Closer Look at Gilead's Slowing Hep C Prescriptions

NEW YORK (TheStreet) -- The number of prescriptions written for Gilead Sciences' (GILD) hepatitis C drug Sovaldi are showing signs of slowing growth, even a marginal decline, in the past month. Is this the beginning of the highly anticipated "re-warehousing" of patients, or is some other factor at play? What does this ultimately mean for Gilead going forward?

Sovaldi has been the best drug launch in history with first quarter sales of $2.3 billion, and is on pace for another record quarter when Gilead reports earnings in July.  Weekly Sovaldi prescription numbers (through the week of June 13) are charted below by ISI Group analyst Mark Schoenebaum. The incredible, vertical red line is Sovaldi, but notice the flattening of the curve in the past month.

A Sovaldi slowdown was expected this summer because doctors and hepatitis C patients are anticipating the U.S. approval of Gilead's next hepatitis C drug, ledipasvir, which will be combined with Sovaldi into a single pill. As we get closer to the FDA approval decision for ledipasvir in October, it makes sense for less acutely sick hepatitis C patients to wait for Gilead's newer and more convenient, single-pill therapy. If this recent flattening of the Sovaldi prescription curve is, indeed, just a warehousing of patients waiting for the Sovaldi-ledipasvir combo pill, then it should have a marginal impact on Gilead's stock price and its long term prospects. Prescription growth will re-accelerate when Gilead's single-pill therapy hits the market.

A second, but less likely, reason for the Sovaldi slowdown is a treatment capacity constraint for hepatitis C patients. In other words, there are only so many patients that U.S. doctors can see and treat in a given quarter, and thus only so many Sovaldi prescriptions that can be written. I'm not sure we've ever seen a drug hit a treatment capacity limit, but it exists, at least theoretically, and would result in slowing prescription growth.

If demand for Sovaldi treatment is overwhelming doctors, then don't expect prescriptions or sales to re-accelerate with the approval/launch of ledipasvir. More likely, Gilead's hepatitis C prescription curve would remain flat (barring a sudden increase in the number of doctors capable of treating hepatitis C patients.) Is this a negative for Gilead? It might be perceived that way, but in reality, treatment constraints would only extend the tail of hepatitis C sales as patients wait longer to be seen by their doctors. A potential risk is competition. Abbvie (ABBV), Merck (MRK) and Bristol-Myers Squibb (BMY) are racing their own hepatitis C therapies towards approval, so a delay in treating patients might create a larger market opportunity for them.

Insurance companies and some politicians have complained loudly about Sovaldi's $84,000 price tag. Restricting patient access to Sovaldi by insurance companies could explain the slowing prescription growth and would be a significant negative for Gilead. That being said, I find it hard to believe insurers are capable of denying access to Sovaldi over the long term given the drug's outstanding efficacy. At best, insurance companies might slow Gilead's hepatitis C sales and extend the treatment tail.

Of the three explanations for Sovaldi's recent slowdown outlined  above, I believe what we're seeing is most likely the re-warehousing of hepatitis C patients waiting for Gilead's single-pill therapy. If I'm right, the company's hepatitis C prescriptions and sales will resume the vertical growth we saw earlier this year. The alternative explanations can't be ruled out entirely but seem less likely.

Sobek is long Gilead.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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