(Reuters) ? Gilead Sciences Inc (GILD.O) struck a deal to buy biotechnology company Pharmasset (VRUS.O) for about $11 billion in a huge bet to diversify its portfolio with new hepatitis C treatments.
Gilead, the world's largest maker of HIV drugs, will pay $137 per share for each Pharmasset share, an 89 percent premium to Pharmasset's Friday closing price.
Pharmasset has been one of the hottest biotech stocks in the last year based on the potential of its experimental hepatitis C medicines to create a regimen without commercially manufactured interferons, proteins that help the body's immune system respond to viruses and other invaders.
The interferons often cause flu-like side effects that lead many patients with the serious liver disease to stop or delay treatment.
Shares of Pharmasset rose 86.1 percent to $135.25 in pre-market trading. Shares of Gilead, which said the deal would hurt earnings through 2014, fell 5.2 percent to $37.80.
"Gilead is making a pretty smart acquisition here," said Brian Skorney, an analyst with Brean Murray, Carret & Co. "It's definitely a high-risk acquisition, but I think it could pay off in dividends for them."
Skorney said it was possible that another bidder could emerge, noting that Roche Holding AG (ROG.VX) has a partnership with Pharmasset. Bristol-Myers Squibb (BMY.N), Johnson & Johnson (JNJ.N) and Merck & Co (MRK.N) also sell or are developing hepatitis medicines.
"Given the premium, Gilead is hoping to avoid another potential suitor coming to the table at a higher price," Skorney said.
Shares of Inhibitex Inc (INHX.O), which also is developing hepatitis C medicines, jumped 28 percent.
Hepatitis C can lead to cirrhosis, liver cancer and the need for a transplant if untreated. The disease infects an estimated 4 million Americans and 180 million people worldwide.
According to Gilead, more than 12 million people are infected with hepatitis C in major markets, but fewer than 200,000 are treated per year.
Vertex Pharmaceuticals Inc (VRTX.O) and Merck won approval this year for new hepatitis C medicines that hold the potential for far higher cure rates for the disease. However both new drugs must be taken with interferon, and Vertex shares have dropped on expectations that new treatments like Pharmasset's could soon overtake them.
Vertex shares were down 2.5 percent after the deal was announced.
ANTIVIRAL EXPERIENCE
Pharmasset has three hepatitis C medicines in clinical trials. Its lead candidate, PSI-7977, was recently advanced into two Phase III studies. Gilead expects PSI-7977 would be submitted for U.S. approval in the second half of 2013.
Gilead Chief Executive John Martin said on a call with analysts that Pharmasset's experimental drugs combined with Gilead's own hepatitis C portfolio would allow the company to test multiple regimens that are oral and interferon-free.
In justifying the high premium, Gilead said PSI-7977 will be more valuable in its hands because it has the infrastructure in place to bring the product to more people faster than Pharmasset would have been able to do on its own.
"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," JPMorgan analyst Geoff Meacham said in a research note.
Gilead projected the deal would hurt its earnings through 2014. It is expected to close in the first quarter of next year, when Gilead plans to provide further outlook.
Gilead said it will temporarily suspend its share repurchase program in order to focus on paying down debt.
Gilead said it had commitments from Bank of America Merrill Lynch and Barclays Capital for financing of the transaction.
Barclays and Bank of America advised Gilead on the deal, while Morgan Stanley advised Pharmasset. Skadden, Arps, Slate, Meagher & Flom LLP is Gilead's legal counsel, while Sullivan & Cromwell LLP is serving as legal counsel to Pharmasset.
(Reporting by Lewis Krauskopf in New York; additional reporting by Anand Basu in Bangalore and Toni Clarke in Boston; Editing by Michele Gershberg, Esha Dey and John Wallace)
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