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Pharmasset Purchase
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From Jules: I think Gilead made the right move, read online comments below. Here are selected online comments on the Gilead deal yesterday to buy Pharmasset for $10.4 billion. I think potentially the market in the USA alone could be $50 bill+ based on that I think as many as 7-8 million might be HCV-infected. Of course globally its estimated 170 million are HCV-infected. Don't forget Vertex bought Alios' nucleotides and plan to start studies soon.
(Reuters) - Gilead Sciences Inc struck a deal to buy biotechnology company Pharmasset Inc for about $11 billion in a huge and risky bet on the next generation of hepatitis C treatments."It's definitely a high-risk acquisition, but I think it could pay off in dividends for them," said Brian Skorney, an analyst with Brean Murray, Carret & Co. "Given the premium, Gilead is hoping to avoid another potential suitor. "Skorney said a competing bid could emerge. He noted that Roche Holding AG has a partnership with Pharmasset. Bristol-Myers Squibb Johnson & Johnson and Merck also sell or are developing hepatitis medicines.Shares of Inhibitex Inc which also is developing hepatitis C medicines, gained 18.8 percent.
$16 BILLION MARKET
Untreated, hepatitis C can lead to cirrhosis, liver cancer and the need for a liver transplant. According to Gilead, more than 12 million people are infected with hepatitis C in major markets, but fewer than 200,000 are treated annually.
The market for hepatitis C drugs is expected to soar to $16 billion in 2015 from $1.7 billion last year in major commercial markets, according to research firm Decision Resources. It estimates the market will then fall to $11.3 billion in 2020, because many patients will have been cured by the new drugs, reducing the number of people who need treatment.
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Pharmasset Sets Inhibitex-to-Achillion Drugmaker Deals: Real M&A
November 22, 2011, 6:59 AM EST businessweek.com
Nov. 22 (Bloomberg) -- The acquisition of Pharmasset Inc. at the highest valuation on record for a drug takeover is turning makers of hepatitis C therapies from Inhibitex Inc. to Achillion Pharmaceuticals Inc. into the next targets.
The company sought to buy Pharmasset to ward off rival bidders and bolster its roster of potential therapies, said John Milligan, Gilead's president and chief operating officer. Gilead has been in talks with Pharmasset about a potential partnership for two years, Milligan said Monday in a telephone interview (SF paper).....The purchase "clearly sends a strong statement that Gilead is intent on becoming the leader in HCV over the next decade," e-mailed Michael Yee, an analyst with RBC Capital Markets in San Francisco. Pharmasset's experimental drug, PSI-7977, "could add $3 billion to $5 billion in revenue over the long term," he said. (another online source)
"Usually we associate these kinds of premiums with biotech bull markets, but it also can be a function of other possible bidders, scarcity and stage of assets," Les Funtleyder, a New York-based health strategist and portfolio manager at Miller Tabak & Co., which owns Pharmasset shares, said in a phone interview. "If anybody was thinking about doing something in hepatitis C, they would be thinking a lot harder today than they would be yesterday." Pharmaceutical companies that may look to expand in the market for hepatitis C treatments include Roche Holding AG, Merck & Co., Bristol-Myers Squibb Co. and Johnson & Johnson, according to Miller Tabak's Funtleyder and Brian Skorney, a New York-based analyst at Brean Murray Carret & Co.
These companies are "all heavily invested in the antiviral arena," Skorney said in a phone interview. "Worldwide this is a huge, huge market opportunity."
Ron Rogers, a spokesman for Whitehouse Station, New Jersey- based Merck, Jennifer Fron Mauer, a spokeswoman for Bristol- Myers of New York, and Carol Goodrich, a spokeswoman for J&J of New Brunswick, New Jersey, declined to comment on speculation. Calls placed to the U.S. media line for Basel, Switzerland-based Roche weren't immediately returned.
Inhibitex as Target
Inhibitex is an attractive takeover candidate because its INX-189 treatment is similar to Pharmasset's drug, Skorney said. With a market value of $831 million, Inhibitex would be a smaller acquisition and a "much different de-risking story" than Pharmasset, he said. Inhibitex shares climbed as much as 34 percent yesterday before closing at $10.61, a 19 percent gain.
"The drug that you turn to that looks like it has the best shot at being competitive with Pharmasset right now is Inhibitex's," Skorney said in a phone interview.
Inhibitex's oral treatment was potent and well tolerated, showing no serious side effects in a clinical study, the Alpharetta, Georgia-based company said in a statement Nov. 4.
An assistant to Russell Plumb, chief executive officer of Inhibitex, couldn't immediately comment.
Achillion For Sale
Achillion, the New Haven, Connecticut-based company expecting clinical data on three experimental hepatitis C therapies by about yearend, is in "advanced discussions" with potential partners and acquirers, CEO Michael Kishbauch said in an interview last week. The hepatitis C market may be worth $20 billion by 2020, Kishbauch said.
Achillion, which doesn't have any products for sale yet and has a market value of $414 million, may be part of "continued consolidation" in the industry, Edward Tenthoff, a New York- based analyst at Piper Jaffray Cos., wrote in a note to clients yesterday. It may be worth $12 a share, he said, twice the company's closing price yesterday.
"Achillion Pharmaceuticals has the most optimized portfolio of treatments for chronic hepatitis C and are committed to providing the greatest value to our shareholders" and hepatitis C patients, Christin Miller, an outside spokeswoman for Achillion, said in an e-mail. The company hasn't set a deadline for completing its review of alternatives, which include a sale or partnership, she said.
'Clear Frontrunner'
Idenix, with a market value of $765 million and a slate of five experimental medicines for hepatitis C, according to its website, may also be a target, Y. Katherine Xu, a New York-based analyst at William Blair, said in a phone interview. Kelly Barry, a spokeswoman for Idenix, didn't respond to a phone call and e- mail seeking comment.
The most advanced, IDX184, is a nucleotide polymerase inhibitor, the same kind of medicine as Pharmasset's lead drug. The Cambridge, Massachusetts-based company started enrolling patients in a mid-stage clinical trial this year and expects to report one-month data for the first 30 patients next quarter.
"Pharmasset for a while now has been the very clear frontrunner as far as a drug in clinical development," Brean Murray's Skorney said. "For the other pharma companies, there's going to be some pressure to make a decision to try to be competitive. There's so much potential revenue to be made that I don't think they're ready to give up and just say because Gilead did this deal the game's over."
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Gilead stuns analysts with $11 billion bid for Pharmasset
pharmatimes World News | November 22, 2011 Kevin Grogan
Gilead Sciences has surprised the markets by agreeing to acquire hepatitis C specialist Pharmasset for a jaw-dropping $11 billion.
Gilead is offering $137 per share in cash, which represents an 89% premium to Pharmasset's closing share price on November 18. It expects the transaction to be dilutive to earnings through 2014 and accretive in 2015 and beyond.
Pharmasset has three candidates for the treatment HCV, headed by PSI-7977, a uracil nucleotide analogue which has recently been advanced into two Phase III studies in genotype 2 and 3 patients and is being studied in combination with ribavirin. PSI-938, a guanosine nucleotide analogue, is being tested in a Phase IIb trial as monotherapy and in combination with PSI-7977, while mericitabine, a cytidine nucleoside analogue, is partnered with Roche and is being evaluated in three Phase IIb trials.
Chief executive John Martin said the acquisition of Pharmasset "represents an important and exciting opportunity to accelerate Gilead's effort to change the treatment paradigm for HCV-infected patients by developing all-oral regimens for the treatment of the disease regardless of viral genotype". The firm says the deal complements Gilead's pipeline which includes "seven unique molecules in various stages of clinical development for the treatment of HCV".
Reaction from analysts has been varied. Joshua Schimmer at Leerink Swann analyst issued a research note said that the Pharmasset HCV franchise is "clearly in the lead with a very attractive clinical profile". However, he adds that "the price tag is lofty for a pre-commercial asset and not aligned with what we would like to see from Gilead".
Stifel Nicolaus analyst Maged Shenouda told the Associated Press that Gilead could be "the dominant player in a new, non-injectable paradigm for the treatment of hepatitis C". He said "that's the bet, but it's a big bet at $11 billion".
Investors are a bit concerned and Gilead shares ended the day down 9.1%.
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Gilead Moves to Top Rivals With $11 Billion Deal for Pharmasset
bloomberg.com By Ryan Flinn - Nov 22, 2011 12:01 AM ET
Gilead Sciences Inc. (GILD) paid about $11 billion for experimental hepatitis C drugmaker Pharmasset Inc. (VRUS) to win a "competitive" acquisition process and gain a replacement for its unsuccessful therapy under development, said Chief Operating Officer John Milligan.
Gilead, the world's largest maker of HIV medicines, has been in talks with Princeton, New Jersey-based Pharmasset about a potential partnership for two years, said Milligan, who is also company president.
Buying a company with no products on the market and a net loss of $91.2 million for the fiscal year ended Sept. 30, may be considered an $11 billion gamble, Geoffrey Porges, an analyst with Sanford C. Bernstein & Co. wrote in a research note. Milligan said Foster City, California-based Gilead made its $137-a-share offer, an 89 percent premium above Pharmasset's closing price on Nov. 18, to top potential rivals.
"It was clear that if we were going to become competitive with the larger companies this would be an important thing for Gilead to have," Milligan said yesterday in a telephone interview. "Value investors are less excited about the deal because it disrupts what they call a stable company, but from my point of view, it gives us a new long term trajectory for all investors."
Gilead's shares declined 9.1 percent to $36.26 yesterday in New York, the biggest single-day decline since April 2010.
Development Setbacks
Pharmasset is developing oral drugs for hepatitis C, or HCV, which is now largely treated by injections. Gilead made its largest purchase ever after setbacks with GS 6620, the company's hepatitis C drug under development, Milligan said.
"Our own nucleotide clearly doesn't have a profile to allow it to go forward," he said. "The products that they have, while just entering Phase 3, I think have a high degree of predictability, in terms of how they will perform.
''So we made a very difficult decision to do an acquisition which is much larger than we typically like to do, but one that we felt was very important for the company,'' Milligan said.
Three stages of testing are generally required for U.S. regulatory approval of a new drug.
Hepatitis C is a viral infection that can lead to swelling of the liver. As many as 170 million people globally carry the virus, which is transmitted through exposure to infected blood, and more than 350,000 die from related illnesses each year, according to the Geneva-based World Health Organization.
Current $3 Billion Market
The hepatitis C market is currently about $3 billion worldwide, Andrew Berens, a senior health-care analyst with Bloomberg Industries, in Skillman, New Jersey, said in a telephone interview.
Earlier this year, Merck & Co. and Vertex Pharmaceuticals Inc. (VRTX) won approval for the first new therapies for hepatitis C in almost a decade. Companies including Inhibitex Inc. (INHX) and Achillion Pharmaceuticals Inc. (ACHN) are also racing to develop medicines for the virus.
Erik Gordon, a business professor at the University of Michigan, also questioned the price of the Gilead's proposed acquisition.
''Gilead is paying too much, paying all in cash, borrowing money to do it, diluting earnings for three or more years -- to get a drug candidate or two in an area that was supposedly a core strength at Gilead,'' Gordon wrote in an e-mail. ''You can do a lot of research for $11 billion.''
The purchase, which gives Gilead three potential treatments for chronic HCV now in development by Pharmasset, is five times bigger than the company's 2006 deal for Myogen Inc. for $2.2 billion, according to Bloomberg data.
HIV Medicines
Gilead sells Atripla, Truvada and Viread, medicines for HIV that generated $2.9 billion, $2.7 billion and $732 million in 2010 revenue, respectively. The company had $7.9 billion in sales last year. Gilead's experience with HIV treatment regimens will help bring the hepatitis C drugs through clinical development, Chief Executive Officer John Martin said.
Pharmasset reported data on PSI-7977 earlier this month, showing that 40 patients who received the therapy were responsive after 12 weeks. About half the patients had been followed up to 24 weeks, and all were cured. There were no significant adverse events. The drug was tested in combination with ribavirin, a medication currently used in treating the disease, in patients with hepatitis C genotypes 2 and 3. Genotype 1 is most common and hardest to treat.
Roche Holding AG (ROG), based in Basel, Switzerland, agreed in October to buy Anadys Pharmaceuticals Inc. (ANDS), another maker of experimental medicines for hepatitis C, for about $230 million.
''We see continued consolidation in the space, potentially including Achillion, which will report important proof-of- efficacy data by year-end and is actively exploring strategic opportunities," Edward Tenthoff, an analyst with Piper Jaffray & Co., wrote yesterday in a research note.
Achillion CEO Michael Kishbauch said Nov. 17 that his company based in New Haven, Connecticut, is in "advanced discussions" with potential partners or acquirers. The hepatitis C market may be worth $20 billion by 2020, Kishbauch said in an interview.
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Gilead's Risky Revival Procedure
NOVEMBER 22, 2011
http://online.wsj.com
By JOHN JANNARONE
Success in biotech comes with a curse: The further a company goes, the harder it becomes to keep its growth story alive.
Perhaps the best recent example is Gilead Sciences, whose HIV treatments made it a standout last decade. In the early 2000s, Gilead traded at over 100 times forward earnings, but as investors grew worried about patent expirations, the earnings multiple has fallen below 10 times. That is a similar multiple to challenged big-pharma companies like Pfizer.
To regain its status as a growth company, Gilead announced Monday it would buy Pharmasset for nearly $11 billion in cash. At 89% above Friday's closing price, the premium is one of the highest in health care in recent years. The average premium in the industry for deals worth $1 billion or more since 2005 was 31%, according to Dealogic. Gilead's shares fell 9.1% on the news.
But it is worth considering what Pharmasset could do for Gilead. The target company's Hepatitis C treatment, while still in late-stage testing, will generate $7.8 billion in 2017 if the drug is successful, estimates Yaron Werber of Citigroup. Gilead has already been developing Hepatitis treatments of its own and is prepared to manufacture and distribute drugs to new markets, implying significant cost savings.
And while Gilead has temporarily suspended share repurchases to pay for the deal, the benefit of buybacks appears limited. The company said recently it had spent $6.2 billion on share buybacks since the start of 2010. The stock has fallen 8% since then-even before Monday's decline.
But after falling into a slump, Gilead has probably shocked some investors who were drawn to its stable cash flows and affordable valuation. With the Pharmasset deal, Gilead has transformed itself into a much riskier company. While all signs suggest Pharmasset's drug is on a successful path, if something goes wrong, the value of the company could disintegrate.
It is a huge bet. But with Gilead's HIV patent expiries beginning in 2018, bold treatment was necessary.
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Gilead's $11 Billion Gambit
Hefty Premium Paid for Tiny Pharmasset Reflects Potential of Hepatitis C Market
By RON WINSLOW And PETER LOFTUS
http://online.wsj.com
Gilead Sciences Inc.'s agreement to pay nearly $11 billion to acquire tiny Pharmasset Inc. is a dramatic illustration of the market potential-and public-health challenges-involved in the battle against the hepatitis C virus.
Pharmasset, a Princeton, N.J., company with just over 80 employees and no commercial products, is developing a compound that Gilead and analysts say is on track to be part of the first all-oral regimen for treating hepatitis C. Experts say that gives it a distinct advantage over current treatments in the potentially huge U.S. and global markets for such drugs.
Gilead, which has a blockbuster franchise for medicines that treat HIV, the virus that causes AIDS, is betting that Monday's $137-a-share deal will help it become similarly dominant in hepatitis C. Market-research firm Decision Resources estimates the global hepatitis C market will hit $16 billion in 2015, up from just $1.7 billion in 2010. (from Jules: I think the total USA market is as high perhaps as 7-8 million HCV-infected people and a $50Bill+ market in the USA alone, so with 170 million globally estimated to be HCV-infected the potential monetary market potentially exponentially increases, of course a factor is pricing outside USA and in particular in undeveloped countries where for example HIV medications re not priced for much if any profit or even a loss considering ancilliary costs)
The purchase price represents a nearly 89% premium to Pharmasset's closing price Friday, putting it in the rarified ranks of Bristol-Myers Squibb Co.'s $2.1 billion purchase of Medarex and its novel cancer drug in 2009, which carried a 90.5% premium.
In 4 p.m. trading Monday on the Nasdaq Stock Market, Pharmasset shares were up 85% at $134.14.
An estimated four million Americans have hepatitis C, but only about a million of them have been diagnosed. Most victims go untreated rather than endure weekly injections of interferon and twice-daily ribavirin pills-a combination with harsh side effects-for as long as a year. Only about 50% of those treated are cured of the potentially fatal blood-borne virus.
Globally, some 170 million people are thought to have hepatitis C, which can be transmitted sexually, as well as by shared needles and at tattoo parlors. It can cause cirrhosis of the liver, and is the chief reason in the U.S. for liver transplants.
Merck & Co., as well as Johnson & Johnson and its partner Vertex Pharmaceuticals Inc., launched new hepatitis C treatments earlier this year that shorten the treatment time and have improved cure rates. But current versions of the treatments are still taken on top of interferon and ribavirin.
Pharmasset's molecule, PSI-7977, is one of a class of medicines called nucleotide analogs, or "nukes" for short, that small studies in certain patients have shown yield high rates of cure in just 12 weeks, with fewer side effects. They also pose a high barrier to viral resistance.
"Having a program where you don't have to take interferonÉwould be a big deal and would be a paradigm shift in the treatment of hepatitis C," said Stacey Rizza, an infectious-disease specialist at the Mayo Clinic in Rochester, Minn.
Indeed, several drug companies are trying to develop new, and potentially lucrative, treatments that improve cure rates further and are easier for patients to tolerate. But on the strength of data reported as recently as early this month, "Pharmasset is on the forefront of the interferon-free treatment wave," said Adam Cutler, an analyst at Credit Suisse.
Pharmasset recently announced the start of late-stage, or Phase III, studies of the drug, which could lead to marketing approval by 2014, if all goes well. The company declined to comment on the acquisition deal and didn't participate in a conference call Gilead held with analysts Monday.
While Pharmasset's stock price soared in response to the news, Gilead's was down 9% Monday at $36.26 in 4 p.m. Nasdaq trading, in response to its acknowledgment that the deal would be drag on profits through 2014. Several analysts also commented that the price it paid for Pharmasset's portfolio was steep.
But John Milligan, Gilead's president and chief operating officer, said the company took care in evaluating Pharmasset. "It's a very unusual situation where a compound in Phase II going on to Phase III has the kind of data" PSI 7977 has, Dr. Milligan said. There were also other bidders, he said, but he indicated he didn't know for certain who they were.
"It was a competitive process, so there were a number of factors that drove up the price," he added.
The deal helped lift shares of another small drug developer, Inhibitex Inc., which is testing an experimental hepatitis C drug. Inhibitex shares rose 19% to $10.61 on expectations that it could be acquired.
By contrast with HIV/AIDS therapies, which patients have to take for life just to keep the virus at bay, hepatitis C requires a relatively short course of treatment to achieve a cure. But because people can carry the virus for decades without symptoms, persuading them to stay on six months to a year of treatments-especially given such side effects as flu-like symptoms and anemia-is a challenge.
Credit Suisse's Mr. Cutler said the market opportunity for new medicine was reflected in the swift adoption of Incivek, approved earlier this year and marketed in the U.S. by Vertex. Even though it is given with interferon, it recorded sales of about $420 million in its first full quarter on the market.
Doctors and public health officials hope that as better drugs become available, more people will be diagnosed and agree to treatment for hepatitis C to help avoid the long-term consequences of infections.
Scott D. Holmberg, chief of the epidemiology and surveillance branch for viral hepatitis at the U.S. Centers for Disease Control and Prevention, reported at a major liver conference this month that the number of people who die with hepatitis C in the U.S. now exceeds the number of those who die of HIV/AIDS.
"The public-health implications of hepatitis C are big," Dr. Holmberg said. "We need to test and treat more people."
Write to Ron Winslow at ron.winslow@wsj.com and Peter Loftus at peter.loftus@dowjones.com
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Gilead-Pharmasset Deal: Wall Street Reacts
November 21, 2011, 9:26 AM ET
By Shira Ovide
http://blogs.wsj.com
Gilead announced a roughly $10.4 billion deal to buy Pharmasset, a company that doesn't yet have meaningful revenue but is developing treatments for hepatitis C.
The deal price of $137 a share was about 59% more than Pharmasset's highest-ever closing stock price. Here is a look at early Wall Street analysts' reaction to the takeover:
UBS: "Expensive but Great Strategic Fit: We believe the deal is a great fit, as VRUS has best-in-class innovative assets and leverages Gilead's market-leading antiviral expertise and infrastructure. One can fault Gilead for not buying Pharmasset sooner (and cheaper), but we see significantly less risk here given the impressive all-oral data from the ELECTRON study of PSI-7977 and other datasets. We expect the upcoming QUANTUM data (2Q12e) will unambiguously cement VRUS regimens as future market leaders."
J.P. Morgan: "Gilead has vast experience in antivirals and is currently a leader in HIV, but has been hard at work developing a broad pipeline of therapies for Hep C. As such, with Pharmasset recognized as a leader in the development of nucs for Hep C, we are not surprised by today's announcementÉ.We see the deal a major strategic positive for Gilead and we are reiterating our Overweight rating on GILD shares."
Deutsche Bank: "Importantly for GILD, this deal eliminates the HIV patent cliff risk for the company. We also believe there could be additional synergies derived by GILD from the deal once complete since GILD is broadly an infectious disease company and is developing HCV assets also."
Gilead's Pharmasset Acquisition Heats Up Drug Battle
By AMY REEVES, INVESTOR'S BUSINESS DAILY Posted 11/21/2011 06:32 PM ET
HIV drug giant Gilead Sciences (GILD) said Monday it's agreed to pay $11 billion for biotech Pharmasset, in another sign that the hepatitis C game is heating up.
Pharmasset's (VRUS) leading drug candidate is one of a new class of direct-acting antiviral agents, or DAAs, being developed for hep C sufferers. In a statement, Gilead's CEO mentioned trial results announced Nov. 7 that show the drug, PSI-7977, had cured all 40 patients who participated.
"The compound, together with Pharmasset's other pipeline candidates, represents a strong strategic fit with Gilead's vision, pipeline and capabilities," said CEO John Martin.
The deal comes a month after Roche (RHHBY) agreed to pay $230 million for Anadys (ANDS), another biotech with a DAA in an earlier stage of development. In an interview with IBD earlier this month, Leerink Swann analyst Howard Liang said he expected more M&A activity in this area.
"I'm surprised there aren't more deals, because it does make sense," he said.
The big deal about DAAs, says Liang, is they represent such an improvement over the existing standard of care. About 180 million people worldwide are infected with the virus, which is acquired by blood-to-blood contact. Many of them don't have symptoms, but over years the infection can severely damage the liver.
Traditionally, hep C has been treated with a combination of pegylated interferon and ribavirin, the latter a drug developed by Valeant Pharmaceuticals (VRX) that has gone generic. The treatment has a decent cure rate, but the side effects of interferon include flu-like symptoms, anemia and depression, leading many patients not to get treated until they get desperate. Liang estimates that out of the 4 million infected people in the U.S., only about 50,000 are being treated.
The first two DAAs hit the market earlier this year: Vertex Pharmaceuticals' (VRTX) Incivek and Merck's (MRK) Victrelis. These drugs, however, are still taken in combination with interferon, leading to the same side-effect problems. The drug that enables a cure without interferon will probably end up leading the market, says Liang.
Now, PSI-7977 seems most likely to succeed in that department, thanks to its trial that combined it with ribavirin but not interferon. Hopes for the drug had sparked Pharmasset's stock price even before Monday.
Offer Is 89% Premium
Gilead's offer comes to $137 a share, an 89% premium over Pharmasset's Friday close. On Monday, Pharmasset shares jumped 85% to 134.14, up from 21.78 on Dec. 31.
Other DAAs in a late stage of development include Bristol-Myers Squibb's (BMY) BMS-790052, expected to begin phase-three trials next month; TMC435, a joint project of Johnson & Johnson (JNJ) and Sweden's Medivir; Novartis' (NVS) Alisporivir; and Boehringer Ingelheim's BI201335.
Even early-stage buzz can get investors' attention. This month, Inhibitex (INHX) more than doubled in price after a phase-one trial of its candidate, INX-189, scored good results without help from interferon. Monday, the stock jumped another 19%, as investors may expect that it, too, could be acquired.
And it might be able to charge quite a price. Though analysts generally like the Gilead-Pharmasset concept, buying it for nearly double its already jacked-up price didn't impress investors. Gilead's share plunged 9.1% on Monday.
In a note, Liang wrote "the price tag is lofty for a precommercial asset and not aligned with what we would like to see from (Gilead) in terms of capital allocation."
A quick poll of more than 200 investors by ISI Group found that 82% felt Gilead overpaid.
ThinkEquity analyst Marko Kozul begs to differ. He says if PSI-7977's current results continue through phase three, its sales could reach $4 billion a year by 2018 and ramp up even faster beyond that. And 2018 is a significant year for Gilead, as that's when its HIV drugs start to go off patent.
"From a strategic standpoint, it makes a lot of sense," Kozul told IBD. "There's lots of synergies specific to hep C that over a longer period of time Gilead can leverage - (from) internal R&D expertise all the way down to the sales force."
Gilead does already have a hep C program, though it's a couple years behind the leaders in the field. And hep C in the U.S. is mostly transmitted by intravenous drug use, giving its market a meaningful overlap with the HIV demographic.
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Gilead Betting The Pharmasset On Hepatitis C
http://seekingalpha.com November 22, 2011
The year 2011 belongs to hepatitis C. For all the major breakthroughs and developments in melanoma, multiple sclerosis and novel anti-coagulants, surely no other therapeutic area can have had such a dramatic rise in valuation and therapeutic potential in such a short space of time.
Gilead Sciences' (GILD) eye watering $11bn purchase today of the sector's brightest star Pharmasset - at $137 per share almost double the biotech's already stratospheric valuation and six times the stock price at the start of the year - confirms not only the potential in Pharmasset's hepatitis C pipeline but the likely strong competition from big pharma for the New Jersey company's hand. Yet for all Pharmasset's undoubted potential, which has only been reflected in phase IIb data so far, the high price appears a slightly bitter pill to swallow. Shares in the HIV specialist, which is borrowing $6bn to fund the acquisition while suspending a $5bn stock repurchase programme, slumped 12% to $35 in early trade.
Thunderbolt moment
On a conference call with investors John Martin, Gilead's chief executive officer, revealed the company had been tracking Pharmasset for some time, but that a medical conference earlier this year proved the turning point.
"The key event for me was EASL (International Liver Congress) - it became clear that the world was changing very rapidly towards all oral regimens (for hepatitis C)," he said.
Pharmasset's nucleotide analogue, PSI-7977, is seen at the forefront of that march to an all oral regimen, eliminating the need to use highly intolerable interferons, which are also very susceptible to resistance. Two phase III studies have recently been initiated in combination with ribavirin, another standard of care agent, although the ultimate goal is for new combinations with other novel agents such as non-nucleotides and cyclophilin inhibitors.
With nucleotide agents currently seen as holding most potential, another contributing factor to the Pharmasset deal was that Gilead admitted its own nucleotide candidate, GS 6620, was not cutting the mustard.
The deal means that Gilead now covers most of the hepatitis C development bases, with two nucleotide analogues, one protease inhibitor, two non-nucleotides and one NS5A inhibitor in phase II or above. PSI-7977 remains the jewel in the crown for now, seen as the successor to J&J/Vertex's Incivek which currently has a peak global sales forecast of $4.5bn in 2014.
Handsome price
As for the high price, Mr Martin indicated it was a competitive process. "We do know that Pharmasset intended to have multiple parties involved, although we don't know the specifics we have to assume there were." With Pharmasset already involved in research collaborations with Johnson & Johnson, Roche and Bristol-Myers Squibb, it can be safe to assume that competition was intense, all playing into Pharmasset's hands.
Mr Martin would not be drawn on the level of peak sales that PSI-7977 would have to achieve in order to help justify the price tag, but was keen to stress the view that significant growth in the hepatitis C market is sustainable into the late 2020s.
The clear comparison here is the HIV market which Gilead dominates, but is somewhat stagnant given the major advances in treatment and dynamics of the disease itself.
For some time now investors and analysts have been waiting for Gilead to move beyond HIV, particularly with patent expiries looming for its core franchise. The company has dabbled in other therapeutic areas - the $1.4bn purchase of CV Therapeutics in 2009 for a cardiovascular franchise caused much head scratching - so the move on Pharmasset certainly makes much better strategic sense.
A shame then that it comes at such a high price. Gilead will use existing cash, $5.5bn as of the end of September, and $6.2bn in fresh debt, at an estimated interest rate of 3%-3.5%, to fund the deal. The company will suspend the $5bn share repurchase programme initiated in January this year and will focus is on paying down that debt.
With the deal also predicted to dilute Gilead's earnings through to the end of 2014, investors will rightly be concerned about the impact from what is still a relatively risky move at this stage. The company will be hoping that short term pain will eventually be replaced by long term, and dramatic, gains.
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