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Shares of Idenix Pharmaceuticals, Inc. skyrocketed 229.05% on news that the company will be acquired by pharma giant, Merck (MRK - Analyst Report). Merck’s offer price of $24.50 per share in cash was more than three times the company’s share price before the offer was announced. The acquisition, slated to close in the third quarter, is valued at about $3.85 billion.

With the Idenix acquisition, Merck is looking to boost its hepatitis C virus (HCV) portfolio. Merck has a presence in the HCV market in the form of Victrelis and has three HCV candidates in its pipeline. Merck’s lead HCV program is a combination of MK-5172 (NS3/4A protease inhibitor) and MK-8742 (NS5A replication complex inhibitor) currently in phase III studies. This combination has Breakthrough Therapy designation in the U.S.

Idenix will bring with it three HCV candidates - IDX21437 (proof-of-concept done with phase II scheduled to commence shortly), IDX21459 (phase I ongoing outside the U.S.) and samatasvir (phase II to commence shortly). While samatasvir is a NS5A inhibitor, the other two are nucleotide (nuke) prodrugs.

The goal is to bring a once-daily, all oral, ribavirin-free, pan-genotypic regimen that is highly effective and involves shorter treatment duration.

Our Take

This deal is in line with Merck’s efforts to expand its pipeline and focus on its core areas of expertise. Although the price looks a bit high (especially considering the candidates are still early-stage and years away from commercialization), the successful development and approval of the Idenix candidates would allow Merck to generate a decent return given the high and growing demand for better HCV treatments. The addition of nukes to Merck's pipeline is a plus for the company's HCV portfolio.

The HCV market has always been viewed as highly lucrative. Gilead’s (GILD - Analyst Report) Sovaldi has been bringing in billions of dollars within a few months of its approval despite concerns regarding its high price. Plus there is space in the market for additional treatments.

Several companies have been working on developing the next generation of HCV treatments. In addition to Merck and Gilead, companies like Achillion Pharmaceuticals, Inc. (ACHN - Snapshot Report) and AbbVie (ABBV - Analyst Report) are also developing HCV candidates. In fact, Achillion Pharma’s shares shot up 47.57% on the Idenix - Merck acquisition news reflecting expectations that Achillion Pharma too is a potential takeover target.

Both Merck and Idenix are Zacks Rank #3 (Hold) stocks. Gilead is a better-ranked stock with a Zacks Rank #1 (Strong Buy).

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