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Drugs to treat the hepatitis virus are quickly becoming the hottest area of medicine. Recent buyouts include Gilead Sciences (NASDAQ:GILD) paying $11 billion in cash for Pharmasset and Bristol-Myers Squibb (NYSE:BMY) snagging Inhibitex for $2.5 billion in cash. Other key players in the space include Idenix Pharmaceuticals (NASDAQ:IDIX), Achillion Pharmaceuticals (NASDAQ:ACHN), Abbott Laboratories (NYSE:ABT), Vertex Pharmaceuticals (NASDAQ:VRTX) and Merck & Co. (NYSE:MRK).

No wonder that large biotechs are looking to buy - hepatitis viruses, grouped as A, B, C, and D, are considered a worldwide epidemic and highly contagious. The World Health Organization (WHO) puts the number of those infected at 550 million, or nearly 8% of the entire human population. Almost 70% of people advance to a chronic state. It is the number one reason for liver cancer. There is no cure.

Which brings us to - Medgenics (NYSEMKT:MDGN) announcing an Orphan Drug Designation for its INFRADURE for the treatment of hepatitis D. Orphan Drug Designation means smaller clinical trials and faster approval time.

This announcement follows an astounding run of good news for Medgenics including FDA approval of an Investigational New Drug (NYSE:IND) application for its EPODURE device for anemia and the launch of a US-based manufacturing facility for its Biopump, the company, making good on our prediction of a highly-favorable relationship with the FDA.

Also, good results would pave the way for hepatitis C trials in the US and for final approval for hepatitis D in Israel. Hepatitis D affects 15 million people worldwide. Hepatitis C is a larger market at 180 million, and we envision INFRADURE serving as a platform technology to launch all versions of treatment for the hepatitis virus.

Timing is excellent for MDGN. Drug makers for hepatitis are being snatched up at huge premiums, and companies that are already in the market are seeing sales on the blockbuster level.

A new and better treatment entering clinical trials for hepatitis should propel MDGN's market cap far beyond its current $69 million. Even its closest competitor, ACHN, is trading at a market capitalization of $471 million and doesn't have nearly as full a pipeline as MDGN. Same for IDIX: with only three drugs in the pipeline, its market cap is over $1 billion.

We think Medgneics is on the radar of drug makers and biotechnology outfits that are scrambling to tap into this $20 billion market, causing a rise in M&A activity and new stock highs for the publicly-traded companies involved.

Last November, Gilead Sciences paid $137 per share, or $11 billion in cash, for Pharmasset, an 89% premium to the stock price, making a big bet on a new generation of drugs to combat Hepatitis C. Two months later, Bristol-Myers Squibb snagged Inhibitex for $2.5 billion in cash, a premium of 163% to the price of the shares. Although partnerships are more common for drugs in mid-stage clinical trials, both companies chose a buy-out strategy to gain full control of the potential blockbusters.

Investors feel the excitement and have been paying close attention to other makers of hepatitis drugs. Idenix Pharmaceuticals is advancing two compounds for hepatitis through clinical trials. Achillion Pharmaceuticals received Fast Track designation from the FDA for its treatment for chronic hepatitis C which is currently in Phase I. Abbott Laboratories announced promising results for its hepatitis drug, with predictions of $2 billion in annual sales upon approval and commercialization.

Companies with new versions of hepatitis treatments are clearing the way for new classes of compounds expected to enter the market over the next five years. Vertex Pharmaceuticals sells INCIVEK, a recently-approved hepatitis C combination therapy that was co-developed with Merck & Co. and was the first new drug on the market for hepatitis in almost 10 years. Sales for the drug were $420 million last year.

Demand for a new drug regimen for the virus is high. PEG-interferon and ribavirin are known for low efficacy, long treatment times, and terrible side effects. Many patients feel the treatment is worse than the disease itself. Medicine is ripe with the anticipation of newer, better drugs and doctors are more than willing to veer away from the long-time standard of care.

Ray Dirks Research recommended MDGN in February when it was trading at $3.50 per share. Shares have risen 244% since then and it's only the beginning. With a path to fast regulatory approval for treating a incurable condition in a huge medical market, not to mention progress with its Biopump therapy in anemia, multiple sclerosis, arthritis, hemophilia, pediatric growth hormone deficiency, obesity, diabetes, and other chronic diseases, shares of MDGN should be bought at this very attractive price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.