September 12, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Will Pfizer buy Gilead Sciences ? It would make a great deal of sense, as Sean Williams argues in The Motley Fool. Here’s a look at why.
Williams isn’t the only analyst looking at potential buyers of Gilead. The company is the dominant player in hepatitis C (HCV) drugs, with Sovaldi, Harvoni, and Epclusa, which was fairly recently approved. Sovaldi and Harvoni are also extremely expensive drugs, $84,000 and $94,500, respectively, for 12 weeks of treatment. The company also has a dominant position in the HIV/AIDS market, with drugs like Truvada, Atripla, Complera, and Stribild.
The problem is that, despite the HCV franchise bringing in about $8.3 billion in the first half of this year, and its HIV franchise bringing in about $5.4 billion in the first six months, the company’s stock price has been weak, losing more than 35 percent in value since June 2015.
Williams writes, “Wall Street’s concern centers on the idea that Gilead is no longer a growth company, with recent data helping to back up Wall Street’s claim. Larger gross-to-net discounts offered to insurers have weighed on Gilead’s HCV sales, with blockbuster Harvoni, the second-best-selling drug in the world in 2015, seeing its sales fall to $5.58 billion through the first-half of 2016 from $7.19 billion during the same timeframe last year.”
The company’s oncology pipeline has also had some problems. So if Gilead wants to regain investors’ confidence, there are several pathways. One is good news with a pipeline product, whether in one of their strength areas, HCV and HIV, or with new forays into hepatitis B or nonalcoholic steatohepatitis (NASH). Certainly a NASH success, an area of unmet need, would be a big win.
But most analysts are looking at someone to buy Gilead. After all, it’s a valuable company with a relatively weak market value at the moment.
Williams confidently rules out Johnson & Johnson , Novartis and Amgen . J&J typically doesn’t make large acquisitions, and Novartis and Amgen don’t do much in virology. Both are more focused on oncology, with Amgen also currently pushing a new cardiovascular business.
So Williams looks at Pfizer and Merck . First, Merck, which he believes is unlikely. Both Pfizer and Merck have a focus on virology. He writes, “Gilead’s HCV and HIV franchises would likely be a good fit for both businesses, resulting in immediate cost-savings and bottom-line improvement. More importantly, buying Gilead would give an acquirer access to what’s likely to be $15 billion or more in annual operating cash flow, even with bigger gross-to-net discounts for its HCV franchise.”
But Merck’s acquisition strategy is noted for performing “bolt-on” acquisitions, small- and mid-cap buys that bolster existing portfolios and pipelines.
Pfizer, as it should be clear after its attempts on Allergan and AstraZeneca , isn’t afraid of big buys. In 2003, Pfizer bought Pharmacia for $60 billion, acquired Wyeth for $68 billion in 2009, bought Hospira in 2015 for $16 billion, and just announced the acquisition of Medivation for $14 billion. But Gilead wouldn’t be cheap, despite its currently sagging stock value. It still has a valuation of about $103 billion.
“Pfizer, though,” writes Williams, “could be a perfect suitor for Gilead. Pfizer has a history of going big or going home when it comes to acquisitions…. However, buying Gilead could be a ridiculously smart move for Pfizer, even if Gilead’s growth prospects are a bit uncertain.”
