Abbvie’s hep C drug pricing threatens Gilead’s dominance

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 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 hepatitis C medicine approved yet — at a massive discount.

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

MBA BY THE BAY: See how an MBA could change your life with SFGATE's interactive directory of Bay Area programs.

The history of the hepatitis C 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 heptatits C 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 and other payers, Mavyret’s price is actually not far from Harvoni’s, according to Bloomberg Intelligence.

The real headache for Gilead — which already faces steep declines in hepatitis C drug sales because of 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 hepatitis C. 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 benefit managers have purposefully held off on announcing which hepatitis 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 hepatitis medicines may be more than $1 billion too high for 2018.

This news comes on the heels of second-quarter results from Gilead that convinced investors that its hepatitis drug 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 hepatitis drugs.

Max Nisen is a Bloomberg writer. Email: mnisen@bloomberg.net