Expectations reined in as Gilead hits bump on the hep C road

If anybody believed Gilead Sciences’ big play in hepatitis C world would go without a hitch, those beliefs can be put to rest. The California group’s shares plummeted 14% percent to $46.99 in early trade on news that previously treatment-resistant patients relapsed within four weeks of completing a three-month interferon-free regimen of Gilead’s GS-7977 with ribavirin.

Concern already existed that Gilead overpaid for the asset when it acquired Pharmasset for a jaw-dropping $11bn in November, and that could well now be the case. As the so-called interferon “null responders” in this small trial are a very difficult patient population, by no means do the results suggest GS-7977 is a worthless drug. However, given the hype surrounding hep C and the value Gilead placed on the candidate, the bloom has come off this rose.

Proving itself

The company reported results from the “null responder” arm – that is, patients who have failed to respond significantly to an interferon-based treatment regimen – of the Electron trial. Six of eight null responders randomised to take GS-7977, formerly known as PSI-7977, relapsed within four weeks of completing the 12 week treatment course. The two other patients in the arm have not completed the post-treatment period.

Gilead representatives treated it as an answer to a scientific question, saying the findings suggest that an additional antiviral will be necessary to treat the particularly treatment resistant virus strains present in the null-response patients. This makes an ongoing combination trial, testing GS-7977 with Johnson & Johnson’s and Medivir’s TMC435, one to watch.

The antiviral has already proven itself effective in hepatitis C genotype 2/3 patients in another arm of the Electron trial, and the company says it is on track to file in that population in mid-2013. The question is how well it can do in genotype 1 patients, the predominant strain in the US, for which pivotal trials are expected to begin later this year.

The more important question it may have answered: Can a direct acting antiviral cure hepatitis C without the help of interferon? The answer seems to be yes, but in those particularly difficult null-response patients it may need some help.

Bursting bubble?

In that it was the first visible hiccup in the development of a candidate with so much riding on it, the investor response is not too surprising. Shares in Gilead had climbed 37% since the Pharmasset buyout was announced, leading to quite a lot of discussion about a hepatitis C bubble (Gilead's hep C asset must live up to sky high expectations, February 6, 2012).

Shares in fellow hepatitis C specialists Idenix and Achillion were up this morning – Idenix up 6% to $12.20, Achillion 20% to $10.54, signalling continued interest in the space and hopes that a more potent single agent might be found elsewhere.

Whether this is an overreaction will remain to be seen in the days ahead. The fact that GS-7977 did effectively reduce viral load before relapse occurred suggests that the drug will have a place in the emerging drug cocktails expected to form the backbone of hepatitis C treatment in the future.

Nobody is writing off GS-7977 just yet. Expectations are still reasonably high that it will play a role in an interferon free hepatitis C future. But this bump along the way should help investors rein in some unreasonably high expectations.