Corrected: Gilead could have had Pharmasset cheap

Wed Nov 23, 2011 2:38pm EST

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(Reuters) - Investors in Gilead Sciences Inc (GILD.O) may believe the company is paying too much to buy Pharmasset Inc VRUS.O at $11 billion. Emory University researcher Raymond Schinazi, who founded Pharmasset, knows by just how much.

"They could have had the company for $300 million or less in 2004. Somebody made a huge mistake," Schinazi said in a telephone interview a day after the big deal was announced.

Schinazi, 61, is the largest individual shareholder of Pharmasset and saw the value of his own 4 percent stake leap to more than $440 million. The biotech is developing a hepatitis C treatment considered so promising that Gilead agreed to an 89 percent premium over Pharmasset's already soaring stock price.

Schinazi said he was surprised that Gilead, the world's largest maker of HIV drugs and a company well-versed in antiviral treatments, did not recognize what Pharmasset was offering when it solicited offers back in 2004.

"Now they paid the premium. Of course, now the risk has been reduced significantly," he said of the drug that has demonstrated impressive results in clinical trials.

Schinazi, who was chairman of the board at the time, did conclude a hepatitis collaboration deal with Roche (ROG.VX) that year that included an upfront payment and potential milestones worth up to $168 million.

Something of a one-man bridge between the worlds of academic and commercial science, Schinazi is a director of the Emory University Center for AIDS Research and a star in the world of HIV research and treatment. He has also founded five companies developing treatments for viral diseases such as AIDS, hepatitis and herpes.

"I coined that name," Schinazi said of Pharmasset. "It's actually 'pharmaceutical assets' and the idea was to create assets that would be sold to companies. That was the initial business plan."

He has not been involved in running Pharmasset since 2006 and had no part in the Gilead deal announced on Monday. But he was chairman of the board and led its chemistry group when the molecule that led to the hepatitis treatment was discovered.

A PAST SALE TO GILEAD

Schinazi has had past dealings with Gilead.

He co-founded Triangle Pharmaceuticals, which developed drugs for HIV and hepatitis B and sold it to Gilead in 2003 for $464 million -- a 33 percent premium at the time.

He and fellow scientists at the Atlanta university also developed Emtriva, one of the first blockbuster medicines to treat the virus that causes AIDS and a key part of the widely used combination HIV drugs Truvada and Atripla sold by Gilead.

It is estimated that more than 90 percent of HIV-infected patients take at least one of the drugs that have come out of Schinazi's labs, according to Emory University.

In addition to buying Triangle, Gilead paid Emory $540 million for the sale of future royalties on Emtriva, known chemically as emtricitabine, some $200 million of which was split by Schinazi and co-developers Dennis Liotta Woo-Baeg Choi.

"They have come back to the well every time," Schinazi said of Gilead. "Some people are joking and say 'they should just hire you.'"

Gilead representatives were not immediately available for comment.

Schinazi, who received his undergraduate and doctorate degrees in chemistry from the University of Bath in England, used some of that Emtriva money to found RFS Pharma, which bears his initials.

He was also a principal founder of Idenix Pharmaceuticals Inc IDIX.O, which includes Swiss drugmaker Novartis AG (NOVN.VX) among its investors and he founded Active Biotics Pharma.

Schinazi believes Idenix has very promising assets in its developmental pipeline, including hepatitis treatments, and is currently undervalued.

"The companies that I'm creating hopefully become the next Pharmassets," he said.

He named Merck & Co Inc (MRK.N), Boehringer Ingelheim, Johnson & Johnson (JNJ.N) and Vertex Pharmaceuticals Inc (VRTX.O) as potential future suitors. Schinazi said he is no longer an Idenix insider and not privy to any negotiations.

Schinazi has traveled an unusual path to wealth. Born in Alexandria, Egypt to Italian Jews, Schinazi's family was forced to leave Egypt in the early 1960s and move to a refugee camp in Italy, leaving everything behind.

"My parents suffered a lot," he said.

The Pharmasset sale has made an already wealthy researcher, long past having to grovel for grant money, even richer.

Schinazi says his companies and the lab at Emory are at the forefront of efforts to eradicate hepatitis B, hepatitis C and AIDS. He believes Pharmasset the drug can wipe out hepatitis C and save millions of people from liver transplants and cancer.

"The philosophy is very simple. Good drugs save lives and a major side effect is they can also make you rich," he added.

(Reporting by Bill Berkrot; editing by Michele Gershberg and Andre Grenon)

(This story is corrected to delete incorrect references to Idenix going public this month and to Liotta as co-founder of Triangle)

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