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Winners And Losers In Merck Idenix Deal

|Includes:ABBV, ACHN, BMY, Gilead Sciences, Inc. (GILD), IDIX, JNJ, RHHBY

The winners and losers, based on today's Merck announcement regarding an acquisition of Idenix:

Winners

IDIX (easy)

MRK …In case there was any doubt that Merck was a solid number 2 behind Gilead, this solidifies it

GILD…!!...In case there was any doubt that the market was larger (I am at $9 billion and $16 billion in 2014 and 2015, respectively, for Gilead's Hep C drug sales) and of longer duration, this should eliminate those issues, and also make a "price war" less likely.

Losers

JNJ---they must buy to play

RHHBY---they must buy to play

BMY---Japan only unless they buy

ABBV---short term revenue stream unless they buy

In my opinion, the only asset worth buying is Gilead. Achillion may get bought (AT A DISCOUNT to Idenix), but it is late in development and its drugs do not appear as good. Therefore, BMY and ABBV are unlikely to be able to acquire an NS5B inhibitor. Gilead could decide to buy one of these latter two in order to broaden its pipeline outside of hepatitis, but I put this as highly doubtful at current valuations. I would expect BMY to trade into the 38-42 range, and ABBV into the mid-40s. My target price on Gilead remains $140.

Len

Disclosure: I am long GILD.

Stocks: GILD, JNJ, ABBV, ACHN, IDIX, BMY, RHHBY