Should AbbVie Inc. and Gilead Sciences, Inc. Fear This Biotech Instead of Each Other?

Source: Gilead Sciences via Google Maps.

Gilead Sciences shares tumbled following the approval of AbbVie's new hepatitis C drug Viekira Pak, but both companies may find that their longer-term battle isn't with each other, but with Achillion Pharmaceuticals , a far smaller company that is developing a new generation of hepatitis C drugs, including ACH-3102, which is putting up impressive results in small mid-stage trials.

Shifting focusBy delivering cure rates above 90% and by being the first oral treatment for hepatitis C,Gilead Sciences' Sovaldi revolutionized disease treatment when it was launched last December. In October,Gilead Sciences next-generation hepatitis C drug Harvoni built on Sovaldi's success by offering genotype 1 cure rates as high as 99% and by ridding the use of side-effect-laden peginterferon and ribavirin from treatment regimens. And similarly impressive cure rates posted by AbbVie's multi-drug combination therapy Viekira Pak set the stage for a battle for hepatitis C market share in 2015.

That battle over prescription market share is likely to be heated as payers force the two companies to compete on price. AbbVie has already dealt the first blow by inking a deal with drug management company Express Scripts that makes Viekira Pak the exclusive treatment for genotype 1 patients covered by Express Scripts' preferred formulary. That decision, which affects roughly 175,000 of the nation's 3 million hepatitis C patients, could mean billions of dollars or more in sales shift away from Gilead Sciences to AbbVie in 2015. AbbVie's deal with Express Scripts includes a steep, undisclosed price cut to its $83,000 list price, but even if prices were cut in half, it would still cost $7.3 billion to treat all of the 175,000 patients covered by Express Scripts formulary.

Source: Achillion.

It's uncertain how Gilead Sciences will respond to AbbVie, but perhaps both companies will be focusing more attention on Achillion than each other longer term. That's because Achillion is developing ACH-3102, a next-generation NS5A inhibitor drug that, when matched up with Gilead Sciences' Sovaldi, may outperform Harvoni and AbbVie's Viekira Pak in reducing treatment duration.

In November, Achillion reported that 100% of the 12 patients receiving ACH-3102 alongside Sovaldi for eight weeks were still disease-free 12 weeks after stopping treatment. That could prove to be a significant advantage over AbbVie's Viekira Pak, which must be taken over 12 weeks, and Harvoni, which must be taken by roughly 60% of patients over 12 weeks. Harvoni can be dosed over an eight-week period, but to qualify, genotype 1 patients must have never received prior treatment, can't have liver cirrhosis, and must have a viral load of less than 6 million IU/ml. Since 9 of the 12 patients cured by Achillion's ACH-3102 combined with Sovaldi had viral loads north of 6 million IU/ml, it would suggest that Achillion's mashup could reduce treatment duration to 8 weeks for most -- if not all -- genotype 1 patients.

That's pretty remarkable, but what may be even more remarkable are results from a trial studying ACH-3102 alongside Sovaldi over six weeks, rather than eight weeks. That study is ongoing, but Achillion reported interim results showing that 100% of the 12 patients receiving ACH-3102 and Sovaldi remained functionally cured four weeks after stopping the six-week course of treatment. If those results hold up 12 weeks after stopping treatment, which is the gold standard for achieving a functional cure, and are duplicated in larger trials, it could mean Achillion has a best-in-class therapy.

Work remains to be doneSince Achillion's results were from small mid-stage trials, they shouldn't be viewed through rose-colored glasses. Any number of things could derail ACH-3102 in larger studies. Regardless, ACH-3102's mid-stage results appear impressive and suggest that the next-generation battle over hepatitis C won't be fought over roughly equivalent cure rates, but instead over treatment duration. To that end, Achillion is also developing its own Sovaldi alternative that can be paired with ACH-3102 instead; however, that drug is still in phase 1 trials. Admittedly, Achillion has a lot of work ahead of it to show that ACH-3102 is a better solution than Gilead Sciences Harvoni or AbbVie's Viekira Pak, and that means shares are speculative and best suited for risk-tolerant investors. However, for those willing to accept the possibility of a late-stage failure, Achillion may be an intriguing investment.

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Todd Campbell owns 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 Express Scripts and Gilead Sciences. 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.

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