Updated with additional information. PRINCETON, NJ ( TheStreet) -- The discovery of liver toxicity in a Pharmasset ( VRUS) hepatitis C drug Friday has investors panicked that similar problems could crop up in competing drugs from Inhibitex ( INHX) and Idenix Pharmaceuticals ( IDIX). Pharmasset first spooked investors Friday morning with the announcement that hepatitis C patients were being pulled off treatment with PSI-938 because of laboratory measurements suggesting the experimental drug was negatively affecting liver function. Importantly, PSI-938 is not the keystone jewel in Pharmasset's hepatitis C pipeline for which Gilead Sciences ( GILD) is paying $11 billion to acquire. Gilead's main interest is in Pharmasset's drug PSI-7977, which remains untouched by Friday's announcement. Pharmasset said the safety problem with PSI-938 does not trigger an escape clause written into the Gilead purchase agreement that allows Gilead to walk away if a serious adverse event or safety issue is discovered in a key Pharmasset drug. Regardless, Pharmasset shares were down 2% to $125.28 Friday, even as the company reaffirmed its belief that the Gilead deal will close in the first quarter of next year. Gilead is acquiring Pharmasset for $137 per share. The real investor panic took place in Inhibitex, which is developing a hepatitis C drug known as INX-189 that shares similarities in chemical structure with Pharmasset's now-tainted PSI-938. With Pharmasset bought for $11 billion, investors have been betting that Inhibitex could be the next hepatitis C drug company to get gobbled up. But if PSI-938 was causing liver damage, then perhaps treatment with INX-189 runs the same risk -- not a pleasant thought for a company trading at a high takeover premium already. No evidence of INX-189 induced liver damage has been reported yet, but just that possibility hit Inhibitex hard with shares plunging almost 50% in Friday's pre-market trading. The stock recovered somewhat when regular trading opened but Inhibitex is still down 21% to $10.29. Analysts rushed to defend Inhibitex, pulling out their medicinal chemistry textbooks to demonstrate that while INX-189 was similar in some respects to Pharmasset's PSI-938, the two drugs also have structural differences. For hepatitis C investors, Friday was clearly a day to regret sleeping through your college chemistry classes. Here's what JMP Securities analyst Liisa Bayko had to say to clients about INX-189:
"In our view, it is important to note that PSI-938 has a different active species (2-fluoro guanosine triphosphate) than INX-189 (2-methyl guanosine triphosphate) and that the compounds are not similar outside of the guanosine base - looking at the compounds as a whole, we believe INX-189 is more structurally similar to PSI-7977 than PSI-938. We also note that there are guanosine drugs marketed such as acyclovir, and therefore we do not believe that guanosine is the reason for the PSI-938 toxicity." Deutstch Bank analyst Robyn Karnauskas held a call for clients Friday morning with an Inhibitex executive and a medicinal chemist who has worked on INX-189 and is familiar with other hepatitis C drugs. On the call, Inhibitex re-affirmed the absence of liver-related toxicity in clinical studies of INX-189 to date at doses up to 100 mg. In one ongoing study, four patients treated with 100 mg of INX-189 have gone through 10 weeks of treatments, with two of those patients completing treatment. Not all are convinced that INX-189 is in the clear. "If you compare the activated forms of each (which happens pretty fast) the 2 structures are much much closer: specifically, varying only in that 938 has a F at C-2' in and 189 has a OH (F is a chemical isostere of OH)...The 938 result does not necessarily mean the same will hold for 189, but as I see it, it increases odds," said one buy-side analyst, referring to a side-by-side diagram of the chemical structures of INX-198 and PSI-939. This analyst had a short position in Inhibitex and was using Friday's slide to partially cover. Idenix Pharmaceuticals is developing hepatitis C drugs in the same class as Inhibitex and Pharmasset, so naturally, shares were down 10% to $7 Friday. Perhaps, the only people chuckling Friday were executives at Vertex Pharmaceuticals ( VRTX), which was supposed to be a hepatitis C also ran due to the looming entrant of drugs like those from Pharmasset and Inhibitex. Perhaps Vertex isn't out of the hepatitis C game quite yet. Vertex shares were up 5% to $33.20. --Written by Adam Feuerstein in Boston. >To contact the writer of this article, click here: Adam Feuerstein. >To follow the writer on Twitter, go to http://twitter.com/adamfeuerstein. >To submit a news tip, send an email to: email@example.com. Follow TheStreet on Twitter and become a fan on Facebook.