As Vertex continues to lead competitor Schering-Plough in the race to bring the first protease inhibitor for hepatitis C to market, the Cambridge, Mass., biotech may have increased its edge with the purchase of ViroChem and its two clinical polymerase inhibitors for HCV.

The privately-held Laval, Quebec-based ViroChem brings with it VCH-222 and VCH-759, a pair of Phase I polymerase inhibitors that have demonstrated viral-load reduction capability and good safety profiles in early testing. Vertex says it hopes to launch a combination study of its Phase III protease inhibitor, telaprevir, with either '222 or '759 by the fourth quarter of this year.

The well-financed Vertex, which enhanced its balance sheet by netting about $315 million last month in a private placement of 10 million new common shares to three institutional investors, will buy ViroChem for $100 million upfront plus 9.9 million shares of Vertex common stock, creating an overall deal value of about $337 million (¹ Also see "Telaprevir Simmering, Flush Vertex Raises $320 Million More" - Pink Sheet, 19 February, 2009.).

In an interview, Vertex Chief Commercial Officer Kurt Graves conceded that price was driven by high competition for ViroChem, a field of suitors that presumably included Schering. The Kenilworth, N.J.-based pharma trails Vertex by about a year in development of its own Phase III protease inhibitor, boceprevir (² Also see "Length Of Therapy Becomes An Issue In HCV Protease Inhibitor Race" - Pink Sheet, 5 August, 2008.

Graves joked that he may have won the negotiations by having more dinners with ViroChem executives than with his own wife during a year-and-a-half due-diligence process.

"It was a really competitive process and there were many large pharma companies that were looking at this with us," he said. The relationship the two companies built, combined with telaprevir's lead in the HCV protease inhibitor race, gave Vertex a big advantage, Graves added. The telaprevir NDA probably will be filed during the second half of 2010, Vertex has said, while Schering projects its filling in 2011 or 2012.

Exclusive negotiation sealed the deal

In the end, ViroChem granted Vertex a brief exclusivity period during which the companies reached "deal terms, frankly, [that] I'm very happy with," Graves said. Vertex has not announced a closing date, but both companies' board have approved the transaction - Graves said the wrap-up would be a simple, straightforward process needing no regulatory review, concluding in "the very short future."

During a March 3 investor call, Graves cited several strategic underpinnings for the deal, including enhancing the profile and lifecycle of telaprevir-based regimens, establishing the foundation for a franchise of specifically targeted antiviral therapy combinations in HCV, displacing current standards of care ribavirin and peg-interferon from the HCV space without comprising sustained viral response rates, and increasing hurdles for competitors also seeking to develop STAT-C combinations.

Vertex has been careful to play up the potential for '222 and the more-advanced '759, both non-nucleoside NS5B inhibitors, but CEO Joshua Boger cited the former's "really spectacular, almost mind-blowing activity" in HCV patients during the investor call. Initially, Vertex is expected to focus on early-stage work to prepare '222 for combination therapy trials with telaprevir, while holding '759 in reserve.

Several industry analysts, while bullish on the deal, cautioned that '222 viral kinetic data are from one small, short-term study. Dosed twice-daily at 750 mg to five treatment-naive HCV 1a and 1b patients, the drug produced a median 3.7 log10 reduction in viral RNA after three days. Vertex noted those results were similar to early data produced in telaprevir monotherapy studies and comprised the most substantial viral-load reduction seen so far with an investigational polymerase inhibitor for HCV.

Telaprevir and '222 are complementary in safety because they are metabolized differently, Graves explained, so Vertex does not anticipate needing to conduct drug-drug interaction studies. There were no serious adverse events reported in the Phase I study of '222, which also came up clean in two 28-day non-clinical toxicology studies. Vertex will begin longer-term tox work in tandem with the combination study of '222 it plans to initiate later this year, Graves said.

In a Phase 1b trial, '759 produced a median 1.7 log10 viral-load reduction after 10 days therapy, dosed at 800 mg three times daily.

Dose-ranging studies needed for '222

Vertex's initial plan is to conduct dose-ranging studies with '222 in monotherapy as well as in combination with the current HCV standard of care. Freda Lewis-Hall, Vertex's executive vice president of medicines development, said this work will enable '222 to catch up with '759 so the company can make the best decision on which compound to advance.

In a March 4 note on the deal, Bernstein Research analyst Geoffrey Porges said acquiring ViroChem should enable Vertex to "capture all the value of their initial innovation in HCV and not share the upside." The potency demonstrated by '222 also could allow Vertex to shorten the dosing period for telaprevir, he wrote.

Potentially, this acquisition could set up Vertex, which although cash-strong, is competing with a number of better-funded big pharmas in HCV, to establish a new standard-of-care franchise in the space. In potential at least, the deal seems to mirror Gilead's 2002 acquisition of Triangle Pharmaceuticals, which brought it HIV candidates that enabled it to build a franchise around combination therapies such as Truvada and Atripla (³ [See Deal]).

Graves agreed that Gilead/Triangle is "certainly an example of what can happen in multi-drug disease areas. That's one of [the deals] we would look to and emulate with this kind of a deal."

He added that the acquisition will not leave Vertex needing to raise additional cash any time soon - the company still has over $1 billion in cash, he said - and work on '222 and '759 should not significantly increase its cash-burn rate this year. Vertex will update its cash-burn guidance during its first-quarter earnings call this spring, he added.

ViroChem was founded in 2004 through a $27.9 million private financing to develop antiviral therapeutics research acquired from Shire (⁴ [See Deal]). Investors included Shire, Picchio Pharma, CDP Capital, Solidarity Fund QFL and the Business Development Bank of Canada. The Vertex deal's upfront payment alone brings those investors an exit with a return of nearly four times their initial investment.

-Joseph Haas (j.haas@elsevier.com)

Vertex Braces For HCV Combo Paradigm With ViroChem Buyout

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