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Bristol-Myers Enters Hepatitis Drug Race With $2.5 Billion Takeover of Inhibitex

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The announced deal put the drug maker in the running for the next generation of hepatitis C treatments. Bristol joins Gilead, Merck, Vertex, Roche and others to treat virus that affects millions of Americans.

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The big drug maker Bristol-Myers Squibb (BMY) is shaking up the race toward a new hepatitis C treatment, entering a field that's already crowded with several top players. In a weekend announcement, Bristol-Myers said it will pay $2.5 billion to take over Inhibitex (INHX), a development stage drug company.

The $26 a share cash offer represents a 163% premium over Inhibitex's closing stock price on Friday. The announced deal follows Gilead Sciences' (GILD) planned acquisition of Pharmasset (VRUS) for $11 billion. That deal price represents a 90% premium for Pharmasset. (See Gilead Plans $11 Billion Takeover of Pharmasset to Gain Hepatitis Drugs.) The huge premium for Inhibitex also follows a big run on that company's shares over the past year. In early 2011, the stock traded under $3 a share. (See Inhibitex Soars as Investors Chase Hepatitis Drug Developers.)

Bristol-Myers needs new drugs as it faces future generic competition for its blockbuster anti-clotting drug Plavix, used to to prevent heart attack and strokes. With Inhibitex it would double down on a hot therapeutic area for drug companies.

Since Vertex Pharmaceuticals (VRTX) and Merck (MRK) won approval of new and vastly improved hepatitis C treatments last year, investors have become keenly interested in other companies looking to enter the market. Like Pharmasset, Inhibitex is working on a next-generation drug to treat the liver-eroding virus hepatitis C. Millions of Americans are believed to have chronic infections and a number of them don't know they have the virus.

With the field of hepatitis C drug developers shrinking, naturally investors on Monday snapped up shares of two companies who have yet to ink deals: Idenix Pharmaceuticals (IDIX) and Achillion Pharmaceuticals (ACHN). Shares of Idenix rose by more than a third to $9.38 in morning trading Monday, while Achillion rose 12% to $8.89.

"The short list is down to Achillion and Idenix," Robert W. Baird analyst Thomas Russo says. While big drug companies usually want to see more proof clinical-stage drugs will actually work before they acquire them, Russo says he senses "an offsetting sense of urgency – to act before all the best assets are gone."

Investors should do their homework on the two remaining companies. Up until today (and before the surge in stock price), there were more analyst sell and hold ratings on Idenix than buys. The company announced Monday mid-stage research that showed its hepatitis C drug candidate was generally safe. But its drug is years away from a potential market approval. Same goes for Pharmasset, Inhibitex and Achillion.

Russo recommends buying Achillion's stock, and doesn't cover Idenix.

Inhibitex, Pharmasset, Idenix and Achillion are all studying drugs known as nucleotide polymerase inhibitors. The drugs are intended to eliminate or, at least, reduce the need for interferon in the treatment regimen of hepatitis patients. The two drugs approved last year -- Vertex's Incivek and Merck's Victrelis -- are administered with the interferon, an older injected drug that carries serious side effects.

Twitter: @brettchase

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