November 7, 2010

Pharmasset Makes Remarkable Recovery on Hepatitis C Franchise

November 07, 2010

With so much attention paid to the relative merits of novel protease inhibitors, telaprevir and boceprevir, at the recent American Association for the Study of Liver Diseases (AASLD) meeting, arguably the biggest beneficiary from the conference was Pharmasset (VRUS).

Shares in the New Jersey biotech have gained 20% since the meeting started and now trade at a record high of $41, valuing the viral specialist with just two phase II hepatitis C candidates at a highly impressive $1.4bn. Key value driver is nucleoside polymerase inhibitor, RG7128, partnered with Roche (RHHBY.PK) and widely regarded as posing a genuine competitive threat to telaprevir and boceprevir. For Pharmasset the recovery over the last 18 months has been quite remarkable since the stock slumped to $7.80 with the failure of its lead pipeline candidate (Pharmasset hepatitis B failure focuses attention on hepatitis C, April 20, 2009).

Looking to the next generations

For the moment all eyes are on Vertex Pharmaceuticals (VRTX) and Johnson & Johnson’s (JNJ) telaprevir and Merck & Co’s (MRK) boceprevir, oral drugs with the potential to transform the way patients are treated for hepatitis C.

The current standard of care is a combination of pegylated alpha interferon and ribavirin, taken for up to 48 weeks. However, the long-treatment duration with weekly injections and modest efficacy - sustained virologic response (SVR) is around 55% - mean only a fraction of hepatitis C patients receive treatment.

The protease inhibitors, with much shorter treatment times of 12-24 weeks, twice-daily oral dosing and greater SVR rates up to 80%, offer obvious advantages and are expected to significantly increase the numbers of patients treated; currently patients are being ‘warehoused’ until these new drugs reach the market in the second half of 2011.

Pivotal data presented at AASLD suggest there is little to choose between the two candidates, with telaprevir appearing to hold an edge, although perhaps not quite to the extent that current consensus forecasts suggest. Telaprevir sales in 2016 of $3.55bn are more than five times higher than boceprevir at $686m (Where now for Vertex and Lilly's regrets after hat trick of telaprevir wins, September 9, 2010).

While protease inhibitors will undoubtedly be a major advance in treating hepatitis C, there are concerns about a higher rate of adverse events, particularly anemia and rashes, with these drugs over standard of care, as well as the potential for viral resistance.

Which is where Pharmasset, with its slightly different approach of nucleoside polymerase inhibitors, comes in.

Propelling data

Pharmasset’s pipeline of hepatitis C candidates are all nucleoside polymerase inhibitors. As well as RG7128, the company has unpartnered assets in PSI-7977, undergoing a phase IIb study, and PSI-938, which reported positive preliminary phase I data last week.

For now though the successful development of RG7128 is key to Pharmasset’s future.

Phase IIb data from the Propel study showed that more than 80% of patients receiving twice-daily oral dosing with the drug for 12 weeks had undetectable levels of the virus, a so-called early virologic response (EVR) rate; standard of care alone gave a 49% EVR. Importantly as well there was no evidence of viral resistance after 12 weeks.

Another phase IIb, called Jump-C, started earlier this year and is testing a 24-week dose with the drug. Meanwhile, a phase III trial is expected to start next year in comparison to standard of care; this is significant in that these are likely to be the last pivotal trials which use current therapy as the comparator and therefore a clearer regulatory pathway to approval.

Valuable franchise

Roche and Pharmasset signed a broad collaboration in 2004 to develop nucleoside polymerase inhibitors, in a deal worth up to $300m in upfront fees and milestones. Pharmasset will receive royalties and with some analysts forecasting sales of RG7128 to reach $2bn by 2016, just three years after launch, these should be significant.

Analysts covering Pharmasset have penciled in royalties of $268m by 2016, which potentially values the drug at $1.49bn, according to EvaluatePharma’s NPV Analyzer, assuming it reaches the market by 2013.

With the market already valuing Pharmasset at a similar level to this best-case scenario, it seems investors are currently placing a major bet that nucleoside polymerase inhibitors could be just as much of a breakthrough in treating hepatitis C as the current crop of protease inhibitors.

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