Updated, 8:32 p.m. | Merck will buy the biotechnology company Idenix Pharmaceuticals for $3.85 billion in an effort to bolster its arsenal of potential drugs in the competitive arena of hepatitis C treatments, the companies announced on Monday.
Merck will pay $24.50 in cash for each share of Idenix, an eye-popping 3.4 times the Idenix closing price of $7.23 a share on Friday.
New drugs are transforming the treatment of hepatitis C, replacing injections with pills, as well as increasing the cure rates, reducing side effects and cutting the duration of treatment to as little as eight to 12 weeks from as long as a year.
But the new pills for hepatitis C must be used in combinations of two, three or more drugs. Companies are scrambling to procure the components of such regimens.
Gilead Sciences is the leader in the hepatitis C race. Its new pill, Sovaldi, recorded sales of $2.3 billion in the first three months of this year, shattering the pharmaceutical industry's record for sales of any drug in its first full quarter on the market but also raising concerns about affordability. Gilead obtained the rights to Sovaldi through its own daring acquisition of a smaller company, Pharmasset, for $11 billion in late 2011.
Merck is in late-stage clinical trials of a combination of two hepatitis C drugs, which could get to market in two years. But that combination is aimed at only certain subtypes of the hepatitis C virus and requires 12 to 18 weeks of treatment.
Adding a drug from Idenix to those two drugs could allow for a once-a-day pill that could treat all subtypes of the virus in as little as four weeks, Dr. Roger Perlmutter, who heads research and development for Merck, said in an interview.
"My belief is that a three-drug regimen will work even faster," he said. "We are betting, I'm betting, that through this transaction we will be able to demonstrate superiority to any other regimen."
At least three million Americans and 150 million people worldwide have hepatitis C, which can destroy the liver over time. Idenix, based in Cambridge, Mass., is somewhat behind in the race; it has had to drop various drugs because of safety issues or lack of effectiveness. But it has three hepatitis C drugs in clinical trials. Two of them, including the one Merck is most interested in, are in the same class as Gilead's Sovaldi.
Those drugs, known as nucleotide polymerase inhibitors, are powerful but have been plagued by safety problems. Bristol-Myers Squibb obtained one by buying Inhibitex for $2.5 billion, then had to abandon the drug after it caused heart and kidney problems. Idenix had to sideline two of its own such drugs because regulators deemed them too similar to Bristol's.
Dr. Perlmutter conceded that Idenix's drug had not been tested for a long enough time to exclude safety risks but said the early data was reassuring. "We feel it's worth the risk," he said.
He said Merck had been talking to Idenix about collaborating when another company made a bid to buy the company. That set off a competitive bidding process. It is not clear which other company or companies bid, but AbbVie and Johnson & Johnson are among the companies with interests in hepatitis C.
Both Merck and Idenix have been separately pursuing claims that Gilead's Sovaldi infringes their patents. By joining forces they may have a stronger case for obtaining royalties on sales of Sovaldi. Gilead has been fighting both companies' claims.
Analysts generally applauded the deal, suggesting that the high price Merck is paying could eventually pale beside the billions of dollars in yearly sales a successful hepatitis C pill could bring.
"This deal makes perfect sense and will make the hep C market a two-horse race between Gilead and Merck," Yaron Werber, a biotechnology analyst at Citigroup, said in a note on Monday.
Gilead shares dropped 4 percent on Monday. Shares of Merck were basically flat, rising 9 cents. Shares of Idenix soared to $23.79, slightly below the offering price, suggesting that investors do not think a higher bid is coming.
The stock price of Achillion Pharmaceuticals, another small company developing hepatitis C drugs, climbed more than 47 percent on speculation that it would be bought by a company that lost out in the bidding for Idenix.
Idenix has an accumulated deficit of $864.5 million since its formation in 1998. For much of that time, it has been working in collaboration with Novartis, which still owns 22 percent of the company, according to Idenix's last quarterly report to the Securities and Exchange Commission. It appears that Novartis will have rights to royalties on sales of Idenix's hepatitis C drugs.
The Baupost Group, the Boston hedge fund run by Seth Klarman, owned 53.3 million shares, or 35.4 percent, according to the Idenix proxy statement filed in late April.
Merck's acquisition has been approved by the boards of both companies. Merck will make a tender offer to acquire all shares of Idenix. Assuming at least half the shares are tendered, Merck will then acquire the remaining shares through a second-step merger. The companies expect the deal to close in the third quarter.
Credit Suisse acted as financial adviser to Merck and Hughes Hubbard & Reed provided legal advice. Idenix was advised by Centerview Partners and Sullivan & Cromwell.
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