As hep C revenue disintegrates, pressure keeps growing on Gilead to do deals

Gilead CEO John Milligan

Gilead’s hep C business is getting shredded by growing competition and discount prices. Next year the company expects to see its $14.8 billion in 2016 hep C revenue melt down to $7.5 billion to $9 billion. And the rapid disintegration is building pressure on the big biotech to finally get down to business and use its considerable financial reserves for some M&A and major dealmaking.

Of course, that’s been said before. Analysts have been urging Gilead to get ambitious on the business development side of things for the past two years. 2017, though, may prove to be a year that Gilead’s path to whipping up some excitement for its future lies almost solely in new acquisitions.

CEO John Milligan, though, insists he isn’t going to rush out and grab something.

“We feel very good about our cash flow for the future,” he told analysts in Tuesday evening’s call with analysts. “I think it’s still for us a desire and a need to have a right strategic fit for the company. That is the driver for why and when we do any mergers or acquisitions or partnerships, much more so than the need for cash flow, because we feel very comfortable about where we are.”

But, asked Mark Schoenebaum, can you grow the company now without an acquisition?

“We are facing some headwinds in 2018 and beyond on other patent expiries we’ll have, including the U.S. patent for TDF. We’ll also have patents on Letairis and the following year Ranexa. So that puts some downward pressure on that non-HCV revenue base and so that makes it challenging for us to grow without some sort of acquisition in those areas.”

Gilead CFO Robin Washington added:

“I think we’ve been fairly thoughtful particularly dealing with the rating agencies and in thinking about debt levels that we feel very comfortable that we can support acquisitions and increase our debt to EBITDA. Most importantly because given our cash flows, which we expect to continue for a very long time, we can easily deliver over time with our existing therapeutic area franchises. And this is totally exclusive of any potential tax changes, or particularly if there were repatriation. That would make all that even simpler. So we feel comfortable that from an asset standpoint that we could support any type of acquisition that we’d need to do to support Gilead’s growth.”

But don’t look for any dramatic move like a company split.


“We’re not considering splitting up the company,” he said in reply to the suggestion. “And while it looks good in the world of Wall Street from a multiples perspective, I think it’s an economically and financially a bad idea for the company. So we are committed to growing the company. We’re committed to our field of NASH. We’re committed to growing that HIV field. And we are going to continue to accelerate our pipeline through acquisitions and whatnot over the course of the year.

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