Gilead: To Split or Not to Split...

Gilead: To Split or Not to Split... January 12, 2017
By Alex Keown, BioSpace.com Breaking News Staff

FOSTER CITY, Calif. – Analysts have been arguing over the future of Gilead Sciences for the better part of a year in the faces of sliding sales in hepatitis C treatments and the company’s falling stock prices. Some analysts suggest the company flex its M&A muscle to grow, but Anthony Ruben has another idea–break up.

Writing in Seeking Alpha, Ruben said Gilead’s best solution is to split the company into two different businesses, with one focused on the hepatitis market and the other focused on its HIV franchise as well as other R&D areas. Ruben said he is not the only one to make this suggestion. In August 2016, RBC Capital suggested the company should split into two units. At the time, RBC said the value of shares could jump by about 40 percent if Gilead Sciences did split.

“…to me the best way to maximize shareholder value would be through a separation of the declining, but still highly profitable, Hep C franchise from everything else,” Ruben said in his column. “I would not be surprised if this "sum of the parts" would drive a 50 percent to 100 percent premium over the current $75 stock price. M&A is, on balance, value destroying, and GILD appears poised to 'force' deals which increases the odds of overpaying and failure.”

Ruben added that if the company does split, they could also become attractive targets for acquisition, which could result in shareholder gain.

As hepatitis C revenues continue to fall (largely due to the efficacy of Gilead’s treatments) Ruben said he expects to see shareholders begin to call for a company split. Sales of Harvoni and Sovaldi, which have generated enormous amounts of revenue for the company, have been declining rapidly. In the first nine months of 2016, Gilead's sales from the two drugs dropped more than $3.3 billion, Keith Speights wrote in a December Motley Fool report.

Shares of Gilead are currently trading at $73.26. Over the course of 2016, the stock lost about 29 percent of its value. But while these calls for the company to split are being made, most industry analysts and investors expect the company will make a strategic acquisition. Investors believe the company will reinvigorate its pipeline and revenue stream by using its reserves of more than $30 billion to acquire products or companies that will expand its pipeline. Earlier this month, the company hired Alessandro Riva to head up its hematology and oncology division. Investors hope that hiring the former Novartis executive is an indication it plans to begin to move forward with an acquisition to bolster that pipeline.

Ruben noted that M&A activity is not always successful and could ultimately hurt

As 2017 is already underway, investors wait with bated breath to see what Gilead Sciences does to increase shareholder value.

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