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Inhibitex Soars as Investors Chase Hepatitis Drug Developers

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Gilead's $11 billion planned takeover of Pharmasset is generating investor excitement for rivals. Achillion and Idenix also rising.

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The conventional wisdom after Gilead Sciences' (GILD) recently announced $11 billion takeover of hepatitis drug developer Pharmasset (VRUS) is that similar companies will be gobbled up for big prices.

The deal gave a boost to the already rising stocks of three smaller companies developing their own treatments for the liver-wasting virus hepatitis C: Inhibitex (INHX), Achillion Pharmaceuticals (ACHN) and Idenix Pharmaceuticals (IDIX).

Shares of Achillion and Indenix are up almost 50% this year, while Inhibitex is up more than 400%. Inhibitex is rising again today (up 19%) on news of positive results for an early stage study of its lead drug. Let's emphasize the point that this is an early stage study -- the first of three human trials normally needed for US approval. In other words, Inhibitex is years from bringing a product to market.

The fact that Inhibitex is now a company with a $1 billion market cap says something about the frothy excitement over companies with hepatitis C drugs in development. It's been a hot area for investors trying to find the next Pharmasset or Vertex Pharmaceuticals (VRTX), a company whose market cap rose to more than $10 billion before its hepatitis C drug Incivek was approved in May. (See Vertex's Hepatitis C Drug Approved.)

Incivek is a breakthrough drug that's rapidly ascending to blockbuster status because it's superior to older treatments. One caveat: Incivek has to be taken in combination with interferon, an older medicine with severe side effects. What makes Pharmasset, Inhibitex and the other companies attractive to investors is hope that their drugs will be even more effective and safer than the Incivek-interferon combination.

But has Inhibitex -- with its meteoric rise -- plateaued?

Robert W. Baird analyst Thomas Russo calls Inhibitex "one of the most attractive assets in the consolidating [hepatitis C] space." In a note Tuesday, he raised his price target for the stock to $15 from $12.

Inhibitex shares traded at $13.60 in midday trading Tuesday. Indenix jumped 5% to $7.50 and Achillion rose 2% to $6.10.

In addition to the positive study results, Inhibitex said it raised almost $20 million through the sale of stock via a shelf registration, securing money needed for additional human studies of the company's hepatitis drug. That's a positive for the company as the next stage of human trials will be closely watched by investors.

"At this stage Inhibitex is clearly still more of a speculative investment, but investors do have to get involved earlier in (hepatitis C) than many other spaces because proof of concept is established – and corresponding gains are captured – earlier," Russo says in his note.

Russo says a takeover of Inhibitex isn't central to his investment recommendation but he acknowledges that the company is very attractive to rivals. He declines to speculate who would buy the company.

But one only need look at the large players in various stages of developing their own hepatitis treatments to find potential suitors. Merck (MRK), for instance, beat Vertex to market with its new hepatitis treatment Victrelis by about a week but that product is being trounced by Incivek. (See Vertex Hepatitis Drug Beats Estimates.) Other big companies studying treatments include Vertex's development partner Johnson & Johnson (JNJ), Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT), Novartis (NVS), Roche and Boehringer Ingelheim.


Twitter: @brettchase

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No positions in stocks mentioned.
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