Bristol-Myers Squibb Co. Is Back in the Hepatitis C Race

Source: Bristol-Myers Squibb.

Bristol-Myers Squibb Co. took an intriguing approach to developing its hepatitis C drug, daclatasvir. Rather than focus its trials on the United States, the globe's biggest market for spending on medicine, it concentrated trials on Japan. That move allowed daclatasvir to carve out an early lead in Japan, but it also left investors wondering what the company's strategy for the drug in the United States would be -- particularly after the FDA balked at an initial application to approve the drug last fall.

This week, Bristol-Myers shed some light on its strategy by announcing that it's resubmitting daclatasvir for approval in the U.S. as an adjunct treatment to be used alongside Gilead Sciences' top-selling HCV drug Sovaldi in genotype 3 patients. If approved, this could significantly bump up Bristol-Myers' sales in the indication, so let's take a closer look.

Success overseasBristol-Myers took a bit of risk in choosing to focus first on Japan, but it was a calculated risk.

In the U.S., Gilead Sciences' Sovaldi had the edge in terms of timing, as well as impressive efficacy, and that meant daclatasvir was unlikely to beat Sovaldi to market and that Bristol-Myers would face an uphill battle in winning market share. The Japanese market, however, was wide open.

Despite Japan being the second largest market in terms of drug spending, drugmakers had become accustomed to headwinds in winning approval in Japan. The country's stringent approval process, understaffed agencies, and pricing environment that punishes new therapies have historically kept drugmakers focused on winning U.S. approval first.

In a bid to change that, Japan began restructuring its system to make it more attractive to developers, and that ended up coinciding perfectly with Bristol-Myers' Japan-first game plan. As a result, Bristol-Myers was able to win approval to market daclatasvir in Japan last year.

Bristol-Myers' next victory came in Europe, when Swedish doctors successfully lobbied for the use of daclatasvir alongside Sovaldi in critical HCV patients. Thanks to the couplet delivering high cure rates in high-risk HCV patients, EU regulators agreed to allow access to daclatasvir through its compassionate use program. That early embrace cleared the way for an official EU approval of daclatasvir last August.

Thanks to approvals in Japan and the EU, Bristol-Myers has been able to grow its sales for daclatasvir over the past two quarters.In the fourth quarter, sales of Bristol-Myers' hepatitis C drugs, including daclatasvir and asunaprevir, a drug that can be combined with daclatasvir to boost efficacy and safety, totaled $207 million,lifting full-year sales of Bristol-Myers' HCV drugs to $256 million.

That contrasts with Johnson & Johnson'sOlysio, which launched in the U.S. a week before Sovaldi, but saw its sales peak in the third quarter of 2014, and then drop in the fourth quarter following the October approval of Gilead Sciences' next-generation HCV drug, Harvoni.

Source: Bristol-Myers Squibb.

Executing a new strategy in AmericaInitially, Bristol-Myers filed for FDA approval of a couplet therapy that combines daclatasvir with asunaprevir. However, the company pulled its application for approval for asunaprevir in October of last year, and that resulted in the FDA issuing a no-go for daclatasvir in November.

That cast a cloud of uncertainty over whether or not daclatasvir would ever reach the U.S. market, so investors are likely pleased to learn that the company has resubmitted its daclatasvir application with the FDA.

This time around, the company is going straight after a niche market, asking for approval to use daclatasvir alongside Sovaldi in genotype 3 patients over a 12 week period.

The genotype 3 variation of the disease is the second most common. There are 54 million people diagnosed with it globally, and 9% to 12% of the roughly 3 million HCV patients in the U.S. are diagnosed with this genotype.

In phase 3 trials, treating genotype 3 patients with the daclatasvir/Sovaldi mashup delivered a functional cure after 12 weeks in 90% of previously untreated patients, and 86% of treatment-experienced patients.

Currently, genotype 3 patients are treated for 24 weeks with Sovaldi and ribavirin, a side-affect-laden drug that was once part of the most commonly prescribed HCV treatment. Harvoni isn't recommended for use in this patient population, so an eventual approval of daclatasvir plus Sovaldi could quickly become the standard of care.

Looking aheadThe next major battle in hepatitis C treatment is likely to be waged between pan-genotype therapies that address every genotype and over treatment duration. In the meantime, an approval for use of daclatasvir alongside Sovaldi in genotype 3 patients could add hundreds of millions in sales to Bristol-Myers revenue each quarter, depending on pricing and eventual inclusion in industry treatment guidelines.

Since the FDA will make a decision on this resubmission in six months, investors could see this begin adding materially to Bristol-Myers' financials by year end or early 2016.

The article Bristol-Myers Squibb Co. Is Back in the Hepatitis C Race originally appeared on Fool.com.

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. 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.