A Look at Who Could Buy Gilead (GILD) and Who Gilead Should Buy
7/21/2016 6:58:30 AM
Gilead: A Sweet Acquisition Target or a Buyer Itself
July 21, 2016
By Mark Terry,
BioSpace.com Breaking News Staff
At least since March, and probably much longer, investors have been urging Foster City, California-based Gilead Sciences (GILD) to make an acquisition or two to bolster the company’s value. Which is perhaps a little ironic, given that over the last 15 years the company has gained more than 4,930 percent. But since it’s basically built on hepatitis C and HIV drugs, most analysts think the company needs an acquisition to jumpstart is revenue by branching into new areas or by acquiring companies—or both.
Ken Kam, a contributor to Forbes, sat down with Todd Hagopian, who founded a biotech fund, Marketocracy, in March, 2011. He’s averaged 28.12 percent returns ever since, dramatically better than the S&P 500’s 11.87 percent over the same period. In addition to a general discussion about the biotech market, Hagopian provided some interesting thoughts about who might consider buying Gilead, or who Gilead might buy.
The biggest revelation is Hagopian’s idea that Merck & Co. (MRK) should consider buying Gilead. The company hasn’t made any particularly large acquisitions lately, but he thinks they should. “They are suffering from an extremely low growth rate,” Hagopian told Forbes, “and they need to target something dramatic to convince the market they deserve their current valuation levels.”
Merck slipped into the hepatitis C market when it acquired Idenix Pharmaceuticals (IDIX) in 2014 for $3.85 billion, but then got stomped on by Gilead. But Hagopian says, “Merck likely got a taste for how longer, and how profitable the market for hepatitis is at this point. By combining their own pipeline with Gilead’s, along with expanding into the hepatitis B market that Gilead is pursuing, this is the type of game-changing acquisition that Merck needs.”
He suspects an acquisition of Gilead would require about $150 billion, which would “still be a bargain deal for Merck. Gilead generates over $10 billion per year in free cash flow and is trading at only 6x 2018 earnings, which makes the company one of the best bargains in the biotech field.”
On the other hand, if Gilead doesn’t get gobbled up by someone, Hagopian thinks Gilead should buy somebody.
Back in March, Bret Jensen, writing for Seeking Alpha, also had a couple suggestions should Gilead open its wallet and go shopping. First up was Berkeley, California’s Dynavax Technologies Corp (DVAX). The company focuses on infectious diseases, autoimmune and inflammatory diseases, and oncology. It has a market cap of about $650 million, and its HEPLISAV-B vaccine for hepatitis B is expecting approval by the end of this year.
Jensen also threw out Kite Pharma (KITE), which is based in Santa Monica, California. The company is leading the charge in CAR-T immuno-oncology, although its stock struggled recently when competitor Juno Therapeutics (JUNO) ran into trouble when its own CAR-T trial of JCAR015 was placed on a clinical hold after three patient deaths. Investors were concerned, as they probably should be, that CAR-T therapy isn’t yet ready for prime time and is too dangerous for FDA approval.
Kite is actually Hagopian’s first choice for Gilead to buy. He writes, “Due to Juno’s stumble, Kite is poised to be the first CAR-T competitor to the market, potentially years in front of its next competitor, which will allow them to become the Gilead of this particular aggressive new oncology market. Kite would likely cost just over $3 billion to acquire.”
Hagopian also brings up Medivation (MDVN) as a potential target for Gilead. Medivation is currently being pursued in a hostile takeover bid by Paris-based Sanofi (SNY). Medivation’s prostate cancer drug Xtandi is well on its way to blockbuster status and is of interest to just about any company in the oncology market. But Sanofi isn’t the only company interested. Pfizer (PFE), Celgene (CELG) and possibly AstraZeneca (AZN) have also shown an interest in Medivation.
Jensen also offered up Arrowhead Research Corporation (ARWR) and Achillion Pharmaceuticals (ACHN) as possible Gilead acquisitions. Both focus on infectious disease, and Arrowhead has a hepatitis B drug in a mid-stage pipeline, ARC-520.
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