Merck Targets Toughest Cases to Gain Hepatitis C Foothold

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Merck & Co. plans to target hard-to-treat hepatitis C patients with its cure for the liver ailment rather than compete for market share by drastically undercutting the price of Gilead Sciences Inc.’s $1,000-a-day treatment.

Merck said Tuesday that the U.S. Food and Drug Administration accepted its application for approval of the single pill, which combines the medications grazoprevir and elbasvir, and granted the medicine a priority review. That means Merck is on course to introduce the treatment to the market early next year.

The field for hepatitis C patients is currently divided between AbbVie Inc. and Gilead, which have locked up arrangements with the leading managers of drug coverage in U.S. health insurance plans, ensuring their medications are the first choice. Still, Merck doesn’t foresee trouble attracting patients.

“Assuming we get a decent label, I believe we’ll be able to have real competition versus Gilead,” Adam Schechter, president of global human health, said in an interview before the FDA acceptance. While he wouldn’t comment specifically on pricing strategy, he said in general that “with a competitive product profile, you can be successful potentially without offering significantly more price concessions or discounts.”

He declined to discuss the company’s marketing strategy for the drug. The FDA set an action date of Jan. 28 for its review. Merck reported second-quarter profit Tuesday that beat analysts’ estimates.

Lucrative Opportunity

The hepatitis market has been a lucrative opportunity. With little competition on the market, Gilead was able to command a wholesale price of $86,000 for a 12-week course of Sovaldi and $94,500 for Harvoni, which combines Sovaldi with another drug. Gilead reaped $10.3 billion in sales from Sovaldi alone in 2014, and analysts estimate that Sovaldi and Harvoni together will generate more than $17 billion in 2015 sales.

Gilead was the first on scene with a cure for hepatitis C, getting the market to itself for a full year before AbbVie’s cocktail of pills, known as Viekira Pak, was approved. Eager to lure patients, AbbVie struck a deal with Express Scripts Holding Co. to be the only treatment covered by the drug benefits manager. Gilead tied up CVS Health Corp. with its own agreement. Both drugmakers had to give the payers unspecified discounts in exchange for the exclusive deals.

Bracing for Merck

Gilead has said rebates and other discounts will mean an average price cut of about 46 percent in 2015, with government agencies like the U.S. Department of Veteran Affairs getting higher discounts. Investors have braced for the arrival of Merck as a third competitor in the market, waiting to see what tactics the company will use to carve a space for itself.

“There are ways to market this drug to get it on formulary -- price isn’t the only way,” John Boris, an analyst at SunTrust Robinson Humphrey Inc. said, adding that Merck has been successful entering a market where another drug was in the lead before.

John Milligan, Gilead’s chief operating officer, said in June he didn’t expect Merck’s entry into the hepatitis C market to have the same price impact that AbbVie had.

Merck’s president of research laboratories, Roger Perlmutter, said there are advantages to its therapy, since patients with “substantial renal insufficiency,” and those on dialysis, can take the drug.

“A pretty substantial percentage of patients on dialysis are hep C-infected, and there aren’t any other drugs you can use in that population,” he said.

Genotype 4

Gilead’s Sovaldi and Harvoni can be taken by patients with mild or moderate kidney impairment, but not by those with severe impairment or on dialysis, according to spokeswoman Cara Miller. Gilead is currently testing its drugs on patients with severe renal insufficiency.

Merck may also go after patients with genotype 4, a subtype of the virus. While Gilead’s Sovaldi is also approved for those patients, it needs to be taken with another side-effect heavy drug. Only 1 to 2 percent of U.S. hepatitis C cases are genotype 4, according to Bloomberg Intelligence. It is more commonly found in the Middle East and Africa. Merck is also seeking approval for genotypes 1 and 6.

Even as Merck seeks to enter the market with a cure, it’s preparing to take on Gilead and AbbVie again in the race to develop a next-generation hepatitis C treatment -- a pan-genotypic drug that could work for patients with any of the six subtypes of the virus.

(An earlier version of this story corrected the drug's name in the second paragraph.)

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