INDIANAPOLIS (AP) -- HIV drugmaker Gilead Sciences Inc. will spend about $11 billion to buy Pharmasset Inc. in what one analyst termed an "amazing risk," a high stakes gamble that could yield billions of dollars in drug sales if a possible groundbreaking hepatitis C treatment pans out.
Gilead said Monday it will pay $137 per share in cash for Pharmasset, a Princeton, N.J., company with no products on the market and a stock that has traded as low as $20.49 in the past year. The announcement sent Gilead's stock tumbling and Pharmasset's soaring.
Analysts see promise in Pharmasset's lead candidate, a pill labeled PSI-7977 that has just started late-stage testing. They say it could become a preferred option for care if it works without the injectable drug interferon, which can leave patients with flu-like symptoms that last for months.
Before the drug reaches the market, though, it must pass through the largest and most expensive stage of clinical testing and receive Food and Drug Administration approval. Analyst Erik Gordon of University of Michigan's Ross School of Business said the price Gilead agreed to pay multiplies the risk in that process.
"At that price, everything had better work perfectly," he said.
Hepatitis C treatments represent a ripe opportunity for drugmakers. The virus can lead to life-threatening liver damage and is the main cause of liver transplants in the United States.
It is spread through the blood, and that can happen through sharing intravenous drug needles or having sex with an infected person. The disease, which can take years to manifest, also could be picked up from blood transfusions before 1992, when the blood supply began being tested for the virus.
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.
Pharmasset has a total of three potential hepatitis C treatments in clinical testing, including PSI-7977. That one has already demonstrated its effectiveness in hepatitis C patients with genotypes 2 and 3, but analysts want to see how it works in genotype 1, the most prevalent subset in the Western world and the hardest to treat.
"It could be the dominant player in a new, non-injectable paradigm for the treatment of hepatitis C," Stifel Nicolaus analyst Maged Shenouda said. "That's the bet, but it's a big bet at $11 billion."
Earlier this year, the FDA approved two pills that offered the first new breakthrough treatments for the liver disease in 20 years. The Vertex Pharmaceuticals Inc. hepatitis C pill Incivek rang up about $420 million in this year's third quarter. Another pill, Merck & Co.'s Victrelis had $31 million in sales in the quarter.
Both of those drugs need interferon to be effective, noted Carol Werther, an analyst for Summer Street Research.
If PSI-7977 works in genotype 1 patients without the injectable, then the deal works out "beautifully" for Gilead, which could wind up with a drug that brings in several billion dollars in annual sales, the analyst said.
"That's the holy grail, that's what everybody wants, get rid of interferon," she said, noting that the drug would still have to be used in combination with other therapies, just not interferon.
Pharmasset plans to start two other late-stage trials in 2012 and hopes to file for marketing approval of treatment in the United States and European Union in the second half of 2013.
Gilead, based in Foster City, Calif., also is developing some of its own hepatitis C treatments, and Chairman and CEO John C. Martin said the deal will allow it to explore new combinations with its drugs under development.
Unlike Pharmasset, Gilead already has several drugs on the market. Its top-sellers include the HIV drugs Atripla and Truvada. Last year, Gilead earned $2.9 billion, or $3.32 per share, on $7.39 billion in revenue.
Gilead said it will pay for the acquisition with cash on hand, bank debt and senior unsecured notes. It expects the deal to close in next year's first quarter, and it forecasts that the deal could start helping Gilead's earnings by 2015.
Shares of Pharmasset soared 85 percent, or $61.47, to close Monday at $134.14, while Gilead's stock dropped more than 9 percent, or $3.62, to close at $36.26.