The ability to position its latest Food and Drug Administration-approved drug so that it doesn't steal away market share from its existing therapies is critical to Gilead Sciences (NASDAQ:GILD) delivering sales growth this year. Can Gilead Sciences' Epclusa reshape hepatitis C treatment without derailing sales already being generated by Gilead's top sellers, Sovaldi and Harvoni?
In this clip from The Motley Fool's Industry Focus: Healthcare podcast, contributor Todd Campbell joins analyst Kristine Harjes to discuss the opportunities and risks associated with Epclusa's approval.
A transcript follows the video.
This podcast was recorded on July 1, 2016.
Kristine Harjes: On Tuesday of this week, but last week by the time you're listening to this, Gilead received approval of a really interesting new hepatitis C drug.
Todd Campbell: This was not unexpected. I mean, everybody pretty much had said, "The FDA is going to approve this drug."
Harjes: The stock was still up 4%, surprisingly.
Campbell: Which is funny, right? I mean, I guess everybody knew the decision was coming on June 28th, everybody expected the FDA to say, "Yep, we'll approve it." Essentially, what we're talking about here, listeners, is a drug... How do we want to refer to this one, Kristine? Is it...
Campbell: I haven't looked it up to see how to...
Harjes: I wish that there were a simple website that pronounced drug names for you. I'm going to go with Epclusa.
Campbell: OK, so let's maybe get on it, but let's call it Epclusa.
Harjes: Yeah, if anyone knows a resource where I can just watch a video of somebody saying all these drug names, please, send it my way, IndustryFocus@fool.com.
Campbell: We'll go with Epclusa for now. What we're talking about is the first pan-genotype hepatitis C therapy that's been approved by the FDA.
Harjes: What is genotype? Why is that important?
Campbell: There are several different types of hepatitis C. Each one is treated a little bit differently. Some are easier to treat, some are more difficult to treat. The six genotypes, the most common is genotype 1. That's where these companies, AbbVie (NYSE: ABBV), Gilead, Bristol-Myers (NYSE: BMY), and now Merck (NYSE: MRK), compete most heavily for market share and treating the genotype 1 basket. That represents about 70% of the 2 million or so people in the United States that have hepatitis C. Epclusa is the first drug of this new class of drugs that have hit the market in the last three years -- that is, approved to be used in any genotype, 1 through 6. That's pretty intriguing, because it could have some very big impacts on how market share shapes up for the various participants over the course of next year.
Harjes: Absolutely, and the company does seem to be positioning this drug specifically in genotypes 2 and 3, which while not as common as genotype 1, are still pretty prevalent. Genotype 2 is about 15%-20% of hepatitis C patients, and genotype 3 is about 10%-12%, so if it can dominate those markets, that's pretty big.
Campbell: One of the biggest questions that was facing management leading up to the approval of this drug was simply, "Well, how are you going to position this drug in the marketplace so it doesn't steal all of the $19 billion in revenue that you're already generative via Sovaldi and Harvoni? How are you going to launch this drug, and not just all the market share that was going to Sovaldi and Harvoni ends up in this drug, and you get nowhere?"
Harjes: Yeah, cannibalization is not helpful at all, especially when the price points are very similar.
Campbell: Right, and you've got a situation where you're plateauing, too, in sales, last quarter, first quarter. Sales actually dipped a little bit for Gilead Sciences in the indication, because competition has gotten a little bit more fierce and pricing has gotten a little bit more competitive. The big question was: "How are you going to position this not to cannibalize?" The way that they've decided to do that is to focus on genotype 2 and genotype 3, which are historically two of the more difficult genotypes to treat. Right now, you usually have to treat with Sovaldi, plus something like Ribavirin, or plus Bristol-Myers' Daklinza. These are not as easily cured, say as genotype 1. Harvoni isn't approved for use in these, so if you position Epclusa to genotype 2 and 3, well, then you've got an opportunity to not cannibalize your own drug, but instead, to cannibalize Bristol-Myers'.
Harjes: An important point to add there, when you're looking at these cocktails of different drugs, are that each have their own prices, so you have to add together the price of drug A, B, and C, if you're taking three drugs to treat your disease, so then, if you look over at Epclusa, which doesn't need, say, a Ribavirin, that could actually make it the cheaper option, even though the list price, when you first look at it, which is $74,500 for a 12-week treatment, it actually could be the cheaper option, and pricing is huge in the hepatitis C market. That is what these companies are competing on, because the drugs are all very effective.
Campbell: Right, and you have to remember, too, the more drugs that you include in a combination therapy, the more risk there are of side effects that may result in a patient discontinuing treatment prior to completing the course, so you could have adherence problems, and as a result, these combination therapies become less efficacious than, say, one pill taken a day everyday for 12 weeks.
Harjes: Absolutely. That is...
Campbell: That increases the cost, if you have to go back and you have to treat these patients again, right? I think that Gilead's looking at it and saying, "OK, Bristol-Myers is bringing in about $1.6 billion from its hepatitis C drugs, a lot of that is probably coming from them being prescribed alongside Sovaldi in genotype 2 and 3 patients, maybe we can capture $1 billion of additional sales by targeting that indication."
Harjes: This is another win for a company that has been very, very successful.