Wedbush Securities upgraded its rating on shares of Idenix Pharmaceuticals Inc. (NASDAQ: IDIX) to outperform from neutral. The brokerage also raised its fair value estimate to $11 from $6.
We are upgrading Idenix because of the heightened premium we believe big-pharma will place on the nucleotide class of drugs following consistently stellar data from Pharmasset's (VRUS) PSI-7977. Meanwhile, Idenix's IDX184 represents one of only two clinical-stage nucleotide available for partnering and should undergo material de-risking in early 2012, said Duane Nash, an analyst at Wedbush Securities.
In the wake of Pharmasset's growing dataset on lead nucleotide analogue PSI-7977 showing 90 percent to 100 percent SVR rates across genotypes 1-3, as well as the company's ambitious Phase 3 plans (potential approval as early as first half of 2014), Nash believes that the large pharma players in the HCV space must act sooner-rather-than-later to cover ground in the race to bring an all-oral DAA therapy to market.
With Pharmasset's compounds off the table for partnering, only Idenix and Inhibitex (INHX) possess clinical-stage nucleotides ready for late stage trials in 2012.
Due to the growing likelihood that nucleotide will be essential for interferon-free therapy, and combined with the scarcity value of available nucleotide, Nash is increasingly optimistic that IDX184 will be partnered or acquired in 2012.
He believes the current market-leader among developmental stage nucleotides, Pharmasset's PSI-7977, appears to fall within the claims of U.S. Patent No. 7,608,600 B2, owned by Idenix.
Although an infringement lawsuit could not be filed until PSI-7977 actually reaches the U.S. market, he believes that this patent heightens Idenix's value considerably, whether it inspires Pharmasset itself to buy the company to gain freedom-to-operate, or whether it inspires acquisition by a third-party who seeks to gain leverage over Pharmasset.
Our new fair value is calculated using a probability-adjusted net present value analysis of estimated cash flows from Idenix's HCV franchise through 2022, applying a 12 percent discount rate and no terminal value, said Nash.
He said his fair value currently assumes a 43 percent chance that IDX184 will reach the market. Given uncertainties over the mathematical value of Idenix's '600 patent, he does not incorporate it into his fair value. That said, he does believe that it provides considerable upside to $11 share valuation.
Idenix Pharma stock closed Monday's regular trading down 3.71 percent at $6.74 on the NASDAQ Stock Market.