The patent cliff might have decimated revenues in the world of Big Pharma, but it has also led to an unprecedented level of innovation within the industry. In the coming years, for example, we should see four to five new types of drugs that are truly game changing when it comes to modifying or curing a disease.
Source: Gilead Sciences.
The next generation of so-called "terminator" hepatitis C treatments now hitting the market are the first in this revolutionary wave of revolutionary new drugs. Gilead Sciences (NASDAQ:GILD) has gained the early advantage in the race to capture market share with its breakthrough drug Sovaldi. Through the first three quarters of this year, Sovaldi has already generated a whopping $8.5 billion in sales. With its once-daily, fixed-combo pill Harvoni gaining FDA approval last month, Gilead looks like it will continue to dominate this huge market, which is estimated at 3 million to 4 million patients in the U.S. alone.
In fact, Harvoni's impressive functional cure rate of 99% in select patient types, and its eight-week (rather than 12-week) treatment regimen in about 40% of patients, led Bristol-Myers Squibb (NYSE:BMY) to pull its new drug application for its dual-regimen therapy in the U.S. last month. Harvoni is also expected to almost completely displace Johnson & Johnson's (NYSE:JNJ) relatively new hepatitis C offering, Olysio, from the market. Olysio will simply no longer be needed to boost cure rates, and the co-prescription of Sovaldi costs substantially more than Harvoni.
AbbVie believes it can challenge Harvoni's dominance
Not all Big Pharma companies, though, are conceding defeat in the hepatitis C game. AbbVie (NYSE:ABBV) is on track before year's end to gain regulatory approval for its triple-combo therapy, co-developed with Enanta Pharmaceuticals (NASDAQ:ENTA), putting it on track to clash with Harvoni in the first quarter of 2015.
The accepted wisdom, based on current estimates on the Street, is that AbbVie's offering will be lucky to gain a 20% market share in light of Harvoni's head start, ease of use, and stellar clinical profile. Based on the early returns of Sovaldi and Olysio, this minor share would still put AbbVie's drug on track to post roughly $3 billion in annual sales. While megablockbuster numbers are nothing to sneeze at, AbbVie's management appears to believe it can make a serious dent in the hepatitis C market that will surprise onlookers. And there is good reason to AbbVie is correct.
Harvoni's "competitive advantages" might not hold up in the real world
Gilead's Harvoni appears to have two clear competitive advantages over AbbVie's triple therapy: fewer pills to take, and shorter treatment durations (eight weeks) in an estimated 40% of patient types.
AbbVie executives argued during their third-quarter conference call that these two theoretical advantages could have little effect on real world commercial performance. Regarding the lower pill burden offered by Harvoni, AbbVie cited clinical trial data showing an impressive 88% adherence rate for the company's triple therapy that required patients to take two pills in the morning and one at night. Put simply, three pills doesn't appear to be much of a burden, and ease of use won't be a huge factor when it comes to formulary decisions (i.e., preferred reimbursement schemes).
Regarding the shorter treatment duration for some patients, most payers are only allowing the sickest patients to receive these new treatments due to the exorbitant cost. This could mean most patients will still receive the full 12-week regimen.
Pricing might rule the day
The real battle for market share might come down to pricing. Harvoni is priced at $1,125 a pill, or $94,500 for a 12-week course of treatment. According to the chief medical officer for pharmacy benefit manager Express Scripts (NASDAQ:ESRX), Dr. Steven Miller, public programs such as Medicaid can't financially cover even $63,000 for a course of treatment.
Express Scripts has said publicly it would consider giving AbbVie's therapy preference on the formulary if it significantly undercuts Harvoni's price. AbbVie hasn't responded to this plea, instead maintaining radio silence about pricing.
AbbVie's marketing expertise shouldn't be overlooked
AbbVie has a long track record via lead drug Humira in defying the naysayers. Humira's sales were supposed to fall as new competitors hit the market, but instead the drug has expanded its market share in a big way. The point is this: AbbVie's new hep C therapy might also surprise the Street due the company's know-how when it comes to capturing and growing market share for key drugs, making this a biotech worth watching.