Idenix Reels Itself In

Some small-cap drug developers with large cash-burn rates realize too late that they need to rein in spending. Others cut their expenditures when sales of their lead product don't materialize in time. Idenix Pharmaceuticals (NASDAQ:IDIX) wisely took the latter approach, as its just-released third-quarter results show.

Idenix's lead drug is the already approved hepatitis B treatment Tyzeka. Following the failure earlier in the year of the lead hepatitis C virus (HCV) compound in its pipeline, Idenix decided to eliminate its Tyzeka sales force and let partner Novartis (NYSE:NVS) take over full marketing responsibilities for the drug.

This cost-cutting move is expected to cut Idenix's cash burn rate by 40% to 50% a year, or $40 million to $45 million on an annualized basis. For the third quarter, Idenix had a burn rate of approximately $24 million, and it is expected to start 2008 with $100 million to $110 million of cash and investments on its balance sheet.

While testing was halted on the lead HCV compound this quarter, Idenix has continued preclinical work on multiple polymerase and protease inhibitors for the treatment of HCV. Its next polymerase inhibitors are expected to produce patient data sometime next year.

At a market cap of less than $50 million more than its expected net cash level for the end of 2007, shares of Idenix are trading as if the drugmaker will produce no new viable HCV compounds.

As seen in a presentation from Novartis and Schering-Plough (NYSE:SGP) at the recently ended annual meeting of the American Association of the Study for Liver Diseases, the future of antiviral HCV treatment is likely to be combination therapies using protease and polymerase inhibitors. If Idenix can bring not just its polymerase but also a protease inhibitor out of the lab, it will be the only development-stage drugmaker with the possibility of having a protease/polymerase inhibitor combination product in clinical testing -- and such compounds have been successful in treating other indications, including HIV.

That being said, with sales of Tyzeka off to a slow start, making an investment in Idenix today takes a healthy dose of faith that its preclinical work will lead to solid drug candidates. In fact, with so many drug developers having early stage anti-HCV targeting compounds in the works, I'd hold off on any potential investment in Idenix until we hear some more results for its pipeline candidates.