Pharmalot's Ed Silverman comments on the "White Hot Hep C Market"...

Pharmalot's Ed Silverman on the 'white hot' HCV marketplace. Are we seeing Greenspan's famous 'irrational exuberence' as it applies to the market for Hepatitis C compounds? Is big pharma ponying up too much money too soon for drugs with very little human clinical experience or is this the way of the future as Big Pharma R&D budgets are sliced in favor of purchasing small to mid-size biotechs for their short and near -term pipelines? 

A White Hot Hep C Market: What The Wags Say

By Ed Silverman // January 9th, 2012 // 11:52 am

Over the weekend, Bristol-Myers Squibb agreed to pay $2.5 billion in cash for Inhibitex, which has completed only Phase I testing for its Hepatitis C compound. The deal, which some Wall Streeters speculate may invite a bidding war, underscores the extent to which Hepatitis C has become one of the hottest playgrounds for the pharmaceutical industry.

Two months ago, for instance, Gilead Sciences paid $11 billion for Pharmasset, which had finished proof of concept Phase II studies (read this). And last spring, Merck won approval for a new Hepatitis C treatment and then quicky turned around and struck a collaboration with Roche (see here), just days before Vertex Pharmaceuticals also received FDA endorsement for a drug.

But does the Bristol-Myers deal make sense? What about the Gilead deal? Where does this leave Merck? And what might happen next? These were among the questions that, not surprisingly, several Wall Street analysts were attempting to answer this morning as they pondered the Inhibitex purchase and the Hepatitis C market. Here are a few of their thoughts:

The price tag for Inhibitex, Bernstein Research analyst Tim Bernstein writes is “very expensive.” Nonetheless, he notes that virology has been a “core therapeutic area” for the drugmaker and may have been interested in purchasing Pharmasset, but did not want to pony up a huge amount to “round out” its product portfolio.
On the downside, it may be quite a while before anyone can determine whether this is a good deal, because the Inhibitex compound is in such an early stage of development. By contrast, he notes that Bristol-Myers paid $2 billion for Medarex in 2009 and, roughly two years later, the Yervoy treatment for melanoma was approved and on the market.

“At this point, among Hepatitis C drug developers, it is not known which exact combination of agents will be the most effective, but a common goal is to use an all-oral regimen that can eliminate the need for interferon, to better improve tolerability,” he writes. “In general, Hepatitis C is becoming a very crowded space and it will be difficult to predict which companies or compounds might be the ultimate ‘winners,’ and there is an arms race between market participants to flesh out their portfolios and have as many complementary shots on goal as possible.”

Meanwhile, RW Baird analyst Tom Russo posits that the deal is fair, but fully valued, when balancing the recent positives for the Inhibitex compounds and the “the potentially transformative value” of using a nucleotide polymerase inhibitor in Hepatits C treatment against further development risks. He notes that intellectual property constraints mean that there are relatively few “nucs” in development.

“The dynamic of many to few – as in many big players committed to HCV but few small, attractive pure-plays – creates a very favorable dynamic,” he writes, adding that the short list of other potential acquisitions leaves Achillion Pharmaceuticals and Idenix Pharmaceuticals. “Big Pharma generally prefers to wait for more complete de-risking, but we’ve wondered if an offsetting sense of urgency – to act before all the best assets are gone – was setting in, and the move by Bristol-Myers following fast on the heels of Gilead could amplify this.

And Leerink Swann analyst Howard Liang writes that the purchase price for Inhibitex may be “unprecedented for an early Phase II asset,” but the deal was probably “necessary for Bristol-Myers to remain relevant” in the Hepatitis C market. “We view (the) acquisition as tacit admission of the importance of ‘nucs’ to the development of all oral Hepatitis C therapies. While this will be viewed as a risky move by most, we believe it likely was a necessary move for Bristol-Myers to remain relevant… if ‘nucs’ are a critical backbone and the Inhibitex compound is safe enough.”

In his view, Bristol-Myers was one of the most “critical companies, scientifically, on the safety of nucs, so its willingness to step forward suggests nucs will clearly be critical to all oral regimens and the (Inhibitex compound) may be used for a short enough duration to be safe and effective.” Separately, he says this narrows Merck’s options for adding a nuc, although it is not yet “checkmate.”

He speculates that Merck may wind up partnering with Bristol-Myers or Gilead, but the big drugmaker is “clearly is at a strategic disadvantage” if ‘nucs’ prove to be as important as Pharmasset acquisition seems to imply.