Wednesday, November 23, 2011

What's Next for Hep C Drug Stocks Following Gilead's $11B Pharmasset Buy?

By Adam Feuerstein 11/21/11 - 11:40 AM EST (http://www.thestreet.com/story/11319096/1/whats-next-for-hep-c-drug-stocks-following-gileads-11b-pharmasset-buy.html)

BOSTON (TheStreet) -- Semi-random thoughts and questions about hepatitis C drug stocks in the wake of Gilead Sciences(GILD_) buying Pharmasset(VRUS_) for $11 billion:

Wow, $11 billion is a lot of money, but that's what happens when you dangle a great hepatitis C drug (Pharmasset's PSI-7977) in front of a desperate buyer (Gilead.)


One of the best bio-pharma acquisitions measured by return on investment (ROI) was Gilead's $464 million purchase of Triangle Pharmaceuticals in 2003. The Triangle deal gave Gilead the HIV drug Emtriva, which when combined with Gilead's HIV drug Viread into a single pill, created Truvada. In turn, Gilead has generated tens of billions of dollars in sales from Truvada and various HIV regimens that incorporate Truvada as a backbone.

Gilead's challenge will be to convince investors that it can deliver a decent ROI with Pharmasset by spending $11 billion to acquire the asset.

One hedge fund shareholder isn't buying it. "They're dead to me," he said, in a phone call, spitting mad. With Gilead shares down 11% to $35.23, this hedge funder doesn’t appear to be a lone voice of dissent.

Inhibitex(INHX_) is up Monday. Achillion Pharmaceuticals(ACHN_) shares are higher too, although less so. Both companies are developing their own hepatitis C drugs and neither company has a partner yet, so no surprise that already-present speculation about M&A activity involving these two stocks is ramping even higher.


The Inhibitex buzz makes some sense because its drug belongs to the same class of nucleotide polymerase inhibitors -- "nucs" for short -- that Pharmasset is developing.

Meantime, Achillion's CEO can't seem to pass a reporter's microphone without reminding everyone that he's in "advanced talks" with potential partners or aquirers. Smart, effective bio-pharma CEOs get deals done, they don't talk about them incessantly.

Idenix Pharmaceuticals(IDIX_) shares are also up Monday on the same M&A speculation, although the stock should probably be selling off. A large part of the bull thesis on Idenix has been based on speculation that the company's intellectual property (IP) portfolio around Hep C "nucs" would allow it to demand and receive royalty payments from other companies developing similar drugs, most notably Pharmasset.
 
By spending $11 billion to acquire Pharmasset, however, Gilead doesn't appear to be worried at all about Pharmasset's patent position. On its conference call this morning, Gilead said it had conducted a lot of due diligence into Pharmasset's patents prior to buying the company.


Idenix is developing its own Hep C nuc, with important safety data expected early next year.


Should Gilead have bought Vertex Pharmaceuticals(VRTX_) instead of Pharmasset? With Vertex, Gilead would acquiring a wildly successful Hep C drug (Incivek) already on the market and more quickly accretive to its bottom line. Vertex has a pipeline of experimental Hep C drugs, which while not as advanced as Pharmasset's, still could deliver the much-coveted all-oral regimen companies crave.

Vertex is emerging as a pioneer in cystic fibrosis drug development, a treatment market in which Gilead already has a presence with the antibiotic Cayston.

Gilead could have probably acquired Vertex for less money than Pharmasset, on top of wringing out substantial cost savings.
.........

For the full report, click here.

No comments:

Post a Comment