Vertex Acquires Virochem for $375M to Make Cocktail Treatments For Hepatitis C

Vertex Pharmaceuticals sees combination treatments as the future of hepatitis C treatment, just as is the case with HIV already, and today it made a big move to beef up that cocktail approach. The Cambridge, MA-based biotech company said it has agreed to acquire Laval, Quebec-based ViroChem Pharma, a privately held company, for an estimated $375 million in cash and stock, bringing it the rights to two promising drugs in development that may work well with its own hepatitis C drug, telaprevir.

Vertex (NASDAQ: VRTX) agreed to pay $100 million in cash, and will issue ViroChem another 9.9 million shares of stock, which were worth about $275 million at today’s closing stock price of $27.96. The actual number of shares will depend on Vertex’s stock price at the time the deal closes, the company said.

Vertex has been on a roll in the past year. It is in the final stage of clinical trials with telaprevir, which is attempting to be a first-in-class protease inhibitor drug for hepatitis C, a chronic liver disease. This drug has shown an ability to almost double the cure rate of standard meds, with a course of treatment that takes half as long. The drug has an opportunity to exceed $2.6 billion a year in U.S. sales in 2013, according to analyst Rachel McMinn of Cowen & Co. Behind telaprevir in development, there are an estimated 40 new drugs in three main classes—protease inhibitors, nucleoside polymerase inhibitors, and non-nucleoside polymerase inhibitors. These drugs all attack the hepatitis C virus from different angles, and are thought to be able to boost cure rates when combined. Virochem’s drugs are from the non-nucleoside class.

“These compounds look as good as anything we’ve seen, and better than most. And we’ve looked at everything,” said Josh Boger, Vertex’s CEO, in a conference call with analysts.

The strategy at Vertex is to introduce the first-in-class protease inhibitor telaprevir, then build up its advantage over competitors for years to come with the compounds from ViroChem, said Kurt Graves, Vertex’s chief commercial officer in the call. Over time, the company hopes these new drugs will be effective enough in combination with telaprevir that it will enable doctors to get rid of the current standard drugs—pegylated interferon alpha and ribavirin—which cause nasty flu-like side effects that last almost a year. That regimen is so intolerable that most patients can’t stick with the treatment, so if it could be eliminated, presumably Vertex could capture a much bigger share of the 170 million people worldwide thought to have hepatitis C infections.

The ViroChem drugs have not yet advanced into large studies designed to put their effectiveness to the test. But the first, VCH-222, has been able to achieve a 5,000-fold reduction of virus in the blood after three days, which Vertex characterized as “the most substantial reduction” of any polymerase inhibitor drug given by itself. Vertex plans to begin its first combination study of this drug with telaprevir in the second half of this year.

The second drug, VCH-759, showed a more modest viral-killing ability over 10 days. Data from laboratory tests suggest that both of the drugs could provide added viral killing punch when given on top of telaprevir.

“We’re continuing the raise the bar on what’s best for patients,” Graves said on the call.

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