Are Gilead Shares Overreacting To Merck's Idenix Acquisition?

Shares of Gilead Sciences GILD have fallen over four percent following Merck's MRK purchase of Idenix Pharmaceuticals IDIX.

Details on the Acquisition

In a press release on Monday, Merck and Idenix announced that they have entered into a “definitive agreement under which Merck will acquire Idenix for $24.50 per share in cash. The transaction, which values the purchase of Idenix at approximately $3.85 billion, has been approved by the boards of directors of both companies.”

Merck's acquisition will enable the company to have access to Idenix's hepatitis C candidates and complement the Merck's therapies.

Dr. Roger Perlmutter, President of Merck Research Laboratories commented, “Idenix's investigational hepatitis C candidates complement our promising therapies in development and will help advance our work to develop a highly effective, once-daily, all oral, ribavirin-free, pan-genotypic regimen that has a duration of treatment as short as possible for millions of patients in need around the world.”

A Great Threat for Gilead?

As Merck emerges as a threatening power for new hepatitis C treatments, competitors including Gilead, AbbVie ABBV and Enanta Pharmaceuticals ENTA see drastic price action.

Deutsche Bank reported that this purchase gives Merck a “slightly long-term competitive advantage” over AbbVie/ Enanta. The analyst called the addition of Idix's nucleotide prodrugs to the company's HCV regimen “more Gilead-like.” Deutsche Bank sees Merck entering the market by 2016, but noted that Gilead will likely keep approximately 55 percent of the market share beyond 2017.

ISI and RBC also reiterated Gilead's competitive strength and do not see the outlook changing drastically for the company. RBC reported that “Gilead is well-positioned to be the market leader.”