But, it still represents a decline in projected earnings. GILD is an aggressive grower, so any drop in projected earnings will #$%$ a significant potential buyer of the stock.
Exactly. My sentiments also. ABBV set a dangerous precedent, and those in Congress are take that and run with it politically, arguing that a PBM is being "patriotic" by "lowering drug prices". I didn't see Congress worrying about energy costs to Yankees when oil was 115 dollars per barrel ! Drug pricing evokes a lot of emotion and fear, hence, I think the government will try to encourage other PBM's to broker deals for lower drug pricing. This model is NOT going to work.
Has everything to do with ABBV ! It is up because ESRX has signalled the impression, to the market, that it can extort price concessions from providers ! Many of us know that this cannot be the new "rule of order" in pricing drugs, but for the time being, ESRX wins, and drug companies lose.
A larger question is will the deal lead to more such pricing moves, with greater leverage by chains such as Express:
We wonder how this agreement will impact pricing decisions by GILD and future competitors (MRK, BMY) in the hepatitis C (HCV) space The exclusive nature of the agreement is surprising to us and will allow for ABBV to secure essentially 100% share of the patients on ESRX’s national formulary (about 25 million covered lives) with a greater impact likely over time as managed care companies potentially adopt some form of ESRX’s national formulary. We have previously published that we felt steps taken by ABBV and by payors would allow for ABBV’s market share expectations to exceed expectations and today’s news seems to be moving things in that direction rapidly. A specialist survey we previously published also supports this view.
AbbVie shares today are down $1.58, or 2.4%, at $65.30, while yesterday’s putative loser, Gilead Sciences (GILD), are down $5.79, or 6%, at $87.11.
AbbVie: Does Express Hep-C Deal Presage Other Such Discounts? Asks Credit Suisse
By Tiernan Ray (December 23, 2014, 10:17 a.m. EST)
Credit Suisse’s Vamil Divan today reiterates an Outperform rating on shares of AbbVie (ABBV) after yesterday’s news the company secured a deal with Express Scripts (ESRX) to be the sole hepatitis-C cure carried by the pharmacy management chain.
There are questions here, writes Divan, especially what the discount was that AbbVie gave Express, though he tries to do some back-of-the-envelope math:
There is a lack of clarity on the magnitude of a discount that ABBV needed to offer to obtain this exclusivity […] Given that majority of patients will be eligible for the 12-week treatment regimen, our initial view is that ABBV’s net price was likely based on 12-week treatment cost comparison vs. GILD (gross price: ABBV – $83.3K, GILD – $94.5K). With this approach, the economics could still be potentially favorable for ESRX to do this deal, while allowing for ABBV to maintain a higher net price for its 12-week regimen vs. Harvoni’s (GILD) 8-week regimen (gross price: $63K). Assuming a 15-20% gross-to-net assumption on ABBV’s 12-week gross price ($83.3K) gives us a net price range of ~$67-71K, which is 2-8% below our price assumption; this is offset by potentially greater share/market growth dynamics. We assume we will not obtain great clarity on ABBV’s realized price for Viekira Pak until 1Q 2015 earnings in the late April. We are more concerned about longer-term pricing dynamics as ABBV and GILD compete in the market and other players (MRK, BMY) look to enter the market in the next 12-24 months.
I think the question becomes now: what revisions will occur on previously projected Gildead earnings (forward estimates now being revised as a RESULT of the ESRX debacle) ? I think this haircut the stock is taking on is a result of the market trying to estimate how much potential revenue to will be lost (by Gilead) from this point on.
But, that action of ESRX certainly sets a new paradigm in motion for drug pricing, no ? Isn't that what is spooking the market regarding many drug makers...not just ABBV or GILD...???
Both GILD andf ABBV are great companies; this just goes to show how much pressure there is to lower drug prices. All pharma stocks are getting a haircut as a result.
8) Samsung phones have been banned for import by 22 nations (due to political conflict), vs. only 2 nations phrohibiting ban of Apple iPhones !
6) Samsung's native currency is depreciating against the US Dollar, so those investing in that stock are getting annihilated on currency devaluation alone !
5) The US government security agencies (the best on the globe) prefer Apple products over Samsung because they are 17X more hack resistant.
ABBV is down for two reasons: 1) It volunteered to set a precedent that it is OK to do a deal with the Devil to cut your own margins !......and 2) Much of the hype was already baked into ABBV's price. Of course it dropped !