Drugmaker Gilead Sciences Inc. took a step toward building sustainable, long-term growth with its $11 billion purchase of Pharmasset Inc., according to a BMO Capital Markets analyst.
The Foster City, Calif., company said Monday it will pay $137 per share in cash for Pharmasset, a Princeton, N.J., drug developer with no products on the market and a stock that has traded as low as $20.49 in the past year.
But Pharmasset does have three potential hepatitis C treatments in clinical testing.
That includes a lead candidate labeled PSI-7977 that is starting late-stage trials. Analysts see promise in that potential treatment because doctors may be able prescribe the pill in a combination with other treatments that does not involve interferon, an injection that comes with rough side effects.
Gilead expects the deal to close in next year’s first quarter, and it forecasts that it could help earnings by 2015.
Hepatitis C is a virus that can lead to life-threatening liver damage and is the main cause of liver transplants in the United States. It spreads through the blood, and that can happen through sharing intravenous drug needles or having sex with an infected person.
Analysts expect the disease to become a bigger health problem due to the large, aging population of U.S. baby boomers, including some people who used intravenous drugs when they were younger.
Gilead also has some potential hepatitis C treatments in development, but it is known for the HIV treatments Atripla and Truvada, which have received regulatory approval.
Analyst Jim Birchenough expects the deal to dilute Gilead’s earnings in the next couple years, but he predicted that will be more than offset by a near doubling of long-term growth. He said in a research note the Pharmasset leadership position in the search for an all-oral treatment regimen that doesn’t involve interferon is “incredibly valuable.”
Birchenough upgraded the stock to “Outperform” from “Market Perform” and raised his price target on the shares to $49 from $40.
Date: November 23, 2011
Source: Associated Press