Merck seeks improved hepatitis C treatment through buyout

June 9, 2014 06:05 AM

Merck & Co., the second-biggest U.S. drugmaker, agreed to buy Idenix Pharmaceuticals Inc. for about $3.85 billion to expand its experimental pipeline for hepatitis C treatments.

Idenix holders will receive $24.50 a share in cash, Merck said in a statement today. The price is more than triple Idenix’s closing level on June 6 of $7.23. The premium is a record for healthcare deals larger than $100 million, according to data compiled by Bloomberg.

Buying the Cambridge, Massachusetts-based company will help Merck in the race to develop a daily, all-oral regimen that treats different strains of the viral infection and doesn’t include ribavirin, a standard treatment for hepatitis C that has serious side effects. In April, Merck said its once-a-day hepatitis C pill, which combined two drugs, stopped the virus in a mid-stage study in 98% of newly treated patients with few major side effects.

“We’ve been talking with Idenix for a long time, and have a long history in this field,” said Roger Perlmutter, who joined the Whitehouse Station, New Jersey-based company as president of Merck Research Laboratories in April, 2013.

Merck shares dropped less than 1% to $57.73 at 10:17 a.m. in New York time. Idenix shares more than tripled to $24.10.

Idenix came to Merck after another company approached it about a possible deal, Perlmutter said in a telephone interview today. Once that happened, Idenix started a sale, and “I’m delighted to say we won the process,” he said.

Gilead’s Sovaldi

Idenix’s lead drug, IDX21437, works similarly to Gilead Science Inc.’s Sovaldi, which won U.S. regulatory in December and costs $84,000 for a 12-week course of treatment. Prior to the development of Sovaldi, hepatitis C treatment entailed a regimen of two or more antiviral drugs with many side effects.

Merck is racing Gilead, Johnson & Johnson and Abbvie Inc. to establish a strong presence against a disease that affects an estimated 170 million people worldwide and carries a potential market of $20 billion a year.

“What we would like to do, insofar as it is possible, is cure them all,” Merck’s Perlmutter said in commenting on the number of people who carry the disease. To do that, Merck will need a three-drug combination pill that has few side effects and can be taken for a shorter period of time.

Idenix’s drug may offer that possibility when combined with Merck’s existing compounds, he said. IDX21437, which belongs to a class of drugs called nucleotide prodrug inhibitors, is Merck’s main interest, Perlmutter said. This class of treatments works by stopping the hepatitis C virus from replicating within the body.

10-Year Market

“The big pharma companies understand that the prevalence of people with Hep-C is so big that the market is going to be around for the next 10 years,” said Jason Kolbert, senior managing director with Maxim Group LLC in New York, in a telephone interview today. “It’s a very fair premium.”

The deal could help push along Idenix’s drug as a keen competitor to Gilead’s Sovaldi, the only drug in the same class of drugs, referred to in the industry as “nucs,” that’s been approved by U.S. regulators.

“Nucs are scarce and thus perhaps quite valuable,” said Mark Schoenebaum, an analyst with ISI Group LLC in New York.

The agreement is a windfall for Boston-based money manager Seth Klarman, whose Baupost Group LLC owns 35% of Idenix’s shares. Novartis AG, the world’s largest drug company by revenue, owns 22%.

Achillion’s Promise

Achillion Pharmaceuticals Inc. is now one of the only remaining “pure play companies” creating hepatitis C drugs, according to Kolbert. It rose 34% to $3.86 at 10:17 a.m. New York time.

“If Merck can acquire Idenix at such a huge premium, there’s still a huge premium to be enjoyed for Achillion,” Maxim Group’s Kolbert said. “Idenix has already happened, it’s old news already.”

Merck will begin a tender offer for Idenix shares, the companies said. Credit Suisse acted as financial adviser to Merck and the law firm Hughes Hubbard & Reed LLP provided legal advice. Bankers from Centerview Partners worked for Idenix, and Sullivan & Cromwell gave legal advice.

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