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Pharmasset, Gilead Say Trial Change Won't Affect Takeover
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"PSI-7977 is pyrimidine and PSI-938 is a purine, the different chemical structures, a different pro-drug and a lack of any safety issues with 7977 with meaningfully greater patient exposure..... company made clear that the same abnormalities weren't seen in patients in the study taking PSI-7977 and the antiviral ribavirin"
(Updates with analyst's comment in seventh paragraph.)
Dec. 16 (Bloomberg) -- Pharmasset Inc., the company that has agreed to be bought by Gilead Sciences Inc., said it will modify the design of a hepatitis-C trial after one of its experimental drugs was linked to liver-function abnormalities.
Both companies said they don't expect the trial change to affect the deal. Pharmasset, of Princeton, New Jersey, will halt treatment arms that used a drug known as PSI-938, while continuing to test PSI-7977, another compound it is developing, the company said today in a statement.
Gilead, the world's largest maker of HIV medicines, agreed to spend $10.8 billion to buy Pharmasset to ward off rival bidders and bolster its roster of potential therapies, Gilead President and Chief Operating Officer John Milligan said in an interview last month. Gilead, based in Foster City, California, is betting that Pharmasset's treatments will lead a hepatitis C market that may reach $20 billion by 2020.
"Since this does not impact the development of PSI-7977, we do not believe the fundamental value of the deal has been impacted, and we remain committed to and look forward to completing the deal," Amy Flood, a spokeswoman for Gilead, said today in an e-mail.
The study-design change doesn't trigger a "key product event" clause in the takeover agreement, Pharmasset said in its statement. The company doesn't have additional comment, said Andrew Cole, an outside spokesman.
Phase 2 Study
In the Phase 2 study, there were 235 participants treated with PSI-938 alone, or in combination with Pharmasset's PSI-7977, the company said. While liver abnormalities were observed in those groups, they weren't detected in patients who took PSI-7977 without PSI-938.
"This will not affect the transaction between Pharmasset and Gilead" because the deal is "based solely on PSI-7977," Yaron Werber, an analyst for Citigroup Inc. in New York, said today in a note to clients. "There is a fair amount of data already with PSI-7977 and the drug looks clean."
Both drugs are part of a class of compounds known as nucleotide analogs that are designed to prevent viruses from replicating.
"Based on our read of the deal terms and our conversation with Gilead this morning, we do not believe today's development poses any risk to the deal going through" at a price of $137 a share, Brian Abrahams, a New York-based analyst at Wells Fargo & Co., said today in a note to clients.
Pharmasset declined 3 percent to $124.01 at 12:32 p.m. New York time. Gilead dropped 2.8 percent to $37.40.
The Pharmasset announcement may have negative implications for Inhibitex Inc. and Idenix Pharmaceuticals Inc. Those companies are developing drugs "with similar structures" to PSI-938, Abrahams said.
Inhibitex, based in Alpharetta, Georgia, plunged 22 percent to $10.16, and Idenix, based in Cambridge, Massachusetts, fell 9.8 percent to $7.
--With assistance from Ryan Flinn in San Francisco and Catherine Larkin in Indianapolis. Editors: Bruce Rule, Chris Staiti
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Pharmasset's PSI-938, a nucleotide analog drug, will no longer be tested in any of the treatment arms of the company's mid-stage "QUANTUM" study, in which 235 patients were getting the drug either alone or along with the company's lead nucleotide analog PSI-7977. The abnormalities in liver function-which many are viewing as liver toxicity--were discovered through safety monitoring. And the company made clear that the same abnormalities weren't seen in patients in the study taking PSI-7977 and the antiviral ribavirin.
"This is a disappointment, as it suggests that PSI-938's future is uncertain," Cowen analysts wrote in a note to investors this morning. "However, it is not a disaster for [Gilead] or [Pharmasset]." The noted added that Gilead had already contacted analysts via email to reassure them that the findings concerning PSI-938 do not threaten the company's planned buyout of Pharmasset.
Alpharetta, GA-based Inhibitex is developing phosphoramidate nucleotide analogues against hep C. Its shares were down 28% as of 10 am ET Friday, an even greater decline than Pharmasset. There was chatter on Twitter Inhibitex's lead hep C drug INX-189 has some similarities to Pharmasset's nucleotide analog PSI-938.
Pharmasset and its peers are developing interferon-free treatments for chronic hepatitis C, a liver-damaging virus that infects an estimated 170 million people worldwide that affects 170 million people worldwide. Current therapies for the disease involve interferon as a component of treatments, and the side effects of the drug can make patients feel sicker than their disease. Thus, interferon-free treatments are expected to grab a huge share of the multibillion-dollar market for hep C drugs, but the safety of the drugs is crucial to their future as marketable medicines.
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JP Morgan has published a research report on Gileas after Pharmasset announced this morning that phase 2b QUANTUM trial is being amended.
In the report, JP Morgan writes, "Specifically, all treatment arms containing PSI-938 will be discontinued due to liver toxicity. Importantly, liver toxicity was NOT observed with PSI-7977 in QUANTUM or any other studies to date. As a reminder, both these agents are nucs, but PSI-7977 is pyrimidine and PSI-938 is a purine. As such, given the different chemical structures, a different pro-drug and a lack of any safety with 7977 with meaningfully greater patient exposure, we believe the read-through to PSI-7977 is limited. Importantly, under the merger agreement, this announcement does not trigger a "key product event" of the merger agreement. As such, we anticipate the deal will close on schedule in 1Q12. From a fundamental perspective, clearly '7977 was the key value driver ('938 was the 'icing on the cake'), and Gilead / Pharmasset have plenty of compounds to pair up with '7977 beyond RBV, which is currently being studied."
JP Morgan maintains its Overweight rating on Gilead Sciences, which is currently trading down $0.20 from yesterday's $38.49 closing price.
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