Which Biotech Company Is the Next Takeover Target?

Merger Monday kicks off the JPMorgan Health Care conference with Bristol Meyers acquiring Inhibitex, a small biotech firm that is working on a Hepatitis C treatment.

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The deal is not a huge surprise as there has been ongoing speculation about accelerated deal flow in 2012, specifically within the Hepatitis C space. I spoke about Inhibitexamong others being an acquisition target on CNBC last Friday. The Bristol Meyers acquisition of Inhibitex was announced on Saturday.

The question the becomes: What’s the next takeover target as large drug makers look to build out their pipeline?

Taking a poll of hedge fund managers that invest in the biotech space, all arrows point to Idenix Pharmaceuticals and Achillion Pharmaceuticals. Sources say Johnson & Johnson and Amgen have their eyes on these two players within the Hepatitis C market. Both stocks (Idenix and Achillion) are trading at their highest level since 2007 on buyout speculation.

Idenix currently has a Hepatitis C treatment in development. While Achillion Pharmaceuticals has five experimental Hepatitis C drugs in development. Drug makers who are looking to enter this profitable space that is pegged to be a $16 billion market by 2015, also have their eyes on this one.

The JPMorgan Health Care conference, the mother of all health care events, has long been seen as a platform to brew potential deals. And this year is no different, with analysts expecting a pick-up in M&A activity. The two main reasons: smaller firms are looking to expand their distribution network, and big pharma players are trying to replenish their pipelines.

“I think we’ve seen tremendous consolidation, and we will continue to see that in terms of outright M&A as well collaborations and partnerships,” said Barbara Ryan, Managing Director at Deutsche Bank Securities.

Hedge funds will also be keeping an eye on a couple of small cap names like Auxilium , and Emergent Biosolutions . Big announcements from these companies could drive stock price volatility. Premier hedge funds are expected to focus less on large cap drug makers and more on the under the radar specialty names that could be potential buyout targets.

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