Image source: Gilead Sciences.

Investors in pharma giant Merck (MRK -0.94%) are probably smiling from ear to ear, as Advert Health Analytics recently published a report singing the praises of Merck's new hepatitis C drug, Zepatier.

The report looked at Zepatier's clinical trial data and compared it with that of Gilead Sciences' (GILD -0.01%) hepatitis C drugs Harvoni and Sovaldi, which currently dominate the market. The report concluded that Zepatier will probably hold a clinical edge over Sovaldi, as its labeling suggests that it has a lower risk profile than Sovaldi.

Advert Health Analytics came to that conclusion by looking at the labeling for Sovaldi, noting that it listed cardiac arrest and suicidal ideation as potential adverse events, while Zepatier labeling did not. That difference caused Advert to reason that Zepatier appears to be less risky to use than Sovaldi, which could give Merck's drug an edge when providers are deciding which therapy to prescribe.

Advert also projected that the FDA might even require Gilead to eventually update its labeling on Sovaldi to include a number of additional adverse events, such as "progressive multifocal leukoencephalopathy, Stevens-Johnson syndrome, toxic epidermal necrolysis, and drug-induced liver injury."

Should this worry Gilead Sciences investors?
There's precedence for investors to worry that safety concerns could affect sales. In October of last year, pharma giant AbbVie (ABBV 0.22%) had to update its US labeling for its two hepatitis C drugs, Viekira Pak and Technivie, after the FDA received reports that at least 26 patients around the world experienced "liver injury" that was possibly linked to using the company's drugs. Shares of AbbVie were crushed when the news broke.

When the company reported its fourth-quarter earnings, it was obvious that the warning letter had an impact on physicians' use of Viekira. Stateside sales of Viekira dropped 19% from the previous quarter to $197 million, though it should be noted that setback didn't stop AbbVie from growing worldwide sales of Viekira 18% quarter over quarter. 

Three reasons not to worry
This report might put Gilead in some hot water if its future sales were completely dependent on the success of Sovaldi, but I think investors can rest easy for now.

First, Gilead has already seen sales of Sovaldi decline, but that's primarily owing to the massive success of Harvoni. Total 2015 sales of Sovaldi were down 49% year over year to $5.2 billion, and the drop was even more severe in the United States. However, Gilead saw sales of Harvoni skyrocket more than 600% in 2015 to $13.8 billion worldwide, which easily overcame the Sovaldi decline.

Image Source: Gilead Sciences.

Second, it's important to remember that both Harvoni and Sovaldi have been on the market for more than a year and have helped to cure hundreds of thousands of patients. That means the drugs have a lot of real-world data on their side. Compare that with Zepatier, which hasn't been out in the wild for very long. While I have little doubt that it will remain a safe drug, we won't know for sure until providers have a chance to use the drug in a real-world setting.

Finally, investors should remember that Gilead is set to hear from the FDA about its new pan-genotype hepatitis C drug on June 28 that could render all of this research irrelevant. If that drug manages to win approval, it will probably help Gilead retain its title as dominant player in the hepatitis C market. 

The market yawns
The market looks like it's brushing off this report as if there's nothing to worry about. The stock is currently trading for less than 8 times 2016 earnings estimates, and I'm content to hang on to my shares. I think the company's stock is so cheap that it could have meaningful upside if these fears prove to be overblown. Still, this report is an interesting development that Gilead's investors should keep an eye on.