Battle In Hepatitis C Market: Bristol-Myers Squibb Needs To Speed Up

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The market for Hepatitis C drugs is hot, thanks to Gilead Sciences’ breakthrough drug Sovaldi. The incredible financial incentive is encouraging other players such as Bristol-Myers Squibb (NYSE:BMY), Johnson & Johnson (NYSE:JNJ) and Merck (NYSE:MRK) to invest in R&D operations and grab a share of this growing market. Hepatitis C is a blood-born diseases which affects an estimated 3.2 million people in the U.S., most of who will or have developed chronic infection. [1] The overall market is likely to grow at a rapid pace and we believe that Gilead Sciences will continue to be the leader. However, there could be tough competition for the second spot between Johnson & Johnson’s Olysio and AbbVie’s experimental drug. The advantage that AbbVie has is that it is working on an interferon-free therapy. In case of Johnson & Johnson, interferon-free delivery can only be achieved by a combination of Olysio and Sovaldi, but the company has the advantage of early market entry. Let’s take a look at how the market is shaping up and what this means for Bristol-Myers Squibb in particular, which recently launched its hepatitis C drug Daklinza in Europe and Japan.

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Hepatitis C Therapy Has Made A Quantum Jump, Drawing Significant Interest From Big Companies

In the last few years, the landscape of Hepatitis C treatment has changed drastically due to the introduction of protease inhibitors. These represent a class of drugs which prevent the spread of the virus by binding to viral proteases and blocking proteolytic cleavage of protein precursors which are required for spreading the infection. Protease is an enzyme that breaks down proteins and peptides. However, Gilead sciences made a breakthrough with the introduction of its drug Sovaldi in late 2013. Unlike protease inhibitors, Sovaldi is a nucleotide inhibitor and has a distinct advantage of showing high barrier to resistance development. The rapid development of such resistance during the treatment phase is one of the primary reasons behind therapy failure in Hepatitis C. With the introduction of new drugs such as Sovaldi, the treatment window has reduced from 48 months to 24 months, and efficacy has increased to as high as 99%. This is why these drugs are extremely expensive, and thus present a significant financial incentive for pharmaceutical companies. Johnson & Johnson has launched a similar drug under the name Olysio, and has seen significant uptake following the launch. There is a good reason to invest in R&D as the return is likely to be very high despite lobbying efforts from certain sections opposing the steep pricing.

Gilead Sciences Will Continue To Dominate

As of this moment, Gilead Sciences is the clear leader in the market. The sales of its drug Sovaldi stood at $2.8 billion in the third quarter of 2014, and the full year sales are on track to exceed $11 billion. The company has also launched a combination Hepatitis C drug under the name Harvoni following the monumental success of Sovaldi. The advantage of early market entry and having multiple drugs of same class is likely to help Gilead Sciences maintain its market leadership in the coming years. There is another rationale behind this thrust. Other drug makers including Johson & Johnson and Bristol-Myers Squibb are exploring combination therapies, but the combination that seems to work best for them includes Sovaldi. So even if the sales of these combination drugs rises, Gilead Sciences will benefit.

It must be noted that the launch of Johnson & Johnson’s Olysio has heated up the competition a little bit. While Sovaldi’s sales fell short of expectation in the third quarter, Olysio’s sequential revenue growth also came to a halt. Johnson & Johnson received the approval for its Hepatitis C drug Olysio in the U.S. in November 2013 and in Europe in May 2014. Olysio’s sales doubled sequentially in the second quarter of 2014, amounting to $831 million. The impact of European approval further strengthened the effect. The drug is already a blockbuster as its has reigned in more than $1.98 billion in sales in the first nine months of this year. However, its sales declined in the third quarter. Olysio is far behind Sovaldi in terms of revenues, and will need to significantly lift its performance to cannibalize latter’s sales. Considering that growth trends are similar for both Sovaldi and Olysio, we feel that Gilead Sciences will easily maintain its market leadership.

While Merck is still experimenting, Bristol-Myers Squibb has launched Daklinza in Europe and Japan to compete with Gilead Sciences and Johnson & Johnson. This competition is still in its early stages and fourth quarter results will shed more light on the adoption of the drug.

Bristol-Myers Squibb Will Face Tough Competition

Bristol-Myers Squibb saw a decline of about 7% in revenues from its virology segment (anti-infective drugs) in the first half of 2014. This decline came down slightly to 6.4% in Q3 2014 due to incremental revenues from Hepatitis C franchise (Daklinza and Sunvepra). Out of $49 million in revenues that came from Hepatitis C drugs, $38 million came from Daklinza alone. The company has stated that initial response has been good and the drug’s approval in Europe and Japan is going to be a key contributor to the franchise’s growth going forward.

Daklinza is effective across several genotypes of diseases and has shown cure rates of up to 100% when used in combination with Gilead Sciences’ blockbuster drug Sovaldi. The encouraging data of Daklinza-Sovaldi therapy could influence healthcare providers to go for this combination. Bristol-Myers Squibb could add significant incremental revenues by targeting roughly 9 million HCV  (i.e., Hepatitis C Virus) patients in Europe and 1.2 million patients in Japan. The pricing is likely to remain high considering that the drug helps in reducing treatment window and potentially mitigates patients’ risk of developing liver complications. Liver transplants resulting from these complications can be extremely expensive.

Nevertheless, considering its relatively late market entry and no significant distinguishing feature over Sovaldi, Bristol-Myers Squibb may have a hard time competing effectively against Gilead Sciences. Also, the FDA recently denied the company’s application for approval of Daklinza (daclatasvir) in the U.S., which suggests that at least in the domestic market, Gilead Sciences will continue to rule.

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Notes:
  1. Olysio (simeprevir) Gains Additional FDA Approval as Once-Daily, All-Oral Interferon- and Ribavirin-Free Treatment Option in Combination with Sofosbuvir for Adults with Genotype 1 Chronic Hepatitis C Infection, J&J Press Release, Nov 5 2014 []