Do Merck’s Recent Hepatits C Trial Results Weaken Its Position?

Merck (NYSE:MRK) recently released some data from clinical trials of a triple-pill regimen for the treatment of treatment-naive group of cirrhotic patients. Cirrhotic patients refer to individuals with significant liver scarring, or the replacement of normal tissue with fibrous tissue and the loss of functional liver cells, caused by diseases such as Hepatitis C. The combination included a mix of Merck’s Grazoprevir/Elbasvir (MK-5172/MK-8742, MK-5172A)  along with Gilead Science’s Sovaldi. The therapy achieved a cure rate of more than 94% for 8-week therapy, but fell short of satisfactory cure rates in case of 6-week and 4-week therapy. In fact, only 38.7% of the patients showed no signs of the virus after 4-week treatment. ((Merck four-week hep C regimen with Gilead’s Sovaldi comes up short, Reuters, Nov 10 2014) Thus, Merck’s attempt to gain a competitive advantage over current market leaders fell well short of its target. The company is likely to drop Sovaldi and focus on its own drugs now. This move has shown that Gilead Sciences is still the clear leader when it comes to Hepatitis C market and Merck has yet to launch a competitive drug. The company’s current Hepatitis drugs such as Victrelis and Pegintron are witnessing a decline in their sales due to increased competition.

Our price estimate for Merck stands at $55.75, implying a slight discount to the market.

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Merck’s acquisition of Idenix, completed last August,  has given it the necessary expertise to compete in this lucrative market. A blockbuster Hepatitis C drug can help it stem the revenue decline resulting from patent expiry of major drugs. The company has been conducting phase 3 trials for a combination treatment for Hepatitis C, which could potentially rejuvenate the pharmaceutical giant’s revenue growth. The clinical data for a combination of drugs MK-5172 and MK-8742 has shown high cure rates among patients with genotype 1 of the disease. However , the race is primarily on shortening the treatment window. Merck had mentioned that the acquisition of Idenix could be a game changer considering the possibility that a combination treatment leveraging Idenix’s drugs could potentially reduce the treatment window to four to six weeks. However, recent results have shown that the likelihood of this happening is not very high.

Gilead Sciences is currently the market leader in Hepatits C treatment, and is on its way to make a fortune selling its breakthrough drug Sovaldi. The drug’s sales for the first nine months of 2014 stood at $8.55 billion and will most likely reach around $11 billion for the whole year.

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