Gilead seen expanding through smaller deals – bankers
- Buys to offset possible Hep-C declines
- Vertex plausible large cap target
Gilead Sciences (NASDAQ:GILD), which became a leader in hepatitis C treatment through its acquisition of Pharmasset in 2012, will likely expand its drug portfolio with smaller acquisitions rather than large, transformative deals, two industry bankers said.
The Foster City, California-based company, which sells two major hepatitis C drugs, Sovaldi and Harvoni, appears to be on the acquisition trail to bolster its portfolio.
CEO John Martin said on its 30 April earnings call that “it would be a good time to consider a wide range of things” to expand through deals. “We are open to suggestions,” he said.
Citibank analysts, in a note, said “there is no question that Gilead will likely undertake M&A to further acquire future growth.”
One industry banker, who has worked on several deals involving Gilead, said he expects Gilead to pursue smaller deals because “you don’t need a big deal to get value.” He called the company “very disciplined” in extracting suitable purchase prices at a time when biotech assets can be “very overvalued”.
In 2011, Gilead acquired Pharmasset for USD 10.3bn in its largest deal to date, which formed the basis of its highly successful hepatitis C franchise, which includes Sovaldi and its successor drug Harvoni. It purchased Triangle Pharmaceuticals in 2003 for USD 464m, boosting its franchise for HIV and hepatitis B drugs.
Gilead generated 1Q revenue of USD 7.6bn, up 52% from 1Q14, largely on the success of Harvoni, a Hep-C treatment that was approved in October 2014 and rocketed up to post USD 3bn in sales in the first quarter.
Gilead reported cash and cash equivalents of USD 14.5bn at quarter end, up from USD 11.7bn a year ago.
A second industry banker said Gilead has various options for its ballooning cash pile including expanding dividends or share buybacks. In February, the company authorized a USD 15bn share buyback program, adding to a previous USD 5bn buyback, of which USD 3bn was unused.
But the second banker said Gilead will “most likely” lean towards acquisitions, including in liver treatments and viral diseases like hepatitis B, which is still poorly treated.
Both bankers agreed that it is plausible that Vertex Pharmaceuticals (NASDAQ:VRTX), which has a market value of USD 30.5bn, could be on Gilead’s radar screen. Vertex is a major player in the treatments for cystic fibrosis.
But both said smaller deals are more likely. Gilead has made several such deals recently, including buying EpiTherapeutics, a cancer drug developer, for USD 65m, announced 6 May.
One Gilead investor said he thinks Gilead needs to make acquisitions because its hepatitis C franchise “is probably going to peak this year and they will have to fill in the gap.” The company is facing growing hepatitis C competition from Abbvie (NYSE:ABBV) and an expected challenge from Merck (NYSE:MRK).
The investor said he would “rather see them doing a number of smaller deals rather than a big one” because larger mergers are a major distraction for management in terms of integrating staff and combining resources.
Citibank analysts said plausible Gilead acquisition candidates could include Intercept (NASDAQ:ICPT), which has long been rumored to be on Gilead’s radar screen because both companies are developing treatments for NASH, or nonalcoholic steatohepatitis, which can lead to liver failure. The company has a market value of USD 6.3bn, well within Gilead’s purchasing power.
But Gilead has already bolstered its NASH program with the January purchase of Phenex Pharmaceutical’s NASH assets in a deal worth up to USD 470m.
Other possible Gilead acquisition candidates cited by Citibank analysts include Clovis Oncology (NASDAQ:CLVS), Medivation(NASDAQ:MDVN) and Tesaro (NASDAQ:TSRO), all of which specialize in oncology drug development.
A spokesperson for Gilead declined to comment.
The Foster City, California-based company, which sells two major hepatitis C drugs, Sovaldi and Harvoni, appears to be on the acquisition trail to bolster its portfolio.
CEO John Martin said on its 30 April earnings call that “it would be a good time to consider a wide range of things” to expand through deals. “We are open to suggestions,” he said.
Citibank analysts, in a note, said “there is no question that Gilead will likely undertake M&A to further acquire future growth.”
One industry banker, who has worked on several deals involving Gilead, said he expects Gilead to pursue smaller deals because “you don’t need a big deal to get value.” He called the company “very disciplined” in extracting suitable purchase prices at a time when biotech assets can be “very overvalued”.
In 2011, Gilead acquired Pharmasset for USD 10.3bn in its largest deal to date, which formed the basis of its highly successful hepatitis C franchise, which includes Sovaldi and its successor drug Harvoni. It purchased Triangle Pharmaceuticals in 2003 for USD 464m, boosting its franchise for HIV and hepatitis B drugs.
Gilead generated 1Q revenue of USD 7.6bn, up 52% from 1Q14, largely on the success of Harvoni, a Hep-C treatment that was approved in October 2014 and rocketed up to post USD 3bn in sales in the first quarter.
Gilead reported cash and cash equivalents of USD 14.5bn at quarter end, up from USD 11.7bn a year ago.
A second industry banker said Gilead has various options for its ballooning cash pile including expanding dividends or share buybacks. In February, the company authorized a USD 15bn share buyback program, adding to a previous USD 5bn buyback, of which USD 3bn was unused.
But the second banker said Gilead will “most likely” lean towards acquisitions, including in liver treatments and viral diseases like hepatitis B, which is still poorly treated.
Both bankers agreed that it is plausible that Vertex Pharmaceuticals (NASDAQ:VRTX), which has a market value of USD 30.5bn, could be on Gilead’s radar screen. Vertex is a major player in the treatments for cystic fibrosis.
But both said smaller deals are more likely. Gilead has made several such deals recently, including buying EpiTherapeutics, a cancer drug developer, for USD 65m, announced 6 May.
One Gilead investor said he thinks Gilead needs to make acquisitions because its hepatitis C franchise “is probably going to peak this year and they will have to fill in the gap.” The company is facing growing hepatitis C competition from Abbvie (NYSE:ABBV) and an expected challenge from Merck (NYSE:MRK).
The investor said he would “rather see them doing a number of smaller deals rather than a big one” because larger mergers are a major distraction for management in terms of integrating staff and combining resources.
Citibank analysts said plausible Gilead acquisition candidates could include Intercept (NASDAQ:ICPT), which has long been rumored to be on Gilead’s radar screen because both companies are developing treatments for NASH, or nonalcoholic steatohepatitis, which can lead to liver failure. The company has a market value of USD 6.3bn, well within Gilead’s purchasing power.
But Gilead has already bolstered its NASH program with the January purchase of Phenex Pharmaceutical’s NASH assets in a deal worth up to USD 470m.
Other possible Gilead acquisition candidates cited by Citibank analysts include Clovis Oncology (NASDAQ:CLVS), Medivation(NASDAQ:MDVN) and Tesaro (NASDAQ:TSRO), all of which specialize in oncology drug development.
A spokesperson for Gilead declined to comment.