Announcing its first dividend, annual revenue that doubled the prior year’s performance and a $15 billion buyback plan wasn’t enough to buoy Gilead Sciences’ shares when it dropped a bomb during its fourth-quarter earnings conference call: Discounts on the company’s hepatitis C drugs this year will be 46 percent, way more than investors and analysts expected.
“That really escalated quickly,” Brian Skorney, an analyst with Robert W. Baird, wrote in a note to clients Wednesday. The discount “is meaningfully worse than expectations” in the 25 to 30 percent range, and as a result, Skorney lowered his estimate for Gilead’s hepatitis C revenue by 20 percent to $12.9 billion.
It’s a price war that’s been brewing for some time, and flared even more when competitor AbbVie signed an exclusive deal for placement on Express Scripts’ largest formulary plan-the pharmacy benefits manager’s plan that includes the most patients-at a significant discount in December. Weeks later, Gilead struck back, signing an exclusive deal with CVS.
Yet the magnitude of the discounts surprised the market: A day after the conference call, Gilead’s stock was down almost 9 percent Wednesday morning-even after its hepatitis C drugs Sovaldi and Harvoni drew a combined $3.8 billion in revenue in the fourth quarter, topping analysts’ estimates. Shares of other hepatitis C drug makers AbbVie, Achillion and Merck, which is expected to introduce its regimen next year, also sank.