Thursday, January 10, 2013

Investment Commentary Hepatitis C Market-Sofosbuvir's (GS-7977) Potential

Investment Commentary

A Stellar Play on Hepatitis C Market Growth

By Jordo Bivona - January 10, 2013|

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Gilead Sciences (NASDAQ: GILD) announced several updates regarding its late-stage drug pipeline candidates for the treatment of chronic hepatitis C virus (HCV) infection. Since the acquisition of Pharmasset, the company has fully enrolled four Phase 3 studies of sofosbuvir. During the first quarter of 2013, Gilead plans to initiate two Phase 3 studies of the sofosbuvir and GS-5885 fixed-dose combination. Gilead is on track to submit the initial regulatory filing for sofosbuvir by mid-2013 and file for approval of the fixed-dose combination of sofosbuvir and GS-5885 in 2014.

What Is Happening

Gilead is currently evaluating a once-daily fixed-dose combination tablet containing sofosbuvir and GS-5885 in several Phase 2 and 3 trials. The studies are intended to evaluate sofosbuvir/GS-5885 with and without ribavirin (RBV) among a range of genotype 1 HCV patient populations.

ION-1: The Phase 3 trial was initiated in October 2012 and is evaluating sofosbuvir/GS-5885 with and without RBV for 12 or 24 weeks among treatment-naïve genotype 1 patients. Pending a review of results from the two 12-week arms (n=50/arm) of an initial enrollment of 200 patients, ION-1 will continue to recruit patients and assess sofosbuvir/GS-5885 in a total of 800 individuals.

A second Phase 3 study for sofosbuvir/GS-5885, ION-2, is expected to begin screening patients in January 2013. This study will evaluate the fixed-dose combination, with RBV for 12 weeks and with and without RBV for 24 weeks of therapy, among 400 treatment-experienced genotype 1 HCV patients.

Four ongoing Phase 3 studies will support Gilead’s initial regulatory filing in mid-2013 for an all-oral therapy with sofosbuvir plus RBV among genotype 2/3 treatment-naïve, treatment-experienced and interferon-intolerant patients. The studies will also include sofosbuvir in combination with RBV and peg-IFN among treatment-naïve patients with HCV genotypes 1, 4, 5 and 6. Top line results from the first Phase 3 study, Positron, were announced in November 2012, and results from the remaining three studies (Fission, Fusion and Neutrino) are anticipated in the first quarter of 2013.

Sofosbuvir's Potential

Sofosbuvir is a novel hepatitis C drug which recently showed promising results in the first of several phase 3 trials, with 78% of patients having an undetectable viral load 12 weeks following treatment. It has two characteristics that could make it a blockbuster. First, it would be the first all-oral hepatitis C treatment to be approved by the FDA. Second, it avoids the use of interferon, a part of the current standard hepatitis C treatments that produces unfavorable side effects. 50% of the patients that take interferon develop flu-like symptoms, and over 30% develop psychiatric complications such as depression. As an all-oral, low side-effect medication, sofosbuvir has the potential to establish itself as the predominant drug in the treatment of hepatitis C in a market estimated at over $20 billion.

Dominance in the HIV Treatment Market

Despite the expiry of some of its HIV patents in 2018, new HIV treatments will result in the extension of the profitability of HIV treatments for the long-term. Gilead has performed impressively with fixed-dose combination pills Truvada and Atripla, which combine multiple HIV medications into a single pill, and has an impressive market share in the HIV treatment market.

Gilead has also won approval from the FDA for HIV drug cocktail Stribild, which is intended for patients who have not been previously treated for HIV infection. Analysts estimate it could produce revenues of as much as $4 billion annually because it simplifies a patient's drug regimen. Stribild is a combination therapy that will join another HIV therapy, Atripla, a three-drug cocktail which generated approximately $2.7 billion in sales over the first nine months of 2012. Truvada generated $2.3 billion, while Viread, Gilead's first HIV treatment introduced in 2001, generated more than $500 million. Truvada has been approved by the FDA as a treatment for AIDS prevention and should see substantial increases in revenues in the future.

Competitors Focusing on Hepatitis C

The vast size and potential of the global hepatitis C market has attracted the attention of pharmaceutical giants like Merck (NYSE: MRK) and GlaxoSmithKline. Microbiotix, a privately-held, clinical stage biopharmaceutical company, recently entered into a licensing agreement with Merck that gives the company worldwide rights to develop, manufacture and commercialize MBX-700 and MBX -701 (formerly SCH 900942 and SCH 900188), two non-nucleoside inhibitors of the hepatitis C virus NS5B polymerase. U.S. health regulators recently approved GlaxoSmithKline's drug Promacta for the additional treatment of low platelet count in hepatitis C patients. This will allow hepatitis C patients to undergo a standard therapy to fight the disease.

Bristol-Myers Squibb's (NYSE: BMY) acquired Inhibitex back in January 2012. The FDA recently halted studies of the company’s IDX184 and IDX19368 compounds due to safety issues. Bristol-Myers Squibb tested a hepatitis C therapy in the same family of nucleotide compounds. However, the company ceased development of its therapy back in August, after it was connected to the death of one patient and kidney and cardiovascular problems in others.

AbbVie (NYSE: ABBV), the newly-spun-off pharmaceutical division of Abbott Labs, is developing its own experimental hepatitis C drug that had impressive results in trials, but is unlikely to be in the market for some years. Abbott met endpoints in its Phase IIb trial for ABT-450, which is an ex-interferon treatment for hepatitis C genotype I.

Gilead bought Pharmassett and may now have the key to success with its drug GS-7977, which when combined with ribavirin, completely eliminated the hepatitis C virus in genotype 1 patients after four weeks of treatment.


Analysts are bullish on Gilead Sciences. Consider the following ratings:

On Nov.13, analysts at Stifel Nicolaus raised their price target on Gilead from $80 to $85 with a "buy" rating. On the same date, Lazard also raised its price target on Gilead from $89 to $100 with a "buy" rating. On Dec. 5, analysts at Oppenheimer reiterated an "Outperform" rating on Gilead. On Dec. 10, analysts at Guggenheim reiterated a "Buy" rating on Gilead with a price target of $87.00.

Despite the fact that the stock is fairly expensive at around $77 based on valuation, which works out to 23 times earnings and 17 times estimates, I am bullish about the growth prospects of this company. I recommend buying Gilead now.

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