Merger Monday brought lucrative news for shareholders of Idenix Pharma (IDIX) who awoke to news that Merck (MRK) had just acquired the company for ~$3.85B. The maker of hepatitis C virus (HCV) drugs received $24.50/share, a 238% premium, over closing price. Though the deal is expected to close in Q3 2014, several parties are experiencing the impact immediately.
Short Seller’s Pain
Idenix had nearly 20M shares sold short (approximately 30% of float). Short selling comes with unlimited potential losses, which is why it’s a risky approach in the biotech sector. This was clearly demonstrated today.
Highlights Value of HCV Market
There is a dire need for additional treatments as there are around 170M people infected by hepatitis C virus. Gilead, with their drug Sovaldi, is currently leading this market due to a record $2.3B launch in Q1. However, with Merck’s boosted HCV portfolio, competition is heating up.
Idenix will add its Phase II NS5A inhibitor to Merck’s portfolio which already includes two Phase III candidates MK-5172 & MK-8752. Lagging in the HCV race, Merck’s strategy is to plan a combination treatment with Idenix’s compounds that could impact global hepatitis C burden while also shortening the groundwork. Following the announcement of Idenix’s acquisition, Gilead (GILD) shares were down 4%.
Other Potential Targets?
An indirect beneficiary of this deal is HCV drug developer Achillion Pharma (ACHN), up nearly 40%. Given the hefty premium Merck paid for Idenix, Achillion could prove to be the next acquisition target in the HCV market. Similar to Idenix, Achillion has a portfolio of Phase II candidates targeting Hepatitis C. With nearly 20M shares sold short (40% of its trading float), ACHN investors are experiencing the same action as IDIX. A short squeeze is underway due to the acquisition news.
However, this is all speculation at this point as the FDA imposed a clinical hold on its HCV treatment, sovaprevir, last year. The company expects a response from the FDA by the end of June, so it is highly unlikely there is any action until that is resolved.