Analysts Speculate on Whether Gilead Could and Should Acquire Bristol-Myers Squibb

August 27, 2015
By Mark Terry, BioSpace.com Breaking News Staff

Analysts are again speculating on what company Foster City, Calif.-based Gilead Sciences, Inc. should buy. This time, Bidness Etc. reports on Bloomberg Intelligence analyst Asthika Goonewardene’s argument that Gilead should — or could — buy Bristol-Myers Squibb Company .

Only last week Bidness Etc speculated that Gilead might want to acquire New Haven, Conn.-based Achillion Pharmaceuticals, Inc. .

The arguments are that Gilead is in the market for a strategic acquisition. Approximately 95 percent of Gilead’s revenue is created by hepatitis C (HCV) drugs Sovaldi and Harvoni. At the company’s second quarter financial filing it reported $8.244 billion in revenue for the quarter, up from $6.535 billion in the second quarter of 2014. Six-month numbers were $15.838 billion in 2015, up from $11.534 billion in 2014.

Although these drugs are doing very well, they are expected to slow down, particularly because those two drugs are so expensive, selling for approximately $1,000 per pill and close to $90,000 for a course of treatment. However, as pointed out in a July 27 Estimize blog, “Despite the potential negatives associated with falling revenue growth, Gilead is in a very strong position in terms of its balance sheet. Gilead has the ability to use its balance sheet to its advantage and potentially acquire desirable businesses in an attempt to bolster growth over the coming years. However, Gilead’s management have informed the market that they will not rush into a transaction and pay too much to acquire another company.”

Gilead has about $17.80 billion in free cash and is expected to have $16.30 billion this year and $17 billion in fiscal year 2016, and projected $16.80 billion in 2017. Total debt is about $12.3 billion. Goonewardene analyzed that debt load and believes it can easily fund an acquisition of Bristol-Myers Squibb.

But why?

Bristol-Myers Squibb is focused on the currently hot field of immune-oncology with a strong presence in the oncology market. Analysts with Leerink Partners project that immune-oncology could generate sales of $40 billion by 2025. A particular focus for immune-oncology are PD-1 and PD-L1 inhibitors. Numerous companies working on this area include Amgen and Merck & Co. , Pfizer Inc. , Syndax Pharmaceuticals Inc., and Genentech . And, of course, Bristol-Myers Squibb, which has a deal with Bavarian Nordic A/S . It also is planning a Phase II study of Bavarian Nordic’s Prostvac with Bristol-Myer’s Yervoy, a PD-1 inhibitor.

Gilead, in addition to Hepatitis C, has been working to enter into the oncology market. The U.S. Food and Drug Administration (FDA) approved Zydelig in July 2014 for the treatment of follicular lylmphoma in patients who relapsed after receiving Roche ’s Rituxan. It also has four cancer drugs in Phase III trials, with three others in Phase II trials and four in Phase I trials.

Although Gilead has pushed into oncology and other areas, to date it hasn’t had as much success there as in the HCV field. The company launched Zydelig in the U.S. in 2014 to treat chronic lymphocytic leukemia (CLL), but hasn’t carved out much of a market. As reported in Market Realist, “A muted patient response to other innovative drugs in new therapeutic areas could lead to loss of investment for Gilead Sciences.”

A deal with Bristol-Myers Squibb would definitely strengthen its position in the oncology market. But will Gilead go that way? Only time will tell. Meanwhile, analysts also offer other targets for Gilead, including Vertex Pharmaceuticals , Intercept Pharmaceuticals , Incyte Corporation , and Biogen, Inc..