"Best-case scenario, the decision was because the FDA gave Bristol-Myers Squibb (NYSE:BMY) an indication that the data from clinical trials testing Daklinza combined with Sovaldi -- curing up to 100% of patients in some trials -- will be on Daklinza's label." -- Me, a month ago after Bristol-Myers decided to pull its FDA application for a combination of Daklinza (daclatasvir) and Sunvepra (asunaprevir).

Or not.

Bristol-Myers announced Wednesday that the Food and Drug Administration rejected its application to market its hepatitis C drug daclatasvir on its own. There was apparently too much data on the combination with asunaprevir, which has been withdrawn from consideration, and not enough data on the effectiveness of combining daclatasvir with other hepatitis C drugs.

Daklinzasovaldi

Source: Bristol-Myers Squibb.

Daclatasvir isn't powerful enough to be used on its own -- none of the hepatitis C drugs are -- so it will have to be used as part of a cocktail of drugs. Bristol-Myers has data showing that it works well in combination with Gilead Sciences' (NASDAQ:GILD) Sovladi, but the clinical trial only enrolled 211 adults and only 126 of them were infected with genotype 1 virus, the most common strain of virus in the U.S. The combination cured 99% of those genotype 1 patients, so it might even be stronger than Gilead's Harvoni, which cured 96% of genotype 1 patients in its pivotal trial, although the difference probably isn't statistically significant.

The combination data with Sovladi was good enough to get daclatasvir approved by EU regulators, but apparently not enough for the FDA. Getting denied isn't the worst thing in the world. It was going to be an uphill battle for Bristol-Myers to market daclatasvir if it was approved. Harvoni has the convenience of just one pill a day compared two pills for Sovladi plus daclatasvir.

And to undercut Harvoni, Bristol-Myers would have to price daclatasvir really cheap. The wholesale price of Harvoni is only $10,500 more than Sovaldi, so Bristol-Myers couldn't charge any more than that and expect insurers to pay for it. While $10,500 is better than nothing, it's a pittance compared to Sovaldi's $84,000 price tag.

New strategy
Rather than go after the bulk of the population infected with hepatitis C, Bristol-Myers new plan for the daclatasvir-Sovladi combination is to focus on specialized populations. It's testing daclatasvir in combination with Sovaldi in a phase 3 trial of sicker patients that are about to or have already undergone a liver transplant and another phase 3 trial with hepatitis C patients that are also infected with HIV.

If the daclatasvir-Sovaldi combination works well in those populations, insurers might be willing to pay a premium to rid the harder-to-treat patients of their virus, especially since they're a smaller population.

Bristol-Myers isn't giving up on the larger population though. It has a triple-drug cocktail that includes daclatasvir, asunaprevir, and a third drug called beclabuvir, which used to go by the moniker BMS-791325. The company is running multiple phase 3 clinical trials, but the one that includes symptomless patients that haven't been previously treated is scheduled to be completed this month.

If one or more of those triple-drug cocktails are successful, Bristol-Myers could be back in the game, although it still might have to undercut Gilead's price since Harvoni can be taken for as little as 8 weeks, but Bristol-Myers is testing its cocktail for 12 weeks.

Brian Orelli has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences and owns shares of the biotech. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.