INHX Inhibitex, Inc. (MM)

Gilead Sciences, Inc. (GILD) announced recently that it has completed its previously announced agreement to buy Pharmasset, Inc, a maker of drugs for the treatment of chronic hepatitis C virus (HCV), for approximately $11.2 billion. Gilead paid $137 for each share of Pharmasset. Gilead had entered into a definitive agreement to buy Pharmasset in November last year. The deal is expected to be dilutive through 2014 and accretive to earnings from 2015 onwards.

Pharmasset currently has three pipeline candidates in various stages of development for the treatment of HCV. The lead candidate is PSI-7977 which is undergoing two late-stage trials in patients with HCV of genotype II and III. Both studies are studying PSI-7977 in combination with standard of care ribavirin. PSI-7977 is also being studied in a mid-stage trial in combination studies in HCV patients infected with genotype I virus. The candidate is expected to move into late-stage trials in the second half of 2012. The second candidate PSI-938 is being studied as a monotherapy and also in combination with PSI-7977 in HCV patients of all viral genotypes. The third candidate Mericitabine (RG7128), being developed in partnership with Roche, Inc. (RHHBY), is in mid-stage trials.

These pipeline candidates are expected to synergize well with Gilead’s HCV portfolio. Gilead is hoping to build one of the largest HCV pipelines and is currently evaluating seven molecules for the treatment of HCV. Gilead is also studying drug combinations to develop all oral regimens aimed to reduce treatment duration to 12-16 weeks and spare the use of the current standard-of-care pegylated interferon associated with some serious side effects. Three mid-stage trials are ongoing to develop all oral interferon free regimens, data from which are expected in 2012 and early 2013. Gilead believes Pharmasset’s candidates, particularly PSI-7977, have the potential to be combined with Gilead’s HCV pipeline candidates resulting in multiple all-oral interferon-free regimens.

We note that other major companies are also targeting the HCV market. Early this month pharma giant Bristol-Myers Squibb Company (BMY) announced a $2.5 billion deal to acquire biopharmaceutical company Inhibitex, Inc. (INHX). The deal is expected to bolster Bristol-Myers’ pipeline significantly with the major attraction being HCV candidate INX-189 (phase II). We believe INX-189 could pose strong competition to Pharmasset’s PSI-7977, once both drugs are approved.

The above deals clearly convey the increasing importance of the HCV market. The market is characterized by a significant unmet need. It is estimated that approximately 170 million people suffer from HCV infection across the world. However, the treated population is much lower. This leaves the field open for new treatments.

Secondly, the current standard of care comes with several side effects which make it difficult for patients to remain on treatment. A 48-week course of both peg-interferon (peg-INF - weekly injections) and ribavirin (RBV - oral drug) are the standard treatment for genotype I HCV infection.

Vertex Pharmaceuticals’ (VRTX) Incivek and Merck’s (MRK) Victrelis (both approved last year in the US) are examples of the changing treatment regimen in the HCV market. Both are protease inhibitors which when added to the standard of care not only reduce the treatment period but also improve the treatment outcome. These factors have made the HCV market an attractive commercial opportunity for pharma and biotech companies.

In a separate development, Gilead recently announced that the US Food & Drug Administration has approved its marketed drug Viread for combination use in the treatment of HIV in children (2-12 years). Moreover, the FDA also approved three lower strength tablets of the medicine for children in the age group of 6-12 years. In addition, an oral powder formulation of the drug was also approved for children in the age group of 2-5 years. Viread was until now approved for use in adults and adolescents for the treatment of HIV and chronic hepatitis B, a serious liver disease caused by the hepatitis B virus (HBV).

 
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