Merck Shouts "Me, Too!" But Will It Matter?

Merck  has rolled out impressive phase 2 data that shows that it too has a very compelling hepatitis C regimen that may eliminate the use of side-effect laden Peginterferon and ribavirin -- the standard of care just a few short years ago.

But Merck's midstage data comes months after Gilead filed its application for approval with the FDA for its own two drug combination that also eliminates the use of that pesky prior generation cocktail.

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Crowding the bus
Gilead's head start could relegate Merck's MK-5172 and MK-8742 mashup to second- or third-tier status, depending on how much credit you give to Bristol Myers' daclatasvir. All three of these combination approaches do a significantly better job of eliminating viral load in hepatitis C, with fewer side effects than previous options, over a shorter treatment time period. That's a win, win, win for those keeping track.

Gilead's has already won FDA approval for one of the two drugs in its two drug combo. The highly anticipated Sovaldi got the FDA nod back in December and sales have raced out of the gate. Even though Sovaldi was only on the market for a few weeks before the quarter ended, Gilead still reported it had sold more than $140 million worth of it in the fourth quarter.

We'll know whether Sovaldi's momentum built in the first quarter soon, but odds suggest it will soon eclipse an annualized $1 billion run rate, particularly given many hepatitis C patients held off treatment in anticipation of Sovaldi's approval.

The other drug in Gilead's two-drug, one-pill therapy is ledipasvir and combined they put up impressive phase 3 results that have most industry watchers expecting the FDA will approve the drug later this year. If so, the therapy would become the first hepatitis C treatment that removes both interferon and ribavirin from the regimen.

Bristol-Myers' daclatasvir is also already in front of regulators. Bristol won FDA breakthrough status for daclatasvir, and the company has filed for its approval in Europe, where it already won compassionate-use status for use alongside Sovaldi in tough-to-treat cases. A decision on an interferon- and ribavirin-free hepatitis C approach that combines daclatasvir with Bristol's asunaprevir is also expected soon in Japan.

And if those first-to-market advantages aren't daunting enough to Merck's supporters, AbbVie is also knee-deep in trials with its own multidrug cocktail. AbbVie's program is facing its own hurdles given its three-drug combo, while effective, may still end up being dosed with ribavirin -- at least for now.

On the plus side, Merck's data does match up squarely against results reported by Gilead, Bristol, and AbbVie. Merck's MK-5172 and MK-8742 therapy successfully eliminated the virus in 98% of genotype 1 patients in phase 2 trials.

Merck studied the use of its drugs both with and without ribavirin and only 94% of those also receiving ribavirin saw the virus eliminated after 12 weeks. Those receiving ribavirin also reported being more tired, as well as having more nausea, diarrhea, and sleeplessness than those who didn't receive the drug. That suggests there's little incentive (at least in the headline data) for doctors to continue the use of ribavirin with Merck's drugs -- if they're ever approved.

Fool-worthy final thoughts
Gilead's Sovaldi and ledipasvir effectively cured 98% of treatment-naive hepatitis C patients over 12 weeks and 99% of patients over 24 weeks. Across treatment-naive and treatment-experienced patients, both with and without liver disease, sustained virological response, or SVR rates, were 96%. Gilead also evaluated the drug over eight weeks and reported SVR of roughly 93%.

Bristol's daclatasvir, used alongside Sovaldi, posted SVR rates that were as high as 100%, depending on genotype, during midstage studies, helping clear the way for the potential for daclatasvir to be dosed alongside Sovaldi.

And AbbVie's Pearl IV study of its three-drug combination without ribavirin generated an SVR of 90% in hard-to-cure genotype 1a patients, and 97% in those patients when ribavirin was included. AbbVie's therapy did even better in less stubborn cases of genotype 1b, curing up to 99% of cases.

Given results from all the competitors are robust, the early-to-market winners are likely to gain a substantial advantage that will lock up the majority of market share. That means the other contenders, like Merck, will need to differentiate their therapy and demonstrate improved effectiveness or shorter duration periods than these competitors in specific genotypes. Either way, the road ahead for Merck is long and its latest data doesn't appear to threaten Sovaldi.

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Todd Campbell is long Gilead Sciences. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends 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.

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