Gilead Sciences Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biotech Gilead Sciences (NAS: GILD) are rather ill today, down as much as 14% after the company announced intentions to acquire Pharmasset (NAS: VRUS) .

So what: The deal carries a price tag of roughly $11 billion, or $137 per share, and Gilead is hoping that the company's experimental hepatitis C drugs will make it big. Pharmasset closed at $72.67 on Friday, making the $137 offer a mind-boggling 89% premium. It's no wonder investors are scratching their heads on this deal.

Now what: The deal is expected to hurt Gilead's bottom line through 2014 before becoming accretive. While the acquisition represents a smart direction for the company, the price is way too high. Gilead is paying all cash, which is partially financed by debt, for drug candidates that are still in the pipeline in a deal that dilutes earnings. The addressable market could reach $20 billion by 2020, and Gilead will need to grab a good chunk of that to make this deal worth it.

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At the time thisarticle was published Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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