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The Hepatitis Drug Market Is Worse Than Wall Street Realizes

And then there were three.

Johnson & Johnson and Merck & Co. Inc. have both recently halted development of drugs to treat hepatitis C (HCV), with no plans to work on any others. This capitulation leaves the market largely split between Gilead Sciences Inc., AbbVie Inc., and a drug Merck already has on the market.

It's a glimmer of good news for Gilead, the market leader. But "glimmer" is the key word; the HCV market is still locked in a decline.

This is a smart retreat for Merck and J&J. The HCV market is well past its peak. Both of their new therapies would have been very late; AbbVie and Gilead both had new drugs approved this year. Their best hope likely would have been to compete on price in a market that's been warring over price for a while.

And the market is continually shrinking -- existing medicines have already cured many people. That's good news for patients but not an especially appealing prospect for drugmakers looking to invest in new treatments.

It's telling that J&J and Merck both retreated after the FDA approved AbbVie's new HCV medicine Mavyret in early August. The drug is particularly effective -- it works in all genetic subtypes of the disease and can cure many people more quickly than most other drugs. It's also cheaper than competing therapies. J&J and Merck may have realized they couldn't keep up with it on price. Insurers will likely use Mavyret's low cost to wring discounts from competitors.

But Wall Street analysts continue to underestimate the drug's impact. Their 2020 sales estimates for Gilead and Merck's HCV drugs have barely budged since its approval. They expect only modest sales for Mavyret, while forecasting continued dominance for Gilead and a profitable niche for Merck's Zepatier.

That looks off. AbbVie seems intent on forcing its way into a bigger market share, even if the price war it's starting means a lower overall level of HCV sales.

The number of new HCV drug patients in the U.S. this year may fall as much as 35 percent from 2016, Gilead has estimated. That decline is not reversible. HCV is a slow-moving disease; the sickest patients have already been treated, and healthier ones are more likely to hold off on getting these expensive medicines.

The absence of two more next-generation therapies from Merck and J&J will relieve some of the pricing pressure. That may stretch out the profitability of HCV for the remaining competitors a little longer. But the market's downhill slide is only gaining momentum.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.


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