It isn't surprising to see that the European Commission has given Bristol-Myers Squibb (NYSE:BMY) the go-ahead for daclatasvir, Bristol's promising new hepatitis C treatment. Europe had already shown its willingness to support the use of daclatasvir, which will be sold under the brand name Daklinza, when it gave the OK for its compassionate use program last fall.

Now that Daklinza has the official go-ahead, sales should head markedly higher. If so, Daklinza poses a threat to Johnson & Johnson's (NYSE:JNJ) Olysio, a drug that has become increasingly prescribed as a companion drug alongside Gilead's (NASDAQ:GILD) top-selling hepatitis C drug Sovaldi.

Source: Bristol-Myers Squibb Flickr.

Improving outcomes
Daklinza offers new hope for hepatitis C patients given its success as an adjunct treatment to Sovaldi. During mid-stage trials, combining Daklinza and Sovaldi cleared the virus in as many as 100% of patients, depending on the disease genotype, and succeeded in treating patients who had previously failed on Sovaldi alone. Overall, 99% of previously untreated genotype 1 patients achieved a functional cure after 12 weeks of treatment.

While those phase 2 trial results are impressive, Gilead opted against conducting a phase 3 study in order to focus on a combination therapy of its own two drugs: Sovaldi with ledipasvir.

Source: Gilead Sciences

Elbowing for scripts
The Holy Grail for hepatitis C drugmakers is an all-oral treatment regimen that casts aside side-affect laden prior-generation treatments ribavirin and peg-interferon. Although Sovaldi is an oral tablet that won approval last December, the medicine was only approved for use without interferon for genotype 2 and 3 hepatitis c. That meant that ribavirin still needed to be dosed alongside Sovaldi in all patients, and peg-interferon for genotypes 1 and 4. That requirement created a hurdle for doctors, given that many patients are either ineligible or unwilling to receive peg-interferon as part of their treatment.

In order to treat those patients, doctors have increasingly embraced prescribing Johnson & Johnson's Olysio, another oral hepatitis C drug that won regulatory approval in the fourth quarter, alongside Sovaldi. Despite Olysio underperforming Sovaldi versus prior generation therapies, in mid-stage trials the combo of Olysio and Sovaldi cleared hepatitis C in 93% of patients.

As a result, Olysio has been a far bigger success than many initially thought it would be. Johnson & Johnson notched $350 million in Olysio sales during the first quarter -- its first quarter on the market -- and an impressive $830 million in sales during the second quarter.

But even Johnson & Johnson recognizes that Olysio's success may be short-lived as new therapies like Daklinza make their way to market, enabling patients to move to an all-oral regimen without use of Olysio. Johnson & Johnson's CFO, Dominic Caruso, said on the company's second-quarter earnings conference call:

As you know we are anticipating that Olysio will face significant competition from new hepatitis C products later in the year, the full impact of which is difficult for us to predict at this point. And while we're not providing guidance for 2015, this will certainly pose a headwind next year.

Fool-worthy final thoughts
Heading into the end of the second quarter, Gilead reported that it was seeing signs that doctors were warehousing patients ahead of a wave of new treatments, including Daklinza and Gilead's own Sovaldi and ledipasvir combination. "We are seeing signs that physicians have begun delaying treatment for some patients also known as warehousing in anticipation of the approval of the single-tablet regimen of the differences across the derivatives," said Gilead's EVP Paul Carter on the company's second-quarter earnings conference call.

Gilead's second-generation Sovaldi treatment will likely allow it to continue to be the market-share leader in the multi-billion dollar market, but that doesn't mean there won't be room for Bristol-Myers' Daklinza. This is especially true in overseas markets like Japan and Europe, where Daklinza will have a longer, first-to-market advantage over Gilead's upcoming two-drug medicine.