ABBV/ENTA: Update on HCV

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Richard Evans / Scott Hinds / Ryan Baum / Hardy Evans

SEE LAST PAGE OF THIS REPORT FOR IMPORTANT DISCLOSURES

203.901.1631 /.1632 / .1627

revans@ / shinds@ / rbaum / hevans@ssrllc.com

@SSRHealth

June 9, 2016

ABBV/ENTA: Update on HCV

  • ABBV’s HCV regimens (Viekira Pak, Technivie) have been losing US Rx share since FDA revised these products’ labels with safety warnings in October of last year. The relative (FDA-reported) adverse event rates for ABBV’s products remain much higher than for GILD’s Harvoni or Sovaldi
  • Unless MRK’s Zepatier also has very high adverse event rates (it’s far too early to tell, and there’s no evidence to suggest that the rate will be high), we believe the consistently higher adverse event rates for Viekira Pak and Technivie will effectively disqualify these products, not only in the US, but in ROW markets as well
  • Reported sales of Viekira Pak and Technivie were at a circa $1.6B annual run rate as of 1Q16 – in-line with guidance – however US sales are plainly declining, and we believe ROW sales will decline this year also, putting the $1.6B guidance out of reach
  • ABBV’s follow-on, pan-genotypic regimen (ABT-493/ABT-530) is in phase 2 (standard odds of full approval from phase 2 = 55%), with a potential market entry date of 2019-2020. By this time GILD’s first pan-genotypic regimen – due for approval later this month – will have been on the market for as many as four years
  • ABBV’s pan-genotypic regimen has potential advantages (8 week dosing) to the GILD regimen (12 week dosing) currently pending approval; however, GILD has a follow-on pan-genotypic regimen that likely matches ABBV’s shorter treatment duration – and the GILD follow-on is in the same stage of development as the ABBV product
  • We expect GILD’s first pan-genotypic product to take roughly one-third of global pan-genotypic sales potential, and we expect GILD and ABBV to divide the remaining two-thirds of pan-genotypic potential if and when their regimens are approved in 2019-2020. Un-adjusted for approval risk, this implies aggregate demand of $15B – $22B for ABBV’s pan-genotypic regimen spread across the six or more years after approval. Adjusted for approval risk (55%), the aggregate value is roughly $8B – $12B
  • Against this backdrop, consensus calls for $1.7B in Viekira Pak / Technivie sales in 2016, growing to $2.1B by 2020. We believe it’s far more likely that Viekira Pak / Technivie sales fall this year and approach zero by 2020 – at which point ABBV is likely to be wholly reliant on the pan-genotypic regimen for HCV revenues

Where we’re BULLISH: Biopharma companies with undervalued pipelines (e.g. ABBV, BMY, GILD, SHPG, SNY, VRTX); Biopharma companies with pending major product approvals (e.g. ABBV, ACAD, ADMA, ALIOF, BIIB, CHMA, CLVS, CPRX, CTIC, GILD, ICPT, JAZZ, LLY, LPCN, MRK, NVO, OCUL, PTCT, SRPT, TEVA, ZSPH); SNY on sales potential for Praluent (alirocumab); CNC, MOH and WCG on bullish prospects for Medicaid HMOs; and, DVA and FMS for the likely gross margin effects of generic forms of Epogen

Where we’re BEARISH: PBMs facing loss of generic dispensing margin as the AWP pricing benchmark is replaced (e.g. ESRX); Drug Retail as dispensing margins are pressured by narrowing retail networks and replacement of AWP (e.g. WBA, CVS); ENDP on risks to branded Rx price premia; Research Tools & Services companies as growth expectations and valuations are too high in an environment of falling biopharma R&D spend (e.g. CRL, Q, ICLR); and, suppliers of capital equipment to hospitals on the likelihood hospitals over-invested in capital equipment before the roll-out of the Affordable Care Act (e.g. ISRG, EKTAY, HAE)

ABBV’s share of new prescriptions (NRx’s) for Hepatitis C virus (HCV) products has fallen steadily since FDA added safety warnings to Viekira Pak and Technivie labels in October of 2015 (Exhibits 1a, 1b). Notably, ABBV’s share (Viekira Pak, green line) of NRx’s recently fell below MRK’s (Zepatier, orange line) for the first time


ABBV’s products continue to have much higher adjusted[1] rates of adverse events than either Harvoni or Sovaldi (Exhibits 2a,2b,2c). Adverse event data are not yet available for the post-Zepatier launch period, so we cannot yet show MRK’s Zepatier rates



ABBV’s US HCV sales are plainly declining, and will continue doing so – their brands are losing share in a market with flat to declining volumes (Exhibit 3), and rapidly falling prices (Exhibit 4). This raises the question of whether the global HCV franchise can achieve the revised expectation (circa $1.6B annually) set by management on the 1Q16 call


The $1.6B guidance is only in reach if ex-US sales (Exhibit 5) grow faster than US sales fall – which we believe is unlikely for two reasons. First, unless Zepatier’s adverse event rate is much higher than Harvoni / Sovaldi’s, we expect ABBV’s US HCV sales to approach zero – there’s simply no reason an informed formulary manager would choose Viekira Pak on an exclusive basis over Zepatier at the same price, or would choose Viekira Pak over Harvoni at anything approaching comparable prices. Second, the adverse event rate issue isn’t limited to the US – it’s a global headwind. FDA requires manufacturers to report adverse events regardless of where these occur – and as such FDA’s adverse event reporting system (FAERS) includes data on adverse events that take place outside the US. More importantly, the US adverse event data are referenced by regulators and opinion leaders from other countries when decisions are made regarding approval, labeling, and prescribing in those countries. The simple point is that the same safety concerns that have reversed Viekira Pak’s fate in the US also serve as powerful headwinds abroad. As such we believe ex-US demand for ABBV’s currently approved HCV brands is likely to decline, albeit at a more gradual rate than is occurring in the US. With 1Q16 global sales of $414M as a starting point, maintaining anything near an annual $1.6B run rate seems unlikely. Despite this, consensus expectations for global Viekira Pak / Technivie sales total $1.7B for 2016, rising to $2.1B by 2020; these figures account for 7% and 6% of total ABBV consensus in 2016 and 2020, respectively

Moving past Viekira Pak and Technivie, ABBV is racing with GILD to develop a regimen (ABT-493/ABT-530) capable of treating patients regardless of which HCV genotype is responsible for the infection. In less developed economies where non-genotype-1 infections are common, and where genotyping patients is impractical, we expect the so-called pan-genotypic regimens to dominate

GILD leads ABBV in the pan-genotypic race; GILD’s Sovaldi/velpatasvir combination has shown mid-90% to 100% efficacy across patient types in large numbers of patients (Exhibit 6), and has a US regulatory action (aka ‘PDUFA’) date later this month. ABBV/ENTA’s ABT-493/ABT-530 regimen also has shown high efficacy rates across all 6 genotypes, with dosing as short as 8 weeks in non-cirrhotic patients infected with genotypes 1 thru 3 (all of the pending GILD pan-genotypic regimens are 12 weeks). GILD also is developing a potentially shorter duration pan-genotypic regimen (Sovaldi, velpatasvir, GS-9857); at this point the regimen has shown high response rates in 8 week regimens for all genotypes in treatment naïve patients. Both the ABBV and follow-on GILD/GSK regimens are in phase 2, with likely developed-world approvals falling circa 2019-2020

Thus as matters presently stand, GILD should lead ABBV into the pan-genotypic market by as much as four years. And, any treatment duration advantage that ABBV’s regimen may deliver relative to GILD’s first entry potentially will be matched by GILD’s pan-genotypic follow-on. Assuming all three regimens are approved, it stands to reason that GILD and ABBV ultimately might have comparable pan-genotypic regimens on offer, but only after GILD has had the pan-genotypic market to itself for as many as four years

To put some scale to the ex-US market by genotype, we estimate the size of each country’s HCV dollar market (relative to the US), identify the proportion of infections that are non-genotype-1, and further identify which countries have clinical settings in which routine genotyping is impractical. Exhibit 7 summarizes – countries are listed on the x-axis in descending order of dollar market size (blue line), and the grey columns indicate the percentage of HCV infections in that country attributable to genotypes other than genotype 1. Darker columns indicate countries in which genotyping each patient is impractical

In aggregate, we estimate ex-US HCV net dollar demand will be about 2.5x US demand[2]. Looking only at the countries where genotyping is impractical – i.e. where pan-genotypic regimens should dominate – these countries represent net dollar sales demand of about 1.1x the US HCV market (or 1.1/2.5 = 44% of total ex-US demand). Non-genotype-1 demand in countries capable of genotyping also will go in part to the pan-genotypic regimens (not because the patients can’t be genotyped, but because the pan-genotypic regimen is the best option for their genotype), these patients / countries account for roughly 26% of total ex-US demand. Finally, genotype 1 infections in countries where genotyping is practical accounts for the remaining 31% of ex-US demand – and we see this demand falling mainly to GILD (Harvoni, Sovaldi), and secondarily to MRK (Zepatier)

As of February 2016[3] we estimated $65B to $95B of remaining ex-US HCV demand in the aggregate, spread across a bit more than 10 years. If we assume the pan-genotypic regimens take 70% of this (all demand in countries where genotyping is impractical, and non-genotype-1 demand in countries where genotyping is practical), then we can further assume that dollar demand for the pan-genotypic regimens equals $46B to $67B over the same time period. Presumably GILD takes the first four years, or roughly a third (accounting for ramp up) of aggregate pan-genotypic demand, leaving $30B to $44B to be divided between the ABBV and GILD follow-on regimens – equaling $15B to $22B each spread over the six or more years beginning 2019-2020 for each product. Layering in approval risks (55% from end of phase 2) as a final step, the expected value of aggregate pan-genotypic sales to either ABBV or GILD in the six-plus years beginning 2020 falls to $8B to $12B

 

  1. Consistent with FDA’s perspective on adverse event rates, we look at adverse events on a per/Rx basis, adjusted for lifecycle month. I.e. we compare the number of adverse events reported per Rx dispensed in Viekira’s ‘nth’ month post-approval to the same ratio seen for Harvoni or Sovaldi at the same number of months post approval
  2. To calculate a country’s HCV demand relative to the US – we identify that country’s per-capita prescription (dollar basis, all products and all indications) demand relative to the US, and also the country’s HCV-infected population relative to the US. The product of these two values is the country’s unadjusted HCV dollar market potential relative to the US. The relative prescription spending figure captures factors such as the relative odds of patients being diagnosed, the relative odds of patients receiving (and filling) a prescription, and also relative prescription pricing. For our global HCV estimates, we assume the gap between US and ex-US prices is greater than is the case for non-HCV products, and because of this deflate assumed relative ex-US pricing (by roughly 60%)
  3. “GILD/MRK/ABBV: Why Everyone Wins if US Pricing Falls (In a Certain Way)”, SSR Health LLC, February 3, 2016

 

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