Tags: Merck | premium | bet | hepatitis

Merck Pays Record Premium to Bet Big on Hepatitis Drug

Monday, 09 June 2014 07:09 PM

Merck & Co. is making a record bet that an experimental disease treatment is worth more than Coppertone and Claritin.

The U.S. drugmaker offered Idenix Pharmaceuticals Inc. shareholders $24.50 a share, or $3.85 billion, for the developer of hepatitis C drugs. That’s almost quadruple the stock’s average price over the last 20 days, the highest premium on record for any health-care deal of at least $100 million, according to data compiled by Bloomberg.

With the Idenix deal, Merck is doubling down on the potentially $20 billion market for hepatitis C treatments after agreeing last month to sell its consumer-health division to Bayer AG. The moves signal the $169 billion company is increasing its focus on riskier businesses that have the potential to yield bigger returns.

“If you’ve got a $20 billion industry and you can pay $4 billion to get into it, I think that’s great,” Scott Redmond, founder of Richmond, Virginia-based Redmond Asset Management LLC, said in a phone interview. “It’s a huge market and for the next 10 years or so, there are going to be very, very few competitors whereas in the consumer products, there are competitors all over the place.”

Redmond said his firm, which oversees about $235 million, sold its shares of Idenix after the takeover was announced.

The deal marks Merck’s first acquisition of size since it bought Schering-Plough Corp. for more than $40 billion in 2009, according to data compiled by Bloomberg.

Idenix Logic

Idenix’s drug, IDX21437, works by stopping the hepatitis C virus from replicating within the body. Combining that with Merck’s existing regimen could improve potency and reduce treatment duration, Brian Abrahams, an analyst at Wells Fargo & Co., wrote in a report today.

That will better position Merck to compete against rivals such as Gilead Sciences Inc. in the race to develop a more effective treatment for the estimated 170 million hepatitis C patients worldwide.

After missing out on Idenix, AbbVie Inc. may consider a takeover of Achillion Pharmaceuticals Inc., a $411 million company that also is developing hepatitis C treatments, Redmond said. Shares of Achillion rallied as much as 67 percent today.

Merck’s deal signals a vote of confidence in the future of the hepatitis C treatment market, according to Howard Liang, a Boston-based analyst at Leerink Partners LLC.

The takeover of Idenix “makes strategic sense,” Liang wrote. “While the transaction strengthens Merck’s competitive position, we believe Merck’s commitment to the space also demonstrates its belief that there is a long-term market for” hepatitis C treatments.

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Merck & Co. is making a record bet that an experimental disease treatment is worth more than Coppertone and Claritin.
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Monday, 09 June 2014 07:09 PM
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