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Gilead Stock Falls Hard After Hepatitis Drug's Effectiveness Questioned


Investors are being unforgiving -- and they should be -- after the company made an $11 billion bet on a hot therapeutic research area.

Gilead Sciences' (GILD) stock is getting killed this morning and for good reason.

After making an $11 billion acquisition of biotech Pharmasset to become a dominant hepatitis C drug developer, Gilead said six out of eight patients given an experimental hepatitis drug in a company study relapsed within a few weeks.

The reaction was swift. Shares of Gilead, long known as a top developer of HIV drugs, fell 15% in morning trading to $46.71.

Is this the end of Gilead's hepatitis C program? Of course not. But when you make such a sizable acquisition you're going to be held to the highest standards. Gilead paid a 90% premium for that company. That's not a typo -- a 90% premium paid in cash. The company said the cost of the deal would deplete earnings through 2014. (See Gilead Plans $11 Billion Takeover of Pharmasset to Gain Hepatitis Drugs)

Gilead's big hepatitis drug buy was followed by another sizable deal announced last month when Bristol-Myers Squibb (BMY) said it would pay a huge price for Inhibitex (INHX). (See Bristol-Myers Enters Hepatitis Drug Race With $2.5 billion Takeover of Inhibitex)

And there's plenty of interest among other companies. Securities filings by Inhibitex showed there were other companies interested in expanding their research programs through acquisition. (See Inhibitex Auction Shows Battle for Hepatitis Drugs) Hepatitis C is a liver-wasting virus that affects millions of Americans and an estimated 170 million people worldwide.

After Vertex Pharmaceuticals (VRTX) and Merck (MRK) won US approval last year for vastly improved hepatitis C treatments, the race heated up to find even better therapies.

What Gilead and most other companies are trying to develop with these next-generation treatments is a drug that can be taken without the older medicine interferon, which causes serious side effects.

Following the success of its drug Icivek, Vertex is among the companies trying to develop a next-generation hepatitis drug.

What's bad news for Gilead is apparently good news for Vertex and others. Shares of the biotech rose 7% to $40.22 Friday morning. Merck rose more than 1% to $38.71. Bristol-Myers was up 2% to $32.67.

Twitter: @brettchase

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