Bristol-Myers Tells Gilead Sciences, Inc. "You Win"

Source: Bristol-Myers Squibb

Bristol-Myers Squibb's shocking announcement that it's yanking its FDA application for approval of asunaprevir, effectively derailing it's promising two drug hepatitis C treatment, is a resounding victory for Gilead Sciences and raises questions about the other major competitors with drugs in development -- AbbVie and Merck .

Bristol's decision to pull the application for asunaprevir comes just days before the FDA is expected to give Gilead the go-ahead to begin selling its next-generation Sovaldi combination drug, Harvoni. Harvoni's anticipated approval and the likelihood that it would block significant use of asunaprevir alongside Bristol's Daklinza in hepatitis C patients in the U.S., is likely a major reason behind Bristol's decision to circle its wagons around Daklinza instead.

Ringing the bell
Johnson & Johnson's
Olysio has the distinction of being the first FDA approved oral hepatitis C drug, but Olysio's first-mover advantage was quickly eliminated when Gilead's Sovaldi won approval last December. Sovaldi, which demonstrated functional cure rates in the low 90% range during clinical trials, proved a far better drug than Olysio, which struggled in genotype 1 patients with a common Q80k polymorphism.

As a result, doctors who had been warehousing patients while awaiting this new class of oral alternatives embraced Sovaldi so voraciously that Sovaldi became the fastest drug to ever reach billion dollar blockbuster sales status. In the first six months of this year, Gilead sold more than $5 billion worth of Sovaldi, putting it on track to challenge AbbVie's autoimmune disease drug Humira as the globe's best selling medicine.

Source: Veterans Affairs

Potential missed?
As good as Sovaldi is, it isn't a perfect drug. Sovaldi doesn't cure everyone and in many cases side-effect-riddled peginterferon and ribavirin are still dosed alongside it.

So Bristol-Myers, AbbVie, and Merck invested billions of dollars into R&D programs hoping that their treatments could do better than Gilead.

Bristol has arguably been savviest in its approach to developing a hepatitis C drug program, choosing to focus first on Japan, a heavily infected market that many drugmakers usually wait to enter because of the need for additional studies on the country's population.

That decision allowed Bristol to file for approval of its Daklinza and asunaprevir cocktail in Japan last year and to win approval by Japan's regulators this summer -- giving it a valuable advantage as the first approved therapy that tosses aside peginterferon and ribavirin.

Bristol's hepatitis C program was further emboldened last December when EU regulators approved compassionate use of Daklinza, which won the official go-ahead in Europe in August, alongside Sovaldi in tough-to-treat cases.

That EU support came on the heels of mid-stage studies showing that using Daklinza alongside Sovaldi resulted in a functional cure in 100% of patients treated.

And while that was convincing enough for EU regulators, that success rate wasn't enough to compel Gilead to advance a Sovaldi plus Daklinza study into phase 3 trials.

Instead, Gilead chose to focus on Harvoni, a mashup of Sovaldi and another one of its promising drugs, ledipasvir.

That decision appears to have worked out for Gilead given that Harvoni's results in phase 3 were almost as good as the Sovaldi and Daklinza combination, with Harvoni clearing the disease in up to 99% of patients.

Now, with Harvoni inches from the endzone, Bristol-Myers has made the decision to play it safe and focus on its Daklinza and asunaprevir in non-U.S. markets and Daklinza alone in the U.S.

Opportunity remains
Bristol isn't admitting a complete defeat in the space. While the company has decided that the market wouldn't support a Daklinza and asunaprevir treatment in the U.S., the company remains hopeful that Daklinza alone can carve away some sales in tough-to-treat patients as a companion to Gilead's drugs.

Bristol should also be able to generate solid sales in Japan for its two-drug cocktail until Harvoni wins approval there. Gilead filed for Harvoni approval in Japan  in September.

And there could be a role for Daklina in Europe, where drug pricing is more controlled, as a companion to Sovaldi, too.

Merck and Johnson appear willing to keep the pressure on Gilead, too. In June, Merck spent $3.85 billion acquiring hepatitis C pure play Idenix, a maker of nucleotides that Merck hopes it can combine with its in-house hepatitis C drugs in a bid to reduce the treatment time to eight weeks or less. Last month, Johnson made a similar move, acquiring hepatitis C drug developer Alios for $1.75 billion to get its hands on Alios nucleotide pipeline.

The real winner is ...
Bristol-Myers is smart to focus its attention where it thinks it can deliver the best results, so while its decision on asunaprevir is surprising, it may end up being the best choice for the company and investors. Whether the move allows Bristol to establish a niche market for Daklinza is a big question, particularly given that Gilead appears positioned to dominate the market again next year with Harvoni. Regardless, while Gilead appears to have won the battle, its competitors appear willing to keep fighting and its patients that could benefit from that most given that the focus is shifting from obtaining a functional cure to shorter treatment periods.

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Todd Campbell owns shares of 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 and Johnson & Johnson. The Motley Fool owns shares of Gilead Sciences and 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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