Gilead Sciences Inc., the world's third-biggest biotechnology company, said on Monday it has agreed to acquire Myogen Inc. for $2.5 billion in a surprise transaction that gives Gilead access to Myogen's experimental hypertension drugs.
The deal - the latest in a flurry of acquisitions in the drug sector - represents a big bet for Foster City, California-based Gilead, which mainly makes HIV drugs. The company has little experience in other diseases, and some analysts are surprised the company is straying so far from its core competency.
This is surprising in that there are no major synergies with Gilead's current franchises, said Philip Nadeau, an analyst at Cowen & Co. It's a new area for them.
Myogen's shares rose 47 percent, while Gilead's shares fell more than 6 percent.
Gilead agreed to pay $52.50 a share for Myogen, a 50 percent premium over its closing stock price on Friday, to acquire the company's experimental drug ambrisentan for pulmonary arterial hypertension, a condition in which high blood pressure in the arteries of the lungs leads to shortness of breath, chest pain and, ultimately, heart failure.
You have to worry that this is a signal that Gilead thinks they didn't have enough runway in the HIV area in particular or in infectious diseases generally, said Geoffrey Porges, an analyst at Sanford Bernstein.
Gilead executives, on a conference call with analysts, said the hefty premium was justified by the scarcity of promising experimental drugs in late stages of development.
Myogen expects to file for marketing approval of ambrisentan with the U.S. Food and Drug Administration before the end of the year. If approved, the drug could generate annual sales of more than $1 billion, analysts estimate.
Ambrisentan is one of a class of drugs known as endothelin receptor antagonists. Elevated levels of the peptide hormone endothelin are associated with several cardiovascular conditions including PAH, the companies said.
Myogen is racing against Encysive Pharmaceuticals Inc. to produce a drug that would compete with Tracleer, an endothelin receptor antagonist made by Actelion.
Encysive received a blow in July when U.S. regulators again asked for more information about its drug, Thelin, before agreeing to approve it.
The annual market for PAH drugs is expected to grow to $2.5 billion by 2011, Nadeau said, with the endothelin receptor antagonists accounting for about $1.2 billion.
Pfizer Inc. sells a drug in a different class called Revatio that contains the same active ingredient as its erectile dysfunction drug Viagra, and others are moving into the arena.
Gilead's acquisition also includes Myogen's experimental drug darusentan, an endothelin receptor antagonist to treat resistant hypertension. The company recently began late-stage trials of the product, which has generated excitement among investors - possibly more than with Gilead, which said it isn't sure what it is going to do with the product.
The company said on its conference call it will wait for the results of clinical trials. Nadeau said he would be surprised if Gilead developed the sales and marketing infrastructure that would be needed for a primary care blood pressure drug and that they will likely sell it or form a partnership with another company.
Gilead's latest acquisition follows its purchase earlier this year of Corus Pharma Inc. for $365 million. Corus's lead product candidate is Cayston, an inhaled antibiotic intended to treat lung infections in patients with cystic fibrosis.
Gilead said it hopes its latest acquisition will build on the Corus acquisition as it seeks to establish a major business in pulmonary disorders.
Myogen also markets Flolan, an intravenous treatment for primary pulmonary hypertension, in the United States through a deal with British drugmaker GlaxoSmithKline Plc.
The deal, which is expected to close before the end of the year, is expected to reduce Gilead's earnings in 2007 and 2008, be neutral in 2009, and add to earnings in 2010 and beyond, the companies said.
Shares of Myogen rose $16.53, or 47 percent, to $51.60 in trading on Nasdaq. Gilead's shares fell $4.59, or 6.7 percent, to $64.18.
(Additional reporting by Lewis Krauskopf in New York and Julie Steenhuysen in Chicago)