Biotech bull market charges with Merck’s Idenix takeout
Just when hepatitis C appeared to be cooling off following Sovaldi’s massive launch, Merck & Co lit a new fire today with its $3.9bn all-cash swoop on Idenix Pharmaceuticals. While the massive market is increasingly being ceded to Gilead Sciences along with AbbVie, the move today shows Merck executives believe hep C is a long march, not a quick buck.
Rather than Idenix’s lead project samatasvir, the New Jersey big pharma is most interested in the phase II IDX21437 to work in combination with Merck’s dual therapy. The price, a 250% premium on Idenix’s Friday close, shows that there yet may be life in the biotech bull market.
One size fits all
IDX21437 is a NS5B nucleotide inhibitor in the same class as Gilead’s Sovaldi. Such a molecule was an asset Merck lacked as it looked to advance its portfolio of protease inhibitor MK-5172 and NS5A inhibitor MK-8742, which has caught fire recently following positive data unveiled in April (EASL – Merck breaks from pack with promising hep C data, April 20, 2014).
Merck touted the transaction as a step toward a “one size fits all” hep C pill – achieving high cure rates in all six genotypes of the virus while being dosed once daily with as short a course as possible and requiring limited patient monitoring.
While analysts generally praised the strategy of bringing in another asset to strengthen Merck’s combination, the only question was the price. While it did not equal Gilead’s $11bn pricetag to acquire Sovaldi with its buyout of Pharmasset, it was above the $2.5bn Bristol-Myers Squibb paid for Inhibitex. Gilead’s gamble looks like it is going to pay off, while Bristol-Myers had to write its off with clinical failure.
The only Idenix candidate for which a forecast exists is samatasvir – EvaluatePharma’s consensus puts it at $406m in 2020, resulting in a risk-adjusted net present value of $242m. As an NS5A inhibitor samatasvir uses the same mechanism of action as MK-8742, so it clearly did not enter much into Merck’s calculations.
Leerink Partners analyst Seamus Fernandez characterised the transaction as “bold but well-reasonsed,” and UBS analyst Marc Goodman wrote that Merck management “probably remembers and regrets not moving quickly enough with a high enough offer on Pharmasset several years ago, and so if it seems a little expensive, so be it.”
But what the transaction shows is that Merck executives are comfortable enough with seven-day phase I safety data to make a big strike, and that it shows no cardiovascular toxicity profile like the one that derailed Inhibitex’s INX-189, to Bristol-Myers’s chagrin (Bristol-Myers setback another blow to hep C field, August 24, 2012). Investors may remain concerned that seven days will not be sufficient to prove safety, however.
The next important step will be drug-drug interaction studies before starting efficacy trials of the three-drug combination. Bernstein analyst Timothy Anderson wrote that a filing in mid-2016 would be a best-case scenario.
The second wave of direct acting hep C antivirals consist of combination pills or approaches, in contrast to the single agents that require a backbone of the mainstays interferon and ribavirin, like Sovaldi and its predecessors, Vertex Pharmaceuticals’ Incivek and Merck’s Victrelis.
The strategy seeks to block viral resistance by using multiple mechanisms of action to prevent replication. The hope is to improve cure rates and act on all hep C genotypes. With cure rates already exceeding 90% in clinical trials for most regimens, the next step is to reduce the burden of treatment by shortening its length; for example, Gilead’s pairing of Sovaldi with NS5A ledipasvir is effective with just eight weeks of treatment with some patients, as opposed to 12 weeks with many drugs.
The first regulatory decision in this wave of drugs could come no later than October 10 with FDA action on Gilead’s pairing of Sovaldi with NS5A ledipasvir. AbbVie is close behind, as in April it filed its four-drug combination that includes a boost from HIV drug ritonavir.
ISI analyst Mark Schoenebaum wrote last week that ISI data show that Sovaldi total and new prescriptions had slowed to 12% and 13% for the week ending May 30, suggesting a “re-warehousing” of hep C patients before an anticipated October launch.
While Gilead has established a lead in the hep C space, there clearly are those who are betting that Sovaldi and its successor pill will not absorb the entire $20bn market. Merck’s gamble is that broader effectiveness, a shorter duration – or, the elephant in the room, more attractive pricing – could be the weapon it needs to mop up a big market share.