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By Todd Campbell | More Articles
December 5, 2013 | Comments
The next wave of innovation is bringing new hope for better outcomes to hepatitis C patients. But it's also bringing higher costs.
Prices moved up substantially when Vertex (NASDAQ: VRTX ) and Merck (NYSE: MRK ) launched their highly anticipated Incivek and Victrelis in 2010, respectively. And those prices are likely to head even higher when Gilead (NASDAQ: GILD ) and Johnson & Johnson(NYSE: JNJ ) launch Sofosbuvir and Simeprevir.
Setting the stage for higher prices
Developing biologics isn't cheap. It takes considerable time and money to usher them through trials and commercialization. As a result, it wasn't surprising to see Vertex price its Incivek at $49,000 for the 12-week course of treatment when it reached market back in 2011. That price was well above the $15,000-$20,000 patients were paying for prior-generation treatments interferon and ribavirin. Merck's Victrelis carried a similarly higher price tag -- as much as $48,000 for the longest course of treatment.
Those high prices, coupled with pent-up demand from doctors warehousing patients, allowed Vertex's Incivek to become the fastest drug in history to reach $1 billion blockbuster status.
Rising tide of margin friendly drugs
Fast-forward to today, and Incivek and Victrelis are yesterday's news. If approved on its Dec. 8 PDUFA date, analysts estimate Gilead's Sofosbuvir could launch with a price of up to $100,000 for a twelve week treatment.
Simeprevir, which will be sold as the branded drug Olysio, is expected to cost roughly $67,000 for a 12-week course of treatment.
Similar to the warehousing of patients ahead of Vertex's Incivek and Merck's Victrelis, doctors seem to have been holding off on treating patients this year, too.
Gilead hopes that's true, because the combination of a larger initial patient pool and its six-figure pricing will go a long way toward justifying the company's $11.2 billion purchase of Pharmasset, and its Sofosbuvir, back in early 2012. It will also help offset costs tied to ongoing trials, which are evaluating Sofosbuvir in various combinations and as a stand-alone treatment.
Johnson is hoping the dynamic pays off for Olysio, too. But sales of Olysio may be more muted than for Sofosbuvir. Olysio, while a very good drug, appears to have a disadvantage against Sofosbuvir based on the FDA panel review in October. That review highlightedOlysio's less than compelling cure rate in patients with the Q80K polymorphism. Unfortunately for Johnson, Q80K is found in 48% of hepatitis C genotype 1a cases -- the most common genotype found in the United States.
Battling for market share
Gilead and Johnson will soon face a flurry of competition as other hepatitis therapies move through trials, suggesting the market could become very crowded over the coming two years.
Vertex is working on an oral drug follow-up to Incivek. However, Vertex is wrestling with delays tied to the FDA's partial halting of a mid stage trial of VX-135 in July. In that trial, the highest dose of 400 mg was deemed too toxic for patients.
Merck also hopes its MK-5172 can make its way to market as a successor to Victrelis. In a small patient population, MK-5172, when combined with fellow candidate MK-8742, produced between a 96% and 100% cure rate during a Phase 2 trial. That was good enough for the FDA to grant the combination coveted breakthrough status.
AbbVie (NYSE: ABBV ) , the drug company spun off by Abbott Labs earlier this year, is also in the hunt. AbbVie is in the final stages of Phase 3 trials for its oral hepatitis C challenger and the company hopes a successful launch can diversify it away from its mega blockbuster Humira, which generates more than 50% of AbbVie's sales. The company recently announced that it hopes to file for FDA approval of its three-drug combination therapy in Q2, 2014.
And Bristol Myers (NYSE: BMY ) shouldn't be counted out, either. Bristol made a splashthis fall when it announced it's likely to win approval for its oral hepatitis C drug in Japan. If so, Bristol will be the first of all of these competitors to tap into a very large and important market.
Seeking the grail
The goal of all these competitors remains a single-dose oral treatment that doesn't require being combined with ribavirin or interferon -- two drugs that cause discouraging side effects in patients.
Gilead, Johnson, and AbbVie have ongoing studies that eliminate the use of those drugs. But Bristol Myers is farthest along in erasing interferon and ribavirin from treatment. Bristol's combination therapy of daclatasvir and asunaprevir planned for Japan doesn't rely on either of them.
Regardless, the launch of Olysio and Sofosbuvir and potential launches from Bristol and AbbVie suggests you should pay a lot of attention to market share over the coming year, because these high-priced drugs are likely to generate billions in revenue.
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Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of 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.
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