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Source: Gilead Sciences.

Following its approval for use in hepatitis C genotype 1 patients last fall, Gilead Sciences' (NASDAQ:GILD) Harvoni became an instant success, racking up billions of dollars in sales during its first two quarters on the market.

Those sales figures could head even higher in the second half of this year following the approval of Harvoni in Japan, an important market that could be worth hundreds of millions of dollars in sales annually.

A big and important market
Japan's spending on medicine per person is eclipsed only by spending in the United States, and while there aren't as many cases of hepatitis C in Japan as there are in the U.S., there are still 1.2 million Japanese diagnosed with the disease.

The genotype 1 variation of hepatitis C represents between 70% and 80% of all Japanese cases, and the majority of those genotype 1 patients are diagnosed with the genotype 1b variation, rather than the 1a variation, which is more common in America.

Currently, these Japanese patients are often treated with Bristol-Myers Squibb's Daklinza/Sunpreva combination regimen, a therapy that won approval for use in Japan last summer and is already racking up hundreds of millions of dollars in sales. In the first quarter, Bristol-Myers reported hepatitis C revenue of $264 million -- in large part due to sales in Japan.

However, Harvoni's approval could significantly dent Bristol-Myers' market share in Japan because Harvoni is arguably a better drug. In Daklinza/Sunpreva's phase 3 trials, 84.7% of Japanese genotype 1b patients achieved a functional cure after taking the combination therapy for 24 weeks, but 100% of Japanese genotype 1 patients taking Harvoni for 12 weeks achieved a functional cure.

Because 97% of the patients in Gilead Sciences' Japanese study had the genotype 1b variation of the disease, Harvoni's better efficacy and shorter treatment duration could make it the go-to therapy in Japan.

Money Inside Pills Flickr User Chris Potter

Source: Flickr user stockmonkeys.com.

Moving the needle
The financial impact of Japan's approval of Harvoni on Gilead Sciences won't be known for a few more months.

Typically, it takes about 60 days for a drug manufacturer and Japanese regulators to agree on drug pricing and to get listed on Japan's list of drugs approved for reimbursement. Usually, those negotiations result in drug prices that are roughly 40% less than U.S. prices.

Although the market in Japan is smaller than the market in America, and Harvoni prices are likely to be significantly lower there, Gilead Sciences should still generate hundreds of millions of dollars in Harvoni sales in Japan.

In the U.S., Gilead Sciences initially priced Harvoni at $94,500 for 12-weeks; however, competition and negotiations to allow for broader use of the drug are driving that price down by an estimated 46% this year, or by $43,470.

If we assume Japan secures an additional 40% haircut, then Harvoni pricing could drop to roughly $30,618 in that market. At that price, treating just 20,000 patients in the second half of this year could lead to Gilead Sciences reporting an additional $612 million in revenue this year. 

Although that figure may not be nearly as eye-popping as the $3.6 billion in Harvoni sales Gilead Sciences reported worldwide in Q1, it's not chump change, either. For that reason, Harvoni's approval in Japan is likely one more reason investors should consider buying Gilead Sciences in their portfolios. 

Todd Campbell owns shares of Gilead Sciences. Todd owns the equity research firm E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. 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.