Idenix And The High-Stakes Ping-Pong Of Hep C Treatments

| About: Idenix Pharmaceuticals, (IDIX)

It's pretty remarkable just how quickly a hepatitis C (HCV) drug candidate can go from hero to villain in today's market. Investors cheered Gilead's (NASDAQ:GILD) bold (and expensive) bid for Pharmasset ... until some concerns about the efficacy of lead drug GS-7977 popped up. Then there was Bristol-Myers Squibb (NYSE:BMY) making its bold play for Inhibitex, only to see serious safety worries emerge on the key asset (now known as BMS-094).

Now it's the turn of Idenix (NASDAQ:IDIX). In a case of what looks to me like guilt by association, the FDA has put lead drug IDX184 on a partial clinical hold due to worries about cardiac safety.

No Trouble … Yet

The FDA has put IDX184, Idenix's "nuc" (that is, "nucleos(t)ide polymerase inhibitor") on clinical hold due to worries about the drug's safety. This basically means that further clinical development of the drug (new trials, etc.) stops until the matter is resolved and the hold is lifted.

The problem for Idenix is that '184 is quite similar to Bristol-Myers' BMS-094, the nuc that Bristol-Myers got when it bought Inhibitex. While the prodrugs have different structures (and '184's safety profile looked cleaner in preclinical studies), they do share the same active metabolite. Because a patient in the 200 mg dose group of a Phase II study of BMS-094 developed heart failure, that drug has been suspended for the time being and now the FDA wants more assurance on '184.

Although more than 100 patients have received '184 (60 of them for 12 weeks) and there have been no serious cardiac events reported, the FDA is very much in the mindset of better safe than sorry these days.

Uncertainty Never Helps

While there is an ongoing Phase IIb study involving '184, there was no current active dosing. Partial clinical holds are not unheard of in drug trials and they do not by any stretch mean that a drug is doomed; generally they mean that an outstanding (albeit usually serious) issue needs to be resolved before clinical development can proceed.

That said, it's unclear how long it will take Idenix to satisfy the FDA. It sounds like the company needs to perform echocardiograms on the patients -- starting first with nine who've experienced dyspnea, and probably then extending to all patients. According to the company, these echos are going to be read by local doctors so that they can get the data to the FDA as quickly as possible.

Echos don't take long to perform, nor to interpret, so if the data is clean I would think the hold could be lifted relatively quickly. But by the same token, I don't know if there are any lurking problems, or how much evidence the FDA will need to allow the drug to move forward.

A Nuc Problem or a Premium Problem?

At first blush, it would seem that the potential sidelining of another rival nuc would be good news for Gilead. On the other hand, there were already worries about the potency of '184, despite encouraging SVR4 data from a small early-stage study, so it wasn't as though the Street was necessarily worried about this drug stealing Gilead's thunder. Likewise, while the safety data has been pretty clean on GS-7977 thus far, FDA worries about nuc's as a class wouldn't do Gilead any favors.

For Idenix, though, this is clearly a major risk factor. If additional investigation points to serious cardio risks, then I don't see how the drug is viable and investor attention then shifts to earlier-stage drugs IDX719 and IDX368 (also a nuc). In the meantime, this interruption definitely messes with the prospects of Idenix securing a partner or acquirer -- with Gilead and Bristol-Myers both getting their fingers burned, you have to think that a potential Big Pharma dancing partner stays clear of Idenix unless and until the safety data comes back clean.

As for the rest of the space, I'm not sure there's a lingering impact other than to highlight the volatility that drives this entire sector right now. This news really changes nothing for companies like Abbott (NYSE:ABT) or Johnson & Johnson (NYSE:JNJ), though it may be a modest boon to Achillion (NASDAQ:ACHN). Here too, though, investors need to be cautious -- Achillion enjoyed its own time in the sun early in 2012 before the ping-pong ball went the other way and investors bailed out over worries about superior data at other companies, development timelines, and, ironically enough, the company's lack of a strong nuc program.

Keep in mind, though, that this little corner of biotech is exceptionally volatile, even by biotech standards. Yesterday's champion is tomorrow's bum, and yesterday's afterthought is the next great contender. That sort of goes with the territory when the addressable market is large, the currently available treatments aren't adequate, and the data is scant. So many of these drugs are in such early stages of development (and being trialed in myriad combinations with other compounds) that it's hard to rule anything out definitely, and valuations swing wildly with incremental new data.

The Bottom Line

While I could see how Idenix could be a $15 or even $20 stock if things go well, I would have gauged IDX184's pre-clinical hold value at something in the range of $6 to $8 per share today. Accordingly, with today's nearly 30% (or $2.50 per share) plunge, the Street is either saying that the rest of Idenix's pipeline is worth very little and/or that '184 is done for. I think that's a harsh and premature judgment, and it seems to me that the Street has gone straight to "almost-worst case scenario."

While this setback is going to delay development by a few months (assuming everything reads clean), the bigger damage may be to the company's near-term partnering prospects. Admittedly, those partners will return someday if the data (safety and efficacy) are good enough, but it strips away some near-term hope. Though I personally prefer Achillion over Idenix, this sort of setback in the stock means that I'm going to look at this company much more closely, run the numbers backwards and forwards, and just maybe take a position on what we might one day look back on as all smoke and no fire.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.