Hepatitis C treatment has progressed by leaps and bounds in the past few years, and appears to be accelerating even more quickly now. Cure rates have increased, treatment times are plummeting, and side effects are falling away. Is now the time to jump into the biotechs researching new drugs?

Industry Focus takes a look at Regulus Therapeutics (NASDAQ:RGLS) and Achillion Pharmaceuticals (NASDAQ:ACHN), two small biotechs with intriguing hepatitis C treatments, examining where they stand in relation to the big players -- both clinically and commercially -- and what even risk-tolerant Fools need to know before taking the plunge.

A full transcript follows the video.

Michael Douglass: Hi Fools, health care analyst Michael Douglass here today with one of our health care contributors, Todd Campbell, a frequent guest and contributor here on Industry Focus. Todd, how are you doing?

Todd Campbell: I'm doing great. We actually have some sunshine up here in New Hampshire, rather than some snow, so I've got a big smile on my face!

Douglass: That's got to be a little bit of a relief! I know we've had a lot of weather issues up in the Northeast.

Also, just to let folks who may be watching us, following us by video today, we're in a different studio. We're trying out a few different layouts for Industry Focus, so I'm here perched in front of this big mic, feeling kind of like an old-style radio DJ and pretty excited about it. It's one of my childhood dreams, so nice to get to fulfill that!

All right, let's jump right into today's topic. We want to talk about two biotechs that are dreaming big in hepatitis C. Of course hepatitis C is a massive market with enormous need. Let's go into the history of hepatitis C market over the last few years or a decade. Todd, why don't you go ahead and start us off?

Campbell: Yes. I think it's very helpful, from an investor's perspective, to understand where we've been and the advances that have been made so far, before we start looking at what drugs might be coming in the future. A decade ago, most patients were treated with a mashup of peginterferon and ribavirin.

Douglass: Lots of side effects.

Campbell: Yes, those were not pretty drugs. You had a coin-flip cure rate, and the treatment duration was 48 weeks. When you're feeling horrible on the medication and it lasts that long, you're bound to get a lot of people drop out. It was almost a third; 27-28% of people would discontinue that therapy, so it was really an inefficient solution for patients.

The first major advance from that doublet was in 2011, where Vertex Pharmaceuticals (NASDAQ:VRTX) got Incivek approved. You probably remember, Michael, Incivek fought -- Merck (NYSE:MRK) had a competing drug to Incivek -- ended up becoming the dominant player, the fastest drug to reach $1 billion in sales at the time.

The reason that it was such a successful drug is that it cut the treatment time in half. Treatment time dropped to 24 weeks. Not only did it do that, but it bumped up the cure rates from 50% to 80%, so you had a better drug, you could take it for less time. However, there was a big problem; you still had to take ribavirin and peginterferon with it.

Douglass: So you still had all those nasty side effects.

Campbell: Yes. You didn't solve that problem, and you still had a problem with adherence.

Then you fast forward again, to the December 2013 approval of Sovaldi. That was probably the biggest game changer of all because now you took the treatment duration to 12 weeks, in many cases you eliminated peginterferon -- you still had to take ribavirin -- and you ended up with cure rates that were better than 90%.

That was a major, major advance in the treatment of hep C. Now you're getting to a point where the developments are coming so much more rapidly. In October Gilead (NASDAQ:GILD) won approval for Harvoni, its second generation hep C drug, in genotype 1.

Douglass: Which eliminates the use of interferon there in 1, which is big.

Campbell: Yes, huge. Now you get rid of ribavirin, you get rid of peginterferon, 45% of genotype 1 can take Harvoni for as little as eight weeks, and you can get mid-to-high 90% cure rates.

It's been a pretty remarkable decade for advances in this category, but I would argue there's still a lot to be done. That's why we're having this conversation with investors today, to talk about what might be coming.

Douglass: Right, exactly.

Even though we're focusing on these two smaller biotechs, it's important to note that when you look at your big players -- your Gilead, for example -- one of the big things they're looking at is reducing that treatment duration further, trying to get a cure for hepatitis C in less than 12 weeks -- in six weeks, or eight weeks, or four weeks even is what people are starting to talk about -- numbers that were absolutely inconceivable, even as little as two years ago.

Campbell: It is mind-numbing really, when you think about it. I think that CVS (NYSE:CVS) recently did a study that looked at Sovaldi adherence and I think 7-8% of people discontinued, versus 27% less than 10 years ago.

Yes, the advances have just been quite remarkable, and at the forefront of that is Gilead Sciences. You've got a company that last year alone in hepatitis C generated $10 billion in sales on Sovaldi and another $2 billion from Harvoni.

They are a Goliath in the space, and they are spending a lot of money on researching that next generation, which is going to be a drug that's going to cut across all genotypes and it's going to shorten duration times to potentially six weeks, maybe less.

Douglass: Yes. This is one of those things where, with health care it's always important to dream big, and then to wait and watch for that data because that can fundamentally shift that investing thesis.

So, then. Let's talk about these two small biotechs that reported hepatitis C related news over the last couple weeks. Let's start with Regulus.

Campbell: Yes, Regulus is an interesting stock because it's been around for a little while. It's got a pretty decent heritage, but they really haven't been able to have a clinical success yet, as far as a commercialized drug.

The company was founded by Isis (NASDAQ:IONS) and Alnylam (NASDAQ:ALNY), two big players in RNA, to basically research microRNA therapeutics, or drugs that work on microRNA, which controls how genes work, if you will.

What Regulus is studying is, can we control genes that are associated with the replication of hepatitis C? And if we can control those microRNAs, can we basically cure hepatitis C much quicker and potentially offer a cure in some cases, believe it or not, with one or two doses?

Douglass: Of course that quick-dose opportunity is just, oh my gosh! That certainly is something the market was excited about, but the data didn't look so good this last time.

Campbell: It was mixed. Let's face it, for Regulus it's a very early stage trial. They're still feeling it out to see what makes the most sense to pursue. They've got a lot of different programs out there, including studying the drug as administered by a 2 mg injection, a 4 mg injection, potentially an 8 mg injection.

They're thinking, "What if we give it once and then we follow up with a booster shot in 30 days?" They're also looking at combining it with Johnson & Johnson's (NYSE:JNJ) Olysio as a potential for the next stage.

But again, this is very early stage. If you look at the most recent data it was the 4 mg trial, 9 out of 14 patients that were administered the drug were hepatitis C-free 57 days later. That's better than half, on a single dose, being disease-free.

Whether or not that holds up, though, without a booster shot ... I don't know how promising that is. There are a ton of question marks with this. It's intriguing. Hey, they're dreaming big.

Douglass: Yes.

Campbell: No question. But it's a speculative stock.

Douglass: Right. In, let's face it, a pretty speculative space. People go into health care, not usually because they're too risk averse. At least for me, health care and tech are the aggressive end of my portfolio -- and this is on the speculative end of speculative, in general.

Campbell: Right. You look at biotech as being, "Wow, these stocks can pop and drop so dramatically based on any news," and this is a company that could really pop and really drop. This is not one to go into with rose-colored lenses.

Douglass: Right, exactly. I'm sure we'll talk a little bit more about the investing thesis with both these stocks in a bit, but let's go into Achillion as well.

Achillion, a little bit more advanced of a hep C player, still a pretty small stock. I want to say their market cap is $1 billion and some; a pretty small stock. They also reported news pretty recently.

Campbell: Yes. I think, of the two, Achillion is a little bit more intriguing to me because they seem to be a little bit further along. They're not recreating a new wheel. They're basically reinventing an existing wheel to make it better.

They have a drug, ACH-3102. ACH-3102 is the same type of drug as one of the two drugs that are in Gilead Sciences' Harvoni. What they did is say, "If we can improve upon that drug, and then still combine it with Sovaldi, can we get cure rates in a much shorter duration?"

They first tested it out at eight weeks. They said, "Let's look at a dozen people and see whether or not we can cure them in eight weeks." Sure enough, combining ACH-3102 with Sovaldi cured all 12 of these patients, so far, over eight weeks.

Then they said, "It worked so well with eight weeks, let's take a look at six weeks." They went out and did the same study. "Let's combine it with Sovaldi, see what happens," and sure enough 12 weeks later, after stopping treatment, they're all cured still.

So, wow. "Six weeks worked with this drug. Now let's go out and we'll study four weeks." Obviously, that trial is just getting under way so we won't have results from them for a while, but that would be pretty remarkable, to be able to think, "I can now go from 45% of people in genotype 1 being able to take Harvoni for eight weeks, to everyone potentially being able to take this mashup for only four weeks."

Douglass: Yes, the opportunity there is incredible. Just to be clear, this is basically taking ACH-3102, which is their NS5A inhibitor, and combining it with Gilead's new Sovaldi -- as opposed to Gilead's current Harvoni, which is their NS5A inhibitor, ledipasvir, plus their new Sovaldi.

It's basically switching that one thing out, and seeing if you can get a lift without actually comparing it directly to Harvoni.

Of course, that's one of the things we have to keep in mind with these trials, is that since there was no direct head-to-head it's a little hard to make pronouncements as to whether one's better or not. That said, certainly the data were very encouraging and I think that's something investors are going to want to watch very closely.

Campbell: Yes. The stock has been up and down a lot recently, and one of the reasons for that is that they're also working on a drug called ACH-3422 that would replace Sovaldi in that combination therapy, so basically be able to toss out Sovaldi and then have a whole in-house solution.

Results were kind of mixed. They weren't awesome. They weren't fantastic, so I'm not sure whether or not 3422 is better than Sovaldi. They'll have to prove that out, so again this one falls back into that speculative zone where we don't know what happens when you take ...

We're talking 12 people! It's not what you call a patient population that can make you say, "All right, this is definitely going to work for everybody." A lot more study needs to happen for this company as well, and for these drugs.

Douglass: Yes, really tiny patient population, and that of course is an immediate, "Oh gosh. If we're going to have a really big disease, we'll want to see that bigger Phase III trial before we get really particularly excited about Achillion's potential. You can kind of see it.

Two things in health care; you want to see clinical success, and you want to see commercial success. Given that Achillion is going to be -- if it goes alone, and if all the clinical trial data works out and everything -- it's still going to be pretty late to the party.

I saw one analyst estimating that the combo could be out in 2020 or something like that. We're not saying that there's an immediate opportunity here. You're going to instead have big players like Gilead and like AbbVie (NYSE:ABBV) vacuuming up, and curing, a lot of people and figuring out how to best market and control this market in a lot of ways, before a smaller player like an Achillion could even get to market.

Campbell: Yes, that's a great point. Hepatitis C, the next decade you're going to cure ... we'll call it the majority of patients.

Douglass: Hopefully! Hopefully. That is the plan, anyway. That seems to be the likely case.

Campbell: Yes. Last year, Gilead treated 170,000 patients, and that was with a lot of restrictions on access to the drug. This year, because of AbbVie coming on the scene and some negotiations that were made with different payers, theoretically a lot more people could have access to that drug, so maybe you treat 200,000, I don't know.

You've got 2.7-3.0 million, depending on who you listen to, people in the U.S. -- and then of course the advances that these companies are developing already, in-house, like Gilead. It remains to be seen how big an opportunity this is, and how long-lasting that opportunity is for these companies if they succeed in these late-stage trials, and if they can convince FDA regulators to approve them.

Douglass: And then if they can overcome what are going to be very experienced marketing teams who are used to talking about data. The build-out for this could be enormous, and it may be that for someone like an Achillion or a Regulus, if they achieve clinical success, partnering with somebody that ...

There has been buyout speculation, so I'm just going to throw it out; perhaps a buyout. We'll see. I don't encourage investors to invest based on thoughts of buyouts because so often they don't happen, as Shire Plc (NASDAQ:SHPG) investors discovered last year.

Campbell: Yes, you're right Michael. There's been a lot of activity in the space. You have Merck making a $3 billion acquisition last year to lock up some clinical stage hep C drugs. But you're right, investors shouldn't buy a company banking on its ability to get acquired. It's better to buy it based upon the data that you see in front of you.

With companies like this, they're speculative. They shouldn't be in anything other than the speculative portion of investor portfolios.

Douglass: Right. And honestly I'll tell you, too speculative for my blood. I am proudly a Gilead Sciences shareholder, and really continue to like their opportunities.

Todd, thank you very much for your take. Folks, one thing I want to share with you is that here at The Motley Fool we're always trying to identify what the next big winner could be, what the next big player could be, what company could next really fundamentally change the world.

One of the big ways we do that is with David Gardner's Rule Breakers service, which is a high-growth-oriented stock service. If you're interested in learning more about it, shoot us an email at growth@fool.com and we'll be happy to send you along a special offer to the Rule Breakers service.

Todd, again, thanks for your time. Folks, check back to the Industry Focus podcast, and of course Fool.com, for all of your investing needs, and Fool on!

Todd Campbell owns shares of Gilead Sciences. Michael Douglass owns shares of Gilead Sciences, Isis Pharmaceuticals, and Johnson & Johnson. The Motley Fool recommends Alnylam Pharmaceuticals, CVS Health, Gilead Sciences, Isis Pharmaceuticals, Johnson & Johnson, and Vertex Pharmaceuticals. The Motley Fool owns shares of Gilead Sciences and Johnson & Johnson. 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.