March 30, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Both Summit, N.J.-based Celgene Corporation and Forest City, Calif.-based Gilead are companies investors and analysts are keeping an eye on, but some analysts wonder if Celgene might be an acquisition target for Gilead.
Celgene recently reported its 2016 financial outlook and preliminary 2015 financials, with projected net product sales this year of $10.5 billion to $11 billion, a 17 percent increase year-over-year. Its multiple myeloma drug, Revlimid, is projected to have sales of $6.6 to $6.7 billion. In 2014, the drug accounted for 65 percent of the company’s sales.
The company has opportunities for international growth, recently inked a deal with Indian drug company Natco and its U.S. partner Arrow, owned by Allergan , to manufacture generic Revlimid ahead of the 2027 patent expiration starting with limited quantities in 2022. It also has some drugs for inflammatory diseases like psoriasis and Crohn’s disease that have projected revenue of $21 billion by 2020.
Gilead is best known for its hepatitis C treatments, Harvoni and Sovaldi. The company would like to expand into the oncology market, which an acquisition of Celgene would help it do.
Gilead is a company with an astonishing history, with shares gaining more than 4,930 percent in the last 15 years, but investors aren’t happy that its share price is down about 10 percent from its starting point in 2015. As a result, many investors and analysts are urging the company to acquire a company, especially in the oncology market, to bolster its earnings.
Writing for Seeking Alpha, Jonathan Weber says, “Celgene is a major player in oncology, with an established franchise, a huge pipeline, a great growth outlook, and, lastly, the company is very profitable and cash flow positive. In other words, Celgene offers everything Gilead could be looking for in an acquisition.”
He also notes that Gilead has options on how it might make such a sale. One is an all-stock deal. “Nevertheless,” Weber writes, “I believe such a move wouldn’t be great for shareholders, as this would vastly dilute the company’s share count and, due to Celgene’s higher multiples, this would mean a decline for the company’s earnings per share.”
Another option is an all-cash deal. Gilead had $26.2 billion in cash at the end of 2015 and Celgene had $6.5 billion. Weber suggests a deal could go up to $30 billion in cash in order to keep some in reserve after the deal. “When we, again, assume a 50 percent premium for the takeover, Celgene would cost $115 billion. With $30 billion in available cash, Gilead would have to take on $85 billion in additional debt.” This is something Gilead’s last bond offering indicates it could do at low rates. It would also likely be able to repay that debt in five years if it increased its dividend each year by 10 percent.
That said, other targets have been suggested, including Berkeley, Calif-based Dynavax Technologies Corp. , Santa Monica, Calif.-based Kite Pharma , and Arrowhead Research Corporation (ARWR) and Achillion Pharmaceuticals, Inc.
Dynavax focuses on infectious diseases, autoimmune and inflammatory diseases, and oncology. Kite focuses on CAR-based immuno-oncology drugs. Arrowhead And Achillion both focus on infectious diseases.
