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Bristol-Myers' Hepatitis Stumble Boosts Gilead, Vertex

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The big drug maker is halting a study for what was believed to be a promising treatment for hepatitis C. Gilead shares rally as Bristol-Myers falls.

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MINYANVILLE ORIGINAL Bristol-Myers Squibb (BMY) just gave Gilead Sciences (GILD) a huge lead in the competition for a better hepatitis C drug.

The big drug maker suspended a study of what was believed to be a promising experimental treatment for the liver-wasting virus. "This voluntary action was taken to protect patient safety based on the emergence of a serious safety issue," Bristol-Myers says in a statement. "The cause of the safety issue and any potential relationship to study drug are unknown at this time."

Shares of Bristol-Myers dropped 7% to $33.10 in morning trading Thursday, while Gilead jumped more than 8% to $58.13. Shares of rival hepatitis drug developers also rose. Vertex Pharmaceuticals (VRTX) jumped 3% to $50.54. Idenix Pharmaceuticals (IDIX) initially rose but was down less than 1% to $8.26 in late-morning trading.

Gilead was already considered to be leading the pack of rivals working on better hepatitis treatments, but Bristol-Myers was in the thick of the race after making a sizable acquisition earlier this year. (See Bristol-Myers Enters Hepatitis Drug Race With $2.5 Billion Takeover of Inhibitex.)

"This setback derails Bristol-Myers' development plans for combination therapies and extends Gilead's lead in the race," Stifel Nicolaus analyst Joel Sendek says. He rates Gilead a buy with a 12-month price target of $60.

Other analysts say the development is a major blow to Bristol-Myers.

"This serious setback to a key pillar of Bristol-Myers' long-term growth strategy makes it difficult for us to recommend that investors put new money to work at (the company's) current valuation," Leerink Swann analyst Seamus Fernandez says in a note. The analyst lowered his rating on the stock from to a hold from a buy.

Millions of Americans have chronic hepatitis C infections. While Vertex and Merck (MRK) introduced vastly better treatments last year, there are several development programs that seek to create a drug that doesn't require the injected therapy interferon as part of a regimen. Interferon has side effects, such as flu-like symptoms and fatigue.

Like Bristol-Myers, Gilead, Idenix, and Vertex are studying a class of drugs known as nucleotide polymerase inhibitors. These drugs target an enzyme that is needed for the hepatitis C virus to replicate. The goal is to create an oral regimen, possibly in a single pill, that doesn't require interferon. The payoff could be a blockbuster product for whoever succeeds.

Twitter: @brettchase

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