Merck (NYSE: MRK) investors can be proud, as the company's persistence appears to be paying off.

While Gilead Sciences (NASDAQ: GILD) beat Merck to market with its hepatitis C therapies -- Sovaldi and Harvoni -- Merck's once-daily single tablet regimen known as grazoprevir and elbasvir appears to be progressing toward regulatory approval.

Merck's victory
Earlier this week, Merck released a number of abstract studies ahead of the annual European Association for the Study of the Liver International Liver Congress, scheduled for April 22 to April 26 in Vienna, Austria. Highlighted among its abstracts was encouraging data for its combo therapy in treating genotype 1 patients (the most common, but most difficult to treat group) and genotype 4 patients.

Specifically, researchers noted a 95% sustained virologic response (SVR), or cure rate, noted for genotype 1a patients, with a 100% cure rate for genotype 1b patients. In genotype 4, the SVR four weeks after treatment ended was 78%, although Merck noted its data was skewed by the unrelated death of a patient due to lymphoma.

The even more exciting news for Merck investors was the announcement that the Food and Drug Administration had granted breakthrough designation for its combo therapy for genotype 4 HCV patients and genotype 1 patients on dialysis with end-stage renal disease, or ESRD.

If you recall, Merck's combo was stripped of its breakthrough therapy designation last year following approval of several competing HCV drugs. The FDA said having two genotype 1 therapies on the market removed the urgency of allowing Merck's combo to retain its breakthrough designation. However, its new specialized designation for genotype 4 patients and end-stage renal disease genotype 1 patients on dialysis should give the HCV treatment combo a fast lane to approval, possibly before the end of the year if Merck can submit its new drug filing quickly enough.

Gilead's golf clap for Merck
Meanwhile, Gilead Sciences, which you'd think might be a bit unhappy with another player readying to enter the HCV field, is probably grinning and golf-clapping all the way to the bank.

Although Merck has cleared a significant hurdle, and the breakthrough designation gives it the ability to circumvent the usual 10-month FDA review process for a shorter review of six months (or maybe even less), Gilead's products hold advantages over Merck's once-daily doublet.

To begin with, the simple fact that Merck's abstract data demonstrated no statistical improvement over Gilead's Harvoni in genotype 1 is disappointing for Merck investors but fantastic news for Gilead shareholders. Arguably, the biggest threat to Harvoni's or Sovaldi's ongoing success is the development of a superior HCV drug capable of shortening the treatment time from eight, 12, or 24 weeks to something on the order of four or six weeks.

But Merck's C-EDGE trial didn't have those consequences. In fact, Merck's doublet therapy, while solid, didn't match the potency of Gilead's primary moneymaker, Harvoni, in genotype 1. According to a note issued by Wall Street analyst Yaron Werber, Merck's doublet combo demonstrated an SVR of 94% four weeks after previously untreated patients (16% of whom were cirrhotic) underwent 12 weeks of treatment. Comparably, Harvoni was tested in the ION4 trial and demonstrated a 96% SVR after 12 weeks, of which 55% of patients were experienced and 20% had cirrhosis. As Werber summarized, "Overall, Harvoni data looks better."

I'd suggest Gilead's Harvoni still retains the convenience title as well. Despite being quite pricy at $1,125 per pill, or $94,500 for a standard 12-week treatment course, Harvoni is just a single pill per day. Period. By comparison, Merck's doublet was tested with and without the addition of a ribavirin pill (though in all fairness Merck could probably file for a new drug approval without the ribavirin, as its doublet on its own still proved very efficient). Gilead is thus poised to lead the way with convenience -- or at worst tie with Merck's doublet if it goes the non-ribavirin NDA route.

Lastly, Gilead already has exclusive marketing deals in place for Harvoni with pharmacy benefit managers and/or insurers. It's certainly possible Merck's specialization, such as its focus on ESRD patients with genotype 1 HCV, could give its doublet some traction on the market, but within the U.S. we're only talking about some 20,000 patients with ESRD and HCV-1 at any given time. Relative to the World Health Organization's estimate of 180 million people worldwide with HCV, I doubt Gilead is all too concerned.

More upside for Gilead?
Following the release of Merck's good, but not great, data, it seems fair to believe that some gray clouds have been lifted from Gilead and its stock could reasonably head higher. Of course, a major component as to whether that happens is its upcoming quarterly report.

Sovaldi and Harvoni combined for $12.4 billion in full-year sales in 2014, the majority of which came from sales of Sovaldi. The roles should reverse this year, with Harvoni being the workhorse in the common genotype 1 designation while Sovaldi sales slip. But since it has a higher price point than Harvoni, shareholders shouldn't be too concerned with Sovaldi's weaker sales.

Based on recent IMS Health written prescription estimates for the first three months of 2015, per Werber, Harvoni is tracking for roughly $3.5 billion in sales in the first quarter, with no mention of Sovaldi's sales (although it's worth mentioning that he estimated a high end of $4.2 billion in revenue). IMS sales data often underreports total sales, so Werber believes there's a good chance, even with discounting associated with its multiple long-term agreements, that Gilead can trounce Wall Street's consensus sales forecast.

Assuming Gilead does surprise to the upside and is capable of delivering high-single-digit to low-double-digit earnings-per-share growth through 2018, as Wall Street predicts, then its forward P/E of just 9.7 and annual yield of 1.7% make it a potentially delectable buy candidate for both growth and income investors.

Gilead will undoubtedly face additional challengers in the years to come, but for now I believe it firmly holds the hepatitis C crown.

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Sean Williams has no material interest in any companies mentioned in this article.

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