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Inhibitex Shares Surged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biotech Inhibitex (Nasdaq: INHX  ) were skyrocketing on Monday, gaining an eye-popping 144% after Bristol-Myers Squibb (NYSE: BMY  ) announced over the weekend that it's buying the drug developer for $2.5 billion.

So what: For Inhibitex shareholders, the benefit of the deal is very apparent. The $26-per-share offer from Bristol-Myers represents a premium of more than 160% over Friday's closing price. Sure, some shareholders may have expected even better gains over time, but the buyout provides a significant profit today and eliminates the risk that the company's leading treatments don't end up getting approved.

For Bristol-Myers shareholders, it's a bit more complicated. The company picks up a promising developer with a particularly notable hepatitis-C treatment that's currently in phase 2. However, it also assumes the approval risk and the funding requirements to get that drug (INX-189) and others to the finish line. In the company's press release it said that deal would likely be dilutive through 2016.

Now what: Often the gap between a target company's previous stock price and the takeover price closes pretty quickly. In this case, today's 140%-plus surge gets Inhibitex's stock pretty close to Bristol-Myer's offer price, but investors could still pick up nearly 10% more by sticking around until the full $26 is realized. The risk that they run is the plunge that would take place if the deal fell apart -- an eventuality that's less likely when the buyer is as large and well-capitalized as Bristol-Myers.

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Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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Related Tickers

12/31/1969 7:00 PM
INHX.DL $0.00 Down +0.00 +0.00%
Inhibitex Inc. CAPS Rating: *
BMY $49.55 Up +0.32 +0.65%
Bristol-Myers Squi… CAPS Rating: ****