Gilead Sciences has surprised the markets by agreeing to acquire hepatitis C specialist Pharmasset for a jaw-dropping $11 billion.

Gilead is offering $137 per share in cash, which represents an 89% premium to Pharmasset's closing share price on November 18. It expects the transaction to be dilutive to earnings through 2014 and accretive in 2015 and beyond.

Pharmasset has three candidates for the treatment HCV, headed by PSI-7977, a uracil nucleotide analogue which has recently been advanced into two Phase III studies in genotype 2 and 3 patients and is being studied in combination with ribavirin. PSI-938, a guanosine nucleotide analogue, is being tested in a Phase IIb trial as monotherapy and in combination with PSI-7977, while mericitabine, a cytidine nucleoside analogue, is partnered with Roche and is being evaluated in three Phase IIb trials.

Chief executive John Martin said the acquisition of Pharmasset "represents an important and exciting opportunity to accelerate Gilead's effort to change the treatment paradigm for HCV-infected patients by developing all-oral regimens for the treatment of the disease regardless of viral genotype". The firm says the deal complements Gilead's pipeline which includes "seven unique molecules in various stages of clinical development for the treatment of HCV".

Reaction from analysts has been varied. Joshua Schimmer at Leerink Swann analyst issued a research note said that the Pharmasset HCV franchise is "clearly in the lead with a very attractive clinical profile”. However, he adds that "the price tag is lofty for a pre-commercial asset and not aligned with what we would like to see from Gilead".

Stifel Nicolaus analyst Maged Shenouda told the Associated Press that Gilead could be "the dominant player in a new, non-injectable paradigm for the treatment of hepatitis C". He said "that's the bet, but it's a big bet at $11 billion".

Investors are a bit concerned and Gilead shares ended the day down 9.1%.