Biotech Values

[DewDiligence]

IDIX CC notes:

Cash, spending plans, and Telbivudine program in HBV

1. To calculate cash burn for the rest of 2006, subtract the $180-200M cash guidance for 12/31/06 the sum of a) $245M on hand at 3/31/06; and b) a $20-25M milestone from NVS in late 2006 (for the start of the phase-3 NM283 trial in treatment-naïve HCV). This gives an expected cash burn of $65-90M for the period from 4/1/06 to 12/31/06. This is a pretty high amount, but it includes several items: pre-commercial spending for the Telbivudine launches in the U.S. and Western Europe, R&D on non-NM283 programs, G&A, and some capex.

2. $35M of milestones are due to IDIX for approval of Telbivudine in various countries outside the U.S., but this amount is not factored into the calculation in item #1 above because approvals outside the U.S. are not expected until 2007.

3. The Telbivudine FDA PDUFA date is the end of October, 2006, but approval in the U.S. does not trigger any milestone beyond what NVS has already paid.

NM283 program in treatment-naïve HCV

4. IDIX and NVS plan to start phase-3 during 4Q06 and have settled on the 200mg dose of NM283. (The expected milestone from NVS of $20-25M is half of the total of $45M due to IDIX for starting phase-3 in both the treatment-naïve and treatment-refractory settings.) In the treatment-naïve setting, NM283 and interferon are believed to be synergistic (meaning that the log of viral reduction from the combination is more than the sum of the viral-reduction logs of the components), which is what allows a low dose of NM283 to be effective.

5. Comparative efficacy of ifn+NM283 vs ifn+ribavirin (Yarone Werber please take note): In phase-2/phase-3 trials in the peer-reviewed literature, ifn+riba produced viral clearance at 12 weeks by the Amplicor test in 38-57% of patients, while the clearance rate was 66% in the 200mg arm of the phase-2b NM283 arm reported at EASL last weekend.

NM283 program in treatment-refractory HCV

6. This is where I found the CC to be somewhat negative. NVS and IDIX believe that in this setting NM283 and interferon are merely additive (meaning that the log of viral reduction from the combination is equal to but not greater than the sum of the viral-reduction logs of the components) rather than synergistic, as in the treatment-naïve setting. Hence, NVS and IDIX are going to try to make the 800mg dose of NM283 work by taking steps to ameliorate the GI side effects seen on the phase-2b study. Ribavirin may also have to play a more prominent role in this setting than I would have liked.

Pending the outcome of drug-interaction studies with Ribavirin and the additional work on the GI side effects, phase-3 is expected to start in early 2007. (Hence the other half of the $45M in NM283 milestones for startignphase-3 is not in the cash calculations for 2006 in item #1 above.) Based on all of the above, I now consider the treatment-refractory program for NM283 to be a relatively high-risk proposition. Final results of the above pre-phase-3 work will be released in 4Q06, and interim results could be released in 3Q06 at a conference (presumably, if they are favorable).

Miscellaneous notes about the competition

7. Acknowledging the fine results VTRX achieved with VX-950, JP Sommadossi noted that protease inhibitors have drug interactions vis-à-vis P450 metabolism that nucleoside analogs do not have. Sommadossi is convinced that a nucleoside analog to inhibit HCV polymerase will be one component of the future SoC cocktail in HCV.

8. Sommadossi noted that Roche’s R1626 (#msg-10883513), the nearest direct competitor to NM283 in the development timeline, has the unwanted effect of lowering hemoglobin levels as ribavirin does. NM283 does not do this.

9. NVS and IDIX think BMY has done a lousy job of launching Entecavir, and this is the reason Entecavir’s sales have been somewhat disappointing. NVS and IDIX are looking forward to the prospect of competing head-to-head against BMY.