The Hepatitis C Market: Biotech’s Version of the Daytona 500

12/12/11Follow @xconomy

Biotech rivalries are sometimes a bit like boxing matches, where you have two lone fighters vying for the prize. But the hepatitis C market is turning into a battle royal that’s more wide open and unpredictable, with all the competitive maneuvering, surprise crashes, and comebacks you might expect from the Daytona 500.

The medical advances in hepatitis C have been dizzying this year, especially in what it means in terms of multi-billion dollar business implications. The safest thing to say is that there’s plenty of good news for patients this year, but that shareholders in the major hepatitis C drug developers had better hold on tight as a new standard of care gets established.

Some commentators figured that Gilead Sciences (NASDAQ: GILD), the world’s biggest maker of HIV drugs, had essentially locked up the dominant position in this new drug class through its $11 billion acquisition last month of Princeton, NJ-based Pharmasset (NASDAQ: VRUS). But it’s still too soon for anyone to declare victory over the wily and fast-mutating virus that causes hepatitis C. Given the way drug development is going now, it’s possible we could have dueling antiviral drug cocktails that cure almost 100 percent of patients within five years. And before we get there, we’re going to see some fascinating chess moves—and probably a few surprising collaborations—from companies like Vertex Pharmaceuticals, Merck, Roche, Johnson & Johnson, Bristol-Myers Squibb, and Abbott Laboratories, as well as several smaller biotech startups like Alpharetta, GA-based Inhibitex (NASDAQ: INHX).

The Pharmasset compound that prompted Gilead to write such a big check, PSI-7977, is “certainly not a panacea, not the lone answer,” says Kleanthis Xanthopoulos, the CEO of San Diego-based Regulus Therapeutics, and the co-founder of another hepatitis C drug developer, Anadys Pharmaceuticals.

Regulus Therapeutics CEO Kleanthis Xanthopoulos

Xanthopoulos says Gilead was “taken to the cleaners,” and that the hepatitis C market is still up for grabs. “It’s going to take some time before people figure out how it plays out,” he says. The Pharmasset drug “is a powerful player, but you will need other direct-acting antivirals. You want to go to a 100 percent cure rate. I can guarantee the Pharmasset compound isn’t going to do it alone.”

Hepatitis C has never really captured big headlines in the U.S., as it has never benefitted from massive awareness boosting campaigns that have supported research for, say, HIV, or breast cancer. But hepatitis C has clearly emerged as one of the biggest opportunities in pharmaceuticals over the past few years. There are more than 3 million people in the U.S., and an estimated 170 million worldwide, with this liver infection that can lead to cirrhosis and liver cancer. Most people have never bothered to get treated, partly because the infection takes years to fully wreak havoc. The other reason is the standard of care with a combination of drugs—pegylated interferon alpha and ribavirin—causes flu-like symptoms that last for almost a year, and usually cures only 30-40 percent of patients. Essentially, most people figure the treatment is worse than the disease.

Vertex Pharmaceuticals changed the equation back in May. The company won FDA approval for a direct antiviral drug, a protease inhibitor called telaprevir (Incivek), that is added to the usual two-drug combo regimen. By adding the Vertex drug, researchers saw the cure rate boom to almost 80 percent of patients, while cutting the treatment time with the other drugs in half. The Vertex drug also significantly raised the cure rate for patients who failed to respond to prior rounds of therapy.

Vertex looked golden for a while, as its stock soared above $55 a share, sending its market value above $10 billion. Analysts were raving about how Vertex smashed sales expectations in its first few months on the market, and started turning profitable in just its second quarter of selling the drug. Waves of patients were suddenly showing up at doctors’ offices to get treatment for hepatitis C, now that the odds of a cure were so much higher.

But important as the Vertex advance has been, researchers have made it clear that this story isn’t over. The ultimate goal is to get rid of interferon, and its side effects, so that physicians can count on some combination of direct antivirals that can be taken as oral pills. That might include Vertex’s drug in combination with others, or might not.

So that’s why Vertex, and other companies, have feverishly been looking to mix and match various hepatitis C drugs. It’s all part of a quest to come up with the ideal combo that can raise the bar on cure rates, minimize side effects, and maximize convenience.

While people on Wall Street like to embrace a simple storyline with clear winners and losers, the hepatitis C virus is one tricky adversary. Like HIV, it has a tendency to mutate and develop resistance capabilities, whenever scientists throw a new antiviral drug against it. So there isn’t likely to be a single magic bullet. The most likely route to success is with a combination of two, three, or maybe four antiviral drugs that attack the virus from different angles, making it much harder for the bug to mutate and escape one drug.

As Steve Worland, the CEO of San Diego-based Anadys Pharmaceuticals, put it in a guest editorial for Xconomy in September, there are at least four important categories of hepatitis C antivirals. There are protease inhibitors on the market like Vertex’s drug and Merck’s boceprevir (Victrelis). There are nucleotide polymerase inhibitors like Pharmasset’s PSI-7977 and a rival drug called mericitabine from Roche. There are non-nucleotide polymerase inhibitors in the works from Abbott Laboratories, Vertex, and Anadys (which Roche acquired this fall for $230 million.) And Bristol-Myers Squibb is betting on another kind of compound, an NS5A inhibitor. (You could also count microRNA therapies, which Santaris Pharma and Regulus are working on at earlier stages of development.)

Just this year, we’ve seen some fascinating jockeying for position. Drug companies often don’t like to test combinations of experimental drugs together in clinical trials, because when side effects emerge, people often like to point the finger at the other guy’s drug. And who wants to divvy up the profits with some other pharma giant when you have the whole thing yourself?

But with hepatitis C, the market opportunity is so big, and the variety of drugs to attack it is so broad, that pharma companies have set aside those concerns just to get a piece of the action. We’ve already seen Merck and Roche form a partnership to co-market Victrelis against the leading drug on the market from Vertex. Gilead just shelled out the breathtaking sum of $11 billion for Pharmasset, even though the smaller company’s lead compound still has to navigate the third and final phase of clinical trials required for FDA approval. Bristol-Myers Squibb and Johnson & Johnson have teamed up in an interesting new collaboration. Roche, through internal efforts and acquisitions, has sought to put all the pieces of the puzzle together under one roof—a protease inhibitor, a nucleotide polymerase inhibitor, a non-nucleotide polymerase inhibitor.

Nobody knows which compounds will match up best together, which ones will be too toxic in combination, or even how many antivirals will be needed to raise the cure rate. But it’s worth noting that Vertex raised the bar very high, by getting cure rates up to around 80 percent. Doctors are certainly eager to get rid of the nasty interferon part of the regimen, but they will only do that when a new regimen can do at least as well on cure rates. And any of these drugs can be derailed by somewhat mild side effects, since the bar on safety is set quite high already.

It might be relatively safe and simple to declare Gilead/Pharmasset the winners in this market, but this race isn’t even close to over. There are 200 laps in the Daytona 500, and in the hepatitis C race, I’d say we’re at about lap 50. There are going to be some fascinating strategic maneuvers, and maybe even a spectacular crash or two, before somebody zooms in under the checkered flag.

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