Gilead Sciences acquires Pharmasset, looks to duplicate its HIV success in hepatitis C

Monday, November 28, 2011

Consolidation among drug sponsors continues. 

Last week, Gilead Sciences, the world’s largest maker of HIV medicines, announced it would acquire Pharmasset for close to $11 billion—approximately one third of Gilead’s value. 

Pharmasset, based in Princeton, N.J., is developing experimental oral hepatitis C treatments that could, if they pan out, replace the injectable drugs now on the market. 

The deal values Pharmasset at $137 a share—an 89% premium above its closing share price just before the deal was announced, and a 59% premium to its all-time high closing price. 

Observers were a bit shocked. 

“For Gilead to give up effectively one third of its value for an unproven asset still subject to significant ongoing clinical risk seems remarkable,” Sanford Bernstein analyst Geoff Porges wrote in a research note on the acquisition. The company, he said, is “likely to be treated harshly by investors for apparently ‘top ticking’ the most visible asset in the market.” 

Foster City, Calif.-based Gilead has made a number of acquisitions in recent years, but this is its biggest. Earlier this year it acquired Calistoga Pharmaceuticals for $375 million. Last year, Gilead added Arresto Biosciences for $225 million and CGI Pharmaceuticals for $120 million. In 2009 it purchased CV Therapeutics for $1.4 billion, and in 2006 Gilead acquired Raylo Chemicals for $148 million and Myogen for $2.2 billion. 

Gilead said it anticipated this buy would be a drag on its bottom line through 2014, and then would begin adding profit. Gilead said it plans to finance the acquisition with cash on hand, bank debt and senior unsecured notes. 

Naturally, Gilead’s stock price dropped 11% to $35.51 last Monday morning on the news. Pharmasset’s price rose 85% to $134.30. 

Pharmasset has 82 employees. It posted a net loss of $91.2 million on revenue of $900,000 for the fiscal year ended Sept. 30. 

Before Merck and Vertex Pharmaceuticals received FDA approvals for their new hepatitis C therapies this year, it had been almost a decade since any new treatments had hit the market. Inhibitex and Achillion Pharmaceuticals also are developing medicines for the virus. But many view Pharmasset’s three under-development therapies as the ones that could soon dominate. And Gilead CEO John Martin said in a conference call with analysts and investors that his company wants to achieve in the hepatitis C (also known as HCV) space what it has already done in HIV. 

“Gilead has become the leading player in HIV by having the best-in-class treatment,” Martin said. “We believe the same opportunity exists in HCV.” 

Pharmasset said 40 patients who took its drug candidate PSI-7977 were responsive after 12 weeks, and all of those who were followed for 24 weeks had been cured with no significant adverse events. 

There has been other recent acquisition activity in the hepatitis C area. Just last month, Roche Holding agreed to purchase Anadys Pharmaceuticals, also a maker of therapies for hepatitis C that have not yet garnered approval. The price: about $230 million. 

Suz Redfearn

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