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3 Industries and 3 Stocks Riding a 2012 M&A Boom

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3. Biotech and Idenix Pharmaceuticals

It was a roller coaster January for hepatitis C drugmakers after Bristol-Meyers Squibb (BMY) bid $2.5 billion for Inhibitex (INHX), launching a Hep C "deal-a-palooza" that pushed competitor shares higher.

After the deal, investors focused on whether other independent drug makers with Hep C drugs in development could be targets to a larger industry player looking add drugs as others go generic. While Achillion Pharmaceuticals (ACHN) emerged as another possible takeover candidate, analysts and investors focused on Idenix Pharmaceuticals (IDIX).

Idenix Pharmaceuticals may be the next hepatitis C acquisition in the biotech space after the Inhibitex deal, according to a research note published by Wedbush research analyst Duane Nash. There was plenty of pent up demand for Inhibitex, which received 5 competing bids to go with Bristol-Meyers Squibb's winning offer, according to a regulatory filing.

At a January industry luncheon discussing hepatitis C drug development, a poll by ISI Group biotech analyst Mark Schoenebaum of 120 participants showed that Idenix Pharmaceuticals had a greater than 50% chance of being acquired.

The size of the commercial opportunity for new all-oral Hep C treatment regimens is a much-debated topic, with many seeing big sales numbers. Forty eight percent of the investors at the January meeting predicted worldwide Hep C drug sales between $8 billion and $10 billion by 2019.

Idenix Pharmaceuticals shares surged on Bristol Meyers Squibb's Inhibitex purchase, which was cut at a 163% premium to the company's share price prior to the deal announcement. However in February, Idenix shares dropped from post-crisis highs earlier after results from a competing hepatitis C treatment by Gilead Sciences (GILD) raised questions about the need for Idenix's IDX-184 drug in development.

Other potential deals in the healthcare sector include a potential takeover of clinical research providers Covance (CVD) and Charles River Laboratories (CRL), according to a February research note from Sterne Agee analyst Greg Bolan. Jefferies analysts also pointed to Wuxi PharmaTech (WX) as a potential private equity target.

In Roche's hostile offer for Illumina, investors bid the genetic sequencing machinery maker's shares far higher than the $73 offer price after large cap healthcare equipment makers like Siemens Healthcare (SI), Johnson & Johnson (JNJ), Abbott Laboratories (ABT) and Becton, Dickinson (BDX) emerged as competing bidders according to analysts.

Nevertheless, even after deal announcements there are still risks for investors betting on M&A in the healthcare and pharmaceutical space. In January, Valeant Pharmaceuticals (VRX) withdrew its hostile $7.5 a share offer for ISTA Pharmaceuticals (ISTA) after making little progress on takeover negotiations. A mega-merger between Express Scripts (ESRX) and Medco Health Solutions (MHS) could still be iced on antitrust scrutiny.

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