Can money be made? The good news for patients is that many HCV patients can be cured, and that means that unlike HIV infection, they don't have to be on lifelong or chronic therapy, which means investors won't have annuitized revenue rolling in from new drugs. In fact, we're starting to see patients get clear of virus in 12 weeks, which is a principle reason investigators and observers got so excited at EASL. Second, a large percentage of patients will not be treated because they don't know they have the disease or they may be uninsured or they are not closely followed due to lifestyle. In the U.S. there are an estimated 5 million patients with HCV, and it is thought that 2 million of those will not get treatment at all. Finally, the pipeline is actually crowded.
"There are more than 40 drugs in phase 2 and phase 3 development at this point," says Tucker. "It appears that a limited set of drugs have outsized potential, and that a lot of drugs continuing in development have potential that is less obvious. In many cases the drug regimens that remain in development are clearly inferior to others that will reach the market sooner," he says.
That's not all. "How these companies expect to displace an entrenched competitor with an inferior product is beyond me," he says. "One cannot help but wonder why some of these programs have not been killed." That sounds like a recipe for disaster if you happen to be in one of those companies. "My gut feeling," he says, "is that HCV will produce a negative net present value (NPV) for the pharmaceutical industry as a whole because there are too many companies chasing the market." Whew!
Is Gilead Sciences (GILD:NASDAQ) the 800-pound gorilla? It paid $11 billion for Pharmasset Inc. to get its GS-7977 (sofosbuvir), a nucleotide polymerase inhibitor, which is very potent and does not have a propensity to produce resistant strains of HCV. "Only one or two patients out of more than 1,000 treated with GS-7977 have shown any sign of a resistant virus." Gilead is combining GS-7977 with an internal product GS-5885, an NS5A inhibitor, and studies are showing that HCV genotype 1 patients can be managed successfully without interferon. That "combination has gotten wonderful results in easy-to-treat patients—as much as a 100% cure rate after only 12 weeks,” he says.
So Gilead is the play, right? Not so fast. "There seems to be a pretty widespread assumption that it will really dominate the HCV market," says Tucker. "That may or may not be true. If someone else does very well, there's downside for Gilead. I don't know how much upside there really is because all the assumptions are all really positive right now." Indeed, Gilead has a $56.5 billion market cap, and its shares are up 89% over the last 52 weeks. "My bear thesis for it is that two years after GS-7977 hits the market in a wonderful combination, somebody comes out with a single daily pill that cures 90–100% of the patients in only eight weeks," he says. "Gilead is the company that is most vulnerable to uncertainty in how big the HCV market really is, and I'm a little concerned that people may be overestimating the size of the market."
What about a smaller stock? Johnson & Johnson has licensed protease inhibitor TMC435 (simeprevir) from Medivir AB (MVIRB:SS), and that compound is now in phase 3. "Medivir's market cap dropped fairly precipitously around the time of EASL back in April because TMC435 is being developed in combination with interferon," says Tucker. "At EASL it became obvious to everyone that interferon-containing treatment regimens are probably going out the door very rapidly because it won't be necessary with the newer drugs. But JNJ and Medivir have now partnered TMC435 with several companies that want to look at it in interferon-free treatment regimens. So there is some potential there for nice things to happen for Medivir."
Another small-cap company, Achillion Pharmaceuticals (ACHN:NASDAQ) is developing a protease inhibitor, ACH-1625, that does not seem to incite HCV to evolve new stains. "But, what has me a little bit more excited actually is it has a second generation NS5A inhibitor, ACH-3102 which has a substantially higher barrier to development of resistance variants, and it's also quite potent," he says. Yes, some enthusiasm is warranted because NS5A inhibitors are normally restricted to some degree in their utility against HCV genotype 1a because they do cause resistant strains to arise. "Note that genotype 1a is the version of HCV that's most prevalent in the U.S.," he says. "It got very strong reductions in viral load in a single dose monotherapy study, which was quite impressive." A phase 2 trial is now planned combining ACH-1625 and ACH-3102.
He believes Idenix Pharmaceuticals (IDIX:NASDAQ), with a market cap of $676 million, is still overpriced even though it has lost more than 40% of its value due to a clinical hold on IDX-184. "I don't think this compound will come out of clinical hold. Even if it does, it's a less potent drug," he says.
Vertex Pharmaceuticals, now an $8.5 billion company, developed protease inhibitor Incivek (telaprevir), which was approved in May 2011 and is used in combination with interferon and ribavirin. Incivek was hailed as a major advance in HCV, but now it's starting to become clear that life cycles of HCV drugs can be very short. "We've already seen Incivek sales drop in anticipation of better drugs reaching the market in the 2014–2015 timeframe," says Tucker.
To read the entire interview with John Tucker, visit www.thelifesciencesreport.com.
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