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.
See below for more buy-side investor reactions. 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. As I mentioned above, some (not all) Wall Street pros are scratching their heads about the $11 billion price tag. Here's a sampling of investor reaction collected by ISI Group biotech analyst Mark Schoenebaum: "Wayyyyyy too expensive. "This will now put off both the growth and value investor bases." "I think this is the highest risk biotech deal I have ever seen." "Will go down as the worst deal in the history of biotech when Pharmasset safety liability exposed in larger/longer studies..." "Once investors get their noggins wrapped around the 'New Gilead,' they will want to buy the stock." "A necessary step for Gilead. Unfortunately, the 12% drop in Gilead stock is not a ringing endorsement for other big pharma/biotech to do the same, although they should." "Why oh why bet $11 billion on a small molecule for an acutely treated disease that clearly has competition coming? The stuff they could have bought for this amount of money is frightening." "I guess Bristol-Myers Squibb ( BMY) has to settle for Inhibitex now." "Desperate move by Gilead which shows little faith in the current HIV franchise. Poor CFO at Gilead. Three bad acquistions in a row. Sold my Pharmasset position in the pre market. Sold and short GILD. Adding Celgene ( CELG) at bargain prices."
"Fantastic deal for Gilead. Transforms the company to one with sustainable multi-billion dollar cash flow for the next 15 years. No brainer under 10x post-dilution EPS." "Clearly someone needs to buy Inhibiex... just a matter of who & how much." "Ton of money. . .ton of money. . .ton of money this is buy far the most ever paid for a phase 2 oral drug, just wondering how you can demonstrate a return on investment?" "Pharmasset drugs still have development risk. Even if successful, lots of interesting regimens are being developed. Could have bought other good Hep C assets for a fraction of the price. Very expensive deal." "Stupid!!!" "Gilead management should lay off the sauce." "Think it is transformative, but will take some time for current investor base to appreciate." --Written by Adam Feuerstein in Boston. >To contact the writer of this article, click here: Adam Feuerstein. >To follow the writer on Twitter, go to http://twitter.com/adamfeuerstein. >To submit a news tip, send an email to: firstname.lastname@example.org. Follow TheStreet on Twitter and become a fan on Facebook.