Bristol Buys Inhibitex for $2.5 Billion to Compete in Hepatitis

Bristol-Myers Squibb Co. (BMY) agreed to pay about $2.5 billion in cash to buy Inhibitex Inc. (INHX), the second maker of hepatitis C drugs to be acquired within two months as companies jockey for position in a developing $20 billion market.

Inhibitex, based in Alpharetta, Georgia, said it will recommend that its shareholders accept Bristol's offer of $26 per share, the companies said in a statement yesterday. That’s more than double its $9.87 closing price on Jan. 6.

The agreement is the biggest among 18 made by Bristol since 2007 in a strategy aimed at overcoming sales declines after its $6.7 billion-a-year blood thinner Plavix loses patent protection this year. The deal gives the New York-based company a similar drug to one Gilead Sciences Inc. (GILD) gained in the $10.8 billion purchase of Pharmasset Inc. (VRUS) it announced on Nov. 21.

“This drug is the best chance anyone has of competing with Gilead/Pharmasset,” Brian Skorney, an analyst with Brean Murray Carret & Co. in New York, wrote in an e-mail today. “That explains the premium.”

Inhibitex’s INX-189 is in the second stage of testing normally needed for U.S. regulatory approval. Pharmasset’s PSI- 7977 is in the third and final phase, and could draw $3 billion to $5 billion in revenue for Foster City, California-based Gilead, Michael Yee, an analyst with RBC Capital Markets in San Francisco, estimated in November.

Second-Largest Premium

The premium, of about 126 percent of its price over the previous 20 trading days, ranks as the second-largest on record for a biotechnology or pharmaceutical company worth more than $500 million, according to data compiled by Bloomberg since 1999. The record is Genzyme Corp.’s 2006 deal for AnorMed Inc. with a 162 percent premium.

As many as 170 million people globally carry the hepatitis C virus, and current drugs, given through injection, can have side effects that make therapy difficult to endure. The next generation is designed to be taken as pills, with a higher cure rate and fewer side effects.

“The world is moving toward an all-oral regimen for hepatitis C, and Bristol-Myers, which is strong in antivirals, seems like it wants to be a part of that,” Les Funtleyder, a health-care strategist and portfolio manager with Miller Tabak & Co. in New York, wrote in an e-mail today.

“The deal seems a bit expensive for an early-stage compound, but there is scarcity value,” said Funtleyder, whose fund holds Bristol shares.

Bristol is already developing its own medicines for hepatitis C, including a collaboration with New Brunswick, New Jersey-based Johnson & Johnson (JNJ) on a combination therapy with one of its own experimental products.

Three Growth Areas

“The addition of Inhibitex’s nucleotide polymerase inhibitor to our own promising portfolio, which includes other direct-acting antivirals, brings additional options to develop all-oral regimens with better cure rates, shorter duration of therapy and lower toxicity than the current standard of care,” said Elliott Sigal, Bristol’s head of research and development.

Hepatitis C is one of three major growth areas for Bristol, along with stroke and immuno-oncology, he said by telephone.

“The commercial opportunity is huge,” Sigal said. “Our goals are to be very competitive.”

Still Seeking Deals

Chief Financial Officer Charles Bancroft said Bristol-Myers would keep looking for opportunities of all sizes.

“We’ve been pretty consistent in that we view our ‘String of Pearls’ across different deal sizes,” Bancroft said in a telephone interview, referring to the name given to the company’s acquisition strategy. “We’re not really dependent on size,” he said.

Merck & Co. (MRK) and Vertex Pharmaceuticals Inc. (VRTX) last year won approval for the first new therapies for hepatitis C in almost a decade.

Hepatitis C is a viral infection, transmitted through exposure to infected blood, that can lead to swelling of the liver. More than 350,000 die from related illnesses each year, according to the Geneva-based World Health Organization.

The market for medicines that work against the virus is about $3 billion worldwide, according to Andrew Berens, a senior health-care analyst with Bloomberg Industries, in Skillman, New Jersey. It may be worth $20 billion by 2020, said Michael Kishbauch, chief executive officer of Achillion Pharmaceuticals Inc., in a November interview.

Achillion, Idenix

Achillion (ACHN), based in New Haven, Connecticut, and Idenix Pharmaceuticals Inc. (IDIX), of Cambridge, Massachusetts, are also in development on hepatitis C drugs. In November, Kishbauch said his company was in discussions with potential partners and acquirers.

Roche Holding AG, based in Basel, Switzerland, agreed in October to buy Anadys Pharmaceuticals Inc. (ANDS), another maker of experimental medicines for hepatitis C, for about $230 million.

Bristol shares rose 33 percent in 2011 and closed 0.2 percent higher at $34.22 in New York on Jan. 6. The transaction is expected to dilute earnings for Bristol through 2016, with an impact of about 4 cents per share in 2012 and 5 cents per share in 2013, according to the statement.

Tripled in Value

Inhibitex more than quadrupled in value last year, boosting its market capitalization to $857 million as of Dec. 31.

Citigroup Inc. acted as financial adviser and Kirkland & Ellis LLP (1132L) as legal adviser to Bristol, the companies said in the statement. Credit Suisse Securities provided financial advice to Inhibitex, while Dechert LLP (1154L) gave legal counsel.

To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net; Drew Armstrong in Washington at darmstrong17@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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