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Johnson & Johnson Deal Puts Pharmasset Drug in Spotlight

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Shares of Pharmasset are rising on the hope for a hepatitis C drug. Meanwhile Vertex stock dips.

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A just-announced collaboration with Johnson & Johnson (JNJ) is shining a light on Pharmasset's (VRUS) progress in developing hepatitis C treatments, an area of drug research that's getting a great deal of attention.

The company is at least a few years away from being close to a potential approval -- let a alone bringing a product to market -- but some investors are betting that Pharmasset has a potentially big-selling treatment for hepatitis C, a liver-wasting virus that has infected an estimated 4 million Americans.

Pharmasset and J&J say they will test their individual drugs together in a mid-stage human trial this year to study the combined therapies' safety and effectiveness treating chronic hepatitis C. Pharmasset already has a similar collaboration with Bristol-Myers Squibb (BMY), testing that company's drug with its experimental medicine PSI-7977. In a separate study PSI-7977, a pill known as a nucleotide polymerase inhibitor, also is being tested with another experimental medicine developed by Pharmasset.

Shares of Pharmasset are up 8% to $124.71 in midday trading Wednesday on news of the J&J deal. The stock surged 187% so far this year and its market cap is at a lofty $4.6 billion despite the fact the company loses money and has no marketed products.

Such a rapid rise would suggest the stock is getting ahead of itself but at least one analyst thinks the shares can reach $145 within the next 12 months as the company's drug studies progress. Pharmasset has other drug candidates for hepatitis C, including a treatment being developed with Roche. It's also in the middle stages of testing an HIV drug.

Pharmasset "is quickly building an increasingly interesting pipeline in a very hot space," Robert W. Baird analyst Thomas Russo says, referring to the company's hepatitis C research focus.

William Blair analyst Y. Katherine Xu has a similar bullish sentiment. She recommends buying the stock and has a price target of $142 a share.

Both analysts note the benefit of study collaborations with big pharma companies. And in the case of J&J and Bristol-Myers, Pharmasset isn't giving away future sales, Russo notes. Unlike a licensing or marketing deal in which future sales or profit from a drug is ultimately shared, there's no such agreement involved for Pharmasset. The bigger companies run the studies and pay for them simply to see how the drug combinations work.

Vertex Pharmaceuticals (VRTX) enjoyed a similar surge in value as it developed its treatment Incivek, which won US Food and Drug Administration approval in May. (See Vertex's Hepatitis C Drug Approved.) Vertex raced Merck (MRK) to market as both companies aimed to sell vastly better drugs for a serious condition that had relatively poor treatment options.

Both Merck and Vertex got the FDA clearance to go to market. Vertex's Incivek is seen as being prescribed more widely than Merck's drug, Victrelis.

Vertex shares traded down Wednesday following the Pharmasset news, sinking 4% to $50.26. But the stock is still up more than 40% this year. And, like Pharmasset, Vertex swelled to a multi-billion dollar market value even as a clinical-stage company. Vertex's market cap now exceeds $10 billion.

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No positions in stocks mentioned.
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