The Best Stock to Invest in Hep C

Source: Gilead Sciences.

The market for hepatitis C treatment is among the most lucrative for drugmakers, but it's also one of the most dynamically changing markets. Only 10 years ago, patients were treated with side effect-laden cocktails of drugs that offered coin-flip cure rates. Today, new oral drugs are revolutionizing care by cutting treatment duration and offering cure rates in the mid-90% range. With the market for hepatitis C drugs expected to advance 25% annually in each of the next three years, read on to learn which hep C drugmaker could be the best investment.

Innovating treatmentGilead Sciences is the market share-leading Goliath in hepatitis C treatment.

Thanks to the launch of the pan-genotype therapy Sovaldi and the genotype 1 therapy Harvoni, Gilead Sciences racked up revenue of $12.4 billion treating patients with hepatitis C last year.

The success of Sovaldi and Harvoni, which launched in December 2013 and October 2014, respectively, stems from a combination of factors, including reduced treatment duration, removing the reliance on prior-generation therapies for many patients, eliminating injections, and producing 90% plus cure rates.

For those reasons, it's probably not shocking to learn that Gilead Sciences has my nod as the best investment in the indication. However, before lining up to buy shares, investors should know that Gilead Sciences faces challengers in this space, and they should have an understanding of how the company plans to outmaneuver them.

Source: AbbVie.

Competition climbsIn December 2014, AbbVie won FDA approval for its competing HCV therapy, Viekira Pak. Viekira Pak is a multidrug combination therapy that boasts mid-90% cure rates in genotype 1 patients.

In a bid to dent Gilead Sciences' market share, AbbVie has inked an exclusivity deal with pharmacy benefits manager Express Scripts that clears the way for Viekira Pak to be prescribed to thousands of patients who otherwise would have received Harvoni.

While that exclusivity deal is likely to result in Viekira Pak achieving billion-dollar blockbuster status this year, this drug's drag on Gilead Sciences' sales could be short-lived for two reasons: Viekira Pak's dosing is far more complicated than Harvoni's one-pill daily regimen, and, even more importantly, Gilead Sciences is working on next-generation HCV drugs that could trump Viekira Pak.

Patients prescribed Viekira Pak typically take three pills every morning and one pill in the evening. Additionally, Viekiria Pak is likely to be prescribed alongside the prior-generation therapy ribavirin -- a drug that most doctors are shying away from because of its side effects. Including ribavirin increases Viekira Pak's cure rate to levels competitive with Harvoni, but it also increases the number of pills users must take daily from four to as many as 10.

Viekira Pak use could also slip over time if HCV drugs in Gilead Sciences' pipeline are successful.

Gilead Sciences is researching a pan-genotype Sovaldi plus GS-5816 fixed-dose combination pill that could replace Sovaldi as the go-to option for non-genotype 1 patients.

Also, Gilead Sciences has a phase 2 program under way for a two-pill combination of Sovaldi, GS-5816, and GS-9857 in genotype 1 that might reduce treatment duration to as little as six weeks. If that three-drug combination succeeds, then Viekira Pak could follow in the footsteps of Johnson & Johnson's Otezla, a drug that quickly reached blockbuster status last year before sales fell following the FDA approval of Harvoni.

Additional threats aheadGilead Sciences' pipeline activity could go a long way toward recapturing any market share it loses in the short term to AbbVie, but it will also help protect it against other competitors, including Bristol-Myers Squibb Co. .

Bristol-Myers developed daclatasvir and asunaprevir for the treatment of hep C, and the drug combo has already secured approval in Japan.

That early lead in Japan resulted in Bristol-Myers notching $207 million in hepatitis C sales last quarter. While Gilead Sciences' approval in Japan will cut into Bristol-Myers' sales in that market, an eventual approval of Gilead Sciences' next-generation therapies could relegate that combination to niche status.

Merck & Co. is also working on hepatitis C drugs that could one day compete with Gilead Sciences. Last summer, the company acquired Idenix for $3.85 billion to lock up the company's hep C drug pipeline, and Merck recently announced that the FDA has granted breakthrough status for its two-drug combination of grazoprevir and elbasvir in genotype 4 patients.

An approval in that indication could slow sales of Sovaldi in genotype 4 patients, but if Gilead Sciences can usher its Sovaldi plus GS-5816 treatment through the FDA then it could outmaneuver Merck & Co. and protect that market share.

Source: Achillion Pharmaceuticals

Tiny developers in the mixMeanwhile, a couple of intriguing programs are also under way at small-cap biotech companies.

Achillion Pharmaceuticals Inc. is developing ACH-3102, a NS5A inhibitor that works similarly to ledipasvir, one of the two drugs in Gilead Sciences' Harvoni -- the other being Sovaldi. In small phase 2 trials, combining ACH-3102 with Sovaldi produced 100% cure rates in as few as six weeks of treatment.

Achillion is studying whether the combination can deliver a functional cure in four weeks, and the company would ideally like to replace Sovaldi with its homegrown ACH-3422. Studies are just now beginning to determine if an ACH-3102 plus ACH-3422 combination is as effective as ACH-3102 plus Sovaldi.

Another intriguing therapy is Regulus Therapeutics' RG-101, a drug that targets micro RNA in a bid to disrupt hep C replication. In a very early stage trial, nine of 14 patients who received a single 4 milligram dose of RG-101 were hep C free after 57 days. However, since that research is still in the very early stages, it's far too speculative to draw any long-term conclusions.

Tying it togetherAccording to the MD Anderson Cancer Center, healthcare payers are expected to spend at least $90 billion over the next five years on hepatitis C therapies. Hep C affects more than 150 million globally, including 3 million Americans and 9 million Europeans, so this is a long-tail treatment opportunity that is likely to reward investors for many years to come. Since Gilead Sciences is already the market share leader and has compelling next-generation hep C drugs in development that could thwart competitors, I believe it could likely remain the best investment opportunity in this indication.

The article The Best Stock to Invest in Hep C originally appeared on

Todd Campbellowns shares of Achillion and 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 Express Scripts, Gilead Sciences, and Johnson & Johnson. The Motley Fool owns shares of Express Scripts, 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.

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