Medicine's Cocktail Party by Bill Alpert
Highlighted companies: Vertex Pharmaceuticals Inc. (VRTX), Idenix Pharmaceuticals Inc. (IDIX), Schering-Plough Corp. (SGP), Novartis AG (NVS), Achillion Pharmaceuticals Inc. (ACHN), InterMune Inc. (ITMN), ViroPharma Inc. (VPHM), XTL Biopharmaceuticals Ltd. (XTLB), Wyeth (WYE)
Summary: Hepatitis C virus [HCV] kills over 10,000 Americans a year of an estimated 3,000,000 infected -- 2/3 of which don't know it yet -- and 170 million worldwide. Current treatment involves 6-12 months with interferon and ribavirin (supplied mainly by Roche and Schering-Plough (SGP)), costs over $20,000, cures less than half, and has debilitating side-effects; fewer than 90,000 people a year currently undergo it. Now medical and investment communities are buzzing over drugs in testing that could be more effective and tolerable: offerings from Vertex Pharmaceuticals Inc. (VRTX), Schering-Plough, Achillion Pharmaceuticals Inc. (ACHN) and InterMune Inc. (ITMN) target an enzyme that makes components of the HCV virus; Idenix Pharmaceuticals Inc. (IDIX), ViroPharma Inc. (VPHM), Roche and XTL Biopharmaceuticals Ltd. (XTLB) are testing drugs that sabotage the protein that copies the viral genome. VRTX and its drug VX-950 lead the first race, and its shares have climbed from $10 to $45 over the past 18 months, giving it a rich market cap of $5b. IDIX (56% owned by Novartis AG (NVS)) with its NM283 lead the second race, but its shares are down from a recent $25 to just $8.70 due to gastrointestinal side-effects in patients currently under testing, giving it a valuation of just $500m. While some analysts feel VRTX merits its premium, its current lead giving it "unprecedented opportunity," others argue that the stock could drop once investors realize it will likely be sharing the HCV market with competitors. The latter seems to be the view of the medical community, which is puzzled by the Street's narrow focus on one of many drugs they foresee becoming part of the antiviral 'cocktail' that will ultimately help HCV sufferers. They don't understand, says hepatitis researcher Douglas Dieterich, that the first drug off the block won't necessarily dominate. "This is not a zero-sum game." Liver expert Robert Brown Jr. concurs that Vertex seems overvalued: "I think all the boats are going to float higher."
Related: Searching for Shorts: VRTX • Vertex May Win Race for Hepatitis C Drug • Vertex Pharmaceuticals Q3 2006 Earnings Call Transcript