3 Reasons Why Wall Street Hates Idenix Pharmaceuticals, Inc.

After getting routed the last two years, short sellers finally had their day in biotech in the first-quarter of this year. Although many small-cap biotechs plunged by double-digits during this period, we are now starting to see signs that the worst may be over. 

With that being said, short sellers have been steadily increasing their position in the clinical-stage biopharma Idenix Pharmaceuticals (NASDAQ: IDIX  )  since the start of the year. With short interest now around 16% of outstanding shares, I think it's important to consider three reasons why Wall Street is betting against this small-cap biopharma. 

IDIX Chart

IDIX data by YCharts

Reason No. 1
Idenix's platform for hepatitis C drugs is best known for its history of clinical holds and dead ends. Last April, we learned that Idenix decided to scrap the develop of IDX20963 after the company couldn't get the Food and Drug Administration to release its clinical hold on the drug. The FDA was reportedly asking for more preclinical data on the drug's safety profile.

What's key to understand is that this is a repeating pattern at Idenix, which doesn't bode well for the company's technological approach to hepatitis C drugs in general. In 2013, Idenix scrapped the development of IDX184 and IDX19368 over potential safety issues--both indicated as treatments for hepatitis C. 

Reason No. 2
The hepatitis C market will be chocked full of all-oral, interferon free treatments by the time Idenix reaches a late-stage study. Presently, Idenix's lead clinical candidates for hepatitis C are only in mid-stage testing, namely IDX21437 and samatasvir. Gilead Sciences'  (NASDAQ: GILD  )  Sovaldi sold over $2 billion last quarter, and Gilead is widely expected to gain FDA approval for an all-oral combo later this year. AbbVie (NYSE: ABBV  )  has also submitted its own all-oral combo for approval, which may come later this year, so we alreayd have two companies with big potential first mover advantages. Idenix will undoubtedly be facing a radically different market in 3 to 4 years, even if it's able to advance a clinical candidate into late-stage testing.  

With other major players like Bristol-Myers Squibb and Merck & Co. also expected to gain FDA approvals in the next few years, Idenix looks to be the odd man out. Keeping with this idea, Johnson & Johnson's newly approved Olysio is even expected to see its sales slip going forward, as it will likely compete against a Sovaldi/Ledipasvir combo and AbbVie's triple-therapy soon. Put simply, it's hard to see where yet another hepatitis C drug fits into this crowded landscape of super drugs.

Reason No. 3
At the end of March, Idenix had $205 million in cash and cash equivalents. With a cash burn rate over the trailing-12 months of over $100 million, and only mid-stage (and earlier) candidates in its pipeline, it seems unlikely that management will be able to make the money last through to a potential drug commercialization. In other words, I think you should expect a capital raise and potential share dilution within the next two years and prior to any potential regulatory filing.

Foolish wrap-up 
Despite the rising short interest in Idenix, shares have rallied this year, climbing higher by nearly 10% year to date. With that said, I think this rise in share price has been driven mostly by the excitement over Sovaldi's record breaking sales and a general sectorwide leg up over the past few weeks. When we dig deeper into Idenix's prospects moving forward, I don't see much to be enthusiastic about. The hepatitis C market is certain to change after the introduction of what amount to a handful of functional cures. So, if it's able to get a drug approved, Idenix's hopes for commercial success may hinge on their ability to compete price-wise, which translates to lower margins. Overall, you may want to exercise caution with this developmental biotech. 

Even if Idenix turns the ship around and has an incredible year, it may have serious trouble keeping up with this top stock.
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Read/Post Comments (11) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On May 30, 2014, at 10:44 PM, jbaang wrote:

    I think it is important to understand the importance of a pan genotype regimen which is not mentioned in this article. The paradigm of HCV treatment will likely change from checking genotypes and monitoring viral loads frequently to not checking genotypes and only checking viral loads in the beginning and at the end of treatment.

    Gilead will have one. Idenix is the only other company currently that has the potential to have a pan genotype regimen. This is because they are the only companies that have a potent NUC in their pipeline. IDX21437's potency so far is comparable to sofosbuvir. (half log difference although it is comparing two different studies with different patient populations and the small numbers makes the comparison limited.) The phase 1/2 studies suggest All the other regimens are limited to certain genotypes and have suboptimal SVR(cure) rates with other genotypes.

    When you have a drug where you don't need to check an expensive test, the payers will be behind it because it saves money, the doctors and patients will be behind it because it is simple.

    In my opinion, being pan genotypic is crucial when you are in such a competitive market because if you look at the HIV market, little things make a big difference. And having pangenotypic coverage is not a little thing.

  • Report this Comment On June 08, 2014, at 7:18 AM, papagtanewbaag wrote:

    NUC? Why the clinical holds and dead ends? You sound like you have a clinical background and your theory makes complete sense to me as a novice investor and also if I were a potential patient who had to undergo treatment.

  • Report this Comment On June 09, 2014, at 7:47 AM, marp11 wrote:

    good call

    FOOLS

  • Report this Comment On June 09, 2014, at 7:53 AM, ethanspike wrote:

    LOL

  • Report this Comment On June 09, 2014, at 8:25 AM, ucsgears wrote:

    Today (June 09 2014). Gave us Enough reasons Why Wall street should have loved IDIX. Ooooops. But thanks to all media for dragging this down soooo much.

    You guys always do a great job, that helps us enter for a better bargain, FOOLS.

  • Report this Comment On June 09, 2014, at 9:11 AM, 9windsurfer wrote:

    This article is poorly timed, ouch. IDIX is up 233 %. A similar company CYTR will hopefully appreciate in value as well. Shorts have loaded up into CYTR like IDIX, however, CYTR has a drug aldoxorubicin which might benefit certain cancer patients. Aside from GBM, CYTR has a drug that might be worth the technology as considered by a larger pharmaceutical.

  • Report this Comment On June 09, 2014, at 9:13 AM, jsf1964 wrote:

    are you guys fired yet?

  • Report this Comment On June 09, 2014, at 10:42 AM, zhameng wrote:

    …yet another reason that this advice, even though it's free, is worth less than nothing. Hope nobody cashed out based on this drivel...

  • Report this Comment On June 09, 2014, at 11:35 AM, eastport2007 wrote:

    Merck just spent a $4bil to buy Idenix. Science has a history of failures preceding success.

    Often, the Market will cut short what might have become a Breakthrough.

  • Report this Comment On June 09, 2014, at 6:36 PM, TechNicole wrote:

    Maybe there is a need to change the title of this article. "Three reasons NOT to pay attention to a Motley Fool Fool"

    1. IDIX

    2. IDIX

    3. IDIX

    lol.

  • Report this Comment On June 09, 2014, at 8:33 PM, caelin389 wrote:

    LMAO IDIX went thru the Roof U Fuking Morons

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