Gilead Reaps Windfall from $1,000 Hepatitis C Pill

Eileen Meng Lu  |

Gilead Sciences Inc. (GILD) posted Q2 2014 earnings of $2.36 a share, easily beating the consensus estimate by 58 cents.Sales came in at $6.53 billion, topping earlier estimate by 12%. More than half of the company’s revenue is generated by its cash cow, Hep C drug Sovaldi. The fruitful earnings results came with another statement announcing the company's new blood cancer drug was approved by FDA.

Put onto market last December, Sovaldi has generated $3.48 billion in sales, beating the estimated sales of $ 2.58 billion. Other non-Sovaldi drugs generated $3.05 billion in revenue, which also beat the expectation. 

With the huge sales brought by Sovaldi, Gilead adjusted the estimated full-year revenue $11.3-$11.5 billion to $21- $23 billion. 

Sovaldi Price Remains Controversial...

The market still has an eye on Sovaldi, which has generated criticism for its $1,000-a-day price tag.  Protests took place not only in the US, but non-profit organization Act Up Paris has had an ongoing protest in France since April 29. In a statement that called for protest the organization said, "We, people infected with hepatitis C and co-infected with HIV-HCV, refuse to die because of the greed of pharmaceutical companies."

Although protests targeted at Gilead's supposed over-pricing of Solvadi have taken place in the last 7 months, the price shows no signs of decreasing. The extreme high margin brings Gilead huge profits. According to a study from the University of Liverpool, 12 weeks' worth of Sovaldi costs the company $136, but Gilead charges patients $84,000. 

According to the statement, 47 state’s Medicaid programs cover Sovaldi. Some commercial health insurance are still balancing the cost and considering whether to cover Sovaldi. 

Now some insurers are requesting Gilead to lower Sovaldi's price, saying it's unsustainable because the company's peers are also researching their own Hep C alternatives.

But the Drug's Revenue Potential Still Looks Explosive

However, Gilead's sales of Sovaldi were pretty solid according to the earnings report. At least for the short run, Solvadi's potential revenue stream still remain promising.

Up to now, Sovaldi has been prescribed to more than 80,000 patients in America and Europe. According to the statistic compiled by U.S. Centers for Disease Control and Prevention, there are estimated 3.9 million Hep C various carriers in the U.S. with 2.9 million chronically infected. Globally the number of Hep C patients is estimated 30-150 million, according to World Health Organization.

Gilead claimed that more than 9,000 patients have been cured with Sovaldi, and there’s a huge market for the Hep C drug worldwide. More importantly, Gilead faces no looming Hep C drug alternatives from a competitor, at least one that's close to market. This gives Gilead little reason to not continue the price hike.

Other than the success of Sovaldi, the company’s shares have seen great returns in the past ten years. The company’s shares were trading at just a few dollars back in the early 2000s, then went up to $20 a share in 2007, before skyrocketing after 2012. Now trading at over $90 a share, Gilead is valued at roughly $140 billion.

Gilead has also announced FDA approved its blood cancer drug Zydelig to treat chronic lymphoma and leukemia, which should probably further strengthen Gilead’s position in the game.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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Symbol Name Price Change % Volume
GILD Gilead Sciences Inc. 69.36 -3.30 -4.54 33,798,546 Trade
SU:PUR Suncor Energy Inc. 36.99 -0.71 -1.88 124,047



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