Morgan Stanley Alert: Gilead Investors Don't Have The Whole Story

In a report published Friday, Morgan Stanley analysts maintained an Overweight rating on

. Headline SVR from

Naive Data does not "tell the whole story," the analysts commented. Although top-line Merck SVR12 was 95 percent, the company had significantly less of the harder-to-treat GT1a pts (about 55 percent) versus Harvoni (about 80 percent). "Normalizing for GT1a, where Merck efficacy is inferior (92% vs 96-98% for Harvoni), comparable SVR12s are 95% for Merck vs 96-99% for Harvoni," the analysts wrote. The final key dataset for Merck's HCV doublet, which was presented at EASL, included treatment naïve cirrhotic (22 percent) and non-cirrhotic (78 percent) patients spread between GT1a (50 percent), GT1b (42 percent), GT4 (6 percent) and GT6 (3 percent). SVR12 was 92% in GT1a, 99 percent in GT1b, 100 percent in GT4 and 80 percent in GT6. In the report Morgan Stanley noted, "Skews in the harder to treat and more prevalent GT1a patients distort headline SVR12; Harvoni clearly remains best in class…while Gilead had between 67-80% of patients in its PhIII ION-1/3 studies with GT1a, only 55% of patients in Merck's study had GT1a." "Given that GT1a represents ~70% of the US market, physicians are very focused on GT1a efficacy. Thus, the poor showing from Merck in GT1a (92% SVR12 vs 96-98% for Harvoni) is a clear weakness given our prior physician feedback that 95% SVR12 is their bar for clinical use," the analysts explained. "Other key factors such as viral load, breakthrough and relapse also expose the relative weakness of Merck's doublet," the report said, while adding, "We currently model LT Gilead share at 60% down from our 75% estimate for 2015.While we are unlikely to change our estimate until we see if Merck's triple (including the Idenix nuc) is viable in the fall, we can see higher LT share with only Merck's doublet as competition."