Gilead Paying Up (too much) for Pharmasset (GILD, VRUS)

Gilead Sciences Inc. (NASDAQ: GILD) is trading lower on news that it is spending some $11 billion to buy Pharmasset, Inc. (NASDAQ: VRUS).   What is interesting is that Pharmasset was valued only at $5.5 billion on Friday and shares were already close all-time highs.  The $72.67 close compared to a 52-week and all-time high of $88.52 and the consensus analyst price target from Thomson Reuters was $99.69.

Gilead is placing a huge bet on its hepatitis C treatments at $137.00 per share.  The deal is also an all-cash deal.  Pharmasset has recently moved into late-stage hepatitis C drug and it currently plans on two additional late-stage trials in 2012.

Pharmasset was an attractive company, but this one seems like Gilead is spending above and beyond a normal amount here to close this deal.  While less was known 12 or 18 months ago, Gilead would have been in close enough of the same position to have done a deal then at a far lower price.  Still, that would have required knowing its drugs were going to live up to expectations.

Analysts expect virtually no revenues from Pharmasset for the next 24 months and Gilead has a market cap of $29.9 billion.

JON C. OGG