Hepatitis C treatment has been among the most dynamically changing markets in biotechnology. A host of companies are knee-deep in developing new, more effective treatments, but few have been as successful as Gilead Sciences (NASDAQ:GILD) and Johnson & Johnson (NYSE:JNJ).
Less than two years ago, the two biotech giants were locked in a horse race to develop the first oral hepatitis C drugs. Both successfully developed and brought to market their own therapies, but Gilead Sciences' Sovaldi won that game.
Now, a deal recently struck with Achillion Pharmaceuticals (NASDAQ:ACHN) puts Johnson & Johnson in position to threaten Gilead Sciences again. Here's what you need to know.
First, some background
Until the end of 2013, hepatitis C patients were treated with a side effect-laden cocktail of peginterferon and ribavirin that offered coin flip cure rates. The drugs were dosed over an astoundingly long 48-week cycle, and flu-like symptoms associated with the treatment caused roughly one in four patients to stop taking the medication prior to completion.
Because doctors lacked a good treatment option, millions of patients around the world risked a significant chance of liver failure.
According to the World Health Organization, more than 150 million people are living with hepatitis C globally, including 3 million people in the United States and 9 million in Europe. With hepatitis C standing as the No. 1 cause of liver transplants, there was clearly a significant need for new medicines.
Goliaths race to market
Both Johnson & Johnson and Gilead Sciences invested big money to usher along new hep C drugs that reduced treatment duration and boosted functional cure rates.
Johnson & Johnson developed Olysio, a NS3/4A protease inhibitor that works by blocking an enzyme that hepatitis C uses to replicate in cells. In clinical trials, a treatment regimen including 12 weeks of Olysio and 24 weeks of peginterferon and ribavirin delivered cure rates north of 80%. Those results were good enough for the Food and Drug Administration to approve Olysio in November 2013.
Meanwhile, Gilead Sciences developed Sovaldi, a nucleotide analog polymerase inhibitor that infiltrates the RNA that is used by the hepatitis C virus to spread and interrupts the HCV life cycle. In clinical trials, Sovaldi delivered functional cure rates as high as 90%, while also eliminating many patients' need to take peginterferon. The FDA approved Sovaldi in December 2013.
Sovaldi's arguably better efficacy and safety made it the gold standard for hepatitis C treatment last year. In its first quarter on the market, Sovaldi posted more than $2 billion in sales and reached reach billion-dollar blockbuster status faster than any other drug. That momentum accelerated throughout the year, with Gilead's drug notching total sales of more than $10 billion in 2014.
Johnson & Johnson's Olysio was highly profitable, but not nearly as commercially successful as Sovaldi. Despite becoming a second-tier option, doctors discovered that prescribing Olysio alongside Sovaldi improved the latter's already high cure rate. As a result, off-label use of Olysio and Sovaldi translated into $2.3 billion in Olysio sales last year.
That was a solid performance, but Olysio's success is likely to be short-lived. In October, Gilead Sciences won FDA approval of Harvoni, a mashup of Sovaldi and the NS5A inhibitor ledipasvir.
Harvoni casts aside both peginterferon and ribavirin for most patients, offers cure rates in the mid-90% range, and reduces treatment duration to eight weeks for up to 45% of genotype 1 hepatitis C patients.
In the fourth quarter of 2014 -- its first quarter on the market -- Harvoni's sales eclipsed $2 billion; in the first quarter of 2015, sales pushed past $3 billion. That success has come at Olysio's expense, as sales of J&J's drug slumped 33.9% year over year in the first quarter, to $234 million.
A new battle emerges
Although Gilead Sciences won the first battle for improving hepatitis C efficacy and safety, Johnson & Johnson thinks it has a shot at winning the next fight over treatment duration.
In October, Johnson & Johnson spent $2 billion to buy the privately-held Alios to get its hands on nucleotide inhibitors AL-335 and AL-516. The company also just licensed global rights to Achillion Pharmaceuticals' hepatitis C pipeline, which includes a second-generation NS5A inhibitor.
Achillion's NS5A inhibitor, ACH-3102, is in small midstage trials that are studying its use alongside Sovaldi. In both eight-week and six-week studies, using ACH-3102 and Sovaldi together cured 100% of patients, suggesting ACH-3102 could be more robust than Gilead Sciences' ledipasvir.
If so, combining ACH-3102 with Alios' nucleotide inhibitors, or with Achillion's own nucleotide inhibitor, ACH-3422, could result in a treatment that works as well as Harvoni, but that also significantly reduces treatment duration.
Johnson & Johnson has indicated that it plans to advance the study of ACH-3102 in combination with an undisclosed NS3/4A protease inhibitor and an NS5B polymerase inhibitor in a bid to develop a pan-genotype, short-duration cure. If this proves successful, then it could pose a new challenge to Gilead Sciences. However, investors might not want to count Gilead out. It is working on its own next-generation pan-genotype therapies that could also shorten treatment duration, and that means interested investors are likely to have plenty to consider as this next battle unfolds.