Gilead’s Covid-19 Drug Deal: Analysts Don’t See Financial Gains For Generic Firms

Gilead Sciences Inc. signed non-exclusive licensing pacts with five generic drugmakers in India and Pakistan to make and supply remdesivir, a potential treatment for Covid-19, in 127 countries.

The Indian companies include Cipla Ltd., Hetero Labs Ltd., and Jubilant Life Sciences Ltd., according to a statement by American biopharma drugmaker. The Pakistani firms are Ferozsons Laboratories and Mylan NV. Gilead will transfer technology to make remdesivir and licensees will set their own prices.

The licences are royalty-free until the World Health Organization declares the end of the Public Health Emergency of International Concern from Covid-19 or until a pharmaceutical product, other than remdesivir, or a vaccine is approved to treat or prevent the virus, whichever is earlier, Gilead said.

While analysts see this as a positive for the generic makers, they don’t expect any financial benefits.

This deal is profit neutral during the pandemic and Gilead is not taking royalty, as directed by World Health Organisation, Surajit Pal, analyst at Prabhudas Lilladher, told BloombergQuint. “We don’t think it will increase profits. Rather what will happen is if the top line is growing without increasing Ebitda, then there might be lower profitability.”

Finalisation of remdesivir pricing by Gilead, which is subject to intense global scrutiny, and multiple ongoing clinical trials to ascertain the safety and efficacy of the drug are a few factors to watch out for, Macquarie said in a note.

According to Institute for Clinical and Economic Review, which analyses drug pricing, the estimated cost of making the drug is $10. If it has benefit to control mortality, it would cost $4,500. The institute determined its value-based pricing at $390 if it shortens hospital stays.

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So far, it seems that bulk of volumes might go to Gilead and smaller ones to pharma companies, Vishal Manchanda, analyst at Nirmal Bang, told BloombergQuint. To gauge if it’s a financially good option for generic drugmakers, it’s important to understand that these companies can supply to Gilead for distribution in other markets, he said. “This would be an important part of the value that these pharma companies can make out of the product.”

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Saion Mukherjee, analyst at Nomura, expects the opportunity to last one to two years and, hence, does not expect it to translate into high valuation multiples.