Bristol-Myers Squibb halted Phase II testing of the hepatitis C drug BMS-986094 due to a patient safety issue some say was heart failure in a patient taking a 200-mg dose.

BMS made the announcement Wednesday evening, long after the Street shut down for the night. Yet timing has done little to slow chatter about the potential setback, because the drug was part of a new wave of regimens that analysts expect will eliminate the need for interferon as part of go-to therapy for the blood-borne illness.

The agent in question, which BMS snatched up with its $2.5-billion Inhibitex purchase seven months ago, has since become a notable fixture on the company’s pipeline and earnings forecasts. BMS intended to pair 986094 (formerly INX-189), a nucleotide polymerase inhibitor (or “nuc”), with its Phase III NS5A inhibitor, daclatasvir, creating what Bernstein analyst Tim Anderson called a “one-two punch” therapy. Stopping the study could put this plan in the discard pile. Anderson wrote that there are only two ways the plan can remain in tact — if the safety issues are “deemed a red herring,” or if lower doses are safe and effective.

Yet the news does more than put a dent in financial expectations. It also means the company has ceded ground in the contested therapeutic space that includes competition from Gilead and Abbott, both of which are also developing all-oral hepatitis C regimens. Credit Suisse analyst Catherine Arnold, in a Thursday research note, said the news bodes well for Gilead, which hasn’t reported any safety issues with its experimental nuc, GS-7977, and could give an edge to Abbott, which is pushing forward with an oral combo without a nuc.

Besides their higher cure rate, part of what makes the new regimens a threat to existing interferon-based combinations is that they are comprised only of pills, instead of injections. Bernstein’s Anderson said this new round of treatments could kick off in 2014 and could expand HCV to a $10-billion market by 2017. By the time it figures out what to do with ‘094, if anything, BMS could quickly fall behind, while the two protease inhibitors launched in 2011 — Incivek, from Vertex, and Victrelis, from Merck — would have one less therapy to ward off.

The failure of its home-grown nuc means that, for now, BMS could mate its NS5A daclatasvir with other treatments. It’s been tried with Gilead’s GS-7977 in a previous study, resulting in cure rates of 80-100%, but Gilead just announced its intention to start a Phase III trial of GS-7977 with its own NS5A. Anderson noted that Bristol-Myers Squibb could also scoop up or license another partner for daclatasvir.

Hepatitis C is a hot market for drugmakers due to the prevalence of the disease and the number of untreated. It’s the only one of the hepatitis variations that cannot be prevented with a vaccine, and the Centers for Disease control estimates that it has infected about 3.2 million in the US. The illness inflames the liver, often leading to liver failure, and is spread though needles. Pregnant women can spread it to their infants.

Anderson said the news doesn’t undermine his confidence in BMS, but he, along with other analysts, noted that it is part of a string of company disappointments, which include the delayed approval of the blood thinner Eliquis, as well as the FDA’s rejection of diabetes treatment dapagliflozin. Leerink Swann’s Seamus Fernandez also wrote on Thursday that BMS has a future, but the news gave him pause. “This serious setback to a key pillar of BMY’s long-term growth strategy makes it difficult for us to recommend that investors put new money to work at BMY’s current valuation,” he wrote.