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Which Company Needs a HCV Win?

Brandy is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The upcoming all-oral hepatitis C treatments earned well-deserved attention for some staggering cure rates, particularly in patient groups who haven’t responded well to the current drugs.

Merck (NYSE: MRK) was one of the big HCV players -- but that’s about to change with Gilead (NASDAQ: GILD) and AbbVie (NYSE: ABBV) leading the new guard. How much does an HCV foothold mean to the overall health of these companies?

Defending champion falls flat

The combo therapy used for most patients with ongoing HCV involves an interferon injection and the oral drug ribavirin. But patients with genotype 1 -- the most common genotype in the United States -- require the addition of a protease inhibitor to achieve the best possible cure rates.

Merck has historically held a front position in the HCV market with the ribavirin Rebetol, the branded interferon PegIntron, and the protease inhibitor Victrelis. But generic ribavirin became available nearly a decade ago -- and Merck’s lost most of its other ground to competitors.

PegIntron hit peak sales of $914 million in 2008 when Schering Plough was still independent. Sales last year had fallen to $653 million due to the rise of Roche’s competing Pegasys, which had 2012 sales of about $1.7 billion (using current exchange rates).

Victrelis was much faster at succumbing to competition. The drug launched concurrently with Vertex’s protease inhibitor Incivek in 2011. Incivek quickly took the market with sales of $950 million in 2011 and $1.16 billion in 2012. Victrelis had sales of $140 million and $502 million, respectively. But both protease inhibitors could suffer a massive drop when the all-oral drugs hit the market.

New guard’s drug dependence

Three companies have reported the best cure rates for genotype 1 patients: Gilead, AbbVie, and Johnson and Johnson.

Let’s turn first to Gilead’s sofosbuvir. The drug received a priority review designation from the Food and Drug Administration last month and has an expected PDUFA date of December 8.. Analyst estimates for sofosbuvir average out to around $6 billion by 2016, according to Bloomberg.

Gilead’s total products sales were $9.4 billion last year and that included over a dozen products. The company’s portfolio includes a strong batch of HIV drugs, while the pipeline also features some promising cancer candidates.

AbbVie’s unnamed oral combo-therapy is running slightly behind Gilead in the pipelines, but AbbVie’s in greater need of a win.

AbbVie spun off from Abbott earlier this year and was born carrying over a dozen of the mother ship’s research-based pharmaceuticals. Based on the 2012 sales of those products, Humira now accounts for over 50% of AbbVie’s overall net sales. Niaspan and Tricor added up to over 10% of net sales and both of those drugs will fall off patent this year.

It seems likely that AbbVie will receive an HCV approval and go toe-to-toe with Gilead. But take away the HCV drug plus the attempts at broadening Humira’s approved indications and the AbbVie pipeline looks very stark. A strong showing with the HCV drugs could help offset concerns about the company’s small number of development projects.

Foolish final thoughts

Merck’s interferon sales could still help the company stay afloat as it charts a new course without the patent-expired Singulair. But you should mostly count Merck out of the HCV game.

Gilead’s HCV victory is widely expected so a stumble would sting. But AbbVie desperately needs some more backup for Humira -- and to show that it’s capable of churning out another blockbuster.

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Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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