Ladies and gentlemen, for the third time in less than four years we've witnessed the fastest growing drug in the world get unseated.
A walk down memory lane
As a refresher, in May 2011, the Food and Drug Administration approved a revolutionary new pill from Vertex Pharmaceuticals (NASDAQ:VRTX) known as Incivek to treat hepatitis C. The previous standard of care for HCV, a disease that affects an estimated 3.2 million people in the U.S. and 180 million worldwide and which can lead to a number of serious liver complications and death over the long term, had been a combination of interferon and ribavirin. This combo was effective in curing the disease around half the time, but both therapies have a handful of unpleasant side effects. Interferon can cause flu-like symptoms in patients, while ribavirin can lead to rashes.
Incivek was a pill that still needed to be administered with interferon and a ribavirin, but it improved the sustained virologic response, or the point at which HCV disease is undetectable, to 78%. Not surprisingly, sales of Incivek took roughly six months to reach $1 billion in cumulative sales following launch, which at the time was the quickest launch ever.
Sovaldi was approved by the FDA in Dec. 2013, and it was a true step forward in quality of care and disease cure rate. Although Gilead's once-daily pill still required interferon for genotype 1 patients, it could be administered without interferon to the lesser common genotype 2 and 3 HCV patients. Furthermore, it improved a majority of HCV subtypes to an SVR of 90% or higher. In short, it was a genuine breakthrough medication, and it absolutely stomped Incivek's launch into oblivion. By the end of its first full quarter Sovaldi sales reached $2.27 billion, implying it took just a matter of weeks to hit the $1 billion sales mark.
There's a new sheriff in town
But there's a new drug that's unseated even Sovaldi's incredible launch. The great news for Gilead Sciences is that drug is also within its pipeline: Harvoni.
In case you're noticing a trend here, Harvoni is also a hepatitis C therapy that's a cocktail drug combining Sovaldi and ledipasvir. It's a major improvement for HCV genotype 1 patients because it's a once-daily pill that can be administered without the need for interferon or ribavirin. That means minimal side effects and incredible convenience for HCV-1 patients. Additionally, Harvoni delivered SVR rates of 90% or higher in clinical studies. Lastly, it offers treatment-naïve patients without liver cirrhosis the possible benefit of taking the drug for only eight weeks instead of the traditional 12.
Following Gilead's fourth-quarter results we learned that Harvoni produced $2.11 billion in revenue. You might be scratching your head and wondering, "Wait, you said Harvoni eclipsed Sovaldi in its sales launch! How is it that Sovaldi had $2.27 billion in sales in Q1 2014 and Harvoni had just $2.11 billion in Q4 2014?" The answer is simple: Sovaldi launched just prior to Jan. 2014, thus getting a full quarter under its belt by the time earnings were released, while Harvoni wasn't approved until Oct. 10. Thus, Harvoni missed about two weeks of sales time in Q4, and would have easily surpassed Sovaldi's first full-quarter sale rate if on an even playing field.
Approximately three months post-approval, Sovaldi prescriptions were a hair over the 6,500 mark on a per-week basis. It took close to five months for Sovaldi prescriptions to hit 8,000 in a week.
By comparison, it took Harvoni less than three months post-launch to rack up more than 7,000 prescriptions written per week. For the week beginning Jan. 23, Harvoni scripts topped 7,800! Based on Harvoni's rapid ramp up to nearly 8,000 scripts a week and its higher price point, if it had these additional days added in, its sales could easily have surpassed $2.5 billion for the quarter, in my opinion.
Whether Harvoni can keep that pace with new competition on the horizon, however, is the great mystery.
Gilead gets some competition
As you may know, Gilead Sciences is not the only show in town when it comes to treating HCV.
In December, the FDA approved AbbVie's (NYSE:ABBV) drug combo Viekira Pak for genotype 1 HCV. Some patients are eligible to take AbbVie's combination of drugs without ribavirin, while others will need to include ribavirin as well. The key point, however, is that Viekira Pak has similar efficacy after 12 weeks as Sovaldi. Although the price point difference between Viekira Pak and Sovaldi was negligible, it was the multi-year deal AbbVie struck with pharmacy-benefits manager Express Scripts that got Wall Street talking.
Announced just days after Viekira Pak was approved, the agreement nets Express Scripts a sizable discount for Viekira Pak and makes it the exclusive HCV-1 treatment for in-network patients. As you might imagine, Gilead's stock hiccupped in a big way on the news.
But Gilead also fought back. It, too, formed agreements with insurer Aetna and pharmacy benefits manager CVS Health to supply Harvoni at a discounted price in order to be the exclusive HCV-1 therapy for HCV-1 members of these networks.
It's certainly not hard to see why consumers might prefer Harvoni considering it does not have to be taken with ribavirin. Not to mention that Harvoni is a once-daily pill, compared to AbbVie, which could involve taking up to six pills on a daily basis. It's ultimately more convenient for the patient.
On top of AbbVie's new therapy, Merck is on pace to file a new drug application for its HCV doublet known as grazoprevir/elbasvir (previously MK-5172/MK-8742) by midyear. In HCV-1 patients it too exhibited SVR rates of between 90% and 97% after 12 weeks, signaling that it's highly effective. If approved, it could also become a significant player.
Gilead holds its own
In spite of these headwinds I suspect that Gilead Sciences will be able to hold its own in the HCV space.
For starters, there's an unfortunately large number of HCV patients worldwide that still need treatment. It's going to take a long time to get to them all, giving these companies a decade or longer of run time to reap the benefits of sales from their HCV drugs.
Secondly, Sovaldi isn't going quietly into that good night. It's still a superior choice for the less common genotype 2 & 3 HCV patients since it doesn't involve the use of interferon. That alone should keep Sovaldi safely in the category of blockbuster drug.
More importantly, though, Harvoni looks like it's going to play a critical role in HCV-1 for the time being. Nothing against Merck's doublet or AbbVie's Viekira Pak, but Harvoni is more convenient, doesn't need to be taken with ribavirin, and was the first to market. I project it has the potential to deliver in excess of $10 billion in sales in 2015, likely making it the second best-selling drug in 2015 behind only anti-inflammatory drug Humira.
With that in mind, I continue to view Gilead Sciences as an attractive investment opportunity, and envision a growing and bright future for Harvoni and a bulk of currently afflicted HCV patients.