Hepatitis C Drug Progress Puts Several Companies on Acquisition Watch

Feasting their eyes on the multibillion-dollar market for treating hepatitis C,
members of Big Pharma are closely watching developments at the American
Association for the Study of Liver Disease annual meeting, which started
Saturday. The large drugmakers might be thinking about following in the
footsteps of Swiss giant Roche (PINK: RHHBY ), which last month agreed to buy
Anadys Pharmaceuticals (NASDAQ: ANDS ), a developer of medicines for the
treatment of hepatitis C, for $230 million in cash. Potential targets abound.
Two of the most prominent are hepatitis C drug developers Pharmasset (NASDAQ:
VRUS ) and Inhibitex (NASDAQ: INHX ). Shares of both companies climbed Monday
after they reported positive clinical trial data for their medicines. The news
from these companies dampened investor enthusiasm for Vertex (NASDAQ: VRTX ),
whose Incivek treatment has taken the market by storm since its approval in May.
Incivek was supposed to be challenged by the Merck (NYSE: MRK ) hepatitis C drug
Victrelis, which was approved about the same time. But that battle has proved to
be no contest, with the Vertex drug widely outselling Victrelis. In the third
quarter alone, sales of Incivek totaled $420 million. However, study results
reported by Pharmasset and Inhibitex have raised some doubt among investors
about the long-term viability of Vertex's Incivek. That's reflected in the
nearly 17% decline in VRTX shares since its Friday close. Emerging competitive
data suggest a potentially very limited role for Incivek in future regimens,
said RBC Capital Markets analyst Jason Kantor, according to an Associated Press
article . Kantor said Incivek is selling well, but newer drugs continue to look
stronger as more data is reported. Eventually, he predicted, combinations of
Pharmassets treatment and other new drugs will command the field. He downgraded
shares of Vertex to sector perform from outperform and cut his price target for
the stock to $48 from $59. Although the recently approved drugs for the disease
marked the first breakthroughs for hepatitis C treatments in approximately 20
years, a number of other companies are researching others that have better cure
rates and reduced side effects. The goal for the next round of drugs to treat
hepatitis C is to produce a therapy that can be taken without the injected older
treatment interferon, which has serious side effects. Incivek is approved for
sale in the U.S. as a course of treatment to be taken with interferon.
Pharmasset is working toward the first all-oral treatment for hepatitis C, which
most definitely would hurt Incivek's sales if approved. Given the favorable
data from its study, the company could ask the FDA to approve the drug as early
as the second half of 2013. The Pharmasset drug appears to be about a
year-and-a-half ahead of the Inhibitex treatment, but the latter could become a
player if its early safety and efficacy data holds up. JMP Securities analyst
Liisa Bayko sent a note to clients saying she expects more hepatitis drug
developers to be acquired , according to Seeking Alpha . We anticipate more deal
making in the hepatitis C virus space in 2012 as companies accrue longer-term
safety data on the earlier stage assets in the pipeline, she wrote. Other
hepatitis C acquisition targets to keep an eye on are Achillion (NASDAQ: ACHN )
and Idenix (NASDAQ: IDIX ). As of this writing, Barry Cohen was long MRK.