Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: There was nothing inhibiting shares of drug developer Inhibitex (NAS: INHX) from going higher today as they jumped as much as 34% in intraday trading.
So what: The big news in the biotech sphere today was Gilead's (NAS: GILD) $11 billion buyout of Pharmasset (NAS: VRUS) , a company working on a next-generation hepatitis C treatment. In a sign of just how badly Gilead wants Pharmasset to become a, um, Gilead asset, the company agreed to pay a massive 89% premium for the acquisition.
So what does this have to do with Inhibitex? According to Reuters, the market for hep-C drugs is expected to balloon from $1.7 billion last year to $16 billion by 2015. The Gilead acquisition could trigger a hep-C arms race that could have companies such as Bristol-Myers Squibb (NYS: BMY) , Johnson & Johnson (NYS: JNJ) , and Merck (NYS: MRK) looking for an acquisition of their own. And that could lead them right to Inhibitex's doorstep since it's also working on hep-C treatments.
Now what: That investors are following the path from the buyout of Pharmasset to the potential for something similar to happen at Inhibitex makes a lot of sense. Speculating on buyouts, however, is tricky business and can often lead to heartbreak. If a play for Inhibitex doesn't surface in the near future, the investors who are jubilantly jumping in today may start to slink their way back out before long, leaving the stock sagging.
For investors with their eye on Inhibitex's stock, a better bet is to invest in the company itself -- the strength of management, the market potential for its drug, etc. -- rather than gambling on a quick bump from a buyout offer.
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