Merck writes off $2.9B as new hep C reality blooms
- Merck disclosed on Thursday it would write down the value of an experimental hepatitis C drug by $2.9 billion, an accounting charge that will crimp full-year earnings per share (EPS) and flip fourth quarter EPS to a loss.
- The drug, known as MK-3682 or uprifosbuvir, is currently in clinical trials as part of a oral, triple-combination treatment regimen that Merck hopes could lead to development of a shorter-duration pan-genotypic treatment for the chronic liver disease.
- Merck cited changes to the product profile as well as shifting expectations for pricing and market opportunity as reasons for the decision to re-evaluate the value of uprifosbuvir. The hepatitis C market, once a lucrative therapeutic area, has narrowed as more and more patients are effectively cured with newer, fast-acting anti-retrovirals.
Merck picked up uprifosbuvir as part of its 2014 acquisition of Idenix for $3.9 billion. At the time, Merck recognized an asset value of $3.2 billion for in-process research and development related to the compound.
Positive results in Nov. 2015 from the initial phase of a Phase 2 trial led Merck to advance a triple-combo regimen pairing uprifosbuivr with grazoprevir and another compound known as MK-8408 into a broader second stage.
But fast forward to 2017 and the market opportunity for hepatitis C drugs has changed dramatically. Much of the easily-accessible patient population in the U.S. has been treated with anti-retroviral drugs that boast cure rates in the mid- to high-90% range. While many hepatitis C patients still remain untreated, the large bolus of patients inadequately treated with drugs like ribavirin has been dramatically reduced.
Sales of market-leader Gilead's blockbuster drugs Harvoni (ledipasvir/sofosbuvir) and Sovaldi (sofosbuvir), for example, fell by a third in 2016 compared to the year prior. Gilead now expects its hepatitis C franchise to bring in annual sales of between $7.5 billion and $9.0 billion for 2017, a far cry from the high-water mark of more than $19 billion in revenues the franchise earned in 2015.
And that's even with the approval of Gilead's Epclusa (sofosbuvir/velpatasvir), a drug approved last year for patients with all six genotypes of hepatitis C.
With those shifting dynamics, the focus has now turned to developing shorter-duration treatments that are broadly effective for all patients.
Merck's triple-combo with uprifosbuvir is aimed at both of those goals. Top-line data released last November showed treatment with the three-drug regimen in patients with genotypes 1 and 3 led to competitive sustained virologic response (SVR) rates 12 weeks after completion of an eight-week therapy course. SVR12 in patients with genotype 2 were a tick lower, however, and the combo was administered both with and without ribavirin.
Even with those results in hand, though, Merck appears to see a diminished market opportunity for the drug and has marked down uprifosbuvir's asset value to reflect that.
"The decision is not related to efficacy or safety data for uprifosbuvir, which were presented recently at a major congress," a spokesperson for Merck added in an emailed statement. Enrollment in ongoing clinical trials for uprifosbuvir will continue, the spokesperson said.
Merck has been seeing some growth from its already marketed hepatitis C drug Zepatier (elbasvir/grazoprevir), but the hepatitis C market is now a crowded, competitive space. Development plans aside, Merck's accounting decision reflects that new reality.
- Merck Form 8-K
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