BOSTON (TheStreet) -- The latest Biotech Stock Mailbag tackles the hepatitis C fallout from this week's Gilead Sciences' (GILD) - Get Reportearnings conference call.

Richard B. writes, "Adam, I'm surprised no one is talking much about what happens when Merck (MRK) - Get Report enters the hepatitis C drug market. Won't this make the pricing issues we're seeing with Gilead Sciences and Abbvie (ABBV) - Get Report deteriorate even more?"

There are so many moving parts to the hepatitis C story, it's really hard to track them all. You raise a very interesting and valid point. I agree, Merck's entry into the hepatitis C treatment market with an undifferentiated therapy (relative to the competition) will likely accelerate the price discounting we're already seeing.

Merck expects to seek approval for its hepatitis C therapy in the middle of the year, so pricing and launch could be a mid-2016 event.

The current standard of care for hepatitis C -- Gilead's Harvoni and Abbvie's Viekira Pak -- delivers cure rates in the 94-99% range with 8-12 weeks of treatment. [There are some differences between these two regimens, but I'm simplifying to make a broader point.]

Merck's hepatitis C therapy consists of two drugs, grazoprevir and elbasvir, formulated into a single pill, so no convenience advantage there over single-pill Harvoni. Merck conducted a 471-patient phase II study (C-WORTHY) of the doublet therapy which yielded cure rates in the 90-98% with 12-18 weeks of treatment. A phase III program (C-EDGE) is underway with results expected to be presented at the European liver disease meeting in April. Most of the treatment schedules in C-EDGE are 12 weeks.

Based on what we know today, the efficacy and safety profile of Merck's hepatitis C therapy doesn't look much different from what's already marketed by Gilead and Abbvie. Merck might be a bit less convenient, given that Gilead can offer 8-week courses of treatment.

The FDA wants to rescind Breakthrough Therapy Designation for Merck's doublet hepatitis C therapy, the company disclosed Wednesday. Merck is appealing the FDA's still-tentative decision but it tells you regulators see no clinical advantage for the grazoprevir/elbasvir combination over Harvoni or Viekiera Pak.

Fast forward to next year and assume Merck secures FDA approval for its combination therapy. Without any efficacy or convenience advantages over the competition, the only way Merck makes a dent commercially is by offering insurance companies and pharmacy benefits managers a deeply discounted price.

The average gross-to-net discount on Harvoni is expected to reach 46% this year, Gilead said Wednesday during its earnings conference call. Discounts for public payers -- Medicare, Medicaid and the VA -- is more than 50%. Merck isn't discussing pricing strategies for its hepatitis C therapy, but the company can't offer smaller discounts than Gilead and Abbvie are already conceding, which means downward pricing pressure will accelerate.

Harvey T. emails, "I first bought shares in Gilead in 1999, thinking that it was a well-run company on the rise and featured Donald Rumsfeld as Chairman and George Shultz on the Board of Directors. I was right. I'm sure they will continue to expand into cancer treatment, probably make a splash investment or purchase sometime later this year or next. At some point in the not too distant future, I expect Gilead to become one of the Dow 30."

I like Gilead too. There isn't a smarter management team in biotech than the folks in Foster City. The weakness in Gilead's stock price this week, tied directly to the concerns about the size and sustainability of the hepatitis C business, is totally understandable.

Luckily, Gilead's future is not dependent on hepatitis C. Based on the company's track record, there will be a "post Hep C" chapter and it's likely to be very successful. The company's existing pipeline, cancer and other liver diseases like hepatitis B and NASH, especially, need to be tracked closely. The core HIV business is still huge and may even start growing again with the introduction of the next generation of TAF-containing regimens. And while it doesn't seem like a eyeball-bugging, transformational acquisition happens this year, I'd never rule one out.

Most companies would kill to be in Gilead's position, or Abbvie's for that matter, because they generate tons of cash from hepatitis C to invest in other parts of their business. It's the biotech version of a first-world problem.


Achillion Pharmaceuticals (ACHN) - Get Report is in a tough spot. It's entire future depends on hepatitis C, but the company's drugs are well behind, prices are falling and the number of patients available to treat is dwindling faster than expected. By the time Achillion gets a hepatitis C therapy approved, it might only have crumbs to fight over.

The current Achillion bull thesis relies heavily on a Big Pharma takeover. I can't rule it out, but the likelihood of an Achillion takeout seems less likely given the rapidly deteriorating dynamics of the hepatitis C market.

Bluebird Bio (BLUE) - Get Report is the same, exciting gene therapy company at $83 and $98 per share. The fundamental story hasn't changed, but even Bluebird bulls must acknowledge the valuation is tricky because it bakes in future success. Bluebird isn't alone in this regard. I can't wait to see sickle cell disease data later this year. That's the big catalyst.

Mary Jo D. writes, "Your article may be enough to lower Hemispherx Biopharma's (HEB) stock price to where I'll want to add to my holdings. New price target is $3. That's a pretty fair value from my due diligence. Plus, if the Hemispherx/U.S. Army Ebola study results that the RNA mechanism of Ampligen boosting immune response enough to lick Ebola are accurate then these results do hold promise for broad-spectrum antivirals. Whether the Ampligenmethod of efficacy is patented by Hemispherx I don't know, do you? If yes then the company holds lots of promise. Thanks for the article! Although I don't recall Hemispherx saying anything about an ongoing relationship with USAMRIID."

Shake my head. Some people will never learn.

"Yiusma91" writes, "Adam - fairly disappointed in your article of Advaxis. Normally you give some great insight into pros and cons but this seems like a pure stock hype article. Where's the information about their possible misstatements of the clinical trial results? Not sure this was worthy of your normal standards of providing industry insight. Sad day when you start focusing on stock promotion or attack rather than concentrating on the fundamentals of the company. Just hiring an industry veteran is not going to make the product candidate better or worse."

Advaxis didn't misstate clinical trial results. You're reading too much into my column if you believe I hyped the company's stock or its cancer immunotherapy pipeline. I wrote about Advaxis' chief medical officer joining from Merck and the company's partnership with the Big Pharma giant because I thought these aspects of the bull thesis were over-looked and potentially meaningful.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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