Why Idenix Pharmaceuticals, Inc. Shares Skyrocketed More Than 230%

Idenix shares soar after agreeing to be purchased by this big pharma giant. Find out what this deal means for shareholders on both sides.

Jun 9, 2014 at 2:17PM

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 Idenix Pharmaceuticals (NASDAQ:IDIX), a clinical-stage biopharmaceutical company focused on developing therapies to treat hepatitis C, exploded higher by as much as 235% after rival Merck (NYSE:MRK) agreed to buy the company for $3.85 billion.

So what: Under the terms of the deal, Merck will acquire Idenix for $24.50 per share in cash, a 239% premium to its closing value on Friday, in order to diversify its own hepatitis C development pipeline and hopefully catch a piece of the hepatitis C treatment market. According to Merck Research Laboratories President Roger Perimutter, Idenix's nucleoside/nucleotide chemistry and prodrug technologies should wind up complementing Merck's existing programs nicely. The board of directors of both companies have approved the deal with the transaction expected to close in the third quarter. Following the announcement research firm R.W. Baird upgraded Idenix to "outperform" from "neutral" -- a smooth move after its 230% run higher and all the more reason to ignore analyst ratings as largely unimportant to our investing thesis.

Now what: I don't say this lightly, but in my opinion, based on the data and facts we have in front of us right now, this might be one of the worst deals I've ever seen. Now understand that Idenix could deliver on samatasvir, its NS5A inhibitor, or its two other nucleotide prodrugs (IDX21437 and IDX21459), which would make this deal very much worth Merck's while. However, historically speaking, Idenix has one of the worst track records among all biotechs.

In 2010, Idenix had its then-lead compounds IDX184 and IDX320 placed on clinical hold by the Food and Drug Administration. Following this hold IDX184 continued on while IDX320 wound up be discontinued. In 2012, IDX184 was placed on clinical hold a second time along with IDX19368 following the death of a patient in Bristol-Myers Squibb's (NYSE:BMY) study involving BMS-986094 (the drug it acquired when it bought Inhibitex). Because Idenix's investigational drugs worked along the same pathway as Bristol's, the FDA decided to exercise caution. Long story short, both IDX184 and IDX19368 would be scrapped shortly thereafter. Finally, last year the FDA placed a clinical hold on IDX20963 until it delivered preclinical safety data to the regulatory agency. That's four clinical holds in four years folks (or five if you count IDX184 twice), aptly giving it the name of the "most unlucky biotech in the world" according to Foolish biotech specialist Brian Orelli.

The price paid for Idenix's inability to successfully get a drug into late-stage trials -- $3.85 billion -- is simply unfathomable, especially when you consider that Gilead Sciences already brought its blockbuster Sovaldi to market with sustained virologic response rates of 90% or better in most cases, and AbbVie's direct-acting antiviral, also capable of 90%-plus SVRs, is a likely candidate for approval perhaps before the end of this year. In a best-case scenario, Merck might bring a new therapy to market two years from now, but will there be any piece of the pie left to share by then? I'm not so sure.

Idenix may have skyrocketed today, but over the long run this top stock may wind up outpacing its one-day gain
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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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