Gilead Faces Challenges In HCV, But Competitors Would Switch Places

Merck is pursuing a patient-access strategy in HCV with newly approved Zepatier, while AbbVie is acknowledging lower-than-projected 2015 sales for Viekira Pak but expressing optimism about competing in the space.

Gilead Sciences Inc. may be experiencing a slowdown in therapy starts in hepatitis C, with some analysts predicting a bit of erosion in its dominant market share, but competitors Merck & Co. Inc., AbbVie Inc. and Bristol-Myers Squibb Co. still would love to have Gilead's problems.

Those three at least remain in the race to continue accruing some share of a high-volume market, while Johnson & Johnson seems to be on the verge of accepting that it is no longer much of a factor.

As the five companies currently marketing HCV drugs held their fourth-quarter/full-year 2015 earnings calls, Gilead had to explain some decreases in business but still was raking in revenues from its sofosbuvir-backed HCV regimens, Sovaldi and Harvoni (sofosbuvir/ledipasvir) (Also see "Gilead HCV Sales Decline In US, But Offset By Global Growth" - Pink Sheet, 2 Feb, 2016.).

Merck talked about its newly approved Zepatier (grazoprevir/elbasvir) combo pill and the launch strategy for it, while AbbVie explained why it did not meet sales guidance for HCV in 2015 and provided relatively cautious guidance for 2016 (Also see "Merck Points To Keytruda, Zepatier Promise Coming Off Lackluster Quarter" - Pink Sheet, 3 Feb, 2016.).

Bristol outlined a strategy during its earnings call Jan. 28 for remaining relevant, and landed a supplemental approval for Daklinza (daclatasvir) on Feb. 5. But J&J basically admitted Jan. 26 that HCV is no longer a major part of its strategy in pharmaceuticals, as its second-generation protease inhibitor Olysio (simeprevir) nearly bottomed out during the fourth quarter of 2015, after yielding blockbuster sales during full-year 2014.

US sales for Harvoni and Sovaldi actually decreased 26% year-over-year, Gilead reported Feb. 2, but the virology powerhouse attributed some of that decline to Department of Veterans Affairs funding issues that all but brought HCV treatment through VA to a halt during the fourth quarter. On its Jan. 29 call, AbbVie also cited VA-related issues as a factor in disappointing sales for Viekira Pak (ombitasvir/paritaprevir/ritonavir tablets; dasabuvir tablets).

Gilead realized global sales of $4.892bn for Harvoni and Sovaldi for the quarter, up 27% from fourth quarter 2014. US sales of $2.367bn still comprised 48% of the worldwide total. In Europe, sales of the two drugs totaled $846m for the quarter, up 56% year-over-year. In Japan, where both products launched in 2015, quarterly sales came to $1.679bn, comprising 34% of the total.

AbbVie, meanwhile, reported blockbuster sales for Viekira – $1.639bn for the full year, broken down into $804m in the US and $835m ex-US. During the fourth quarter, Viekira brought in $554m worldwide, with $357m realized outside the US. The quarterly US sales of $197m were down from the previous quarter, with a lower run rate than the full-year total.

Overall Treatment Starts Increasing

Despite some declines in 2015, general HCV treatment trends point upward, giving Gilead reason to expect growth for its HCV franchise .The firm reported there were 189,000 treatment starts globally in 2014, with 132,000 of those in the US. In 2015, the global total was 583,000 starts – US starts increased to 236,000, but EU starts were up 12-fold to 185,000, while Japan recorded 49,000 starts during Sovaldi and Harvoni's first year on the market there.

Paul Carter, Gilead's executive VP of commercial operations, pointed to substantially lower VA sales in the fourth quarter as a reason for both lower domestic sales and fewer new patients for its drugs.

"In quarter three, Congress allocated an additional $500m to the VA for HCV treatments, and this was fully utilized in quarter three," he explained. "New patient starts in the VA were very limited during quarter four due to the uncertainty of future funding at that time. Congress has since allocated substantial funding of $1.5bn for the fiscal year [2016], which will allow treatment in the VA to resume this quarter.

Nearly 90% of US HCV patients who began treatment in 2015 did so on Gilead therapy, Carter noted. And some of the decline seen in the fourth quarter reflected a normalization from an unusually high number of starts in the first quarter of 2015, due to prior warehousing of patients as physicians awaited treatment advances, including the approval of Harvoni with its higher cure rates and shorter durations of therapy (Also see "Patient Volume Help Offset Impact Of Discounting For Gilead’s HCV Franchise" - Pink Sheet, 11 May, 2015.).

"Looking to the future, even with nearly 400,000 patients treated since the launch of Sovaldi, there remain more than 3m HCV-infected individuals in the US who have yet to be treated, approximately half of whom are diagnosed, according to recent CDC data," the exec said. "Long-term education and awareness efforts to increase rates of diagnosis and the flow of HCV-infected patients into treated care are important and will play out over many years, as we know from our experience in HIV."

Now joining the market with Zepatier, a once-daily pill approved for 12 weeks of therapy in most genotype 1 and 4 HCV patients, Merck set a wholesale acquisition cost of $54,600 for the fixed-dose combo (Also see "Merck's Biggest Impact With Zepatier Approval May Be On HCV Pricing" - Pink Sheet, 1 Feb, 2016.). Merck President-Global Human Health Adam Schechter conceded during a Feb. 3 earnings call that Zepatier was priced "to be competitive where the market's current net prices are."

Gilead and AbbVie's HCV combos are priced relatively at par with one another, with the two firms having engaged in a battle over formulary placement with private payers in the US (Also see "Gilead’s Exchange Of Discounts For Access Causes HCV Market Uncertainty" - Pink Sheet, 9 Feb, 2015.).

"Our list price makes us competitive across all segments," Schechter said in response to a question about Merck's commercial strategy. "I think it could potentially help us in some currently underserved segments. I think, also, lower list prices could potentially have a positive impact on out-of-pocket medication costs for some patients. There are some patients in [Medicare] Part D where the list price does matter in terms of out-of-pocket costs, and I think it could be beneficial for us there."

Merck Circumspect On Discount Strategy

But he cautioned Wall Street not to make assumptions on how Merck would discount Zepatier to gain access to US private payers. "I wouldn't read into our discounting strategy based upon our initial pricing strategy," Schechter said. "What we intend to do is compete in all segments of the market and to have an appropriate discounting strategy that allows us to have access.

Analysts generally have projected Zepatier to win some market share away from AbbVie based upon convenience – as Viekira is taken twice-daily – and its label for special needs HCV populations, such as patients co-infected with HIV or with chronic kidney disease. But Zepatier is not expected to subtract much from Harvoni because it simply doesn't provide an efficacy or dosing advantage. Deutsche Bank predicts Zepatier will post consistent sales growth quarter-by-quarter in 2016, finishing with net sales of $1.085bn.

BMO Capital Markets thinks Merck might benefit from flying under the radar a bit in HCV.

"The good news for Merck in hep C is that expectations are low," analyst Alex Arfaei wrote Feb. 3. "We believe Zepatier is mostly on par with Harvoni in genotype 1b patients, where we estimate it could gain up to 15% market share. Merck also has solid data in special subgroups including patients with CKD, and those who inject drugs, and we think this should allow it to gain at least 5%-7% in genotype 1a patient despite the recommendation for [resistance-associated variant] testing."

To those who see a price war as Merck's only valid strategy, Schechter asserts that Zepatier also offers a lot of differentiation to currently available therapies. "Zepatier is differentiated versus other options, including consistent dosing regardless of cirrhosis status, renal impairment or use of [proton-pump inhibitors] and other acid-reducing agents," he said.

"Our dosing is not affected by the presence of concentrated cirrhosis," Schechter said regarding market strategy. "If you look at the competition, they have to change their dose there. You can use us with any degree of renal impairment. If you look at the competition, particularly in certain patients with renal impairment, they can't be used there."

During AbbVie's earnings call Jan. 28, CEO Rick Gonzalez reported that Viekira brought in $1.6bn worldwide in 2015, well below the $3bn fourth quarter run rate it once guided to. That total included fourth quarter sales of $554m, which were boosted slightly by the combo's fourth quarter approval as Viekirax in Japan as a treatment for genotype 1b infections. For 2016, the pharma projects global sales of $2bn for the brand, benefiting from a full year on the market in Japan (Also see "Two Global New Drugs, Viekirax Priced In Japan" - Scrip, 26 Nov, 2015.).

Gonzalez conceded that that projection is lower than the run rate recorded during the fourth quarter, which he attributed to an abundance of caution in setting the sales estimate.

"If you look at what we're guiding going forward, it is less than our fourth quarter annualized and that is our intent," he said. "There are two factors there. Let's be honest, we've had trouble predicting this number, so we wanted to go into 2016 with a number that we had a very high level of confidence that we could hit. So that is certainly a component of it. The second component is we are assuming some level of competition from Merck."

Specific to Zepatier, Gonzalez said Merck had gotten the labeling AbbVie anticipated and that his company has built expectations of competition from Merck, including pricing pressures, into its 2016 projections.

"We'll have to see how it plays out but I would say we're going to set this one at a number that we have a high level of confidence that we think we can deliver," he said. "And I'd much rather surprise you on the positive than sit here and apologize on the miss."

In a Jan. 29 note, Morningstar analyst Damien Conover said Viekira now looks inferior to two competitors, Zepatier as well as Harvoni. AbbVie might need approval of its next-generation, pan-genotypic combo regimen – ABT-493/ABT-530, which moved into Phase III in late 2015 – to hold on to a 10% market share and perhaps $2bn in annual HCV sales. The company expects to unveil Phase II data for eight- and 12-week dosing for that regimen at the European Association for the Study of the Liver conference April 13-17 in Barcelona.

Label Change Impacted Viekira Sales

A negative for Viekira was a labeling change FDA imposed last fall, contraindicating the combo for HCV-infected patients with Child-Pugh B renal failure. On its original label, treatment in such patients was not recommended, while treatment of Child-Pugh C patients was and remains contraindicated (Also see "AbbVie Downplays Impact Of Viekira Pak Safety Issues" - Pink Sheet, 30 Oct, 2015.).

On the Jan. 29 earnings call, Gonzalez admitted that the label changes have had a negative impact on Viekira sales, enough that it didn't come as close as he expected to the $3bn fourth quarter run rate the company had predicted.

"I'd say in the fourth quarter there were two impacts and one of them is going to be the label change," he explained. "One was the VA volumes stayed very low through the fourth quarter because of the funding issue in the VA … but then the second was what we saw from collateral impact on the label and I'd say we lost about one share point. So there was some bleed-over impact to other segments because the Child-Pugh B [subpopulation] isn't worth one share point."

"It has stabilized now at that level," Gonzalez continued. "And so I think the impact has flowed through and we would assume that in what we've built for 2016. But that's been the overall impact."

Hepatitis C was a distinct afterthought on Bristol's earnings call Jan. 28, behind talk of immuno-oncology (Also see "PD-1 Round-Up: Bristol's Lead Grows, But Field Could Soon See Major Change" - Pink Sheet, 8 Feb, 2016.). But CEO Giovanni Caforio said Daklinza had performed strongly in 2015, especially in Japan and some EU markets, and more recently in the US.

Going forward, the NS5A inhibitor, approved in the US for combination therapy with Gilead's Sovaldi, will be a "meaningful contributor to revenues," Chief Financial Officer Charles Bancroft added.

"Sales for our hepatitis C portfolio [in the fourth quarter] were $458m, with most of the sales coming from Daklinza," he told the call. "US sales were $212m, and we are seeing strong demand since the launch in the third quarter. Sales in Europe were $121m, with strong performance in Germany, France and Italy. In Japan, we had sales of $80m, which is down significantly from Q3 sales of $175m as recent trends reflect the pressure from new regimens that have entered the market."

Bristol received a boost for Daklinza's domestic prospects on Feb. 5 with FDA approval of a label expansion that includes therapy with sofosbuvir in genotype 1 and genotype 3 patients co-infected with HIV, with advanced cirrhosis or with post-transplant recurrence of HCV infection.

This could provide Bristol a significant advantage among HCV patients with decompensated cirrhosis, as both Viekira and Zepatier's US labels include a contraindication for Child-Pugh B and C patients. Gilead's Harvoni has not established efficacy in patients with decompensated cirrhosis, nor has Sovaldi as monotherapy.

J&J, meanwhile, may be on the verge of joining its former marketing partner for first-generation protease inhibitor telaprevir (Incivek in the US, Incivo ex-US as marketed by J&J affiliates) Vertex Pharmaceuticals Inc. as an HCV has-been. On its Jan. 26 earnings call, the diversified health care giant said sales of Olysio were impacted harshly by competing products.

Sales of the second-generation protease inhibitor fell by 73% in 2015, from $2.302bn in 2014 to $621 million. In the fourth quarter, the drug yielded sales of $45m, compared to $321m during fourth-quarter 2014.