Updated throughout.

NEW YORK ( TheStreet) -- Gilead Sciences ( GILD) is buying Pharmasset ( VRUS) for $11 billion in cash and debt, vaulting Gilead into the lead to develop the next generation of all-oral hepatitis C therapies.

The deal values Pharmasset at $137 per share, or an 89% premium to its closing price Friday of $72.67.

Gilead is an HIV drug powerhouse but has faltered in its quest to internally develop new drugs for hepatitis C, a multi-billion commercial market opportunity. Pharmasset, on the other hand, is regarded as the most promising developer of new, powerful hepatitis C pills which eliminate the need for patients to be treated with painful injections.

Pharmasset has been the best-performing biotech stock this year largely due to the excitement around its experimental hepatitis C drugs, one of which, PSI-7977, is just entering phase III clinical trials.

Gilead's stock price is up just 10% this year and has largely under-performed for the past two-plus years due to concerns about the negative effect that looming patent expirations for the company's key HIV drugs will have on the company's long-term growth.

Previous Gilead acquisitions aimed at diversifying the company beyond HIV, most notably a $2.4 billion purchase of Myogen and a $1.4 billion buy of CV Therapeutics, have been judged expensive failures by investors.

Buying Pharmasset for $11 billion, essentially double the market value of the company, eclipses anything Gilead has done in the past in the mergers and acquisition arena. With this Pharmasset deal, Gilead could become the next dominant player in the hepatitis C treatment market and the first company to launch an all-oral regimen, perhaps in 2013.

But $11 billion is a hefty price tag which will naturally lead to questions and concerns that Gilead is paying too much, particularly since Pharmasset isn't alone developing new, all-oral hepatitis C therapies.

For more investor reaction to the Gilead deal plus the potential impact on other Hep C drug stocks, click here.

Roche is a long-time hepatitis C partner of Pharmasset so presumably had an opportunity to also spend $11 billion to buy the company. Roche, however, went small, buying Anadys Pharmaceuticals for $230 million in October.

Gilead shares were down $4.73, or 12%, to $35.15, in Monday trading.

Meantime, shares of Inhibitex ( INHX) jumped $2.02, or 23%, to $10.95 Monday as M&A speculation inevitably heats up. Inhibitex is also developing a hepatitis C drug similar to those owned by Pharmasset (now Gilead.)

"The acquisition of Pharmasset represents an important and exciting opportunity to accelerate Gilead's effort to change the treatment paradigm for HCV-infected patients by developing all-oral regimens for the treatment of the disease regardless of viral genotype," said Gilead CEO John Martin, in a statement Monday.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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