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Roche makes $230 million offer for antiviral developer Anadys; shareholders challenge the offer in court

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BASEL, Switzerland—In an effort to broaden its portfolio ofhepatitis drugs, Swiss drugmaker Roche has reached an agreement to purchaseAnadys Pharmaceuticals for $230 million.
A key part of the sale is Anadys' drug Setrobuvir, a combinationtherapy for hepatitis C that would be taken in combination with otherantivirals as part of a drug "cocktail." If clinical trials keep moving aheadas the company expects, Setrobuvir could gain the U.S. Food and DrugAdministration's (FDA) approval and be available to patients by 2015, accordingto Anadys President and CEO Steve Worland.
"With Roche's considerable capabilities and experience inHCV, we believe this acquisition provides the best chance of success for thenew potential treatments to reach patients," Worland adds.
The deal may not be without its hurdles, with a lawsuitrecently filed in an effort to block the proposed sale. New York-based law firmFaruqi & Faruqi LLP announced Oct. 19 it was investigating Anadys' board ofdirectors.
In a complaint filed in California federal court,shareholders said they would receive $3.70 per share of Anadys common stockunder the terms of the deal announced on Oct. 17, even though according toYahoo Finance, at least one analyst had set a price target of $4 per share.
The plaintiffs claim Anadys made misleading statements andmaterial omissions in its Oct. 25 solicitation and recommendation statement toshareholders on the deal, alleging the company failed to explain why its boardcountered Roche's $3.70 per-share offer with a proposal for $4.50 a share onOct. 7, only to accept Roche's original offer three days later on Oct. 10.
"Without the omitted and materially misrepresentedinformation, Anadys' shareholders simply cannot make a fully informed decisionas to whether to vote in favor of the proposed transaction," the plaintiffsstate in their claim.
Legal maneuvering not withstanding, Setrobuvir's potentialto be part of a future combination therapy against hepatitis C proved to be anattractive piece of the purchase for Roche.
"Our aim is to offer physicians and hepatitis patients apowerful combination of therapies that bring us closer to a cure, even withoutthe use of interferon," says Jean-Jacques Garaud, global head of Roche PharmaResearch and Early Development. "Anadys' compounds provide additional modes ofaction that could lead to interferon-free treatment regimens without viralresistance."
Also in development at Anadys is an oral, small-moleculeinducer of innate immunity.
A new era of interferon-free hepatitis therapies wouldcreate both a short-term threat and a long-term opportunity for Roche. In 2010,the company made $1.8 billion from sales of Pegasys, but that drug loses patentprotection in 2017 and a new wave of oral hepatitis therapies likely couldbecome the new standard of care by then, sparing patients from interferon'sflu-like side effects and delivery method by injection.
As a result, Roche seems to be taking a proactive businessapproach, and Peter Sandbach, head of communications at Roche Partnering, notesthat Setrobuvir is an effective inhibitor of HCV genotype 1, which is the mostprevalent genotype in the United States and also one of the most difficult totreat.
"HCV therapy is a market with significant unmet medicalneed," he says. "HCV therapy is evolving towards interferon-free, direct-actingantiviral (DAA) combinations. This acquisition will provide us with a portfoliorepresenting multiple mechanisms of action."
Setrobuvir, Sandbach explains, is a non-nucleosidepolymerase inhibitor that represents an alternative mechanism of action toadvanced HCV drug candidates already in Roche's portfolio such as danoprevir (aprotease inhibitor) and mericitabine (a nucleoside polymerase inhibitor). 
"The combination of danoprevir, mericitabine and Anadys'programs provides an opportunity for a wholly owned, first-to-market,interferon-free combination therapy," he says. "Three direct-acting antiviraldrugs, when used in combination, will likely lead to better efficacy, reducedpotential for drug resistance, shorter treatment duration and fewer sideeffects than currently available treatments using combinations of proteaseinhibitors, ribavirin (Copegus) and injectable pegylated interferon (Pegasys)."
Sandbach says Roche will maintain Anadys' San Diego-basedoperations long enough to effect an orderly transfer of programs, technologyand records to the Roche Virology team in New Jersey. 
"We estimate this will take three to six months, and plan towork closely with the Anadys team throughout this period," he says. "Our goalwill be to complete the transfer by end of first quarter of 2012."
According to Sandbach, Roche has often looked upon externalinnovation as a cornerstone of its R&D strategy, and its track record informing external partnerships, from in-licensing to acquisitions, demonstratesthis.
"We continue to look for the best innovation outside Rochethat will strengthen our R&D portfolio—so this isn't a one-off [deal], it'san integral part of our strategy," he notes.
The ripple effects of the deal are already making their waythrough the industry.
In a note to clients, JMP Securities analyst Liisa Baykosaid she expects she expects more hepatitis drug developers to be acquired.
"We anticipate more deal making in the hepatitis C virusspace in 2012 as companies accrue longer-term safety data on the earlier stageassets in the pipeline," she wrote.
Industry observers believe the deal could mean greatercompetition for the two recently approved hepatitis C drugs, Vertex's Incivekand Merck & Co. Inc.'s Victrelis. FDA regulators cleared both drugs formarketing in May.

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