Gilead's $1,000 Pill Could Eradicate Hepatitis C, But Ethical And Financial Challenges Loom

Gilead Sciences' two-drug combo pill against hepatitis C is so effective, Wall Street analysts say, that it's possible that public health officials could begin thinking about eradicating the liver-damaging virus, which may afflict 3.2 million Americans and is spread mostly through sharing needles and needle stick injuries, according to the Centers for Disease Control & Prevention. In some of them, like the musician Lou Reed, it leads to liver failure and death. Gilead's pill could become one of the best-selling medicines in history.

But Gilead's super-effective drugs have already drawing controversy, because of their expense and because some doctors and patients think that the company had sharp elbows that have prevented another effective combination from reaching the market. (Click here to see the new data on Gilead's combo.)

Gilead, already the top maker of HIV drugs, received approval from the Food and Drug Administration for Sovaldi, one-half of the new combo pill, on Dec. 6 and priced it at $1,000 per pill, or $84,000 for a 12-week cost of therapy. Even by itself, Sovaldi gets rid of the virus in many patients who were failed by other treatments, and allows many of them to forego inteferon, an infused treatment that causes terrible flu-like symptoms. Surveys of fund managers conducted by International Strategy & Investment Group show they expect sales of Sovaldi to be $3 billion next year, which would make it the most successful drug launch ever. As a result of those expectations, Gilead currently sports a market capitalization of $112 billion, and these fund managers expect that within a year Gilead will be worth more than Merck , quadruple its sales.

Already, though, that high price is leading to charges of profiteering. Médecins Sans Frontières has supported an effort to oppose the Indian patent on the drug, arguing that it should be produced as a generic so that it can be made available to parts of the world that could not afford its current high price.

But the high hopes for Gilead go beyond that single pill to a combination with a second drug, ledipasvir. Together, these two medicines cure 95% of patients with the genotype 1 version of hepatitis C (the virus is identified using its genetics), usually allowing patients to forego interferon but the other old mainstay, ribavirin, which causes anemia. Three-quarters of Americans with hepatitis C are infected with viruses classified as genotype 1. The combo might work in as little as 8 weeks, and Gilead will file for FDA approval early in 2014.

“[I]f 8 weeks of treatment with a single daily tablet containing two antivirals is sufficient to cure most patients with the disease, we expect discussions to turn toward HCV eradication, and not just disease control,” wrote Geoffrey Porges an analyst at Sanford C. Bernstein, in a note to clients. “If indeed such discussions emerge, the market for these medicines could be much larger, and more sustainable, than our recently raised forecasts.”

The eight-week cure rates look slightly worse than the 12 week ones, and may not get approved; for Gilead, a 12-week course may be better, meaning more revenue. But the company hasn't priced the new combo yet, and it could cost even more than Sovaldi alone. “[T]hink about today’s data as data for an entirely new drug that has not yet been priced,” ISI analyst Mark Schoenebaum wrote to his clients.

The big question for stock-watchers is how much room will be left for other drug companies. AbbVie , the drug giant spun off from Abbott Labs last year, has its own all-oral hepatitis C combo, but it includes the anemia causing ribavirin and takes six different pills to Gilead's one. Roy Friedman, a director of a private foundation who posts under the name DewDiligence on Twitter, argues that AbbVie and its partner Enanta could still wind up with a 38% share of the hepatitis C market.

Hepatitis C patients will be thrilled to get this new treatment. But some will also be angry. Gilead acquired Sovaldi when it bought a tiny drug developer called Pharmasset for $11 billion in 2011. The deal, which has caused Gilead shares to quadruple in three years, looks like one of the smartest in biotech. But in order to make the economics make sense, Gilead dropped a combination between Pharmassett and Bristol-Myers Squibb and replaced Bristol's drug with its own. That's the data that were just released.

Some patients were enraged by the fact that Gilead mothballed an effective drug combination.A San Antonio woman named Margaret Dudley even started an online petition accusing the company of profiteering. “[T]his cure is literally being withheld from millions by pharmaceutical giant Gilead Sciences because they are more concerned about profits than human lives,” she wrote.

For patients with the genotype 1 version of hepatitis C, Gilead's new combo looks to work every bit as well as the old one. But for those with another variant, called genotype 3, the data are less promising. Given the flood of profits expected from this combination, Gilead should look very hard about getting genotype 3 studies started with Bristol – and fast. Drug companies tend to do better in the long run when they can argue they have the ethical high ground, and Gilead lost some of that credibility with the deal that literally bought the company's future.