Merck (NYSE: MRK) paid a 230 percent premium for Hepatitis C-focused Idenix Pharmaceuticals (NASDAQ: IDIX). News of the massive acquisition, earlier this month, sent shares of other Hep C companies, Enanta (NASDAQ: ENTA) and Achillion (NASDAQ: ACHN) higher.
In an exclusive interview with Benzinga, Enanta CEO Jay Luly discussed what the deal means for industry valuation.
“There can be some significant sized deals," he said, "but I don’t think that it means at all, necessarily, that the bio-tech sector is undervalued."
“You are going to see these deals going forward," Luly continued. "For every one of those [deals at a significant premium] there will probably be three deals that don’t happen because small company evaluations are too high.”
Rather than looking at the industry as a whole, Luly emphasised the importance of looking at each company on a case by case situation. Merck, for example, needed a very specific kind of company, according to Luly.
When Idenix shot up 230 percent on announcement of the Merck acquisition, Enanta moved just 3.24 percent higher, while Achillion rose 47.57 percent. Many investors are uncertain as to why Achillion shares reacted so much more strongly than Enanta’s.
But Luly provided Benzinga some insight. He began by noting that Achillion’s share price has been very depressed recently.
“I think in part it is because they had a stretch of some not-so-good news," he said. "They went on clinical hold with one of their molecules, another one of their programs showed data that was not the strongest that people had hoped for, so their stock went way down.”
Regarding multiples, Luly explained the deal may give shareholders "some belief that maybe they could come back from the valuation that they used to be at.”
Over the past two years, shares peaked at a price/book of 11.1 and averaged 6.25; at the beginning of June, shares were trading near a ratio of just 2.5.
This is part one of a two-part interview series with Enanta CEO Jay Luly.
Up Next: Luly’s comments on expansion opportunities and development.
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