March 22, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Foster City, Calif.-based Gilead Sciences increased profits to 2015 and gained more than 4,930 percent in the last 15 years, but investors aren’t completely happy with the company’s share price, which is down about 10 percent from its starting point in 2015.
Bret Jensen, writing for Seeking Alpha, notes that the company’s shares are only seven times earnings, has a dividend yield of two percent, and as a result, is “one of the cheapest large cap equities in the market.” It also recently had bad news concerning its blood cancer therapy Zydelig, which forced the company to shut down six clinical trials because of adverse events, including deaths.
The company’s fortunes have basically been built on hepatitis C and HIV drugs, accounting for about $30 billion of the company’s annual $32 billion in revenue last year. So most analysts think the company is going to have to jumpstart its revenue by either branching into new areas or by acquiring companies—or both.
That said, some investors think that Gilead’s share prices are pessimistic because it suggests a possible 50 percent decline in its combined HIV and HCV revenues over the next five years. “That seems unlikely,” wrote Jack Hough in Barrons in February, “in part because insurers have been finicky about who is covered for the hep-C drugs, which has created pent-up demand. Gilead has beaten Wall Street’s earnings estimates by double-digit percentages in each of the past four quarters, suggesting analysts have an acute and chronic case of underestimating its performance.”
However, the company did indicate in December that it was in the market for deals. With that in mind, Jenson proposed a couple acquisition targets.
Berkeley, Calif.-based Dynavax Technologies Corp. (DVAX) focuses on infectious diseases, autoimmune and inflammatory diseases, and oncology. The company has a market cap of about $650 million, with almost $200 million in net cash. The companies HEPLISAV-B, a vaccine for hepatitis B, is expected to be approved in the fourth quarter of this year. Jensen predicts it could pull in $600 to $700 million in that market, which is one shared by Gilead.
It also has SD-101 for cancer and an asthma drug in Phase II trials via a partnership with AstraZeneca . SD-101 is a cancer immunotherapy product, which is a particularly hot market these days and currently represents the cutting edge of cancer treatments. It presented positive results from its Phase I/II trial in low-grade lymphoma in December.
Kite Pharma (KITE), headquartered in Santa Monica, Calif., is worth about $3.1 billion and has KTE-C19, a CAR-based immuno-oncology drug in trials for non-Hodgkin’s lymphoma and mantle-cell lymphoma. It has some relatively small collaboration agreements with Roche and Amgen , but Jensen thinks those are manageable. The company’s stock is low at the moment, with a market cap of about $2 billion.
Jensen writes, “I think either or both of these companies would be good strategic pickups for Gilead. Regardless of whether Gilead buys these or other promising concerns, now is the time to strike given the huge downturn in the biotech sector and Gilead’s need to accelerate growth outside of HCV and HIV.”
Arrowhead Research Corporation and Achillion Pharmaceuticals
Other potential markets include Arrowhead Research Corporation (ARWR) and Achillion Pharmaceuticals, Inc. (ACHN). Both companies focus on infectious diseases, and Arrowhead has a hepatitis B drug in a mid-stage pipeline, ARC-520. Achillion has ACH-3102, which, when combined with Gilead’s Sovaldi, has shown 100 percent cure rates in treatment-naïve hepatitis C patients within six to eight weeks of treatment.
TheStreet’s Jim Cramer recently commented on Gilead, saying, “Biotech stocks have been in a bear market. Why is that? Because of the presidential election. We could be talking about BioMarin , about Gilead, talking about Celgene . Gilead has to make an acquisition to be able to jumpstart its business.”
