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Baraclude Faces Declining Revenues in 2016

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Baraclude revenue potential

Since 4Q14, Bristol-Myers Squibb’s (BMY) oral hepatitis B drug, Baraclude, has faced a gradual decline in its US revenues, mainly due to generic competition from Teva Pharmaceutical (TEVA).

In June 2014, the U.S. Court of Appeals for the Federal Circuit reiterated the decision of the lower courts that Baraclude’s patents were invalid in February 2013. Further, the drug is set to lose its composition of matter patents in the European Union by 2016.

If Bristol-Myers Squibb can arrest the fall in Baraclude’s revenues, it may have a positive impact on its stock, as well as on the Health Care Select Sector SPDR ETF (XLV). Bristol-Myers Squibb makes up ~3.7% of XLV’s total portfolio holdings.

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The chart above shows the drop in Baraclude’s annual revenues from 2014 to 2016 on a year-to-date (or YTD) basis. While the US market accounted for ~10.3% of the drug’s total revenues in 2015, the majority of Baraclude’s revenues were earned in international markets. Baraclude competes with other hepatitis B drugs such as Gilead Sciences’s (GILD) Hepsera and Novartis’s (NVS) Tyzeka.

International market performance

Baraclude lost its patent protection in the South Korean market on October 9, 2015. The drug had been a standard of care for chronic hepatitis B patients, especially in Asian markets. Patent expiry has further affected the drug’s sales, as generic competition has started eroding Baraclude’s international market revenues.

According to the World Health Organization (or WHO), “Hepatitis B prevalence is highest in sub-Saharan Africa and East Asia, where between 5–10% of the adult population is chronically infected. High rates of chronic infections are also found in the Amazon and the southern parts of eastern and central Europe.

“In the Middle East and the Indian subcontinent, an estimated 2–5% of the general population is chronically infected. Less than 1% of the population of Western Europe and North America is chronically infected.” These statistics explain the importance of international markets in the growth of hepatitis B drugs.

In the next article, we’ll explore Bristol-Myers Squibb’s hepatitis C franchise in greater detail.

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