Three months after agreeing to pay an eye-popping $11 billion to buy Pharmasset and gain a lock on the lucrative Hepatitis C market, Gilead Sciences had the unpleasant task this morning of disclosing that its first announcement to stem from the controversial deal has nothing but bad news. Why was the deal a stunner? The key Pharmasset compound, which is given orally, was in Phase II testing (see this).
So here is what happened: a combination regimen that included the key Pharmasset compound, called GS-7977, and ribavirin, which is a standard treatment, failed to suppress the virus in difficult-to-treat - or null - patients who had also failed prior therapy. Of eight with genotype 1, the most common form of the virus, six relapsed within four weeks after stopping the 12-week regimen. The other two patients are two weeks away from stopping treatment and have not relapsed so far (read the Gilead statement).
Not surprisingly, shares in the biotech plummeted, because the Pharmasset compound was considered the lynchpin among new medications for treating the virus. “Gilead announced what is unquestionably bad news,” ISI Group biotech analyst Mark Schoenebaum wrote in an investor note. The results might mean the treatment “isn’t going to be enough in genotype 1 patients.”
The disclosure comes as interest in Hepatitis C has accelerated rapidly. Last month, Bristol-Myers Squibb agreed to pay $2.5 billion in cash for Inhibitex, which has completed only Phase I testing for its Hepatitis C compound. Both deals prompted speculation that still more such acquisitions would be forthcoming, but also questions about the prices paid, and the Gilead results are reinforcing that skepticism today.
Nonetheless, Wall Street estimates for the Hepatitis C market are sky high, with some reaching $20 billion as new treatments emerge. Last spring, Merck won approval for a new Hepatitis C medication and then quickly turned around and struck a collaboration with Roche (see here), just days before Vertex Pharmaceuticals also received FDA endorsement for a drug.
As for Gilead, analysts say the biotech suffered a blow, but nothing worse. In an investor note entitled "Rude Awakening From The Dream," RW Baird analyst Tom Russo called the results a "setback, not an end." And he posited that the outcome could mean that more combinations of different drugs or longer durations are needed in patients.
"Genotype-1 nulls are the most difficult-to-treat group... and 12-weeks of 7977 and ribavirin was a very aggressive regimen," he writes. "Investors will immediately wonder about GT-1 naives (previously untreated patients). Absent any new info, it seems reasonable, at least, to brace for a similar problem because 'nulls' relates to prior response to interferon, and there is no interferon in this regimen." More will be known about naive patients as Gilead releases results of still other studies in coming weeks.
shock pic thx to ogimogi on flickr