UPDATE 2-Pharmasset stops hepatitis B trial, shares drop

(Adds analyst comment; updates stock movement)

By Esha Dey

BANGALORE, April 20 (Reuters) - Pharmasset Inc (VRUS.O) said it stopped a late-stage study of its experimental treatment for chronic hepatitis B due to several serious adverse events in patients receiving the drug, sending its shares down 17 percent.

However, analysts said discontinuing the hepatitis B trial could be a "long-term gain," as it would let the company channel all its resources to its more watched-out hepatitis C pipeline.

The company, which decided to stop the trial named QUASH after a discussion with its independent data monitoring committee and the U.S. Food and Drug Administration, said it would now focus its resources on its hepatitis C pipeline.

"Few investors had given the company much credit for the drug for hepatitis B and were investing in the company almost entirely based on the prospects of its hepatitis C drugs," Canaccord Adams analyst Adam Cutler said.

The company said it recently became aware of a number of spontaneous serious adverse event reports in patients receiving the drug, clevudine, as prescribed therapy for hepatitis B in South Korea.

Clevudine, the company's most advanced drug candidate, was licensed from Bukwang Pharmaceuticals Co Ltd (003000.KS) of South Korea, where the drug is marketed under the trade name Levovir.

"You never really want to see a company stopping a late-stage trial, but at the end of the day they are going to save a lot of money in launch and commercialization costs," JMP Securities analyst Liisa Bayko said.

"I think that dollar would be better utilized on hepatitis C and there would be better return on investment for those dollars spent," Bayko added.

Canaccord Adams analyst Adam Cutler said a lot of Pharmasset's research and development spending was going to fund Clevudine, so discontinuing that program would give it a longer cash runway, "an important characteristic for any company these days."

Pharmasset plans to collect safety data and to monitor patients after the discontinuation of the trial, but does not plan to submit study results to regulators as pivotal studies.

Hepatitis B and hepatitis C are potentially fatal liver diseases that can lead to cirrhosis and liver cancer.

Pharmasset's lead hepatitis C candidate, R7128, was slated to start a mid-stage trial in the first quarter of 2009. It plans to start an early stage clinical study on another experimental hepatitis C treatment, PSI-7851.

Shares of the company were trading down 12 percent at $8.10 Monday morning on Nasdaq. They had touched a low of $7.69 during the session.

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