San Francisco Chronicle - Thursday, December 5, 2002
Bernadette Tansey, Chronicle Staff Writer

Gilead, which turned profitable this year on sales of its anti-HIV drug Viread, plans to acquire Triangle Pharmaceuticals Inc., which is developing experimental drugs for both HIV and hepatitis B.

The main draw for Gilead was Triangle's experimental HIV treatment Coviracil, said Mark Perry, Gilead's executive vice president for operations. Coviracil was submitted to the Food and Drug Administration in September for regulatory approval as an HIV drug. It also is in late-stage clinical trials as a remedy for chronic hepatitis B.

Gilead hopes to launch Coviracil as a stand-alone HIV product in 2003, followed by a possible joint formulation of the compound with Viread by 2005.

In turn, Perry said, the small Durham firm can bypass the need to raise capital for a commercial sales operation by joining forces with an established partner.

"This gives them an opportunity to work with someone who's been successful in both markets -- HIV and hepatitis B," Perry said.

The deal also bolsters both companies in head-to-head competition with two pharmaceutical giants, GlaxoSmithKline and Bristol Meyers, which control 80 percent of the HIV drug market, Perry said.

In a staged acquisition of Triangle stock, Gilead will offer shareholders $6 per share -- a 33 percent premium over the stock's closing price of $4.50 on Tuesday. Pending approval by federal antitrust regulators, the two companies expect the deal to close by mid-2003.

In addition to spending much of its $625 million in cash on the purchase, Gilead will extend $50 million in working capital to Triangle and might later forgive $30 million of the loan. Gilead officials said the acquisition will cut into 2003 earnings, but it is expected to boost profits by 2005 and afterward.

Gilead has six products on the market, including the HIV treatment Viread and the chronic hepatitis B treatment Hepsera. But it had only one candidate in its experimental pipeline to fuel future growth -- another potential HIV drug.

The Triangle acquisition adds not only Coviracil but also two other experimental antivirals to Gilead's pipeline.

Gilead shares gained 73 cents, or 1.98 percent, to close at $37.61. Triangle shares shot up 29.28 percent, closing up $1.32 at $5.82. That made the 130-employee firm a leading market gainer on a day when biotech stocks overall were down slightly.

Prudential Securities analyst John Sonnier raised his target price for Gilead stock from $46 to $49 on the news. In a research note, Sonnier said the Triangle acquisition could bring Gilead "multiple new product launches through 2005."

"We view Gilead's pending merger with Triangle Pharmaceuticals as a strong positive strategic move to fill (Gilead's) pipeline with late-stage product that complements (Gilead's) drug development and marketing strengths," Sonnier said. According to company disclosures, Sonnier owns no stock in either biotech firm, but Prudential makes a market in Gilead stock.

E-mail Bernadette Tansey at btansey@sfchronicle.com.

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