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UPDATED: Merck scoops up troubled Idenix's hep C drugs in $3.85B buyout

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Eight months after it promised to go on a shopping spree for new experimental drugs, Merck ($MRK) has come up with a $3.85 billion cash deal to buy out Idenix, a biotech company best known for its setbacks in hepatitis C drug research. The deal instantly broadens Merck's hep C portfolio and also widens the front in its legal battle for a share of the megablockbuster hep C drug Sovaldi, sold by Gilead ($GILD).

Merck has already established a reputation for promising hep C work with a pair of new drugs advancing in the clinic. MK-5172, an NS3/4A protease inhibitor, and MK-8742, an NS5A drug, were given "breakthrough" status at the FDA and are now in late-stage studies. In its release today the pharma giant said that it worked out the deal due to the promise of Idenix's three drug candidates: two nucleotide prodrugs dubbed IDX21437 and IDX21459 and a NS5A inhibitor named samatasvir. Those drugs can now be mixed in Merck's cocktail therapies and analysts highlighted 21437 as a good fit for Merck's triple-combo approach. 

Once a high flyer in the hep C world, Idenix has been plagued with development issues for the past 18 months. Close to a year ago, Idenix hit a pipeline roadblock when the FDA demanded more preclinical data on its lead drug IDX20963. And earlier in 2013 the biotech had to dump development of IDX184 and IDX19368 after they were put on clinical hold due to their close relationship with a Bristol-Myers ($BMY) program that blew up in an earlier study that proved it was dangerous to patients.

Those setbacks underscored the risk involved in the Merck buyout, and the reason why Idenix's shares have suffered.

"IDIX's lead nuc is called IDX21437," ISI's Mark Schoenebaum noted this morning. "At least 3 other nucs have failed in clinical development previously (IDX184, PSI-938, and Inhibitex's nuc). MRK believes that the preclinical toxicity data on the IDIX compound was extensive and has made them comfortable that the compound does not exhibit mitochondrial toxicity, which was a problem for some of the other failed nucs. In addition, clinical (human) data indicate that potency is adequate, with log reductions across genotypes of over 4 logs. According to MRK, 83 patients have been treated with the IDIX compound for durations between 7 and 14 days."

The deal calls for Merck to buy the company for $24.50 a share, a jaw-dropping price that is 3.4 times the stock's close on Friday. Hepatitis C was once one of the hottest fields in biotech for M&A, but the deal-making cooled dramatically over the past two years as Gilead surged forward and other companies experienced setbacks. This morning, though, the focus is back on potential buyouts, pushing up shares of Achillion ($ACHN) by about 39%.

"With this transaction, Merck is becoming a more formidable competitor to Gilead in the HCV space," notes Bernstein's Geoff Porges in a note, adding that he expects it will take four to five years to get the triple-drug cocktail through the clinic. "Merck will now be looking to add Idenix's nuke to their existing NS5a and protease inhibitor programs to create the ultimate three-drug, pan-genotype regimen for HCV based on one of the two NS5a's available to them, their HCV protease inhibitor and Idenix's nuke. The transaction is consistent with our view about the growing competitive intensity, and shrinking "Window of Opportunity" in therapeutics development in general, and in HCV in particular."

Analysts will be closely following just how long it takes Merck to advance this triple-drug program in the clinic. Merck's R&D arm has been undergoing a massive restructuring, and Merck R&D chief Roger Perlmutter has made speed of execution a high priority for its leading therapies.

Gilead has been leading the charge to upend the hep C market with the megablockbuster entry of Sovaldi. A new combo is under review now and AbbVie ($ABBV) has been hard at work to race to the market with a rival approach to quell the virus without the use of interferon injections. New cocktails that can address all the genotypes of the disease will compete for a global, multibillion-dollar market. And in an interview with Forbes today, Perlmutter is portraying this deal as a way to catch up and broaden its franchise with combos that will work much faster than the competition's drugs.

Both Merck and Idenix have also filed claims against Gilead in a patent war over Sovaldi. Both companies have claimed a stake in the drug, which Gilead acquired in its $11 billion acquisition of Pharmasset. Merck has demanded a 10% royalty on the drug, saying the drug violated its hep C patents.

Back in April, Merck unveiled interim Phase II results for an oral combination of MK-5172, its NS3/4A protease inhibitor, and MK-8742, an NS5A, among patients with chronic HCV genotype 1 infection. After 12 weeks of therapy 42 of 43 patients--98%--demonstrated a sustained viral response. The combination plus ribavirin hit a 94% cure rate. And the drugs did it without any injections of interferon, which is widely hated by patients.

"Idenix has established a promising portfolio of hepatitis C candidates based on its expertise in nucleoside/nucleotide chemistry and prodrug technologies," Perlmutter said. "Idenix's investigational hepatitis C candidates complement our promising therapies in development and will help advance our work to develop a highly effective, once-daily, all oral, ribavirin-free, pan-genotypic regimen that has a duration of treatment as short as possible for millions of patients in need around the world." 

- here's the release

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Idenix plunges after FDA throws up a roadblock for lead hep C 'nuc'