Inorganic growth strategy
Gilead Sciences (GILD) witnessed falling revenues in the past few quarters. Its growth is expected to be revived through new products and mergers and acquisitions. The company followed a strong inorganic growth strategy over the years. Gilead Sciences made some key acquisitions that helped it augment its product pipeline and gain a strong market position. With the $11 billion acquisition of Pharmasset in 2011, Gilead Sciences established its leadership in the HCV (Hepatitis C) market. However, Gilead Sciences might focus more on small tuck-in acquisitions rather than a big deal. The company expects to register acquisition-related expenses of $915 million–$945 million for fiscal 2016.
On September 15, 2016, Gilead Sciences announced a debt offering of $5 billion. As a result, the company is expected to have around $29.5 billion in cash. Brian Abrahams from Jefferies commented on the deal. He said, “We continue to expect several small to medium-sized deals focused on oncology, liver disease, fibrosis, and rheumatology, though we would not rule out GILD moving into a new field such as orphan diseases.”
On April 4, 2016, Gilead Sciences announced the acquisition of Nimbus Apollo, a subsidiary of Nimbus Therapeutics, for an upfront payment of $400 million and $800 million of milestone-based payment. The acquisition was a strategic move to accelerate the company’s efforts towards capturing the opportunity in the attractive NASH market. According to WebMD, “Nonalcoholic steatohepatitis (or NASH) is liver inflammation and damage caused by a buildup of fat in the liver.” The company’s Nimbus Apollo program is key to the acquisition. It includes the lead compound NDI-010976 and other preclinical ACC (Acetyl-CoA Carboxylase) inhibitors under research for the treatment of NASH and other diseases. In February 2016, NDI-010976 received fast track designation by the FDA. Currently, the major players in the liver space include Merck (MRK), Abbvie (ABBV) and Bristo-Myers Squibb (BMY). Investors can consider the iShares Russell 1000 Growth ETF (IWF) for exposure to Gilead Sciences. IWF holds ~1.0% of its total holdings in Gilead Sciences. For more on Gilead Sciences’ involvement in NASH space, read Inside Gilead Sciences’ Active Involvement in Drugs for NASH.
In 2015, Gilead Sciences acquired EpiTherapeutics for $65 million. The acquisition led the way for the company’s entry into epigenetics. According to MedicineNet.com, Epigenetics is “Something that affects a cell, organ or individual without directly affecting its DNA. An epigenetic change may indirectly influence the expression of the genome.”
Next, we’ll look at the company’s performance expectations in fiscal 2016.