Pharmasset's Hepatitis C Drug Has A Promising Future

Pharmasset (VRUS) is a clinical stage pharmaceutical company focused on developing antiviral medicines. Its research is focused on development of a class of compounds known as nucleoside analogs. Nucleosides are the building blocks of DNA and RNA and used by virus proteins during replication and growth.

The analog drug is a small chemical variation of the natural nucleoside which inhibits the activity of the enzyme leading to disruption in replication. This approach has the advantage of a high rate of success as the the natural nucleoside gives a great starting point for developing a drug in addition to a potentially low side effect profile and resistance to mutation. The disadvantages include limited potency and slow metabolism.

Pharmasset has programs for treating Hepatitis B and HIV, but what intrigues me the most is its Hepatitis C program. R7128 is a prodrug (meaning it gets metabolized into the active drug after it enters the body), which is an oral cytidine analog polymerase inhibitor of Hepatitis C virus. Last month, the company released positive preliminary data of a phase I clinical trial which showed a 2.7 log reduction of viral load after 14 days in patients that have failed to respond to standard therapy.

These results were strong enough for Pharmasset and its partner Roche (RHHBY.PK) to aggressively advance the product into further clinical trials to look into longer duration of therapy along with standard of care. There are other companies with polymerase inhibitors in the clinic for treatment of HCV including Gilead (GILD), Idenix (IDIX) and Viropharma (VPHM). This class of drugs has shown to have toxicities in long term dosing. I believe HCV will eventually be treated with a combination of protease - (Vertex Pharmaceuticals (VRTX) Telaprivir being the leading candidate), polymerase inhibitors as well as interferon with or without Ribavirin.

Another reason why I like this company is its small size. The company has a market cap of nearly 300 million and any good data will make the stock move significantly. The company has 65 million in cash and Roche as a big pharma partner to take on the clinical costs. The stock had its IPO in April and has had almost a 50% rise. I would recommend VRUS only as a buy with a long-term outlook. It will be very volatile but with patience and luck this stock could have significant returns in a few years.

VRUS 3-mo chart:

Disclosure: At this time the author does not have a position in VRUS. The author has a long position in VRTX.