October 5, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Because Gilead Sciences stock has lost about 35 percent of its value since June 15, but still remains a dominant player in hepatitis C (HCV) and HIV, there have been many rumors that someone will buy the company. Or, perhaps, Gilead will buy somebody. Michael Douglass, writing for The Motley Fool, outlines why he doesn’t think anybody’s going to acquire Gilead.
The first point of Douglass’ argument is that he doesn’t believe Gilead management would allow the company to sell for anything lower than its 52-week high of $111.11 per share. And he views that as a bare minimum, which is a 37 percent premium on its current stock price of approximately $81. That would make for a buyout price of about $147 billion. He notes that, in the U.S., at least, the only two companies who could hit that figure would be Johnson & Johnson or Pfizer .
He also notes that, in Europe, most don’t have an overlaps on Gilead’s core areas, so the only likely big player there is GlaxoSmithKline , whose own market cap is about $100 billion, but is otherwise carrying a lot of debt.
Douglass also points out that J&J’s chief executive officer, Alex Gorsky, “has been a little cool to the idea of big acquisitions, noting on the most recent earnings call that ‘the tuck-in strategy, particularly in pharma—or actually, in all of our segments, medical device and consumer, are… where we feel that we can create the most value.’”
And Pfizer has $30 billion in long-term debt. Although its collapsed merger with Allergan was priced at $152 billion, so it’s possible, if it really felt the need for another mega-merger.
Douglass writes, “I think Gilead’s management would only take a deal like the one I outlined above if it becomes convinced of what the market seems to believe—that Gilead’s best days are, in fact, behind it. So far, they have given precisely zero indication of that. As COO Kevin Young recently remarked at a conference, ‘We have no sense of desperation.’”
After all, Gilead still controls about 58 percent of the HIV drug market. One of its HCV drugs, Harvoni, sold $5.58 billion alone in the first half of this year. Granted, that’s down from $7.19 billion in the first half of 2015, which is where a lot of the market jitters seem to be originating from.
And the company’s not just sitting around, waiting for other companies to eat away at its profits. Its drug bictagravir is in four preclinical studies and a Phase I study that had promising results in June. It has the potential to hit the market in 2018, if all goes well. It had two new HIV drugs, Genvoya and Odefsey, approved this spring. And by the end of the year, Gilead is expected to release data from nine clinical trials involving five different drugs in six different diseases. Those diseases include nonalcoholic steatohepatitis (NASH), primary cholangitis (PSC), a chronic liver disease affecting the bile ducts, myelofibrosis, diabetic kidney disease, and ventricular tachycardia.
Douglass’ final points are that a confident Gilead isn’t going to sell for $147 billion, which means it probably won’t sell at all. On the other hand, Gilead has been straightforward on the possibility of acquisitions. He writes, “Gilead is ramping down its share buybacks even as its free cash flow continues to be strong. The company just issued $5 billion in new debt, despite being flush with cash. It doesn’t take a genius to see that they’re likely planning on an acquisition or three.”
Although Douglass doesn’t make suggestions, others have, including Berkeley, California’s Dynavax Technologies Corp , which focuses on infectious diseases, autoimmune and inflammatory diseases, and oncology. Also offered up is Kite Pharma , based in Santa Monica, California, focused on CAR-T immune-oncology, and Juno Therapeutics , also in the immune-oncology market. Also mentioned are Arrowhead Pharmaceuticals and Achillion Pharmaceuticals , both of which focus on infectious diseases.
