Analysts weigh in on takeover odds of Achillion and Idenix...

Posted on Weds from Market Watch.com : It drives me nuts when 'nucs',  the popular shortened term for 'nucleoside analogs', is spelled 'n-u-k-e-s' instead. We're talking drug development, not nuclear arms proliferation in unstable Middle East nations. Probably a good indicator I need something else to take out my frustrations on. 

An article here from Market Watch talking to several analysts about possible mergers of Achillion and Idenix. No doubt that the slack of easing sales of Incivek and Victrelis will definitely be picked up by the 2nd and 3rd generation molecules, especially if developers can manage an interferon-free regimen. The HCV drug development space is incredibly hot right now, and with an estimated 170 million people infected, successful drugs are probable cash cows for many years to come.

Feb. 1, 2012, 12:01 a.m. EST

Achillion, Idenix could miss hep-C merger bonanza

By Val Brickates Kennedy, MarketWatch

BOSTON (MarketWatch) -- Investors tantalized by a recent string of lucrative takeover offers for hepatitis C drug-developers shouldn’t assume that an eye-popping bid for Idenix Pharmaceuticals and Achillion Pharmaceuticals is just around the corner, according to biotech analysts.

Both Idenix  were put in play earlier this month by news that Bristol-Myers Squibb intends to buy Inhibitex Inc for $2.5 billion in cash.The offer represents a dazzling 163% premium over Inhibitex’s pre-bid closing price.

Bristol’s bid also comes on the heels of two other lucrative takeovers in the hepatitis C virus, or HCV, arena. In October, Roche announced it was paying a stunning 256% premium, or $230 million, for tiny Anadys Pharmaceuticals. That was followed by Gilead Sciences’s whopping $11 bid for Pharmasset Inc., which carried an 89% premium.

Rumors have since swirled that other Big Pharma players are likewise eyeing the HCV space. And that speculation has helped push up Idenix shares by a hefty 80% and Achillion shares by 45% since the beginning of the year.

At stake is a market filled with a backlog of under-treated HCV patients that many analysts believe could reach $10 billion a year within the next five years.

But here’s the kicker -- because the new HCV drugs can actually cure the disease, their demand will likely drop over time after the backlog of patients is treated. Despite this, most analysts agree the market should be able to coast along at the $10 billion level for at least ten years. And because time is of the essence, companies with HCV drug candidates in mid-to-late stage development have been considered the hottest takeover targets.

Of the two companies, Idenix’s stock has seen the most action largely because its lead drug candidate hails from a highly-touted class of drugs called nucleotides, or “nukes.” Both Inhibitex’s and Pharmasset’s lead drug candidates are nukes, which is what made them particularly attractive acquisitions.

“I don’t think Idenix’s stock’s bid too high,” said Wedbush Securities analyst Duane Nash, who tracks Idenix. “But the caveat is that acquisitions generally take longer than most people anticipate.”
While Wedbush currently has Idenix’s fair market value listed at $15 a share, Nash believes that Idenix could fetch a takeout price of between $20 and $25 a share. The stock closed at $13.39 on Tuesday.

William Blair analyst Katherine Xu, meanwhile, said she believes Idenix’s current takeout range is probably between $15 and $20 a share. Xu currently has a price target of $10 on the stock.

Xu added that she could be raising her target into the mid-to-high teens if and when U.S. regulators give the green light to an Idenix’s clinical trial that has been placed on partial hold over safety concerns. The decision is expected within the next few weeks.

“I doubt people will take it out before the hold is removed,” she said.

But analysts also point out that Novartis AG’s roughly 30% equity stake in Idenix could hinder a takeover bid, especially as the Swiss pharmaceutical giant reportedly has options to some key drug candidates. Meanwhile, JMP Securities analyst Liisa Bayko thinks that investors have overvalued Idenix’s nuke drug candidate, which she says isn’t as potent as those being developed by Inhibitex and Pharmasset. Because of this, Bayko has a sell rating on the stock.

As for Achillion, the reason its shares haven’t been bid up as high as Idenix’s is largely because its lead drug candidate is a protease inhibitor, a class of drugs that includes Merck & Co.’s Victrelis and Vertex Pharmaceuticals’s Incivek, which were both launched last year. Several other drug developers already have protease inhibitors in their pipelines.

Xu said that while she currently has Achillion’s price target at $15 a share, its takeout range is probably between $15 and $20. The stock closed at $11.09 on Tuesday.

“I think it’s still undervalued at the moment,” she said.

Wells Fargo Securities analyst Brian Abrahams said that even though Achillion’s lead drug candidate isn’t a nucleotide, that doesn’t mean it isn’t an attractive acquisition target.

“Certainly nucleotides are an exciting class but they’re not the only class we believe will be used in HCV treatment,” said Abrahams, adding that doctors will be looking to use the drugs in combination to get the best results.