Pharmasset drops testing of Hep C drug, peers suffer on Wall Street

What has been a hot area drug development got a case of the chills this morning. Pharmasset revealed this morning that the company--which Gilead Sciences ($GILD) had agreed to buy for nearly $11 billion--is dropping development of one of its experimental drugs called PSI-938 against hepatitis C virus in a Phase IIb trial after lab tests showed "abnormalities associated with liver function" in patients on the drug.

The news doesn't threaten Princeton, NJ-based Pharmasset's ($VRUS) pending Gilead deal, which is primarily focused on the developer's lead candidate against hep C, PSI-7977. But the company's press release appeared to spook some investors that have bet big on hep C drug developers, and its competitors in this arena such as Inhibitex ($INHX), Achillion Pharmaceuticals ($ACHN) and Idenix Pharmaceuticals ($IDNX) saw their stocks decline.

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 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 note added 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. Current therapies for the disease involve interferon as a component of treatments, and the side effects of the drug can make patients feel worse than the disease itself. 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.

- here's Pharmasset's release

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