Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

(Corrected )

Pharma already leads the business world in unpredictability, with billions in sales potentially riding on a few points of statistical significance in a clinical trial. 

But even within that context, a series of blockbuster medicines for Hepatitis C (HCV) have made for a roller-coaster ride for companies and investors. AbbVie Inc. last week threw another big curve at this market by pricing its newly FDA-approved drug Mavyret -- which might be the most effective HCV medicine approved yet -- at a massive discount.

Shares of Gilead Sciences Inc., currently the dominant force in HCV, fell 1.63 percent on Friday. But they still may not have absorbed the full potential impact of this price war.  

Taking the L
Gilead shares fell after AbbVie launched a new hepatitis drug at an extra-low price
Source: Bloomberg
Intraday times are displayed in ET.

The history of the HCV market has been one of booms and busts. Medicines from Johnson & Johnson, Merck & Co. Inc., and Vertex Pharmaceuticals Inc. approved within the past six years, which once booked billions in combined sales, are now essentially non-factors. 

This cycle is playing out again. To understand the true impact of AbbVie's Mavyret pricing, it's important to understand the many peculiarities of both drug pricing in general and the HCV market in particular. 

AbbVie's $13,200 monthly price for Mavyret looks like a stunning discount to the roughly $31,500 per month Gilead charges for its best-selling Harvoni. But list prices bear little resemblance to actual drug costs. After offering behind-the-scene discounts to insurance companies, pharmacy benefit managers (PBMs) and other payers, Mavyret's price is actually not far from Harvoni's, according to Bloomberg Intelligence. 

Fake News
Payer and government discounts take a huge chunk of sales for medicines in competitive drug classes
Source: Bloomberg

The real headache for Gilead -- which already faces steep declines in HCV sales due to increasing competition and the fact that many patients have been cured -- lies in the fact that not all hepatitis patients or medicines are the same.  

AbbVie's new drug can treat all of the major subtypes of HCV. And it can cure the disease in many patients in just eight weeks. Harvoni can manage that in a subset of patients, but it requires 12 weeks in others and can't treat all types of the disease. Gilead has other medicines that can treat all patient types, but they take 12 weeks.

AbbVie could have charged a premium for its broader, faster cure. Its choice to go cheap will make Mavyret a huge bargain relative to Gilead's drugs for many patients. Payers will likely seize on that. The major PBMs have purposefully held off on announcing which HCV drugs they'll cover next year. Gilead will have to offer very large discounts or expect to lose market share. It may lose share no matter what it does, simply due to Mavyret's shorter treatment cycle.

Bloomberg Intelligence analyst Asthika Goonewardene estimates consensus sales for Gilead's HCV medicines may be more than $1 billion too high for 2018.

Storm's Coming
A cheaper, quicker AbbVie drug is going to throw a bigger wrench in Gilead's HCV sales
Source: Bloomberg

This news comes on the heels of second-quarter results from Gilead that convinced investors its HCV troubles were diminishing somewhat. No such luck. Extrapolating from a quarter of sales data is always a big risk. It's a far bigger one in a market as chaotic as HCV. 

With graphics help from David Ingold

Correction: An earlier version of this story incorrectly said Gilead's HCV drugs for all patient types take 23 weeks; the treatment duration is 12 weeks.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects Gilead HCV drug treatment duration in the eighth paragraph.)

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net