Should AbbVie Inc. Or Gilead Sciences Buy These Tiny Biotech Stocks?

By Markets Fool.com

Recently approved new drugs from AbbVie and Gilead Sciences means that the two biotech titans are locked in a heated battle for hepatitis C market share, but these companies may be better served shifting their attention away from this tussle toward the next generation of hepatitis C drugs making their way through drug pipelines at Achillion Pharmaceuticals and Regulus Therapeutics .

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Source: AbbVie

Dominating disorders
There's little question that Gilead Sciences' and AbbVie's success stems from a proven ability to launch revolutionary drugs that redefine their markets.

Until recently, Gilead Sciences' revenue came mostly courtesy of its market share dominance in treating HIV, an often deadly infectious disease that affects more than 1.1 million people in the United States. Gilead Sciences markets a slate of top selling HIV therapies, including five that could achieve billion dollar blockbuster status this year. As a result, Gilead Sciences is on track to deliver sales of more than $10 billion in the coming year from its HIV medicines alone. The company's success in HIV treatment has provided it with the financial fuel necessary for it to develop the now highly successful hepatitis C drugs Sovaldi, which was approved in December 2013 and notched sales of more than $8.5 billion in the first nine months of 2014, and Harvoni, which won FDA approval in October.

Meanwhile, AbbVie has made a name for itself in treating a variety of autoimmune disorders, such as rheumatoid arthritis and psoriasis, with its top selling drug Humira. Humira, which was the globe's best selling medicine in 2013, has racked up sales of $9.2 billion through the first nine months of this year and accounts for roughly 63% of AbbVie's total revenue. Humira's widespread success has similarly allowed AbbVie to plow significant money back into research and development, which in turn produced AbbVie's own hepatitis C therapy, Viekira Pak, which won FDA approval last month.

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Source: Gilead Sciences

Battles ahead
Gilead Sciences' Sovaldi gave the company first-mover advantage over AbbVie, and the launch of Harvoni further entrenches Gilead Sciences' leadership in the hepatitis C indication, but AbbVie is likely to make inroads this year following the launch of Viekira Pak and the inking of an exclusivity deal with pharmacy benefit manager Express Scripts.

Harvoni is arguably a better therapy than Viekira Pak given that it's dosed just once daily versus Viekira Pak's up to four pills daily. Additionally, up to 40% of Harvoni patients can qualify for an eight-week treatment course, which is considerably shorter than Viekira Pak's 12-week requirement. Harvoni also offers an advantage over Viekira Pak in that it doesn't require being administered alongside side effect-laden ribavirin, a prior generation hepatitis C therapy that is still required to be used alongside Viekira Pak.

Those advantages suggest that Gilead Sciences will remain the dominant player in hepatitis C this year, despite payer push-back and AbbVie's best efforts to unseat it. However, AbbVie won't be left out in the cold. The Express Scripts exclusivity deal likely covers around 175,000 potential hepatitis C patients, so Viekira Pak could still be a multi-billion dollar blockbuster this year.

However, it's far less clear who the winner will be in 2016. That's because I believe the next battle over hepatitis C market share will be waged over treatment duration, rather than cure rates. After all, Harvoni and Viekira Pak both boast cure rates that are in the mid to high 90% range, so there's unlikely to be significant advances in efficacy from here, but there is certainly room to drive treatment duration shorter.

Reimagining treatment
If I'm correct, then Gilead Sciences and AbbVie should be concentrating less over battling on price this year and more on next generation drugs that can reduce treatment duration to six-, four-, two-weeks, or dare I say, a single dose.

A number of programs are under way to lower the treatment burden on patients (and improve adherence rates in the process), but it's programs at Achillion Pharmaceuticals and Regulus Therapeutics that are most intriguing to me.

In November, Achillion reported that its ACH-3102, which targets the same protein as Gilead Sciences' ledipasvir (the drug that is combined with Sovaldi to make Harvoni) helped reduce treatment duration to eight weeks. That small phase 2 study also delivered a 100% functional cure in patients that received ACH-3102 dosed alongside Sovaldi. Importantly, while Harvoni's eight-week treatment course is only approved for patients who have a viral load of below 6 million IU/ml, nine of the 12 patients in Achillion's study had viral loads above that level. That's important because it may suggest that ACH-3102 is more effective than ledipasvir.

Of course, ACH-3102 still needs to be proven in far larger late-stage trials, but Achillion also recently reported interim results that indicate that combining ACH-3102 alongside Sovaldi was equally effective over an even shorter six-week treatment period.

A six-week treatment course could arguably be a game-changer, but researchers' Holy Grail is likely the delivering of a functional cure in even less time.

If so, it may be Regulus Therapeutics that has the most intriguing potential therapy. Regulus Therapeutics is researching micro RNA therapies that incorporate technology from its founders: the RNA leaders Isis Pharmaceuticals and Alnylam.

In a small phase 1 trial, a single dose of Regulus Therapeutics' RG-101 resulted in a 4.1 log drop in hepatitis C viral load at 29 days. That knockdown is similar to existing therapies, including Sovaldi. Additionally, six of the 14 patients studied had hepatitis C levels that were below the level of quantification at day 29, and three of the patients had un-quantifiable levels at day 57.

Looking ahead
Gilead Sciences and AbbVie have a lot at stake. Hepatitis C affects more than 150 million people globally, including 3 million in America and another 9 million in Europe. That means it's a major indication that will continue to generate billions of dollars in sales over the coming decade. Whether or not either of these companies decides to bolster their internal research efforts by acquiring these, or other, emerging biotech companies is unknown, but even if they don't, investors may want to keep them on their radar.

The article Should AbbVie Inc. Or Gilead Sciences Buy These Tiny Biotech Stocks? originally appeared on Fool.com.

Todd Campbellowns shares of Gilead Sciences and Achillion. 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 Alnylam Pharmaceuticals, Express Scripts, Gilead Sciences, and Isis Pharmaceuticals. The Motley Fool owns shares of Express Scripts and 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.