Pharmasset, Inhibitex Receive Takeover Bids - Is Achillion Next?

Following the announcement that Gilead (NASDAQ:GILD) was proposing to acquire Pharmasset (VRUS), I postulated in a note written on November 11, 2011 that Inhibitex (NASDAQ:INHX) and Achillion (NASDAQ:ACHN) were the next possible targets as big pharma companies seek to put together HCV drug assets. On January 7, Bristol-Myers Squibb (NYSE:BMY) announced that it is proposing to acquire Inhibitex. I believe that Achillion is the third most attractive HCV drug developer target after Pharmasset and Inhibitex.

The question is what a potential acquirer might pay for Achillion. Gilead announced that it was acquiring Pharmasset at $137 per share, which was an 81% premium to the closing price on the day before the takeover bid. Bristol-Myers is offering to pay $26 which is a 182% premium to the $9.87 close of Inhibitex last Friday. Using an 81% to 182% premium range and applying that mutiplier to Achillion’s close last Friday of $7.92 would result in a potential takeover bid of $14.20 to $22.33.

Looked at in another way, at its proposed acquisition price the market value paid for Pharmasset would be $5.7 billion and similarly for Inhibitex the market capitalization would be $2.0 billion. I consider Pharmasset to be the most attractive of these three companies with Inhibitex second. Hence, I would anticipate that on this basis the market valuation placed on Achillion by a potential acquiror would be at most the $2 billion paid for Inhibitex. If a potential acquiror were to pay $2 billion in market value the acquisition price for Achillion would be $28.69. I would consider this to be the upper limit.

Based on all of the above, I would speculate that Achillion could potentially receive $14 to $29 per share in a takeover bid. There is, of course, no guarantee that Achillion will receive a takeover bid, just a reasonable possibility.

Disclosure: I am long ACHN, INHX.

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