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The race

One analyst called the race to develop an all-oral drug for hepatitis C a biotech version of the Daytona 500.

The medical advances in hep C have been dizzying this year, and considering the size of the market, this has multi-billion dollar business implications. There's plenty of good news for patients this year, and for shareholders too, provided that they are betting on the right companies.

There are at least four categories of hepatitis C antivirals.

Protease inhibitors are the current standard of care, like Vertex's (VRTX) drug Incivek and Merck's (MRK) Victrelis. The therapy requires ribavirin and an injection of interferon, an immune-boosting protein that can cause flu-like side effects for as long as 48 weeks.

In development there are "nucs" or nucleotide polymerase inhibitors like Gilead's (GILD) sofosbuvir.

Non-nucs or non-nucleotide polymerase inhibitors in the works are from Abbott Laboratories (ABT), Vertex, and Roche.

And Bristol-Myers Squibb (BMY) is betting on another kind of compound, an NS5A inhibitor, daclatasvir.

Hep 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 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 infecting 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.

Currently, unless a patient's hep C has made him sick, doctors might keep him on the sidelines in anticipation of the all-oral therapies hitting the market in 2014.

Gilead

Gilead Sciences appears to be leading the race.

Sofosbuvir, which the company has acquired in 2012 in the famous $11 billion acquisition of Pharmasset, has proved itself in four completed Phase 3 studies.

In the first study Positron, evaluating sofosbuvir and ribavirin in genotype 2 and 3 infected patients, the overall SVR (sustained virologic response) was 78 percent at week 12.

Sustained virologic response is the goal in hep C treatment, it means that the virus is down to undetectable levels in the blood.

Fission compared 12 week courses of sofosbuvir and ribavirin in genotype 2 and 3 infected and new-to-treatment patients to a 20 weeks standard of care regimen of pegylated interferon plus ribavirin. The SVR at week 12 for the sofosbuvir ribavirin arm was 67% compared to 67% in the controlled arm.

The other study, Neutrino evaluated a 12 week course of sofosbuvir, ribavirin, and peginterferon in previously untreated genotype 1, 4, 5, and 6 infected patients. In this study, 90% of patients achieved an SVR at week 12.

The fourth Phase 3 study, Fusion, tested Gilead's sofosbuvir, in combination with ribavirin, in patients with genotype 2 or 3 of the virus who did not respond to prior treatments.

The study showed that half of the patients in the 12-week arm and 73 percent in the 16-week arm could suppress the virus. The main goal was for the virus to be undetectable in more than 25 percent of the study patients.

"With positive results from all four Phase 3 trials now in hand, Gilead is on track to meet its goal of filing regulatory applications in the United States and Europe in the second quarter," Gilead's Chief Scientific Officer Norbert Bischofberger said.

Gilead is also developing a fixed dose combination (FDC) of sofosbuvir and the NS5A inhibitor ledipasvir, previously known as GS-5885. This once daily pill is developed as an all oral interferon-free regimen for genotype 1 infected patients.

The first Phase 3 study evaluating ledipasvir with and without ribavirin was initiated last November. In early 2013 a second Phase 3 study was started in genotype 1 treatment experienced patients. This study would support regulatory filings in the first half of 2014.

Confident in approval, Gilead is getting ready for the launch of sofosbuvir in the first quarter of 2014 in the US and the second quarter in Europe, by preparing sales teams and arranging training opportunities for physicians.

Gilead is especially active promoting its image in Japan as a hep C specialist since the country is a hotbed of liver disease: Japan has the highest rate of liver cancer of any industrialized country in the world.

Combos

The major challenge to development of an all-oral, interferon-free treatment for hep C is drug resistance.

Hep C circulates as a mixture of viruses with various sequences. It has been estimated that pre-existing drug resistance variants with one, two, three and even four mutations may be present in most hep C-infected patients and account for the rapid development of drug resistance on exposure to direct-acting antiviral drugs ((DAAs)).

For a successful interferon-free treatment maybe necessary to use several DAAs concurrently, and each of these should have potent antiviral activity, possess nonoverlapping resistance profiles, and have limited or manageable drug interactions and minimal adverse effects.

It means that there may be room in the market for a range of combos, which would explain the presence of so many combo studies going on at the same time.

Medivir has posted stellar interim data from its Phase 2a study of its hep C treatment simeprevir (TMC435) combined with Gilead's sofosbuvir. Medivir is a Swedish company working in partnership with Johnson & Johnson (JNJ) on this project. The combo therapy cleared the virus in 100% of genotype 1 patients.

Vertex is also testing an experimental drug, VX-135 in combination with Simeprevir.

While Gilead is unlikely to pursue a partnership with Medivir and J&J since the company is developing a combination of its own therapies, doctors may prescribe the pair off-label, provided the price is reasonable and payers are willing to pay for it.

Competition

Gilead, Medivir and J&J are competing with Abbott Laboratories, Bristol-Myers Squibb Co., Merck & Co. and Vertex in developing a new generation of oral hep C treatments.

Abbott's HCV portfolio includes experimental medicines with three different mechanisms of action.
The phase 3 program, which is currently open for enrollment, will include more than 2,000 patients with HCV genotype 1, with trial sites in 29 countries. The compounds in the studies include ABT-450/r (protease inhibitor and ritonavir), ABT-267 (NS5A inhibitor) and ABT-333 (non-nucleoside polymerase inhibitor).

Investor's summary

The fourth quarter of 2012 was the first full quarter of Stribild sales.

Cumulative prescriptions of Stribild are running approximately 90% higher than Complera at a similar point in its launch; particularly active prescribers are infectious disease physicians with large clinical workloads many of whom were involved in the Phase 3 studies of Stribild.

Stribild is a complete once-daily single tablet regimen for HIV-1 infection for adults who have not been treated before. It was called the "Quad pill" prior to the approval, and it combines four compounds in one daily tablet: Gilead's existing HIV drug Truvada, which contains the ingredients emtricitabine and tenofovir, and two new ingredients, elvitegravir and cobicistat.

All elements of Stribild are Gilead-owned, as opposed to Complera which is a combination of Gilead's Truvada and Johnson & Johnson's Edurant.

Payor acceptance of Stribild has been excellent, beyond that of Complera at a similar timepoint. All state Medicaid plans and all AIDS drug assistance programs now have Stribild on formulary, and most Managed Care Organizations now cover Stribild at the same level as Gilead's other HIV drugs, with little or no restrictions.

The patient profile emerging for Stribild is somewhat different from Complera; more new, previously untreated patients are using Stribild.

Gilead's sales for 2012 totaled $9.4 billion, a growth of 16% over 2011.

Sales in the U.S. were especially strong in the fourth quarter, exceeding $1.5 billion for the first time, up 22 percent over the fourth quarter of 2011. U.S. antiviral sales posted a robust 20 percent increase over the same quarter a year ago, but particularly notable increases of 31 percent was seen in the cardiopulmonary business.

During 2012, Gilead has generated operating cash flows of $3.2 billion, which includes $533 million in cash collections from Southern Europe for the payment of past due accounts receivables.

For the year 2013, Gilead is projecting sales of $10 billion to $10.2 billion reflecting a 6 to 9 percent increase over 2012.

This figure is supported by the continued growth of Complera and Stribild in the U.S. and Europe, as well as the continued growth of the cardiovascular drugs.

Gross margin for 2013 is expected to be in the range of 74 to 76 percent and the earnings per share in the range of $0.21 to $0.24.

The stock price in the past 52 weeks ranged from $22.67 - $46.37.

Gilead has completed 2012 with strong financial performance, achieving a number of new commercial milestones. For 2013, the company projects the same as the worldwide need for its portfolio of specialty medicines is as great as ever.

Gilead Sciences is a determined company and it has an excellent record in combining different treatments into single pills. Gilead has a good chance of winning or at least finishing in the lead group in the hepatitis C race.

Source: Gilead And Its Competitors In The Hepatitis C Race