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HCV Landscape Change: Safety Scare Tilts Balance in Hepatitis C Drug Battle
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Dec 19, 2011 1:10 pm by Brett Chase

Vertex and Achillion are winners, while Inhibitex and Idenix are short-term losers after rival Pharmasset warns about patients with liver function problems.

Shares of hepatitis drug makers have been on fire this year, but safety concerns are causing investors to retreat on at least a couple of stocks.

Inhibitex (INHX) and Idenix Pharmaceuticals' (IDIX) stocks are recovering today after a big sell-off Friday. The companies are developing hepatitis C treatments that are chemically similar to an experimental drug that rival Pharmasset (VRUS) just chucked, saying it posed risks to patients. Specifically, Pharmasset said it was stopping development of the drug after detecting "abnormalities associated with liver function" in patients being tested in a mid-stage study.

The announcement changes the landscape a bit for the crowded field of companies working on new treatments for hepatitis C, a liver-wasting virus that affects millions of Americans.

While it would seem to be very bad news for Pharmasset, the company assured investors that ditching one drug wouldn't affect its planned sale to Gilead Sciences (GILD). That's because the drug being discontinued isn't the lead product that Gilead is seeking from Pharmasset. (See Gilead Plans $11 Billion Takeover of Pharmasset to Gain Hepatitis Drugs.) While any safety issue raises concerns among the medical and investment community, Pharmasset says there has been no similar safety issue with its lead drug candidate, PSI-7977.

While Inhibitex and Idenix are the losers (at least near-term) following the Pharmasset news, a couple of other companies appear to benefit: Vertex Pharmaceuticals (VRTX) and Achillion Pharmaceuticals (ACHN).

Vertex and Merck (MRK) each won approval of new, much improved hepatitis C drugs earlier this year. Vertex, which has captured about three quarters of the new market for hepatitis treatments, sees Pharmasset, Inhibitex and others as potential threats to sales of its new drug Incivek. As good a medicine as Incivek has proved to be, the drug has to be taken with an older treatment, Interferon, which causes serious side effects. The goal for the next-generation of hepatitis C drugs is to create a regimen that doesn't require interferon. Safety fears for these potential next-generation drugs may extend the revenue stream for Vertex for a bit longer than expected. (Any new hepatitis C treatment is at least a few years from reaching market.)

Achillion is the other potential winner following the recent news. While Inhibitex and Idenix lead drug candidates are similar to the structure of Pharmasset's now-discontinued medicine (a guanine nucleotide analog). Achillion's lead drug is a different structure, which is giving a lift to its stock.

Shares of Achillion are rising for the second straight day, up 2% to $7.68 midday Monday. The stock has risen 86% this year. Idenix also rose 2%, trading at $7.23 Monday. The shares are up 43% on the year.

Inhibitex is up 6% today, trading at $11.08, and is still below Thursday's close. The shares are still up a whopping 330% this year.

After rising Friday, Vertex shares are down less than 1% to $33.76. The stock is down about 4% on the year. The shares traded as high as $58 in May. Concerns about competition have led to part of the sell-off.

Pharmasset is climbing back after dropping Friday but is still trading below the $137 a share Gilead agreed to pay for the company. In midday trading, Pharmasset rose about 1% to $124.70.

Inhibtex's meteoric rise was fueled by the announced Pharmasset takeover -- as Gilead agreed to pay an almost 90% premium to acquire the biotech. (See Inhibitex Soars as Investors Chase Hepatitis Drug Developers.)

Early next year, Inhibitex and Indenix will disclose safety information on their lead drugs that will carry a lot more weight than the comparison to the Pharmasset treatment. So expect more stock movement.

"Each compound in this class should be judged independently," Leerink Swann analyst Howard Liang says.

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