Health and Healthcare
The Unusual Merrill Lynch Upgrade of Gilead Sciences
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Gilead Sciences Inc. (NASDAQ: GILD) is the recent recipient of a curious analyst upgrade. The broad markets are sliding even lower and dragging most companies down with them, especially the health care sector, and biotech companies specifically. However, a Merrill Lynch analyst sees some stabilization in the hepatitis C (HCV) market in 2016 that might allow for this biotech to stay above water this year. Merrill Lynch upgraded Gilead to Neutral with a $107 price objective.
Looking back at previous ratings, one main thesis for Merrill Lynch’s downgrade in late 2014 was that competition would lead to significant rebates and pricing erosion for the HCV market. The firm had estimated a rebate in the 30%-to-35% range, and it turned out the average rebate was as much as 46%, according to Gilead. Merrill Lynch sees a stabilizing trend in pricing and projects 10% further erosion in 2016. The further price cut is already expected by the market, in the firm’s view.
In its report, Merrill Lynch detailed:
We surveyed 81 US physicians who collectively treat ~21,700 hepatitis C (HCV) patients to gauge their thoughts on treatment rate, patient flow and product preference. According to our survey, diagnosis rate will likely increase over the next few years along with the treatment rate and new competitions are viewed as comparable to Harvoni. Though weekly new patient addition for Harvoni peaked at 4,277 in February 2015 and has since declined to ~2,600, we believe the treatment rate is close to trough levels.
These physicians surveyed are acutely aware of payer restrictions and indicate that fewer than 20% of patients have the freedom to choose the HCV regimen of their preference, according to Merrill Lynch.
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