By Peter Loftus
Merck & Co.'s $3.85 billion deal to acquire a developer of
hepatitis C drugs underscores the pharmaceutical industry's bet
that improved medicines for the liver disease represent a large,
long-term market opportunity.
Merck agreed to acquire Idenix Pharmaceuticals Inc. for $24.50 a
share in cash, more than triple the stock's Friday closing price of
$7.23 The premium was fueled by a competitive bidding process,
according to Merck. Idenix shares soared to $24.03 in midday
trading Monday, while Merck shares were unchanged at $57.85.
The treatment of hepatitis C, a liver-damaging virus estimated
to infect up to 150 million people world-wide, is undergoing a
dramatic transformation. Newer medicines have higher cure rates,
with fewer side effects and shorter treatment durations than older
drugs. Rapid scientific advances the past few years have fueled a
flurry of acquisitions, licensing deals and partnerships among drug
companies jockeying for position.
Idenix, of Cambridge, Mass., has about 85 employees and no
products on the market, and posted less than $1 million in revenue
last year. But it is developing several potential new treatments
for hepatitis C that have caught the attention of bigger drug
companies.
Merck is primarily interested in IDX21437, an Idenix drug known
as a nucleotide, or "nuke." Merck plans to combine the drug with
two of its own drugs that work by different mechanisms for a
triple-drug regimen that could potentially cure most types of
hepatitis C in less than two months. That triple regimen, however,
is probably about three years away from reaching the market,
assuming clinical trials are successful and regulators approve it,
analysts say. Merck hopes to bring the double-drug regimen to
market first.
"The goal here is to cure everyone" with hepatitis C, Roger
Perlmutter, chief of Merck's research-and-development unit, said in
an interview Monday.
Merck had been planning to develop its own "nuke" for hepatitis
C, but gaining one externally through the Idenix deal will
"jump-start that program substantially," Mr. Perlmutter said.
Gilead Sciences Inc. has generated huge sales of its own
hepatitis C "nuke" drug, Sovaldi, since it went on sale late last
year. Gilead reported nearly $2.3 billion in first-quarter sales of
Sovaldi, believed to be the best-selling prescription drug launch
in history, and helped by a price tag of $1,000 per pill, or
$84,000 for a standard 12-week treatment. Gilead acquired Sovaldi
through its 2012 purchase of Pharmasset Inc. for $11.1 billion.
Sovaldi's high price has sparked criticism from insurers and
state health officials, who say the expense is preventing the
drug's use in some patientpopulations including prison inmates, who
have high rates of infection.
Merck hopes the Idenix acquisition puts it on more solid
competitive footing against Gilead and other companies with new and
experimental hepatitis C regimens, such as Johnson & Johnson,
AbbVie Inc. and Bristol-Myers Squibb Co.
The deal also gives Merck more hepatitis C patents when Merck
and other companies are engaged in litigation with Gilead, claiming
that Sovaldi violates their respective patents. Merck, Idenix and
AbbVie each are involved in such litigation against Gilead, which
has disputed the claims.
Mr. Perlmutter said Merck initially held discussions with Idenix
for a potential partnership. But another company made a takeover
offer, which prompted Idenix to begin a competitive bidding sales
process, he said, resulting in the hefty premium. He said he didn't
know which company made the initial takeover offer. An Idenix
spokeswoman couldn't be reached.
The premium Merck is paying for Idenix is the largest this year
on a percentage basis for deals valued at $1 billion or more,
according to Dealogic.
"We believe Merck could quickly recoup the investment if
successful," said J.P. Morgan analyst Chris Schott.
Still, there are risks to the deal in a fast-changing hepatitis
C market. In 2012, Bristol-Myers paid $2.5 billion in cash to
acquire Inhibitex Inc., which was developing a "nuke" for hepatitis
C. But later that year, Bristol scrapped the drug after fatal
cardiac side effects emerged in clinical trials.
Idenix itself discontinued development of a different "nuke"
last year amid regulatory concerns sparked by the problems with the
Bristol-Myers drug.
The newer Idenix "nuke" has been given to more than 100 patients
in early-stage testing for durations of up to two weeks, with no
signs of severe toxicity so far. The results have given Merck "some
confidence this could go the distance," said Mr. Perlmutter.
Write to Peter Loftus at peter.loftus@wsj.com
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