Idenix Pharmaceuticals: A Hepatitis C Play Revisited

| About: Idenix Pharmaceuticals, (IDIX)

Earlier in the year, Idenix Pharmaceuticals (NASDAQ:IDIX) hit the radar on a scan for real growth companies with very good hepatitis C potential, following the buyouts of Pharmasset (VRUS) by Gilead Sciences (NASDAQ:GILD) for $11 billion and the Inhibitex (NASDAQ:INHX) buyout from Bristol-Myers (NYSE:BMY) for $2.5 billion.

Hepatitis C virus reports from the New England Journal of Medicine say there about 170 million-plus people carrying the virus globally, including 4.1 million Americans. Annual projections for the market value of vaccines range from $3 billion to $20 billion by 2020. Volume may be seen as high as $100 billion over the next decade, and there is a global rush to try and find a cure for this disease. Merck (NYSE:MRK) has made no secret of its desire to be at the forefront of the race to cure hepatitis C. "Our goal is to be a leader in hepatitis C, and we will do what it takes to get there," said Merck's Roger Pomerantz, worldwide head of licensing and acquisitions, as reported by Bloomberg. "We would consider small deals to large deals, whatever is necessary to lead in hepatitis."

Idenix is engaged in the discovery and development of drugs for the treatment of human viral diseases, with operations in the United States and Europe. Its focus is on the treatment of hepatitis C virus infections. Nothing has changed here, except a few recent developments worthy of informing investors about.

First, there is a dispute regarding a patent application pending ('868), where Idenix has a claim that overlaps with one in a patent issued to Gilead's GILD ('572), which covers GS-7977. IDIX's application relies on an earlier filing (June 27, 2003) than GILD (April 21, 2004), so IDIX is currently the senior party. GILD has an earlier filing date for a provisional patent application (May 30, 2003), which, if deemed the appropriate date, would make GILD the senior party. However, IDIX could counter and try to obtain the filing date of three additional provisional application dates (May 14, 2003, April 28, 2003, and June 28, 2002) to leap before GILD and again become the senior party, post-resolution of seniority, which appears to favor IDIX. The first-to-invent evidence will be presented and determined. As it stands, it appears that IDIX may have the upper hand here in proving this as well in a court of law.

Leerink analyst Joshua Schimmer stated, "Gilead and IDIX are involved in patent interference proceedings initiated by the USPTO, which will determine which company invented the disputed genus claim which covers GS-7977. We hosted a conference call with a MEDACorp specialist yesterday to better understand the process and its likely outcome. Based on this call, we believe GILD will likely end up signing a licensing deal resulting in royalties to IDIX."

Second, hedge fund guru Seth Klarman of Baupost Group released its 13F for the quarter ended March 31, 2012. He raised his stake from 5,665,000 shares to 8,249,000 shares, an addition of 46%. Klarman is a Harvard graduate and the author of the book Margin of Safety and is known to be a "value investor" who takes a long-term view on stocks with very low portfolio turnover. He started his portfolio in IDIX in Q2 2011 with 1.2 million shares.

What the analysts are saying:

  • Leerink Swann maintains an Outperform on Idenix Pharmaceuticals.
  • Bank of America recently assigned a $6 per share ($600 million) royalty if there is a patent settlement.
  • JMP upgraded the stock to Market Perform on April 30.
  • Bream Murray analyst cited a public filing dated May 22 and posted a note suggesting that Idenix and Gilead may be close to settling on a patent dispute, and believes further meetings and/or a settlement could happen in June.

For a more detailed report on Idenix and hepatitis C, please refer to a prior article of mine written about this company.

Disclosure: I am long IDIX.