Gabelli & Company Highlights 6 Potential Gilead Sciences (GILD) Takeover Targets

November 18, 2016 11:27 AM EST
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Following Gilead Sciences' (NASDAQ: GILD) setback with its JAK 1/2 inhibitor momelotinib in myelofibrosis, Gabelli & Company analyst Jing He said she anticipates the company could be interested in buying someone else in oncology or rare disease.

In oncology, the analyst highlighted:

  • Incyte (NASDAQ: INCY) ($19bn), from which it can get Jakafi ($1bn sales) and a strong oncology pipeline
  • Tesaro (NASDAQ: TSRO) $7bn) can give Gilead a good revenue stream as its key drug is expected to be approved in 2017.

He commented: "The company hopes to repeat its success in the acquisition of Pharmasset but we believe the high-quality assets that are big enough to move the needle are simply not cheap. Gilead has repeatedly expressed interest in oncology. Now it only has MMP9 left for gastric cancer in its pipeline, along with a few candidates for blood cancer, which is an extremely competitive market. After today’s setback, we anticipate that Gilead could be interested in buying Incyte (INCY, $19bn), from which it can get Jakafi ($1bn sales) and a strong oncology pipeline. Tesaro (TSRO, $7bn) can give Gilead a good revenue stream as its key drug is expected to be approved in 2017. It is less risky but definitely not cheap."

In rare disease, the analyst highlighted:

  • Alexion (NASDAQ: ALXN) ($28bn)
  • Vertex (NASDAQ: VRTX) ($23bn)
  • BioMarin (NASDAQ: BMRN) $16bn)

He commented, "Acquiring orphan drug companies Alexion (ALXN, $28bn) or Vertex (VRTX, $23bn) is accretive to earnings and can provide some growth, although they are both bigger than what Gilead planned to buy(<1000 people). BioMarin (BMRN, $16bn) should interest Gilead with the right size and a unique orphan drug portfolio, while it may not be accretive right away."

The analyst believes repatriation can expand Gilead’s appetite for deals and increase its willingness to do take more risk. Among the companies mentioned, she said Gilead could be most interested in Incyte, which has an approved drug plus a strong pipeline and looks like “Regeneron lite” ($43bn). Gilead can also just buy Regeneron (NASDAQ REGN), she said.

Alternatively, Gilead can buy a basket of smaller companies with the risk of expanding acquisition multiple and potentially paying higher for the next deal.

Overall, the analyst believes M&A is still a catalyst to expand its multiple and continue to recommend Buy GILD shares with a 2017 PMV of $99 per share.

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