Gilead Falls as Hepatitis C Drug Discounts Exceed Estimates

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Shares of Gilead Sciences Inc. dropped after the world’s biggest biotechnology company forecast 2015 revenue that will be weighed down by discounts for its blockbuster hepatitis C drugs.

Product sales this year will be $26 billion to $27 billion, said Foster City, California-based Gilead. Analysts had projected $28.5 billion on average for revenue. Discounts in the U.S. for Harvoni and Sovaldi, which treat the liver virus, will climb to an average of 46 percent this year from 22 percent in 2014.

The average discount “took investors by surprise and is higher than consensus of 25 to 30 percent or so,” said Michael Yee, a San Francisco-based analyst at RBC Capital Markets, in an e-mail. Shares of Gilead sank 8.2 percent to $98.43 at the close in New York, the biggest one-day drop in more than a month.

With Merck & Co.’s pill expected to be approved this year, investors may be worried about increased price competition in the hepatitis C market, Yee said. The discounts could be offset by more patients gaining access to the drugs, he said.

Gilead’s one-pill-a-day medicines have transformed the way the liver infection is treated, with most patients being cured after a 12-week course. They’ve also drawn criticism for their cost of more than $1,000 a day before discounts, and a competing treatment introduced late last year by AbbVie Inc. has put pressure on Gilead’s prices. AbbVie shares dropped 7.7 percent to $56.91 on Wednesday.

Cigna Agreement

Gilead and AbbVie have gone back and forth with health insurers and pharmacy benefit managers, trading discounts on the treatments in return for preferred spots on lists of covered therapies. Health insurer Cigna Corp. said Wednesday that it made an agreement with Gilead to make Harvoni its preferred option for patients.

The deals are helping to bring the drugs to a larger group of patients who previously were restricted by insurers, said Gilead executives in a conference call with analysts. As many as 250,000 patients will be treated with hepatitis C drugs in 2015, they said. Some of Gilead’s deals extend access to patients with no fibrosis, or scarring of the liver, who previously hadn’t been able to get the treatment, the executives said.

Gilead said that discounts for Medicaid, the government health program for the poor, and the U.S. Department of Veteran Affairs exceed 50 percent. About 70 percent of patients in 2014 were under private insurance. It’s unclear how much that portion will change in 2015, the drugmaker said.

Share Buyback

Harvoni generated $2.11 billion in fourth-quarter revenue, and Sovaldi brought in $1.73 billion. The drugs helped lift fourth-quarter earnings, excluding one-time items, to $2.43 a share, beating by 22 cents the average of analysts’ estimates. Revenue more than doubled to $7.31 billion.

The company also announced a $15 billion share buyback, and said it will begin paying a quarterly dividend of 43 cents a share. The repurchasing plan is in addition to an existing $5 billion program.

The buyback “doesn’t in any way prevent us from investing in our business, our pipeline, or M&A,” Chief Financial Officer Robin Washington said on the conference call.

Gilead’s fourth-quarter net income rose to $3.49 billion, or $2.18 a share, from $791 million, or 47 cents a share, a year earlier.

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