Gilead Sciences (GILD 0.91%) is racking up billions of dollars in sales of its hepatitis C drugs every quarter, but competitors are angling for market share, and that has investors nervous that Gilead Sciences' revenue in the indication could slump. Drugs from Merck & Co (MRK 0.44%) and AbbVie (ABBV 1.06%) are commonly discussed as Gilead Sciences' biggest threat; but recently reported results from upstart Regulus Therapeutics (RGLS -4.05%) may mean it poses a far bigger risk to Gilead Sciences than they do.

First, a bit of background
An estimated 170 million people are infected with hepatitis C worldwide, including 3 million people in the United States, and 9 million people in Europe. Because of the market's size, and the fact that the disease can take a life-threatening toll on a patient's liver, drugmakers have been rushing to develop increasingly better treatment options.

In the past, patients were treated with a 48-week combination of peginterferon and ribavirin that delivered coin-flip cure rates and debilitating side effects. Later, additional medications, including Incivek, were added to these two drugs to boost cure rates into the 80% range.


However, the truly transformative advance in HCV treatment came from Gilead Sciences' Sovaldi and Harvoni. Sovaldi was approved in December 2013, and it reduced reliance on peginterferon, cut treatment duration to 12 weeks, and delivered 90% cure rates.

Harvoni launched in October 2014, and it further improved treatment by eliminating the use of ribavirin in many patients, cutting treatment duration to as little as eight weeks in some patients, and delivering cure rates in the mid- to high-90% range.

These advances have led to the market for hepatitis C drugs absolutely exploding. Last year, Gilead Sciences posted hepatitis C related sales in excess of $19 billion, and competitors AbbVie, which markets the HCV drug Viekira Pak, and Bristol-Myers Squibb (BMY 1.30%), which markets the HCV drug Daklinza, also brought in billions. Viekira Pak exited December selling at an annualized $2 billion clip, and Bristol-Myers Squibb's hepatitis C drugs finished the year selling at an annualized $1.8 billion pace.

A new threat emerges
Best-in-class efficacy, and a willingness to compete on price allowed Gilead Sciences to fend off market share losses to AbbVie and Bristol-Myers Squibb's drugs last year; but it's not certain how the hepatitis C market is going to shape up this year now that Merck & Co has won FDA approval for its own HCV drug, Zepatier.

Like Harvoni, Zepatier offers high 90% cure rates and a solid safety profile; but unlike Harvoni, Zepatier requires testing to determine the presence of polymorphisms that can reduce its efficacy, is dosed over a minimum 12-week period, and is contraindicated in moderate and severe liver disease patients. Zepatier has a wholesale price of $54,600, and that could conceivably make it less expensive than Harvoni; therefore, predicting how this market share may shake out this year is a bit of a gamble.


The real threat in the future
Although it's impossible to know how big of a dent Zepatier will put in Gilead Sciences HCV market share, I think Zepatier's drawbacks make it more likely that its success will come at the expense of AbbVie and Bristol-Myers Squibb than Gilead Sciences.

If I'm right, then a bigger risk to Gilead Sciences' HCV sales will come from future therapies that can be dosed over shorter time periods. It's for that reason that I think investors should be particularly nervous about the work that's currently underway at Regulus Therapeutics on RG-101.

RG-101 targets small molecules that regulate gene expression known as microRNAs. Regulus Therapeutics has found that microRNA activity can be faulty in HCV patients, and that administering RG-101 subcutaneously to inhibit the expression of specific microRNA reduces hepatitis C viral loads.

On February 17, Regulus Therapeutics reported that an interim analysis of a four-week short duration treatment regimen that includes two doses of RG-101 -- one on day one and the other on day 29 -- showed a 97% response rate at week eight. Specifically, 37 of 38 patients who could be evaluated had HCV RNA viral loads that were below the limit of quantification -- that's equivalent to a functional cure, and arguably competitive to Harvoni.

Looking forward
The results are only interim, so anything could still happen from here, but Regulus Therapeutics also said that 100% of 12 patients who were able to be evaluated at week 12 also remained functionally cured.

Obviously, a functional cure in four weeks, rather than eight or 12 weeks, would be welcomed by doctors and patients; but results from this specific trial may not be all bad for Gilead Sciences. That's because RG-101 was dosed alongside current treatments, including Harvoni. Therefore, the negative impact on Gilead Sciences sales, at least based on this regimen, would be because the shorter four-week duration requires fewer Gilead Sciences pills than are prescribed currently.

Nevertheless, Gilead Sciences is far from in the clear here. Regulus Therapeutics is about to launch another phase 2 trial that combines RG-101 with a GlaxoSmithKline NS5B inhibitor. If that trial pans out, then it could remove the need for Harvoni altogether. For that reason, investors will want to keep a close eye on Regulus Therapeutics' progress.