The recent price tags being paid for small drugmakers with Hepatitis C treatments underscore a growing trend that the pharmaceutical industry may find hard to avoid - huge premiums are being paid for select targets and drugmakers will be forced to continue to do so as they struggle to replenish their product pipelines.

For instance, Bristol-Myers is paying $2.5 billion for Inhibitex and Gilead Sciences will pay $11 billion for Pharmasset. The valuations were among the hottest topics at the annual JP Morgan Healthcare Conference being held in San Francisco this week, where pharma execs - big and small; investment bankers and analysts, among others, convene in an updated version of a meat market.

“There’s always been a steady wave of health care M&A. The only difference now is there is a panicky quality to deals as companies appear to be playing musical chairs and they are grabbing at things to avoid being left alone when the music stops,” one investment banker, who declined to be named, tells the Associated Press.

The Bristol-Myers deal, in particular, illustrates the point, given that the Inhibitex Hepatitis C compound has completed only Phase I testing, which means the big drugmaker may not know for quite some time whether its bet will pay off (see here).

“The valuation of this deal as quite aggressive considering the historical failure rates of Phase II assets, which is between 18 percent and 28 percent, according to MKM Partners analyst Jon LeCroy. “While hepatitis C is an exciting space right now, we think paying $2.5 billion in cash for Phase II assets seems excessive.” But Bristol-Myers cfo Charles Bancroft says the drugmaker had little choice. “It was a very competitive bidding process,” he tells the AP.

Here is an interesting nugget, though. Over the past five years, the average takeover premium for biotechs has been 44 percent, above the average premium across all industries of 26 percent, according to data from Thomson Reuters. Globally, healthcare attracted a higher premium than any other industry over the past two years. Last year, the average premium for any health care deal was 35.2 percent, compared with an average premium of 30.0 percent across all industries, the AP writes.

“These deals (Inhibitex and Pharmasset) inflate valuations across the board and make prices in some sub-sectors astronomical,” a healthcare investment banker tells the AP. “The Bristol deal may turn out to be a prescient move, but the backlash that could be felt if this Phase II drug fails will make it a cautionary M&A tale.”

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