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Analysis: Idenix bidding was competitive, driving up the deal value for an eager Merck

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Sarissa Capital Management founder Alex Denner

Proof-of-concept data for Idenix's ($IDIX) lead hepatitis C nucleotide, IDX21437, from April ignited investor and acquirer interest in the biotech. That helped drive a competitive bidding process that included AbbVie ($ABBV) and Johnson & Johnson ($JNJ) and resulted in the $3.85 billion price tag for the buyout. And Merck ($MRK) may get more than pipeline help from the deal--it could also get a leg up in an ongoing IP battle with HCV leader Gilead Sciences ($GILD), according to Alex Denner, one of the insiders in the deal whose stake in Idenix just soared in value.

The Phase I/II data from April for IDX21437 were based on 44 treatment-naïve genotype 1, 2 or 3 patients randomized to once-daily doses of placebo, 50 mg, 150 mg or 300 mg of the drug for 7 days. In the 8 genotype 1 patients receiving the high dose, the mean maximal viral load reduction was 4.2 log10 IU/mL. In the 10 genotype 2 and 3 patients on the high dose, that figure was 4.3 log10 IU/mL.

This fits with Merck's ambition to have a pan-genotypic, ribavirin-free, all-oral HCV treatment with sustained viral response and short treatment times. Gilead's blockbuster Sovaldi, which hauled in a phenomenal $2.3 billion in its first full quarter of sales in Q1, is all-oral (in combination with ribavirin) for genotypes 2 and 3, but requires the addition of injectable interferon for genotypes 1 and 4.

Idenix also has two more HCV treatments in development: an additional nucleotide prodrug, IDX21459, as well as NS5A inhibitor samatasvir. Merck has several HCV treatments in development, the most advanced of which is in Phase III; it's a combination of NS3/4A protease inhibitor MK-5172 and the NS5A replication complex inhibitor MK-8742.

The potential strategic value, in addition to the obvious pipeline fit, also lies in combining the two separate HCV lawsuits that Merck and Idenix each have ongoing separately against Gilead Sciences, noted Denner of Sarissa Capital Management in an interview with FierceBiotech. Denner used to be Carl Icahn's right-hand man on biotech and pharma but left the fold a few years ago to start his own investment shop. Denner is an investor in Idenix and Merck.

And while Merck won out, it wasn't the sole bidder. HCV contenders AbbVie and Johnson & Johnson participated till the end, although Bristol-Myers Squibb ($BMY) did not, according to CNBC. Bristol-Myers suffered its own big-ticket HCV acquisition disappointment: Its $2.5 billion acquisition of Inhibitex, announced in January 2012, never led to anything in the clinic.

The competition helped drive the exorbitant premium on the Idenix deal. Merck agreed to pay $24.50 per share; the Idenix price prior to the deal announcement was only $7.23. That works out to a premium of 239%. Just for context, the $11 billion acquisition by Gilead of Pharmasset in 2011 that helped launch the HCV craze was only 89%--but Pharmasset had been driven up heavily in advance, while Idenix hadn't been.

Denner's Sarissa held 5.05 million shares on March 31; the value of his Idenix holdings has climbed to $123.7 million from $36.5 million based on the deal price. The big winner among Idenix shareholders was the Baupost Group, which held 53.3 million shares (35.4%) on March 31. The value of these holdings has risen to $1.3 billion from $386 million.

Other Idenix shareholders on March 31 included T. Rowe Price (8.2 million shares), BlackRock (8 million), Vanguard Group (7.5 million) and State Street (4.3 million).

- here are the Merck slides on the rationale for the deal

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