Idenix’s Pain Is Achillion’s Gain

Idenix Pharmaceuticals (NASDAQ:IDIX) announced today that the FDA has placed its lead compound for hepatitis C, IDX-184, on partial clinical hold. According to IDIX, the hold on clinical trials is based on FDA caution related to a serious cardiovascular event seen with a competing, but similar, compound from Bristol-Myers Squibb (NYSE:BMY), BMS-986094. As a result, shares of IDIX are off over 30% in early trading and are likely to remain under pressure as near-term prospects for the company have been dimmed. IDIX just raised $166 million in an equity offering and former hepatitis C (HCV) collaborator, Novartis recently announced that it was terminating its agreement with the company. Despite the company telling investors on a conference call this morning that IDX-184 has different properties than BMS-986094, the two compounds become the same active drug in the body. Perhaps the different steps to convert these drugs to their active forms is reason enough to believe their toxicity profiles will differ, but speculation proves nothing, hence the FDA’s caution. Given the FDA’s partial hold, major drug companies looking for new HCV compounds to develop as part of a next-generation cocktail regimen are likely going to remain cautious on IDX-184 until Idenix generates more data and convinces the FDA to let the product advance. Idenix stated that they will submit additional data to the FDA and that they have seen no cardiovascular issues thus far with IDX-184.

Meanwhile, today’s news leaves Achillion Pharmaceuticals (NASDAQ:ACHN) as a stand out company with a portfolio of advancing compounds to treat hepatitis C. Given that the landscape of compounds in later-stage development for HCV is dwindling significantly, ACHN rises to the top of the list of potential takeover candidates in this drug segment. ACHN’s portfolio of product candidates is not based on ‘nucleotide’ (NUKE)-based chemicals like IDX-184 or the Bristol-Myers compound, rather on next-generation ‘protease inhibitors’ and the ‘NS5’ drug class. Importantly, protease inhibitors are already on the market, offering a level of comfort that ACHN’s lead programs have a good chance of making it all the way. The NS5 class that ACHN is working on still has risk, but represents a very potent mechanism of action according to hepatitis C experts. As a result, a potential acquirer of Achillion can own both shots on goal. ACHN is now a scarce asset, and is well-positioned for the next major M&A news in the HCV space. The average price target for ACHN set by Wall Street Analysts is $14.00 a share, suggesting this stock has room to run much higher. In fact, JMP Securities upgraded ACHN this morning from Hold to Buy, good timing indeed. Expect IDIX to remain volatile today, with shares of ACHN taking advantage of the news.

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