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Valeant’s Drug Buy: Hedging or Expanding?

Is Valeant Pharmaceuticals International hedging its bets?

The Costa Mesa drug maker just wrapped up a $113.5 million buy of Infergen, a hepatitis C drug. Meanwhile, Valeant is awaiting trial results for its own hepatitis C drug, Viramidine, which investors and analysts have raised concerns about.


Unintentional Backup

It isn’t likely Valeant is looking to Infergen as a backup, said Richard Watson, an analyst who follows the company for William Blair & Co. of Chicago.

But “that could be the net result if (Viramidine) does fail,” he said. “They have another way of getting into the market.”

Valeant completed its buy of Infergen earlier this month from InterMune Inc., a Northern California drug maker. The company could pay InterMune $20 million more in milestone payments through 2009.


Immediate Sales

Infergen “will have an immediate sales impact on Valeant and provide us with a valuable addition to one of our core therapeutic areas,” Chief Executive Timothy Tyson said in a statement about the buy.

The timing was right for Valeant to buy Infergen as InterMune needed to raise cash, according to analyst Watson.

Infergen is attractive because many hepatitis C patients don’t respond to a combination treatment of Valeant’s ribavirin and pegylated interferon, or Peg-Intron, Watson said.

Some studies show a higher response rate with Infergen. The drug eventually could reach $75 million to $100 million in annual sales within a few years.

Infergen had sales of $25.3 million through September, up 79% from a year earlier.

Amgen Inc. originally developed Infergen.


Drug Concerns

Valeant has a lot riding on Viramidine. The drug is set to supplant ribavirin, the company’s fading flagship that’s losing sales to rival drugs.

“The bottom line is people are concerned about Viramidine’s success,” Watson said in an interview late last year. “The bias on the Street has been negative toward Viramidine,the bias has been toward failure.”

So far, Viramidine’s results have been mixed. On the upside, the drug showed a lower rate of anemia in hepatitis C patients. But the company also said after second-phase trials that patient response to the drug wasn’t statistically different from those taking the ribavirin combination treatment.

Last year, Andrew McDonald, an analyst with ThinkEquity Partners LLC in San Francisco, said in a research note that he didn’t see Viramidine as a blockbuster.


Company Optimistic

In an earlier interview, Tyson said doctors and researchers involved in liver disease treatment are “still excited and have regard that this study will prove what all of the previous studies have showed,that Viramidine is equivalent to ribavirin in efficacy and superior in a reduction in incidence of anemia.”

The company could prove skeptics wrong, according to Watson:

“The bottom line here is if Viramidine succeeds, all of a sudden these guys go from throwing money at dead-in-the-water projects to being the biggest geniuses.”


MEDICINE CHEST:

Valeant’s drugs: Viramidine: key hepatitis C drug undergoing third-stage clinical trials. Infergen: hepatitis C drug recently acquired for $113.5 million. Ribavirin: fading hepatitis C workhorse, under generic attack

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