About 1 million deaths each year are attributed to viral hepatitis infections. Combined, hepatitis B virus and hepatitis C account for 78% of the liver cancer in the world. More Americans died from hepatitis in the last decade than from HIV, and medical costs for hepatitis C are expected to double over the next 20 years to $85 billion as baby boomers begin to suffer health problems from chronic hepatitis C infections. Hepatitis affects roughly 150 million people around the world. Today's drug market for treatment is estimated at $20 billion, and according to the pharmaceutical industry consulting firm, Decision Resources, the drug market is expected grow to more than $23 billion by 2018. Current treatments, which generally include injections of the drug interferon (and can take up to a year), have a cure rate of 70% to 75%.
Gilead Science Received Chmp Approval For Hepatitis Drug
The demand today is for an oral hepatitis drug therapy that has a higher cure rate and is fast acting-- and the giant biopharmaceutical company, Gilead Sciences (NASDAQ:GILD), appears to have the poll position in bringing a new therapy to market with its experimental hepatitis C drug, Sovaldi (sofosbuvir). On Nov. 22, the Committee for Medicinal Products for Human Use (CHMP), the scientific committee of the European Medicines Agency, has adopted a positive opinion on the company's Marketing Authorization Application sofosbuvir. The CHMP opinion supports the approval of sofosbuvir for the treatment of HCV in combination with other agents, and will now be reviewed by the European Commission, which has the authority to approve medicines for use in the 28 countries of the European Union. The decision was supported primarily by data from four Phase 3 studies, NEUTRINO, FISSION, POSITRON and FUSION in which 12 or 16 weeks of sofosbuvir -based therapy was found to be superior or non-inferior to currently available treatment.
Taken once daily, sofosbuvir in combination with interferon and the antiviral drug ribavirin has shown to cure up to 90% of the test patients with HCV genotype 1 after 12 weeks of therapy, compared to the normal 24 weeks. HCV genotype 1 accounts for 75% of all HCV infections in the United States. In another trial, patients with HCV genotype 2 had a 97% cure rate with 12 weeks of sofosbuvir and ribavirin compared with 78% in those assigned to today's standard treatment of 24 weeks of pegylated interferon and ribavirin.
Additionally, in some cases sofosbuvir (a nucleotide HCV polymerase inhibitor) appears to not require use in combination with interferon. Interferon is the current drug cocktail used in treating hepatitis and has strong side effects like nausea, diarrhea, and other flu like symptoms; plus interferon treatments are not suitable for many patients. In an interferon-free Phase II trial, sofosbuvir showed that in combination with ribavirin it led to sustained response for 93% of patients with genotype 2 hepatitis C that were treated for 12 weeks, and 85% of people with genotype 3 treated for 24 weeks.
Sofosbuvir has been granted a Breakthrough Therapy designation by the U.S. Food and Drug Administration (FDA). Last month the Antiviral Drugs Advisory Committee of the FDA voted that the available data supported approval of sofosbuvir in combination with ribavirin for the treatment of chronic hepatitis C in adult patients with genotype 2 and 3 infection. The same committee also voted unanimously that the available data supported approval of sofosbuvir in combination with pegylated interferon and ribavirin for the treatment of chronic hepatitis C in treatment-naïve adult patients with genotype 1 and 4 infection. While recommendations of the Advisory Committee are not binding, the FDA considers them as the agency completes its review of Gilead's New Drug Application (NDA). A final decision by the FDA on sofosbuvir is expected around December 8th, 2013. If approved, the drug is expected to have annual sales of $6.03 billion by 2016.
Gilead's Solid Pipeline Should Continue To Grow The Company
With a strong pipeline of drugs treating HIV/AIDS, liver disease, cardiovascular, and respiratory diseases already on the market, and with roughly thirty indications in various phases of testing (including two in regulatory submission and five in Phase III trials), the $106.8 billion biopharmaceutical company has great upside potential. On October 29th Gilead released its third-quarter earnings. Revenue was up 15% to $2.78 billion, and profits rose 17% on higher sales of its best-selling HIV drugs. Net income came in at $788.6 million, compared to $675.5 million in the third quarter of 2012. The company also raised its sales estimates from $10.0 - $10.2 billion for the year to $10.3 - $10.4 billion.
Gilead stock closed on Wednesday, November 20th at $71.08 per share. On Friday Nov. 22th UBS AG in a research note raised its price target from $96 per share to $107.00 indicating a potential upside of 49.38% from the company's current price. While Gilead shares have almost doubled this year, this stock has plenty of room for upward movement given its product line and pipeline-- though it will find stiff competition on its new hepatitis drug from other drug makers.
Abbvie's Hepatitis Drug Competing Against Gilead
AbbVie Inc. (NYSE:ABBV) appears to be the drug maker that has the best chance of battling Gilead for the future top hepatitis drug as its drug combination has tested well and does not require use with interferon. The company announced that its Sapphire-I trial, the first of six late stage trials testing its interferon free hepatitis C treatments, showed roughly 96% of patients had no detectable levels of the virus after 12 weeks using a combination of drugs ABT-450, ABT-333, and ABT-267. AbbVie is also conducting a dedicated study in cirrhotic patients-- the hardest to treat patients with liver that is scarred. These patients fare poorly as cirrhosis is considered the final stage of chronic liver disease; AbbVie's treatment represents a possible cure even for hard-to-treat patients.
While analysts see Gilead's sofosbuvir one pill once a day treatment as less cumbersome for patients compared to AbbVie's three different medicines taken daily, AbbVie is quite confident that its treatment works better than sofosbuvir. The company also proclaims that history has shown, using HIV sufferers as an example, it was worth the extra effort for a successful but complicated medicine regimen. The FDA has given AbbVie's antiviral treatment, both alone and taken in combination with ribavirin, as a new Breakthrough Therapy, meaning the therapy should receive a swift review and possibly a shortened clinical trial process ahead of a regulatory decision.
Gilead's sofosbuvir will be the first to receive a decision from the FDA. AbbVie will then be playing catch-up if its therapy is approved, which is usually not an easy task. But second place in treating hepatitis would still be worth billions. With a drug cocktail that does not require interferon injections, the drug could make up grounds given the number of patients and their physicians that would be eager to try an interferon-free treatment. If approved sales projections for AbbVie's drug are estimated to be around $3 billion annually, though I see the estimate to be on the low side given that treatment can be interferon-free.
AbbVie is in partners with the much smaller research and development biotechnology company, Enanta Pharmaceuticals Inc. (NASDAQ:ENTA), as both companies developed ABT-450. Enanta went public in March, and while not a high flyer as of yet (up 5% YTD), look for the stock to rise significantly if AbbVie's hepatitis drug therapy gains approval, as the company will receive milestone payments and sales profits, while not having been burdened with the costs to develop or future costs to sell the drug.
AbbVie, which completed a spin-off of Abbott Laboratories (NYSE:ABT) in January, has seen its stock rise 44% YTD, and has a market cap of $77 billion. The stock closed on Wednesday, November 20th at $47.95 per share. In late October analysts at Argus increased their price target on shares from $52.00 to $59.00, while earlier in the month both analysts at BMO Capital Markets and at Jefferies Group reiterated a "buy" rating on shares with a price target of $55.00.
While I like the stock, there are some future concerns about AbbVie being able to maintain its revenue stream. The company is in need of another blockbuster drug, as its anti TNF inhibitor rheumatoid arthritis drug, Humira, will be facing a patent expiry in a few years. Humira is the top selling drug: last year it generated sales of $9.3 billion and is expected to reach $10.7 billion this year. AbbVie has a lot riding on the success of its new hepatitis drug as sales could offset roughly 1/3 of the loss once Humira loses its exclusivity.
There is no doubt that a better treatment for hepatitis C will create a blockbuster drug, which is why I believe that both companies have the potential to add billions in yearly revenue with the new treatments. While I like both companies, Gilead appears to be the better bet of the two. It will probably see its drug hit the market first; plus Gilead is not as top heavy in one drug as AbbVie is with Humira. However, while Gilead and AbbVie slug it out for dominance in the new hepatitis drug market, Enanta shares have the potential to win big due to milestone and royalty payments-- especially if ABT-450 becomes a blockbuster, as Enanta doesn't have any costs associated with the developing or selling of the drug.
Disclosure: I am long GILD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.