I own shares in Gilead Sciences (NASDAQ:GILD), so it pains me to say this, but I think that Gilead Sciences' abysmal hepatitis C sales in the first quarter might not be as bad as it gets for the company. Why? Competition from AbbVie (NYSE:ABBV) is about to heat up, and that could cause Gilead Sciences to lose market share or cut (yet again) prices on its hepatitis C drugs.
What's at stake
Gilead Sciences' hepatitis C drugs hauled in revenue at a $20 billion annual clip two years ago, but the launch of alternative treatments with similar functional cure rates forced the drugmaker to compete on price to maintain market share, and that caused sales to nosedive.
In the first quarter, combined sales across its three hepatitis C drugs (Sovaldi, Harvoni, and Epclusa) were $2.6 billion, and that was far shy of the $4.3 billion reported in the same period in 2016.
In the U.S., HCV sales fell 18% from last year because of "increased competition." European HCV revenues fell 42% year over year and 22% sequentially because of "lower market share as a result of increased competition.. And, in Japan, HCV product sales were down 81% year over year and 35% sequentially "due to a decrease in patient starts and increased competition."
Those declines could have been worse if not for innovation that's given Gilead Sciences' HCV lineup an edge over other treatments. In particular, about 40% of genotype 1 HCV patients can take Harvoni over only eight weeks, rather than 12 weeks, and that lower burden is a plus for payers and patients alike. Epclusa's launch has also supported market share by improving cure rates and treatment burden for genotype 3 patients, which is historically tougher to treat.
Furthermore, Gilead Sciences' market share has been helped by some drawbacks of its competitors. AbbVie's Viekira Pak has had some success carving away sales in genotype 1, but it poses a much heavier pill burden on patients, and it often requires the co-administration of ribavirin, which can cause side effects. Merck & Co's (NYSE:MRK) genotype 1 drug, Zepatier, has testing requirements that Harvoni doesn't, and that's given Gilead Sciences an edge there, too.
Unfortunately, the competitive advantages that Gilead Sciences' drugs have over their competition are fading as research and development programs allow these companies to advance better products toward the market.
Mounting a challenge
The closest of this new generation of HCV competitors is AbbVie's glecaprevir/pibrentasvir (G/P). The Food and Drug Administration accepted AbbVie's New Drug Application for G/P last quarter, and it granted that application a priority review that clears the way for a decision soon. European regulators are also reviewing G/P under their accelerated assessment pathway, and Japan's regulators have granted G/P a priority review, too.
It's not a lock that regulators give G/P a green light, but its efficacy in trials was very good, and that has AbbVie laying the groundwork for a launch this year.
In trials, 99% of patients with genotype 1, 2, 4, 5, or 6 achieved a sustained virologic response (SVR) at 12 weeks following treatment with G/P. A second study showed that 95% of genotype 3 patients without cirrhosis who took G/P for eight weeks also hit that SVR12 mark.
What is particularly concerning to Gilead Sciences investors, however, is that not only was there strong efficacy in the genotype 3 patients on an eight-week treatment course, but eight-week duration was effective in other genotypes as well. In November, AbbVie reported that taking G/P for 8 weeks delivered a 97.5% SVR12 rate in genotype 1 to 6 patients.
These trial results suggest that if G/P wins a regulatory OK, it could become the shortest-duration pan-genotype therapy on the market.
The addressable HCV market is declining thanks to these functional cures, but that means a smaller pie for Gilead Sciences, AbbVie, and Merck & Co to split. Assuming AbbVie gets a go-ahead for G/P, aggressive pricing could make it the preferential treatment in insurance formularies, clearing the way for another wave of battling over price. Given G/P is taken once daily, it doesn't have the pill burden drawback that held back Viekira Pak, and G/P's top-shelf efficacy suggests it may be the toughest competition to Gilead Sciences yet.