On Tuesday before markets opened, Achillion announced that the Phase I study of its nuke (nucleotide polymerase inhibitor) candidate ACH-3422 has started, and safety and efficacy data of the seven-day viral kinetic study will be available in the fall. We continue to believe ACH-3422 is the cornerstone to the future success of Achillion s HCV portfolio; if the nuke is viable, we believe Achillion could be acquired, similar to the acquisition of Idenix (IDIX $23.79; Outperform) by Merck (MRK $57.94) for $3.85 billion announced yesterday, although likely at a much lesser value. Achillion is the third company after Gilead (GILD $79.01; Outperform) and Idenix that has a nuke in development; ACH-3422 is about 6 months behind Idenix s lead nuke IDX21437. Achillion also has an NS5a inhibitor ACH-3102 that is pan-genotypic.
A proprietary combination of ACH-3422 and ACH-3102 could be competitive to Gilead s second-generation combo of Sovaldi+GS5816. Such combos are the ultimate holy grail in HCV a simple, all-oral combination that is pan-genotypic with a treatment duration of 8- 12 weeks.
The reason why we have an Outperform rating on Idenix and a Market Perform rating on Achillion is threefold: 1) Idenix is traditionally a nuke specialist. It developed a nuke for hepatitis B that was approved. In HCV, besides the lead nuke IDX21437, Idenix also has a second nuke IDX21459, which just entered the clinic in April and will produce seven-day viral kinetic data in the near future. The two nukes could also form a nukenuke combo if needed, although paring one nuke with an NS5a inhibitor should be sufficient to reach the holy grail status in HCV.
Idenix also has an extensive preclinical nuke portfolio. 2) As a pioneer in HCV nuke development, Idenix has a strong intellectually property (IP) position in the field, and we believe part of the reason for Merck s acquisition of Idenix is due to Idenix s IP portfolio. 3) Achillion has so far pushed two protease inhibitors, two NS5a inhibitors and one nuke into the clinic. The company is not a nuke specialist, and the development of the nuke is more opportunistic than exploiting its strength, in our opinion.
However, as long as ACH-3422 is safe and efficacious and the IP position solid, Achillion could still get acquired, given the fact that the Idenix bidding process was competitive and it is clear to the field that nukes are key to a pan-genotypic combo that is the holy grail in HCV. Given the timing of the Idenix acquisition, which is after the 7-day human viral kinetic data and with 3-month animal safety data, a potential Achillion acquisition could occur by year-end, by such approximation.