Pharma's Game of (Hep C) Thrones

Real fans (of intense fights over drug pricing) don't leave the stands early.
The most fascinating pharma battle in recent years has been over new drugs that can rapidly cure hepatitis C (HCV). This fight has everything: Sky-high prices, congressional hearings, concerns about patient access, lawsuits, and a price war. Oh, and a mere $38 billion in combined sales since the first of these drugs launched in late 2013.  
In April, Gilead, the leader in this space, reported the first-ever year-over-year sales decline of its lead HCV drug. That prompted some observers to assume the frenzy had peaked -- these drugs are cures, so patient numbers should decline over time.
But there are still plenty of patients who need treatment, according to a new analysis by Bloomberg Intelligence analyst Asthika Goonewardene. And a new generation of potentially quicker and more broadly effective drugs means more price wars and market-share brawls may lie ahead for Gilead and competitors such as AbbVie and Merck.

HCV Melee

First things first: HCV isn't going anywhere. According to BI projections, even if you ignore new or reinfected patients, there are more than 10 million potential patients across the US, Japan, and Western Europe as of 2016. There could be more than 8 million in 2020, and still more than 5 million in 2025. Total revenue from the drug class might decline over time. But it's unlikely to fall off a cliff and will be significant for years. In an optimistic scenario, BI projects Gilead's revenue could still be $15 billion a year in 2025.   
Here's how the competition stacks up at the moment:

• Gilead hit the market with the first next-gen HCV drug and dwarfs all rivals. Its drugs combined for $19 billion in sales last year.
• The FDA approved AbbVie's Viekira Pak to join the fray in December 2014. That sparked a price war, which forced Gilead to pay big discounts to keep customers -- but Viekira Pak had a relatively meager $1.6 billion in sales last year.
• Merck's Zepatier hit the market this year, at a big price discount, but it has been slow to ramp up sales. 

This status quo won't last. All three firms are working on more potent drug cocktails that could cut treatment time and work for more types of patients. As these drugs start to arrive over the next few years, things will start to get interesting. BI's model takes a look at how much just one company's pricing decision on one drug -- in this case AbbVie's -- could shift billions in revenue.
In one scenario, AbbVie prices its next-generation drug at a big premium to Viekira Pak, keeping prices high across the board. In a second scenario, it makes that premium a little smaller. In a third (and probably less-likely) scenario, AbbVie prices the new drug extra-low to grab market share. 
These seemingly small choices could have a big impact for Gilead. In the first scenario, with higher prices, BI estimates Gilead's HCV sales could peak at $20.61 billion in 2018 and decline fairly gently from there. But a big AbbVie price cut could force Gilead to cut its own prices, and its sales could drop to $14 billion by 2018.

GILD War

Depending on how the potential next price war goes, Gilead's HCV blockbusters could beat forecasts, or miss them. Annual HCV franchise sales projections.

Source: Bloomberg Intelligence

This is a quick summary of a complex model that makes many assumptions. The market could go in any number of unexpected directions. It's not just AbbVie that could surprise on price -- it could be Gilead, or even Merck with its later-arriving competitors.
Companies may not get hoped-for rapid and broad FDA approvals. Payers could strike aggressive deals that lead to bigger-than-expected discounts or push more patients to particular drugs.
Only one thing really does seem off the table -- a slow and boring decline.