Cost: GILD has offered to acquire VRUS for $11B in cash, paying an 89% premium to VRUS’ closing price on 11/18/11; this is the highest premium for a $10B+ deal in the history of the biotech industry.
Benefit: GILD gets PSI-7977—VRUS’ nucleotide polymerase inhibitor entering phase-3 that is being tested in various all-oral combinations with drugs from BMY, JNJ, and VRUS itself—and the rest of VRUS’ HCV pipeline, which includes PSI-938, a nucleotide in phase-2b, and RG7128, an older nucleoside in phase-2b that is partnered with Roche.
Q: Which of the following most closely matches your opinion of the GILD-VRUS deal?
a) GILD overpaid relative to what VRUS is worth. b) GILD underpaid relative to what VRUS is worth. c) GILD paid about the right amount.
GILD—One can readily see the effect of the increased balance-sheet leverage from the VRUS acquisition in the interest rates GILD is paying on its new senior debt:
• 2.4% on 3-year notes • 3.1% on 5-year notes • 4.4% on 10-year notes
Although these are low rates by historical standards, they are considerably higher than what GILD would have had to pay for senior debt prior to the VRUS deal. Of course, it’s the VRUS deal that necessitates the raising of this capital.
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