UPDATE: Patients On Gilead's Hepatitis C Drug Relapse In Trial

Gilead Sciences Inc. (GILD) said a majority of hepatitis C patients in one arm of a clinical trial had a relapse in their disease after being treated with an experimental drug, raising questions about the drug's potential and the $11 billion price tag Gilead recently paid to obtain it.

Gilead shares plunged $8.22, or 15%, to $46.59 in recent trading Friday.

Shares of other companies developing hepatitis C drugs surged, including Vertex Pharmaceuticals Inc. (VRTX), Idenix Pharmaceuticals Inc. (IDIX), Achillion Pharmaceuticals Inc. (ACH) and Bristol-Myers Squibb Co. (BMY).

Gilead obtained the drug, GS-7977, with its $11 billion purchase of Pharmasset last month. Gilead has billed GS-7977 as the anchor of what the company expects to be the first all-oral regimen for hepatitis C to reach the market, potentially in 2014, and analysts have predicted the drug has multibillion-dollar annual sales potential. Current standard treatments include an injectable drug.

A clinical trial of GS-7977, titled "Electron," included an arm testing the drug in patients with a form of hepatitis C known as genotype 1, who had previously seen little or no decrease in the virus after treatment with a regimen containing an older drug, interferon.

Gilead said a majority of these patients experienced viral relapse within four weeks of completing 12 weeks of treatment of GS-7977 plus another drug called ribavirin.

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

Gilead said the results suggest that additional antiviral drugs may be necessary to effectively treat patients in this subgroup. Gilead will explore various options to treat these patients, including combinations with other orally administered antivirals.

ISI Group analyst Mark Schoenebaum called the clinical data "unquestionably bad news," and reduces the drug's potential in treating genotype 1 patients. He said the drug's probability of success in treating certain other genotypes remains unchanged.

GS-7977, formerly code-named PSI-7977, has shown positive results in other genotypes of hepatitis C, including genotypes 2 and 3.

Results from ongoing studies of GS-7977, including those involving genotype 1 patients who haven't previously been treated, will be released in the coming months.

-By Peter Loftus, Dow Jones Newswires; 215-982-5581; peter.loftus@dowjones.com

-Ben Fox Rubin contributed to this article

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