Shares in Gilead Sciences have fallen 14% following disappointing mid-stage data on an oral hepatitis C drug it acquired through its $11 billion buy of Pharmasset.

The stock plunge came after Gilead presented data from a Phase II study of GS-7977, a nucleotide analogue polymerase inhibitor. In the Electron trial, the majority of HCV genotype 1 patients with a prior 'null' response to an interferon-containing regimen experienced viral relapse within four weeks of completing 12 weeks of treatment.

Of the 10 patients enrolled in this arm of the trial, data were available for eight, and among these, six had viral relapse. Two patients have not relapsed, but they have only reached the two-week post-treatment time point.

Gilead research chief Norbert Bischofberger said “these data answer an important question about the use of GS-7977 and ribavirin for the treatment of genotype 1 null responder patients, suggesting that additional direct acting antivirals may be necessary to effectively treat this patient population". He added that “we will continue to explore a number of therapeutic approaches to address this significant unmet medical need, including combinations with other oral antivirals".

The investment community is concerned about the data and its failure in this major subgroup of patients, especially given the price that Gilead paid for Pharmasset. However GS-7977 has demonstrated  positive results in genotype 2 and 3 patients.

Setback, not a disaster

Robyn Karnauskas, an analyst at Deutsche Bank issued a note, saying that while the results disappointed, a “disaster scenario is unlikely". This was a view echoed by RW Baird's Tom Russo who said it was “setback, not an end.” He noted that Genotype-1 nulls are the most difficult-to-treat group… and 12-weeks of GS-7977 and ribavirin was a very aggressive regimen".

HCV is a very hot area at the moment and estimates of its value have been put in the region of $20 billion. As well as the Gilead/Pharmasset deal,  Bristol-Myers Squibb has just completed its $2.5 billion purchase of  hepatitis specialist Inhibitex.

Last May saw the approval of two new HCV drugs, Merck & Co's Victrelis (boceprevir) and Vertex's Incivek (telaprevir); the latter has made a stunning start and had fourth-quarter sales of $456.8 million. Jason Kantor at RBC Capital Markets wrote an investor note saying the Gilead news "is positive for Vertex’s investor sentiment,” but added that other upcoming data "will likely be more positive and GS-7977 is still the best HCV drug to date".