Market Overview

Forget Dendreon, Inhibitex is the New Biotech Success Story

Today, Bristol-Myers Squibb (NYSE: BMY) announced that it would acquire Inhibitex (NASDAQ: INHX) for $26/share, or $2.5 billion. The acquisition was approved by the board of directors of both companies and Inhibitex's board will recommend that investors tender their shares. Large private investors with a total of 17% ownership in the company have already agreed to do so. The deal was made in response to the Gilead Sciences (NASDAQ: GILD) acquisition of Pharmasset (NASDAQ: VRUS) and their Hepatitis C drug.

The acquisition figures to be the first of multiple for Bristol-Myers, as the company has several key drugs losing patent protection within the next few years. The company currently has $8.2 billion in cash and could look to expand with more acquisitions. "The addition of Inhibitex's nucleotide polymerase inhibitor to our own promising portfolio, which includes other direct-acting antivirals, brings additional options to develop all-oral regimens with better cure rates, shorter duration of therapy and lower toxicity than the current standard of cure," said Elliott Sigal, head of R&D at Bristol.

It is likely that the acquisition was made in response to Gilead's purchase of Pharmasset for $10.4 billion. Hepatitis C treatments have historically been given through injection with difficult side effects. The next generation is composed in pill form, and these pharma giants hope that they will be significantly easier to use and carry fewer side effects. "This transaction puts INX-189 in the hands of an organization that can optimally develop them, and we believe strongly in the drug's potential for treatment of chronic HCV," stated Inhibitex CEO Russell Plumb.

The Hepatitis C drug market promises to be significant, as the disease affects nearly 180 million people worldwide. Other biotech companies that are developing Hepatitis C drugs such as Achillion Pharma (NASDAQ: ACHN) and Idenix Pharma (NASDAQ: IDIX) are up today on news that other large pharma companies could snap them out. In a note to clients, Piper Jaffray analyst stated, "We expect continued consolidation in the HCV space with Achillion as a potential target."

Some analysts have concerns over the acquisition, as some believe that Bristol-Myers paid far too much for a drug that has yet to reach Stage 3 clinical trials. Inhibitex does not expect the drug to receive FDA approval until 2016 at the earliest. However, it is clear that many of the major pharma companies are concerned about patent expirations and are looking at M&A as possible revenue growth opportunities. Investors who believe this trend will want to look at other small biotech companies with promising pipelines with the possibility of them being taken out.


ACTION ITEMS:

Bullish:
Traders who believe that Bristol-Myers acquisition of Inhibitex will spark a series of pharma M&A should consider the following trades:
  • Buy shares of Achillion Pharma or Idenix Pharma. The Hepatitis C market is huge, and many analysts have forecasted that both these companies are possible takeover targets if they can advance their drugs through the clinical trial process.
  • Go long a biotech ETF. This allows you to benefit from a series of M&A deals, but hedges the risk in the event that one of your biotech targets fails to meet endpoints or obtain FDA approval for its drug.
Bearish:
Traders who believe that the Hepatitis C M&A market have reached its peak should consider these trades:
  • Short Achillion Pharma or Idenix Pharma. Both companies have run up heavily after the Pharmasset acquisition was announced, and could struggle to market their drugs given the resources that Pharmasset and Inhibitex now have.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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