M&A

Gilead buy Vertex? A golden oldie in the M&A buzz circuit gets fresh air time

This was the year M&A was supposed to make a big splash in biopharma. But we’ve seen only a few ripples on this pond, and we’re at the halfway mark for the year now.

What better time for Geoffrey Porges, now at Leerink, to revive an old suggestion that Gilead $GILD buy Vertex $VRTX?

Geoffrey Porges, Leerink

Gilead, as we know, has been told by many analysts that it needs to do something big in M&A more times than practically any other deal-hungry company in the industry, including Sanofi $SNY and Biogen $BIIB. It has the money. They’re watching the hep C cash cow start to dry up and CEO John Milligan could pull it off quick, landing a market-leading cystic fibrosis portfolio with a focused pipeline.

Appropriately titling his note “Déjà vu…Why VRTX is still Gilead’s best option,” Porges repeated some old lessons from 2015 and added that Gilead doesn’t have to try and navigate the white water field of oncology buyouts, as it appears intent on.

There is another way, notes Porges:

Gilead’s stock has been the worst performer in biotech this year and faces potentially devastating revenue erosion in 2018. We believe an acquisition of Vertex (VRTX, OP), which we have advocated in the past, would still provide one of the few options for GILD to offset the risks and inevitable erosion of their legacy product franchises. Gilead’s management faces one of the greatest challenges in recent biopharmaceutical industry history, with the concentration of their revenue in two very large, very profitable small molecule antiviral franchises facing intensifying competitive threats. Their lack of progress toward deploying the cash flow from those franchises has become a major frustration to investors, and management’s comments continue to suggest that the company’s focus and interests are away from Vertex, most obviously chasing the flood of capital being deployed into oncology, but we would view an acquisition of a growing and largely de-risked revenue stream, such as Vertex, much more positively than a comparable investment, or set of investments, into the intensely competitive, and technologically uncertain field of oncology.

Milligan has attracted widespread attention and plenty of nodding approval for a comment he made recently, noting that while the buzz is all about tax reform, big changes to healthcare coverage in Washington and so on, a company can only focus on its plan and execute, ignoring the chatter.

So far, that attitude has extended to many analysts’ remarks as well.


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