Summary
- In an unprecedented move, ESRX makes Viekira Pak the exclusive option for HCV-infected patients.
- Preference of healthcare providers and patients disregarded for profits of PBMs and insurance companies.
- This is a short term, solvable event for GILD, which remains a Strong Buy.
- Time will reveal who owns the superior HCV treatment.
In an unprecedented move, Express Scripts Holding Co. (NASDAQ:ESRX) has made AbbVie’s (NYSE:ABBV) Viekira Pak its exclusive treatment option for HCV-invected patients.
This is a big deal… and a true cause for celebration for some.
The Winners
Who is celebrating today? Well, Express Scripts gets a fist-bump for sticking it to Gilead Sciences (NASDAQ:GILD) and Johnson & Johson (NYSE:JNJ), and their Sovaldi/Harvoni and Olysio medications, respectively.
AbbVie is certainly feeling festive for landing exclusive rights to Express Script’s 25 million beneficiaries whose companies contract directly with ESRX.
Finally, health insurance companies across the United States are also smirking as they realize that lower payments for new HCV medications will mean higher bottom-line profits.
The Losers
Loser #1 in the ESRX/ABBV deal is obviously Gilead Sciences, with its blockbuster Sovaldi and Harvoni medications.
As I’ve written in a recent Seeking Alpha article entitled: “Ho Ho Harvoni: Gilead Sciences Is A Gift That Should Be Under Every Investor’s Tree,” Harvoni is a lepidasvir/sofosbuvir combination tablet that may be the perfect pill for HCV-infected patients. Taken once daily for eight, 12 or 24 weeks, depending on the presence or absence of cirrhosis, and/or prior HCV treatment–Harvoni has only minimal side effects (headache, fatigue and nausea) and an impressive efficacy range of 96-98%.
Harvoni is easy to take, has minimal side effects, is extremely effective, but is–you guessed it–expensive.
For HCV-infected patients, new therapies are literally life-changing and life-saving. But at $66,360 (J&J’s Olysio), $83,319 (AbbVie’s Viekira Pak) and $94,500 (Gilead’s Harvoni) for a typical 12-week treatment , many pharmacy-benefit managers (PBMs) and insurance companies have been vocally up in arms over the costs.
Express Scripts shrewdly claims that paying for these new, expensive HCV-treatments is an “unprecedented challenge” and exclusively offering AbbVie’s Viekira Pak to its HCV-infected patients, “is the right thing to do.” Nevermind the benefits to the healthcare system and patients for curing HCV and halting its terrible sequelae.
Loser #2 is actually a group of current and future drug-companies and their HCV therapies. Johnson & Johnson’s Olysio has also been excluded in the Express Scripts/AbbVie deal, which will obviously reduce its current market share. This exclusive contract creates a moat (albeit small) around AbbVie, reducing incentive of competitors to enter the HCV treatment space, and undermining a competitive, freer market.
The Biggest Loser (Related: Why I’m Leaving Medicine)
The exclusive contract to offer discounted Viekira Paks to Express Scripts’ HCV-infected “beneficiaries” will result in larger profits from said discounts and increase ESRX shareholder’s returns. ABBV shareholders will also benefit from gaining share in a highly competitive (and lucrative) market. In the short term at least, these companies share prices should enjoy a nice unwards spike.
However, the biggest loser in this arrangement may surprise you… it is the patient.
Patients and providers alike should be disconcerted by the ESRX/ABBV deal. Why? Instead of healthcare experts prescribing–and their HCV-infected patients taking–a once a day, highly effective tablet; they are being told “no” by their PBM, effective January 1, 2015.
What follows are hypothetical exchanges between patients, Express Scripts and healthcare providers:
Patient: “But I don’t want to take six pills a day.”
Express Scripts: “Too bad. It’s Viekira Paks or nothing for you.”
Nurse Practitioner: “I think Harvoni is a better choice for my patient.”
Express Scripts: “Harvoni is not an option.”
Physician’s Assistant: “But I’m concerned that they won’t complete the 12-week therapy, given the large amount of pills.”
Express Scripts: “Sorry.”
Doctor: “I didn’t go through four years of medical school, three years of residency, and three additional years of a hepatology fellowship to have an administrator tell me what I can and cannot prescribe for my patient.”
Express Scripts: [supresses smile] “Sure doc… whatever you say.”
The System versus the Physician-Patient Relationship
This is obviously more of an editorial than an investment adisory article. For that, I am sorry.
But for citizens across the U.S., the importance of this (and similar) decisions should not be underestimated.
While PBMs and insurance companies deftly spin the ESRX/ABBV exclusive collaboration story as a victory for patients everywhere, it is not. Rather, this decision will cause tens of thousands of frustrated phone calls, emails and hand-written letters between healthcare providers and Express Scripts, on behalf of their patients.
The opportunity cost will result in even less time for patients to be in the room with their providers. Less time to talk. Less time to be examined. Less time for counseling.
Providers will get increasingly frustrated as their practice continues to be eroded and, ultimately, governed by a system that grows increasingly powerful every year.
When patients and their providers no longer have a say in their treatment options; when PBMs, insurers and other businesses profit (and the general public celebrates!) from the lack of a free market–however small–and a removal of choice; then it’s time to be alarmed. Patients always lose when their options are limited.
Today, as a physician, I’m increasingly alarmed by what I see on the front lines of patient care.
Recommendations
I don’t invest my own or my clients’ money with emotion. Investing emotionally is a fantastic way to quickly grow poor.
At the time of this writing, GILD has dropped 13% to $93.97. Market overreactions to sudden positive or negative news are blessings in disguise to a wise investor.
This is a short-term solvable event for Gilead Sciences, and I continue to rate it as a strong buy for the long-haul.
ABBV scored a victory with ESRX today. I like ABBV in the short term (i.e., for traders), but am less enthralled with this scrappy company in the longer term. To me, its HCV treatment is clearly a distant second place to Gilead’s Harvoni, and this thesis will play out over time as patients and providers team up and insist on receiving premium therapy for their debilitating disease. ABBV is a hold.
Finally, and this may surprise you, I rate Express Scripts a buy. I am long ESRX and think it is a shrewdly-managed company located in the right place at the right time in American history.
As I mentioned above, ESRX has masterfully spun the AbbVie deal as a win for patients against the big, bad market leader: Gilead. As time will reveal, however, ESRX shareholders will be the real beneficiaries as their profits increase in proportion to the discounts they receive from AbbVie, and similar, deals.
Additional disclosure: Jeff Ross, MD, is also the founder, CEO and managing director of Vailshire Capital Management, LLC. Vailshire is long GILD and ESRX.
This article originally published by Seeking Alpha