Could Express Scripts Holding Company's Gilead Gamble Backfire?

By Markets Fool.com


Source: CVS Health.

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In case you missed it, the hepatitis C community was turned on its head this past weekend with the approval of a new hepatitis C compound and a major move by a pharmacy-benefits manager to strike a long-term deal with that company.

AbbVie received its long-awaited approval for its direct-acting antiviral compound which is now known as Viekira Pak. In six phase 3 trials Viekira Pak delivered comparable results to Gilead Sciences' Harvoni (a cocktail drug combining Sovaldi and ledispasvir) in genotype 1 HCV patients, providing sustained virologic responses of 90% or higher. Genotype 1 is the toughest, but by far most common, form of HCV in the United States.

This news means that there are now two interferon-free HCV cures on pharmacy shelves for genotype 1 patients to choose from. This is great news as these drugs are a big recent step forward in cure rate and a major improvement in patient quality of care, since eliminating interferon means eliminating the potential side effect of flu-like symptoms.

Express Scripts puts its foot down
However, pharmacy-benefits manager Express Scripts took things a bit further than anyone expected earlier this week and announced it would eliminate all choice for the pharmacies it represents by signing a long-term agreement with AbbVie to provide Viekira Pak as the exclusive HCV genotype 1 drug available to the 25 million people covered by their National Preferred Formulary.

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Source: AbbVie.

Since both drugs are effective cures, this was a decision motivated by cost. Harvoni, the treatment Gilead Sciences designed to treat HCV genotype 1 patients, costs $1,125 per pill, or $94,500 for a standard 12-week treatment course. About 40% of Harvoni patients can take the drug for eight weeks instead of 12, thus pushing the treatment price down to $63,000. Sovaldi, which is given to HCV genotype 1 patients in combination with interferon, runs a comparable $84,000.Viekira Pak will cost $83,319 for a standard 12-week treatment course -- a 12% discount to Harvoni's 12-week treatment. But, as part of its multi-year agreement, AbbVie will offer a "significant discount" to Express Scripts, but neither party was willing to elaborate on the size of the discount.

The move by Express Scripts represents the most high-profile drug to be excluded by a pharmacy-benefits manager to date, and is a direct slap in the face to Gilead, which has stood firm on its pricing in the wake of public and Congressional outcry over its HCV drug pricing. It's possible this move could be cheered by consumers as Express Scripts puts its foot down on the rapidly rising cost of specialized branded drugs.

Could this backfire?
Then again, Express Scripts' drastic tactics could wind up backfiring.

Source: Gilead Sciences.

For starters, Viekira Pak is a compound medicine that involves the patient taking four to six pills per day for 12 weeks. Sovaldi and Harvoni are a single pill. For patients, Gilead's HCV drugs are far more convenient since there's no need to remember what time you need to take your next pill. Though less expensive than Harvoni, taking 84 pills over 12 weeks is probably going to sound far more appealing to consumers than taking 336 to 504 pills over that same time period.

More importantly, instead of coming across as fighting back against rising drug prices, some consumers could view Express Scripts' actions as entirely selfish and profit-oriented. Understandably no company or consumer should pay more than is reasonable for a game-changing therapy, but removing choice from the equation may not achieve the effect that Express Scripts was looking for. Instead of appreciating the cost savings, consumers may perceive it as being denied a superior drug.

If a scenario such as this were to play out, it's possible that that we could see consumers switching pharmacies from a company like Walgreen, which has a long-term PBM deal in place with Express Scripts, to a company like CVS Health, which just so happens to be Express Script's biggest rival.

Who's next?
Regardless of how HCV patients react to Express Scripts' move, it's evident that the ball is no longer in its court. What will be interesting to monitor is whether or not Gilead Sciences budges on its price or looks to ally itself with a PBM like CVS. Furthermore, we have to wonder if state Medicaid programs will begin to follow suit. Medicare and Medicaid programs are hell-bent on cutting costs, and they may opt to cut Gilead's products out of the loop as well now that another alternative is available.


Source: CVS Health.

While I believe it's possible that Gilead could see some salesfluctuations as Viekira Pak finds its niche, I think it's important to realize that there are more than enough HCV patients in the U.S. and around the globe to support two, three, or possibly even more players. AbbVie's Viekira Pak is only approved to treat HCV genotype 1, meaning Sovaldi will still be covered by PBMs for HCV genotypes 2 & 3. In short, both Gilead and AbbVie could prove to be wildly successful, and this week's stock moves could turn out to be a buying opportunity for both companies.

As for Express Scripts, the jury is still out. This deal should save the company money over the life of its multi-year agreement, but it remains to be seen if the move alienates or encourages consumers.

The article Could Express Scripts Holding Company's Gilead Gamble Backfire? originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of, and recommends Express Scripts and Gilead Sciences. It also recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.