The bite of reform
Healthcare reform dings big biotechs unevenly; Gilead takes biggest hit so far
The initial negative impact of healthcare reform on pharma and biotech P&Ls is becoming apparent midway through earnings season.
Investors shaved almost $4 billion off the market cap of Gilead Sciences Inc. (NASDAQ:GILD) last week after the company disclosed that the new healthcare reform law would trim its 2010 sales by about $200 million and lower fully diluted EPS by about $0.15.
After market close on Tuesday, Gilead lowered its 2010 product sales guidance to $7.4-$7.5 billion from $7.6-$7.7 billion due to the legislation. The Street was expecting 2010 total revenues of $8.3 billion.
Gilead is being squeezed by new discounts for some federal payers that have kicked in already, as it said the reforms had lowered 1Q sales by $29 million. Other government payers, such as the AIDS Drug Assistance Program (ADAP) and the U.S. Public Health Service (PHS), will not employ Medicaid pricing until 3Q10, so CFO Robin Washington said the $200 million estimate anticipates that the discount effect for this year will be "back-end loaded."
She noted that in Gilead's HIV business, "nearly half of our payers are impacted by the legislation."
On Wednesday, Gilead shares fell $4.31 (10%) to $40.76. On the week, the shares lost $4.03 to $41.67.
Washington said existing Medicaid pricing rebates will increase by 8%, regardless of the discount previously provided.
"We wondered, like a lot of companies, whether additional rebates will be applied to the payers where we have discounts already in place that are greater than the current 15%," added EVP of Commercial Operations Kevin Young.
Now, rather than a 23% discount floor, he said, "it's quite clear from the legislation that irrespective of the discounts that you've had in place to these federal players, an additional 8% has to be added."
Ultimately, Washington said the additional Medicaid rebates this year will reduce sales from the U.S. antiviral business by about 4.4%.
Starting Jan. 1, 2011, Gilead expects additional impact from the Medicare Part D doughnut hole discount, which under the law is 50% off