Saturday, December 8, 2012

Gilead Sciences Leads The Race In Developing A Hepatitis C Pill

Investment Commentary

Gilead Sciences Leads The Race In Developing A Hepatitis C Pill

Peter Geschek
Source - Seeking Alpha

The race to develop a hepatitis C pill is one of the most dramatic in the pharmaceutical industry. Almost no month goes by without surprises, good as well as bad.

Incivek from Vertex (VRTX) and Victrelis from Merck (MRK), revolutionary direct-acting antivirals approved just last year, are already considered antiquated because they require interferon injections with unwanted side effects.

Many blockbusters generate billions of dollars in annual revenue for a decade or more, but sales of Incivek, the top act in the industry, are already fading after only a year and half on the market.
At the moment, it seems that Gilead Sciences (GILD), the long time champion of HIV treatments, is in the lead.

Hepatitis C bigger than HIV
Worldwide, an estimated 170 million people have contracted hepatitis C. In the U.S., the number of cases is about 4 million, making the disease more prevalent than headline-grabbing HIV. According to the Centers for Disease Control (CDC) most people are unaware of their illness, and many are in the baby-boomer generation.

Some of the reasons for the spread of hepatitis C are intravenous drug use, dirty tattoo parlors, tainted blood transfusions and carriers who infect their offspring. Hepatitis C damages liver tissue and results in scarring known as cirrhosis. The hep C virus (HCV) is responsible for driving up rates of liver cancer, liver transplants, and liver failure. Unless a patient's hep C is making him sick, doctors might keep him on the sidelines in anticipation of the all-oral therapies hitting the market in 2014.

The hep C drug market saw explosive growth in 2011 with the introduction of Incivek and Victrelis, which boosted sales in the category by about $1 billion last year to $2.6 billion, according to market research from GBI Research.

Gilead famously forked over $11 billion for Pharmasset earlier this year, spending the enormous sum to gain its lead "nuc" drug, sofosbuvir (formerly GS-7977).

In November 2012, Gilead unveiled impressive data during the American Association for the Study of Liver Diseases (AASLD) meeting.

Gilead's results came from a Phase 2 study, testing two experimental pills, the nucleoside, or "nuc," polymerase inhibitor sofosbuvir and GS-5885, an NS5A inhibitor, plus immune system booster ribavirin. Participants were genotype 1 hepatitis C patients who had never received interferon-based treatments. The result was a 100 percent cure in all 25 patients: no signs of HCV were detected after 12 weeks of treatment and four weeks of follow up.

The Phase 3 Positron study examined patients with genotype 2 or 3 chronic hepatitis C virus infection, who were not candidates for interferon treatments, during a 12-week course of once-daily sofosbuvir plus ribavirin. The study found that 78 percent of patients remained HCV undetectable 12 weeks after completing therapy. This trial, called Positron, was the first of three Phase 3 studies evaluating sofosbuvir therapy in HCV genotype 2 or 3 infected patients.

Two additional studies were conducted to evaluate 12 and 16 weeks of therapy with sofosbuvir plus ribavirin.

A fourth Phase 3 clinical trial is evaluating sofosbuvir combined with ribavirin and peg-IFN (pegylated interferon) for patients with HCV genotypes 1, 4, 5 and 6.

Pending results, these studies will support initial regulatory filings in mid-2013 for an all-oral therapy with sofosbuvir plus ribavirin among genotype 2 and 3 patients, and for sofosbuvir in combination with RBV and peg-IFN among treatment-naïve patients with HCV genotypes 1, 4, 5 and 6.

While Gilead seems to be winning the race, Bristol-Myers Squibb (BMY) lost big on its $2.5 billion bet on Inhibitex earlier this year after the "nuc" compound from the developer flamed out in Phase 2 and a study patient died during the summer.

However, the competition is far from over. Gilead is in a race against Abbott Laboratories (ABT), which also has a Phase 3 program for an all-oral combo against hepatitis C, and Bristol-Myers Squibb, which could be the first to market with an interferon-free regimen in Japan.

In addition to efficacy, convenience may also give a slight edge to Gilead. Gilead could potentially coformulate GS-7977 and GS-5885 into a single pill taken once per day. Combining different treatments into a single pill is a practice Gilead has proved adept at in the HIV field.

With the addition of ribavirin, hepatitis C patients might only need to take two pills in the morning and one at night for 12 weeks.

Investor summary
In the third quarter, sales increased 14 percent to $2.36 billion compared to $2.07 billion for the third quarter of 2011.

This increase in product sales was due primarily to Gilead's HIV related antiviral franchise, resulting from increased sales of Complera, Atripla, and Truvada as well as the launch of Stribild.

Sales of Atripla increased 9 percent to $865.4 million for the third quarter of 2012, up from $794.7 million for the third quarter of 2011, reflecting sales growth of 8 percent in the U.S. and 6 percent in Europe.

Sales of Truvada increased 8 percent to $804.2 million and sales of Viread increased 11 percent to $214.9 million.

Sales of Complera grew more than fivefold to $99.3 million for the third quarter of 2012 compared to $19.0 million for the third quarter of 2011. Complera was approved in the U.S. in August 2011, and Eviplera (the name of the brand in Europe) was approved in the European Union in November 2011.

As of September 30, 2012, Gilead had $2.65 billion of cash and marketable securities compared to $9.96 billion as of December 31, 2011. The decrease was due to the acquisition of Pharmasset in the first quarter of 2012. Gilead generated $2.49 billion of operating cash flow during the first nine months of 2012, including $745.4 million generated in the third quarter of 2012.

The company is increasing its sales guidance for the full year of 2012 to a range of $9.1 to $9.2 billion, which represents a $200 million increase from the top of the previous guidance. The full year 2012 diluted earnings per share are now expected to be around $0.62 to $0.65 per share.

Stribild was launched immediately after receiving FDA approval on August 27 and has become an immediate success. Stribild is a complete once-daily single tablet regimen for HIV-1 infection for adults never before treated. Called the "Quad pill" prior to the approval, it combines four compounds in one daily tablet: the ingredients emtricitabine and tenofovir (already found in Gilead's existing HIV drug Truvada) and two new compounds, elvitegravir and cobicistat.

Uptick in sales in the first few weeks since launch have been encouraging. Prescriptions for Stribild are nearly double the number for Complera at a similar point in launch. Most managed care organizations now list Stribild without restrictions. Forty-seven state Medicaid plans and 37 AIDS drug assistance programs now have Stribild on formulary. Importantly, four of the big five ADAPs (AIDS Drug Assistance Programs) have full access to Stribild.

All elements of Stribild are Gilead-owned whereas Atripla is a combination of Gilead's Truvada and Bristol-Myers Squibb 's Sustiva.

Some members of Congress signed a letter to Gilead Chief Executive John C. Martin expressing concern that Gilead may charge as much as $34,000 annually for the new medicine.

The stock price in the past 52 weeks ranged from $36.98 to $76.28. Gilead Sciences is a strong company, and if the hep C venture succeeds, it will become even stronger.

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