Gilead Sciences Inc.'s shares plunged Friday after the drugmaker said a promising hepatitis C treatment it acquired as part of the $11 billion Pharmasset purchase may need help from other drugs to effectively treat some patients.
The Foster City, Calif., company said some patients in a small portion of a midstage study relapsed after completing a treatment that combined the company's potential drug, labeled GS-7977, and ribavirin, an older medicine. Gilead executives told analysts they may have to add additional antiviral drugs to that combination or extend the length of treatment.
Company shares had climbed 47 percent over the past two months from around $37 to top $54 as Gilead worked toward completing the Pharmasset Inc. deal, which it announced in November. But the stock sank 14.3 percent, or $7.81, to close at $47 Friday while the Nasdaq exchange fell slightly.
Hepatitis C is a virus that can lead to life-threatening liver damage and is the main cause of liver transplants in the United States. The disease is spread through the blood, and that can happen through sharing intravenous drug needles or having sex with an infected person.
It can take years to manifest, and analysts see hepatitis treatments as potentially lucrative for drugmakers because they expect the virus to become a growing health problem as the U.S. baby boom generation ages.
Analysts see potential in GS-7977, a pill that could become a preferred option for care if it works without the injectable drug interferon, which can leave patients with flu-like symptoms that last for months. Gilead is running several middle- and late-stage studies of the drug.
In the study discussed Friday, Gilead tested the medicine in hepatitis C patients with genotype 1, the most prevalent subset of the disease in the Western world and the hardest to treat. The patients in this study had already been treated unsuccessfully with interferon.
Gilead said eight patients had undetectable levels of the virus in their blood after being treated with the oral GS-7977-ribavirin combination. But six had a virus relapse in the month after treatment ended. The other two showed no relapse in the two weeks after their treatment ended.
WBB Securities analyst Steve Brozak said drugs typically have unanticipated outcomes like this as they advance through clinical testing and even after they hit the market. He said Gilead knows the drug works, but now they need to retool their treatment approach.
"It isn't so much that this happened," he said. "The critical key is how does Gilead respond to what just happened."
Gilead, known for the HIV drugs Atripla and Truvada, also acquired some other potential hepatitis treatments in the Pharmasset deal, which closed last month. Even so, some analysts see the acquisition as risky, given the price and the fact that Pharmasset had no products on the market. Gilead agreed to pay $137 per share in cash for Pharmasset, a stock that had traded as low as $20.49 in the year before the deal was announced.
GS-7977, which previously went by a different name, was seen as Pharmasset's most promising treatment.
Summer Street Research analyst Carol Werther said Friday's announcement was the first disappointing news for a potential treatment that "looked like the holy grail" in hepatitis C. She thinks the stock market overreacted.
"The drug isn't dead," she said.