Trouble on the Horizon for Gilead's HCV Market Hold

Gilead Sciences—maker of hepatitis C virus (HCV) blockbusters Sovaldi, Harvoni, and, most recently, Epclusa—has come under increasing scrutiny for declining revenues, both in the near-term and beyond.

Gilead is currently trading at 2-year lows, down almost 25% for the year. The HCV hegemon is no stranger to this, having received notoriety in 2014 and 2015 for the crippling cost of 12 weeks’ treatment with Sovaldi ($80,000) and Harvoni ($90,000).

Since the drugs’ launch, Gilead has provided ever-larger rebates to both commercial and public payers of up to 45%. Although this is a boon to patients and payers, it doesn’t provide a strong outlook for Gilead’s management and investors, as this trend is expected to intensify.

Mix in some competitor molecules (AbbVie’s Viekira Pak and Merck’s Zepatier), and it’s no wonder why Gilead has plummeted. Indeed, both Viekera Pak and Zepatier produce similar cure rates in patients with type 1 HCV at less cost to payers and patients. Merck has been particularly aggressive in pricing its HCV medication, with a 12-week course debuting at $54,600 in January 2016.

Merck has already laid claim to more than 2% of the oral HCV market in terms of revenue since Zepatier’s first-quarter release. AbbVie’s Viekira Pak and Technivie have also carved out share from Gilead, with current quarterly revenues approaching 10% of the oral HCV market. Gilead comprised more than 95% of this market at the turn of 2015, but it now holds only 88%, with further declines expected.

Gilead’s HCV hopes are bleak at best. More than half of its second-quarter revenues were attributable to HCV, a therapeutic category that can’t sustain billion-dollar sales over the next few years. The current US HCV patient population is more than 3 million strong, but new infections in the country hover around 40,000 per year.

Gilead is competing in a category that’s already shrinking (most cured patients won’t incur HCV again) with 2 other major pharmaceutical companies that have demonstrated their willingness to compete on price. Gilead is unable to replicate its high US margins in other countries because of regional price controls and access limitations. Even with the release of Epclusa, the first HCV drug that treats all 6 genotypes of the virus, Gilead can’t overcome these challenges.

Looking ahead, investors are eying acquisitions of other biopharmaceutical companies as Gilead’s only hope for maintaining its relevance as a branded manufacturer. After all, its balance sheet is quite healthy, being cash-strong and maintaining low levels of debt. Although it’s unclear how Gilead would navigate an M&A undertaking, it’s clear that its current HCV troubles aren’t going away.

Unless Gilead can out-negotiate its competitors with payers and find new and better ways to reach patients with chronic HCV, expect its portfolio to continue to decline.