share in 2015, one can see that a $10B+ all-in HCV sales number for GILD in 2015 is not inconsistent with my model.

Still, it’s valid to ask: Does GILD’s rapid launch of Sovaldi (without Ledipasvir) justify altering the parameters in my ENTA valuation model? Maybe; however, we still don’t know what price GILD will charge for 8w and 12w regimens of Sovaldi + Ledipasvir in either the US or EU, nor do we know the proportion of patients who will be treated for 8w vs 12w.

All told, I think it’s fair to say that the rapid Sovaldi launch doesn’t justify lowering the bottom-line figure in my ENTA valuation model, but it may justify raising it.

[DewDiligence]

More on the ESRX/Sovaldi story (from today’s Washington Post):

http://www.washingtonpost.com/national/health-science/costly-hepatitis-drug-sovaldi-rattles-industry/2014/03/01/86cab0b4-a091-11e3-9ba6-800d1192d08b_story.html

Express Scripts, the nation’s largest prescription drug benefit manager, has said it is encouraging some doctors in its networks to delay prescribing Sovaldi for hepatitis C patients who can safely wait. It is the first time the company, which helps employers keep down the prescription drug costs for their employee health plans, has asked doctors to avoid a drug because of the cost.

The company hopes that when rival hepatitis C drugs hit the market, the increased competition will drive down costs.

Without saying so explicitly, ESRX is effectively trying to stifle US Sovaldi prescriptions for GT1 patients until the ABBV/ENTA regimen is launched.

Of course, the noise from ESRX (and other PBMs) might be posturing to induce GILD to set the price of the not-yet-approved Sovaldi + Ledipasvir combination at a small (or zero) premium to Sovaldi itself.

[Rocky3]

GILD - this week's scripts: 4114 NRx (up from 3434); 6398 TRx
(up from 5291)
From last week's Wells report:

(1) Base case secondary warehousing growth in new patient starts slows Q2Q3 then picks up again Q4 $ 7.32B, up from $6.82B
(2) Rapidly decaying Sovaldi new patient starts throughout remainder of year (bear case) $ 5.44B, up from $4.97B
(3) Sovaldi new patient starts level off for rest of year $10.26B, up from $9.44B
(4) Week over week NRx changes match those seen with Incivek+Victrelis at same point in launch $9.39B, up from $9.21B

Since this week's TRx is 1,100 higher. The numbers will be even higher. Pretty easy to see TRx at 10,000 if NRx stays over 3,500. Of course, that is the big question.

Using $25,000 per script (less than the $28,000 face and probably much less than the cost of the new treatment available in Q4), I am getting ~$1.5B for Q1, ~$2.5B for Q2, and $3B for Q3 and Q4. using the full $28K per script gets one to $11B for the year. If NRx keep growing at 10-20% per week the numbers are bigger and bigger.

Pretty fully loaded, but hard not to buy more at these prices.

Also, the number of new scripts (4K+) is getting a little amazing. Is the market much bigger than everyone thought or are the patients being treated much earlier and therefore will not be there for the new treatment for GILD and ABBV/ENTA. 200K+ new patients is a big number.

Just very interesting to watch.