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Gilead Places A Huge Bet

Pharmaceuticals: Firm will spend $11 billion to nab a precommercial hepatitis C drug

by Michael McCoy
November 28, 2011 | A version of this story appeared in Volume 89, Issue 48

Gilead Sciences is making a big wager on the hepatitis C market, agreeing to pay roughly $11 billion for Pharmasset, a New Jersey-based firm with only 82 employees and no products on the market.

What Pharmasset does have is PSI-7977, a uracil nucleotide analog that recently began Phase III clinical studies as a treatment for people with the hepatitis C virus (HCV). If the compound is approved in 2014, as Gilead hopes, it will be part of the first all-oral treatment for HCV.

The acquisition, set to be completed early in 2012, is the third big development in the HCV market this year. In mid-May, the Food & Drug Administration approved a new HCV treatment from Merck & Co. Later that month, the agency okayed one from Vertex Pharmaceuticals.

The newly approved compounds still need to be taken with PEGylated interferon and ribavirin, the traditional standards of HCV care. Interferon is an injectable drug associated with fatigue, bone marrow suppression, and anemia. Ribavirin is a generic antiviral that must be taken twice daily as five or six pills. PSI-7977 would be administered only with ribavirin.

On a conference call, Gilead President John F. Milligan told stock analysts that the firm’s long-term goal is a single-pill HCV treatment. Gilead, which currently specializes in HIV drug combinations, plans to combine PSI-7977 with one or more of its own HCV molecules, seven of which are in earlier stages of clinical development.

The firm is aiming at an HCV drug market that the investment firm Leerink Swann estimates will reach $4.1 billion in 2017 and $6.5 billion at its peak in 2020. The market is considered underserved today because many patients are reluctant to begin the current onerous treatment regimen.

During the call, many analysts congratulated Milligan and other Gilead executives for the logic of their deal. But Joshua Schimmer, a Leerink Swann analyst, was less enthusiastic. “While we understand the strategic rationale, the price tag is lofty for a precommercial asset,” he told clients in a research brief. He noted that Gilead’s earlier commitment to smaller deals and a stock repurchase “seems to have gone out the window.”



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