Tuesday, December 04, 2012

Deals of the Year M&A Nominee: BMS/Inhibitex

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

Less than seven months after Bristol-Myers Squibb announced plans to buy Inhibitex the big pharma scrapped development of the lead asset it paid so handsomely for.  But that’s no reason for it to be disqualified from DOTY.

It’s not as though only heroic leads win Oscars after all (Kathy Bates in Misery comes to mind).  Speaking of misery…. that must be exactly what executives over at Bristol were feeling when they found out the drug they put down $2.5 billion on was linked to cardiac toxicity. We bet Inhibitex investors were feeling differently though.

Which reminds us: there is more than one way to skin a deal. Bristol’s $2.5 billion disaster was Inhibitex’s enormous sigh of relief. We think Inhibitex’s savvy sellout makes this deal DOTY worthy despite its rapid demise. Plus, the overall deal value was one of the highest in 2012, outranked certainly by Bristol and AstraZeneca’s $6.8 billion acquisition of Amylin, but keep in mind this one was mainly for rights to a single Phase II asset. Then there is the general excitement around the race to bring the first all-oral regimen to market for the treatment of hepatitis C, an area of business development that has been more exciting to watch unfold than the train sequence in Skyfall.

Bristol deserves a few sympathy votes too, right? The company’s expensive buyout of Inhibitex has to be viewed next to Gilead’s $11 billion acquisition of Pharmasset in November 2011. With that ultra-expensive acquisition, Gilead gained Pharmasset’s highly-regarded polymerase inhibitor, now known as GS-7977, positioning it in the lead in the all-oral hep C race and leaving Bristol in a lurch without a critical component for its own oral regimen involving its NS5A inhibitor. It made sense then when Bristol said it was buying the Georgia-based virology specialist Inhibitex, which had a polymerase inhibitor, INX0189, in development, less than two months later.

And let’s be honest: $2.5 billion seemed downright reasonable compared to Gilead’s $11 billion buyout. Indeed, had things gone differently, Bristol/Inhibitex could have been a DOTY nominee for altogether different reasons.

As it stands, INX-189 turned out to be the pharmaceutical equivalent of a lemon. In August, less than seven months after announcing the acquisition, Bristol said it was halting development of the drug due to a cardiac safety issue. Bristol recorded a non-cash, pre-tax impairment charge of $1.8 billion in the third quarter as a result, and even more damaging was the setback to its HCV development program.

Bristol’s big buy was a big blow, but that’s how the dice rolls in pharmaceutical development. High risk and high reward – and we like it that way. Plus, there’s almost always a winner. In this case, Inhibitex’s investors, who walked away with a comfortable return (163% premium on the previous day’s closing share price) on their investment. Not such a bad deal when you look at it that way.

-- Jessica Merrill 

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