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Behind Gilead Sciences’ Pricing Pressures for HCV Drugs in the US

The Real Story behind Gilead Sciences' Valuations in 2016

(Continued from Prior Part)

Pricing pressures

Although the number of patients opting for Gilead Sciences’ (GILD) HCV (hepatitis C) drugs continues to rise in the US, pricing pressures are expected to have a negative impact on the franchise’s revenues in 2016.

Gilead Sciences experienced a sequential increase in new patients opting for the company’s HCV drugs in the US in 1Q16. But there was a decline in revenues earned per patient. The drop in revenues per patient was mainly attributed to the rise in price discounts given to payers as well as to shortened durations of therapy.

If these pricing pressures continue, they may negatively affect Gilead Sciences’ share price as well as that of the iShares US Healthcare ETF (IYH). Gilead Sciences makes up about 4.2% of IYH’s total portfolio holdings.

Discounted pricing

With expanding payer access to HCV drugs for patients with lower fibrosis scores, and with more VA (US Department of Veteran Affairs) patients starting on the therapy due to increases in funding to the VA, Gilead Sciences has witnessed a strong rise in new patient starts in 1Q16.

But many payers have demanded higher discounts for covering the less sick HCV population. Gilead Sciences has also experienced a shift in payer mix toward segments that require greater discounts, including VA, Medicaid, and PHS (US Public Health Service). Meanwhile, intense competition from other HCV players such as AbbVie (ABBV), Merck (MRK), and Bristol-Myers Squibb (BMY) is expected to affect Gilead Sciences’ HCV revenues in 2016.

Shorter durations of therapy

While shorter durations of therapy have proven to be a strong competitive advantage for Gilead Sciences’ HCV drugs, it has also affected the company’s revenues-per-patient metric adversely. Only a small number of patients now require 24 weeks of therapy, while the majority of genotype 1 patients are treated with eight weeks of therapy.

Now let’s analyze the strength of the global HCV market.

Continue to Next Part

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