Biotech Values

[DewDiligence]

HCV Report from Susquehanna

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31-Jan-2007

VRTX: Neutral
IDIX: Positive
HGSI: Positive
ITMN: Positive
ACHN: Positive

Jason Kolbert - 212-514-4875 - [e-mail]
Derek Jellinek, Ph.D. - 212-514-4857 - [e-mail]

Yesterday, we hosted a client dinner with Dr. Douglas Dieterich, Professor of Medicine in the Division of Hepatology and Director of Continuing Medical Education in the Department of Medicine at Mount Sinai School of Medicine in New York. Dr. Dieterich is an investigator in several ongoing clinical trials of HCV agents. We highlight below key takeaways from the event pertaining to companies in our coverage universe.


VRTX

--VX-950 safety concerns?

We believe rash may represent a bigger concern than previously believed. In fact, 25% (3/12) of patients in one hospital in France associated with the PROVE-2 trial discontinued treatment due to rash, with one patient being hospitalized. More troubling, a case of rash was associated with VX-950 in a patient who was not on ribavirin. Previously, we had speculated that the safety concerns associated with VX-950 were due to the cumulative burden of adding VX-950 to SOC and not due to VX-950 per se. Negative Factor

--q8h VX-950 dosing

q8h is problematic and may lead to viral breakthrough. Comments throughout our event, along with physician channel checks, have indicated that VX-950 dosing every eight-hours (q8h) only works in a clinical trial setting with highly monitored and motivated patients. We believe in a real world setting, the 80/80/80 rule would reign (80% of patients take 80% of their meds 80% of the time). As compliance is highly correlated with efficacy, we believe VX-950 response rates will wane as compliant patients decline. Negative Factor

--Next significant event at EASL

We expect SVR 12- and 24-week on-treatment data for PROVE-1, the first data release from PROVE-2, as well as potential data from a ritonavir-boosting regimen, to be released at EASL (April 11-15). Although we are concerned about safety and dosing issues with VX-950, we believe the data to be presented at EASL should meet recently lowered expectations in terms of response rates. Additionally, we are eager to see RVR data, which our channel checks tell us are good and according to most experts, is the best predictor of eventual SVR rates. Positive Factor

--To BID or not to BID…

To BID or not to BID, that is the question. We believe Vertex realizes that q8h dosing could be VX-950's Achilles heel, as management recently suggested that BID dosing could be feasible when VX-950 is given in combination with standard of care. In our initiation report (11/20/06), we raised the possibility that VX-950 dosing may not be optimal and questioned the company's decision to select the 750 mg q8h dose based on a small dose-escalation monotherapy study (n=34; 6 pts on placebo, 10 pts on 450 mg q8h, 8 pts on 750 mg q8h, and 10 pts on 1,250 mg q12h). Thus, we believe the ongoing PROVE trials (in >1000 pts) could have been conducted with a BID regimen on a background of standard of care had Vertex explored dosing more exhaustively in early trials. Negative Factor

--Muddy regulatory waters ahead if BID regimen pursued

We believe if Vertex decides to pursue a BID regimen for VX-950, the regulatory pathway becomes complicated and timelines extended as many questions surface: Will the company need to re-do Phase II trials using a BID regimen? Will VX-950 first be approved with a q8h regimen then subsequently with a BID regimen? Negative Factor


IDIX

Our confidence in NM283 increases. We are more confident that the in vitro interaction observed between ribavirin and NM283's active metabolite will not be replicated in the clinic. A similar analogy can be drawn for the in vitro interaction of HIV nucleosides and ribavirin that were not substantiated in the clinic. Additionally, we believe the observed GI side-effects are not intrinsic to NM283, but a manageable, class side-effect. Our confidence in a strategic and comprehensive regulatory pathway for NM283 is further increased knowing that new Chief Medical Officer, Douglas Mayers, served as Head of Virology with Boerhinger Ingelheim with responsibility for all HIV and hepatitis clinical trials. Positive Factor


HGSI

Albuferon positioning is growing. We believe dosing every two weeks (q2w) is gaining traction among physicians and patients. Ultimately, we believe patients have the upper hand and appear to be overwhelmingly positive. While we do not believe that Albuferon will displace interferons, at least in the near term, we note that Roche (Pegasys) and Schering (Peg-Intron) will have a formidable competitor in Novartis for the interferon market. Positive Factor


Others

Competitive landscape continues to expand. The number of competitors developing novel HCV anti-virals is growing. In terms of protease inhibitors, we believe SGP's SCH503034 is still in the game (although may not prove very competitive because of its low potency) and ITMN's ITMN-191 is rapidly closing the gap with clinical leader VX-950 (see our 12/21/06 ITMN note). We also remind investors that ACHN's replicase inhibitor, ACH-806, could also pose a threat [this is also known as GS9132 from GILD]. Do not rule out Boerhinger Ingelheim (the first company to develop a protease inhibitor, BILN 2061), as channel checks indicate the company has at least two compounds (possibly a protease inhibitor and nucleoside polymerase inhibitor) in development with six-month clean toxicity profiles.
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