Even if you're not a biotech or pharma investor, you've
probably caught an earful of news lately about the virus called
From last December's record-breaking launch ofGilead Sciences
) wonder drug Sovaldi to the controversies about its $84,000
price tag toMerck 's (
) recent $3.85 billion buyout of formerly neglected biotechIdenix
), hepatitis C has provided a constant supply of headlines this
year. But all this page-by-page horse-race news may have clouded
the big picture, so here is a quick overview for investors.
No one is sure exactly how many people might be infected with
the hepatitis C virus (HCV). Transmitted by blood-to-blood
contact -- usually from unclean needles or unscreened donated
blood -- the virus can sit in the body for years without
provoking apparent symptoms. As a result, many people don't
realize that they have it. But the virus can also cause a
multitude of troubling symptoms and, if left untreated, can
eventually cause scarring (cirrhosis) and sometimes cancer of the
Despite the uncertainties, it is generally agreed that a huge
number of people are infected. The World Health Organization
estimates that about 3% of the planet's population -- about 170
million people -- has HCV. In the U.S., estimates range between 3
million and 4 million, with only about half that number
Because unclean needles are associated with drug addiction,
substandard medical care and amateur tattoos, the poor and
imprisoned make up a disproportionate amount of the infected. In
a report prepared in December forJohnson & Johnson (
), the consulting firm Milliman estimated that about half of
Americans with undiagnosed HCV are uninsured. That's not even
counting the prison population, whose rate of infection is
estimated by different sources at anywhere from 23% to 39%.
A significant number of this population is also infected with
HIV. In the broader population, about a quarter of all HIV
patients also have HCV, according to the Centers for Disease
In the U.S., one's generation also makes a difference. People
born in the 1950s, especially males, are far more likely to be
infected with HCV than those born earlier or later. A couple of
years ago, the CDC observed a looming HCV public health crisis,
as the untreated baby boomers are about due to develop cirrhosis
of the liver, which occurs in about 15% to 20% of all cases. This
concern led the agency to recommend that everybody of that
generation -- no matter how clean they think they are -- should
Another important factor affecting the HCV population: There
are six different genotypes of the virus. In the U.S., about 73%
of patients have genotype 1, 14% have genotype 2, and 8% have
genotype 3. Other countries have different ratios; in Japan,
genotype 2 is the most common.
Until 2011, the standard treatment for HCV was regular
injections of interferon combined with a generic oral medicine
called ribavirin. Interferon, a protein, is toxic and causes
flu-like symptoms, which are especially misery-inducing when
treatment lasts for six months to a year. Even then, at least 20%
of people who were treated were not cured. As a result, people
tended to put off treatment until they were desperate: only about
220,000 Americans have received this therapy.
With the rise of biotechnology, drugmakers started
experimenting with new platforms. One popular class of target
drugs is protease inhibitors. In the 1990s, they helped people
with HIV to manage the disease rather than simply die.
The first two HCV protease inhibitors hit the U.S. market in
May 2011: Merck's Victrelis andVertex Pharmaceuticals ' (
) Incivek. The next one, J&J's Olysio, was approved in
November. Under current labeling, all of these drugs still have
to be taken with interferon, however.
Another class of drugs that have shown early promise are
polymerase inhibitors. The most effective among them were
nucleotide or nucleoside drugs, known in the industry as "nucs."
Clinical trials conducted by several different companies showed
Their main drawback: safety. Probably the most spectacular nuc
blowup came in August 2012, whenBristol-Myers Squibb (BMY)
stopped a phase-two trial of its nuc after a patient died of
heart failure. The only first-generation nuc that survived
unscathed was Gilead's sofosbuvir, which was later branded
Sovaldi appears to represent a giant step forward in HCV
treatment. The drug is taken orally, cures upward of 95% of
patients in just 12 weeks and has few side effects. Even so, it
isn't made to be a solo act. The FDA approved the drug but
recommended that genotype 1 patients take it with interferon
unless they're too sick to handle interferon. Many patients have
been combining Sovaldi with Olysio instead. Gilead's larger goal
is to combine the drug with an NS5a inhibitor, which can provide
interferon-like treatment without the downside effects.
NS5a inhibitors have turned out to be the third major class of
oral drugs that succeed against HCV. In a clinical trial reported
last year, Bristol-Myers' NS5a inhibitor, daclatasvir, scored a
100% cure rate when combined with sofosbuvir for previously
untreated genotype 1 patients.
But Gilead decided not to pursue that combo because it had its
own NS5a, ledipasvir. The sofosbuvir-ledipasvir combo has scored
outstandingly in trials and is conveniently co-formulated into
one pill to be taken once daily. Gilead has filed for approval
with both the FDA and the European Medicines Agency (EMA) for
genotype 1 patients. It is expected to launch in October.
Gilead's combo is expected to have company. By December,AbbVie
(ABBV) is expecting approval of its "3D" regimen. It combines all
three types of drugs: a protease inhibitor (licensed fromEnanta
Pharmaceuticals (ENTA), an NS5a inhibitor, and a non-nucleoside
polymerase inhibitor. It's all-oral, has a good safety profile
and cures 96% of genotype 1 patients in 12 weeks. Analysts say
that the regimen's only disadvantage is its inconvenience, since
it involves multiple pills per day instead of just one.
But what investors will most look at is the price. It has huge
implications for Gilead, which launched Sovaldi with a price tag
of $1,000 a pill -- or $84,000 for 12 weeks of treatment. As
noted above, the HCV-infected population is far from rich, so
most of the objections to it have come from payers -- that is,
insurers -- and their associates. Pharmacy benefit manager (or
PBM)Express Scripts (ESRX) estimated in its annual Drug Trend
report, issued in April, that spending on HCV treatment will
double this year, then jump 200% in both 2015 and 2016. Consensus
estimates have annual sales of Sovaldi alone passing $11 billion
"Never before has a drug been priced this high to treat a
patient population this large, and the resulting costs will be
unsustainable for our country," Express Scripts Chief Medical
Officer Steve Miller said in a statement at the time.
Express Scripts has made clear that it intends to play
drugmakers against each other, but as ISI Group analyst Mark
Schoenebaum pointed out, "this plan by the PBMs requires that the
drug companies 'play ball.'" AbbVie has been tight-lipped about
its pricing plan, leading to much speculation. Schoenebaum, for
one, believes that it won't price much lower than Gilead but may
offer discounts to hard-to-treat patients, such as those with
advanced liver disease or HIV co-infection.
Bristol-Myers Squibb is also targeting the tough-to-treat
populations, senior vice president Douglas Manion told IBD in
March. Bristol has filed for approval of daclatasvir as a
co-treatment with other drugs, including Sovaldi. It's also
following AbbVie's roadmap by combining daclatasvir with a
protease inhibitor and a non-nucleoside polymerase inhibitor from
its own labs.
Are HCV's Days Numbered?
Which brings us back to Merck's acquisition of Idenix last
month. In April, Merck reported a 98% cure rate after 12 weeks
with its own combo of a protease inhibitor and an NS5a inhibitor.
Idenix, however, brings a rare pair of nucs that haven't (yet)
run into safety trouble. Merck's goal, as stated in its
presentation that day, was to develop a single daily pill that
works across all genotypes in just four to six weeks, which is
significantly faster than what this year's drugs are doing.
Idenix's drugs are still early in development, signaling that
Merck believes the market will remain competitive for some time.
In its presentation, the company said that the total HCV market
should pass $20 billion in 2018, "driven by second-generation,
all-oral, triple-therapy combinations." This claim seemed to
counter some fears on the Street that, because the new HCV drugs
appear able to cure nearly all patients, demand would ultimately
"Consensus thinks HCV sales go bad in 2016 (HCV market
demise), but we have said we believe long-term market is more
sustainable," wrote RBC Capital Markets analyst Michael Yee in a
June 9 note. But markets outside the U.S. present significant
opportunity, Yee said, and Merck's deal suggests rational pricing
for the drugs.
"Thus," Yee said, "we think the (market's) demise is greatly