NEW YORK (TheStreet) - Gilead Sciences' (GILD) stock plunged again Tuesday following Sunday night's announcement that Express Scripts (ESRX) had struck an exclusive deal with AbbVie (ABBV) to distribute its just-approved hepatitis C therapy, which would replace Gilead's own Hep C drugs.
As part of the agreement, AbbVie agreed to significantly discount the price of its Viekira Pak hepatitis C therapy in exchange for exclusive access to Express Script's 25 million customers. Starting Jan. 1, Gilead's competing hepatitis C drugs, Sovaldi and Harvoni, will be excluded from Express Scripts' formulary. The deal covers patients with genotype 1 hepatitis C, the most common form of the liver disease in the U.S.
The news spooked Gilead investors, with shares dropping 14% on Monday. The stock was falling an additional 4.5% to $88.73 on Tuesday with about 46 million shares changing hands, more than triple Gilead's three-month average daily trading volume.
Shares of AbbVie were down 4.1% to $64.22 at last check. Express Scripts shares were up 3.4% to $85.11.
Here's what analysts said about Gilead.
Cory Kasimov, J.P. Morgan (Overweight; $121 PT)
Bottom line, we have been increasingly concerned about the sustainability of branded drug pricing in the US market, and today's developments/call reinforce those fears above and beyond pricing pressures specifically related to GILD (as we had already factored fairly significant price erosion into our model).
The duration of the multi-year agreement hasn't been disclosed, but we think ABBV has this formulary position on lockdown for the unknown duration. When asked whether GILD could still negotiate its way back on formulary, [Express Scripts CMO Dr. Steve Miller] noted that the contract needed to make sense to both ESRX and ABBV, and "rest assured" that "ABBV was a tough negotiator." We take that to mean GILD is likely stuck where it is with ESRX for the time being (despite the company's contention to us that they are still in dialogue.
That said, Dr. Miller did note there are GT1 pts who may require Harvoni, and ESRX doesn't intend to put up excessive barriers in these pts. In addition to pts who can't take Viekira Pak due to concomitant meds/contraindications, Dr. Miller noted pts of other GTs will still be treated with GILD's products (Sovaldi is approved in GT 1, 2, 3 and 4; we expect GT 3 could be added to Harvoni's label this year). The focus is on GT1, however, given it represents ~75% of pts in the US. Given the lack of "excessive barriers" for pts with medical exceptions, we wonder just how difficult it will be for docs to Rx Harvoni in practice and how much effort would be put forth to find out.