NICE Recommends Sovaldi

BMI View :  NICE's preliminary recommendation of Sovaldi for the most common types of hepatitis C has strengthened Gilead's case for premium pricing. Having convinced the most stringent regulator in Europe, the company can expect further reimbursement approvals from health technology assessors in Europe on favourable terms. This recommendation highlights the need for drugmakers to effectively demonstrate improvements in outcomes in order to charge premium prices.

The UK's cost-effectiveness watchdog, the National Institute for Health and Care Excellence (NICE), has granted provisional approval for  Gilead Sciences'  Sovaldi (sofosbuvir), paving the way for the drug's procurement by the NHS and inclusion onto the British National Formulary. In return for a pricing concession (USD57,000 versus a price of USD84,000 in the US), NICE stated that Sovaldi met the criteria of 'clinical and cost effectiveness', criteria that had earlier prompted the rejection of Roche's Kadcyla (transtuzumab emtansine) for treating breast cancer patients.

The most important details to emerge from NICE's draft guidance were:

  • Recommending Sovaldi for genotype 1 patients

  • Recommending Sovaldi for genotype 3 patients

  • Rejection for patients with genotypes 4, 5, 6

  • Recommendation for genotype 2 patients who cannot take interferon

Share Price Reaches All Time Highs
Gilead Share Price, 2009-2014

NICE Recommends Sovaldi

BMI View :  NICE's preliminary recommendation of Sovaldi for the most common types of hepatitis C has strengthened Gilead's case for premium pricing. Having convinced the most stringent regulator in Europe, the company can expect further reimbursement approvals from health technology assessors in Europe on favourable terms. This recommendation highlights the need for drugmakers to effectively demonstrate improvements in outcomes in order to charge premium prices.

The UK's cost-effectiveness watchdog, the National Institute for Health and Care Excellence (NICE), has granted provisional approval for  Gilead Sciences'  Sovaldi (sofosbuvir), paving the way for the drug's procurement by the NHS and inclusion onto the British National Formulary. In return for a pricing concession (USD57,000 versus a price of USD84,000 in the US), NICE stated that Sovaldi met the criteria of 'clinical and cost effectiveness', criteria that had earlier prompted the rejection of Roche's Kadcyla (transtuzumab emtansine) for treating breast cancer patients.

The most important details to emerge from NICE's draft guidance were:

  • Recommending Sovaldi for genotype 1 patients

  • Recommending Sovaldi for genotype 3 patients

  • Rejection for patients with genotypes 4, 5, 6

  • Recommendation for genotype 2 patients who cannot take interferon

These draft recommendations would therefore qualify most hepatitis C patients in the UK to receive the hepatitis C cure, but we expect that patients will be treated initially on a needs-basis, with the most serious cases receiving the drug first before a roll-out to the rest of the patient population.

This recommendation comes at a time when payers and the industry are locked in argument over the cost of medicines and the subsequent benefit they present to patients. In August, NICE and Roche engaged in a public dispute over whether Kadcyla represented advancement for patients. Moreover, NICE had rejected Johnson & Johnson's Zytiga (abiraterone acetate) earlier this month, on the basis that the drug was not cost-effective for prostate cancer patients. The message from regulators to the industry is clear: drugmakers must deliver significant improvements in clinical outcomes in order to charge premium pricing to payers.

Europe: Biggest Market For Hepatitis C Drugs

Gilead's ability to gain reimbursement or procurement coverage in Europe will be central to Sovaldi's success over the long term. The EU as a whole is the largest market for hepatitis C, given the disease prevalence in the region, the presence of modern healthcare systems and the fiscal capacity to pay for innovative medicines. There are approximately 9m people in Europe with hepatitis C, with the majority unaware of their infection status, owing to the asymptomatic nature of infection. The presence of large immigrant populations and continued inflows of people from emerging markets where hepatitis C is more prevalent indicates that patient numbers in Europe will remain elevated or stable over a long period of time. Therefore, the revenue potential in Europe will be prolonged relative to other markets such as the 'Asian Tigers' (Japan, Singapore and Taiwan) and North America, where immigration is more restricted and population movements less pronounced.

However, one key impediment to unlocking the European market will be the region's focus on drug pricing. Earlier in May, Germany's cost effectiveness evaluator, the Institute for Quality and Efficiency in Healthcare (IQWiG), delivered a blow to Gilead by rejecting Gilead's clinical basis for charging USD68,000 in Germany. Gilead had built its case around the drug's ability to deliver savings over the long term by reducing the risk of hepatocellular carcinomas and the need for liver transplants, therefore delivering considerable savings to the German healthcare system. This decision was closely watched by observers, as Germany is a country that is common to most European reference pricing mechanisms.

Furthermore, in July, France's health minister Marisol Touraine stated that EU member states would band together to dispute the pricing of Sovaldi. However, now that NICE have ruled in favour of Sovaldi and on Gilead's pricing terms, a barrier to similar pricing throughout the region has been removed. Gilead can now negotiate and argue from a position of strength as NICE's evaluations are often seen as one of the most stringent in Europe. This development sets a positive precedent for Sovaldi and innovative drugs in Europe, and we now expect Gilead will be able to effectively convince regulators in most Western European countries to reimburse the drug at or just below Gilead's asking price.

2015: Growth To Come Above Expectations

While there are still barriers to overcome, namely further evaluation from IQWiG and gaining reimbursement in France, we have eased our negative expectations on drug pricing following the acceptance of the treatment in the UK. As a result, we expect Gilead to see a surge in revenues from Europe in 2015, which we do not think the market has adequately priced in. Sovaldi's sales potential has primarily been measured in US revenues, where market observers have been able to track demand with great accuracy.

Gilead's share price has recently surged to a new record as the company consolidates its lead in the hepatitis C space and the disconnect between its future earnings growth and its current valuations becomes more apparent to investors. The company has amongst the leanest operating structures of pharmaceutical companies with above-average profit margins; the prospect of a dividend or extensive share repurchasing indicates room for further upside. However, we see continued volatility as the share price responds to news and events around Sovaldi's pricing over the coming months. 

Share Price Reaches All Time Highs
Gilead Share Price, 2009-2014
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