Dear Sen. Waxman, Leave Gilead Alone

In case you've been living under a rock this year, there's a battle waging over just the much biotech giant Gilead Sciences (GILD) is charging for its new hepatitis C drug Sovaldi. Insurers are balking at the $1,000-a-pill price tag for the medication, which generated sales of $2.5 billion in the first three months of 2014. Reports that Rep. Henry Waxman (D-CA) has sent a letter to Gilead’s CEO asking him to justify the price of Sovaldi have ignited a debate about very high drug prices.

And now, Waxman, a ranking member of the Senate Energy and Commerce Committee, has called for hearings on the matter.

Piper Jaffray analysts Joshua E. Schimmer, Kristina N. Cibor and Jerry Yang have taken Waxman to task, in a note published today that reiterates the firm's Overweight rating and $106 price target on Gilead shares.

In short, the trio tell Waxman, get off Gilead's back. They write:

If you consider the dollars society chooses to allocate on smart phones with screens a little bigger than the prior iteration, computer games where you shoot hostile birds at unsuspecting pigs, romance novels (look it up!), Super Bowl parties (look that up too!), the cost of eliminating HCV and all its downstream complications may not seem all that unreasonable.

The Piper Jaffray analysts argue that while Sovaldi is the fastest growing drug in the U.S., it is not the most expensive. They blame insurers, arguing Gilead issued warnings about a fast launch. They write:

But most seem to have failed to heed these warnings– perhaps basing their own estimates on Wall Street consensus which were broadly known to be ultra-conservative? When you are done interrogating GILD, you may want to bring some of the payors in next and ask what they didn’t forecast and budget appropriately, considering that there are 3M HCV patients in the U.S. and Sovaldi pricing was widely anticipated.

Drug prices will become an increasingly hot issue in the years to come. Drug companies have had strong pricing power for new, innovative therapies. But with the industry focusing on expensive-to-treat maladies such as cancer and autoimmune disases and and agingpopualtion and expanding Medicaid coverage putting the government on the hook for big bucks, the party may be coming to an end. Experts agree that drug makers will have to increasingly justify that a drug's benefit warrants a high price tag.

For now, Schimmer and his colleagues argue Waxman's time may be better spent elsewhere. Their recommendation: Defending intellectual property on drugs globally.