Bristol-Myers Squibb to acquire Inhibitex for $2.5 billion

Inhibitex’s lead asset is INX-189, an oral nucleotide polymerase inhibitor in Phase II development for treatment of hepatitis C that reportedly has exhibited potent antiviral activity, a high barrier to resistance and pan-genotypic coverage

Jeffrey Bouley
NEW YORK & PRINCETON, N.J. & ATLANTA—Bristol-MyersSquibb Co. (BMS) and Inhibitex Inc. have signed a definitive agreement underwhich BMS will acquire Inhibitex for approximately $2.5 billion, a price that hasbeen approved by the boards of directors of both companies, with Inhibitex'sboard agreeing to recommend that Inhibitex's shareholders tender their sharesin the offer. In addition, shareholders with beneficial ownership ofapproximately 17 percent of Inhibitex's common stock have entered intoagreements with BMS to support the transaction and to tender their shares inthe tender offer.
 
 
Inhibitex is a clinical-stage biopharmaceuticalcompany dedicated to developing innovative products that can treat or preventserious infections, and its primary focus is on the development ofnucleotide/nucleoside analogs for the treatment of infection by the hepatitis Cvirus (HCV). The company's lead HCV asset is INX-189, an oral nucleotidepolymerase (NS5B) inhibitor in Phase II development that reportedly hasexhibited "potent antiviral activity, a high barrier to resistance andpan-genotypic coverage."
 
 
According to BMS, nucleotides/nucleosides areemerging as an important class of antivirals that may play a critical role asthe backbone of future direct-acting, antiviral-only combination approaches toHCV treatment.
 
 
"The acquisition of Inhibitex builds onBristol-Myers Squibb's long history of discovering, developing and deliveringinnovative new medicines in virology and enriches our portfolio ofinvestigational medicines for hepatitis C," said Lamberto Andreotti, CEO ofBMS, in a news release about the deal. "There is significant unmet medical needin hepatitis C. This acquisition represents an important investment in thelong-term growth of the company."
 
 
Many market-watchers think the acquisition ofInhibitex's HCV pipeline is important specifically to offset expected lossesfrom its blood-thinning drug Plavix (clopidogrel), which posts estimated annualsales of between $6 billion and $7 billion, when it loses patent protection inMay in the United States and in early 2013 in Europe. BMS co-markets Plavis in partnershipwith Sanofi.
 
 
Merchant Securities analyst Navid Malik says BMS "needsto buy its way out of trouble" and adds that hepatitis C is "a very competitivespace now and this is a sign that Bristol-Myers Squibb wants to be a part ofthat."
 
 
In fact, in November, Gilead Sciences Inc. announced a definitive agreement to acquire Pharmasset Inc. for $11 billion to add a strong HCV presence in themarket to complement its reputation in HIV treatment. Pharmasset currently hasthree clinical-stage product candidates for the treatment of chronic hepatitisC virus (HCV) advancing in trials in various populations.
 
 
"The world is moving toward an all-oral regimenfor hepatitis C, and Bristol-Myers, which is strong in antivirals, seems likeit wants to be a part of that," notes Les Funtleyder, a healthcare strategist atMiller Tabak & Co., echoing Malik's insights.
 
"This transaction puts INX-189 and the company'sother infectious disease assets in the hands of an organization that can moreoptimally develop them and which believes as strongly as we do in INX-189'spotential in the treatment of chronic HCV," said Russell Plumb, president and CEOof Inhibitex, in an official statement. "Bristol-Myers Squibb's expertise inantiviral drug development, and its existing complementary portfolio, willassure that the potential of INX-189 is realized as part of future oralcombination therapies for millions of patients in need around the world."
 
"Bristol-Myers Squibb continues to drive advancesin the field of hepatitis C research and development through internaldevelopment and selective partnerships," notes Dr. Elliott Sigal, executivevice president, chief scientific officer and president of R&D for BMS. "Theaddition of Inhibitex's nucleotide polymerase inhibitor to our own promisingportfolio, which includes other direct-acting antivirals, brings additionaloptions to develop all-oral regimens with better cure rates, shorter durationof therapy and lower toxicity than the current standard of care."
 
The transaction is expected to be dilutive toearnings for BMS through 2016, with an expected impact on earnings per share ofapproximately $0.04 in 2012 and approximately $0.05 in 2013.
 
 
Under the terms of the definitive agreement, BMSwill commence a cash tender offer to purchase all of the outstanding shares ofInhibitex's common stock for $26 per share. The closing of the tender offer issubject to customary terms and conditions, including the tender of a number ofshares that constitutes at least a majority of Inhibitex's outstanding sharesof common stock (on a fully diluted basis) and expiration or termination of thewaiting period under the Hart-Scott-Rodino Antitrust Improvements Act. Theagreement also provides for the parties to effect, subject to customaryconditions, a merger to be completed following the completion of the tenderoffer which would result in all shares not tendered in the tender offer beingconverted into the right to receive $26 per share in cash. The mergeragreement contains a provision under which Inhibitex has agreed not to solicit anycompeting offers for the company. BMS will finance the acquisition from itsexisting cash resources. The companies expect the tender offer to closeapproximately thirty days after commencement of the tender offer.
 
 
This offer represents a premium of approximately126 percent of Inhibitex's share price over the previous 20 trading days, puttingit on record as the second-largest premium for a biotechnology orpharmaceutical company worth more than $500 million, according to data compiledby Bloomberg since 1999. The record is currently held by Genzyme Corp. for its2006 deal for AnorMed Inc., with a 162 percent premium.
 
 
"The deal seems a bit expensive for an early-stagecompound, but there is scarcity value," notes Funtleyder, whose fund holds BMSshares.
 
 
As many as 170 million people globally carry thehepatitis C virus, and current drugs, given through injection, can have sideeffects that make therapy difficult to endure. The next generation is designedto be taken as pills that can offer a higher cure rate and fewer side effects. 



Jeffrey Bouley

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