Drug pricing power led by hepatitis C, diabetes and cancer

Hepatitis C, diabetes and cancer are sustaining high pricing power through innovation according to Morningstar's June 2014 Healthcare Observer.

The report looks at the effects of US drug pricing power on economic moats, or sustainable competitive advantages, in six therapeutic areas – hepatitis C, diabetes, cancer, multiple sclerosis (MS), immunology, and HIV. Generally Morningstar analysts see pricing power as strong but declining, as generics give pharmacy benefit managers (PBMs) leverage, and increasing government exposure could spark legislative changes.

It found that hepatitis C, diabetes, and cancer are sustaining high pricing power through innovation, while MS and immunology battle emerging generics, and HIV wrestles with high government exposure. Morningstar analysts have raised global hepatitis C drug sales estimates for US biotech major Gilead Sciences (Nasdaq: GILD) from $5 billion to $9 billion in 2014 and from $11 billion to $12 billion in 2015, as well as the fair value estimate for Gilead to $87 from $80. Morningstar also raised sales estimates for pharma giant Merck & Co (NYSE: MRK) and US drugmaker AbbVie (NYSE: ABBV) hep C pipeline therapies, based on strong data and industry pricing power.